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, 2020~~March 31, 2021


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

For the transition period from ______ to ______

Commission ~~File Number:~~file number: 001-34028

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)


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

1 Water Street, Camden, NJ 08102-1658

(Address of principal executive offices) (Zip Code)

(856) 955-4001

(Registrant’s telephone number, including area code)

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

Title of ~~Each Class~~each class

Trading Symbol

Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered

Common stock, par value $0.01 per share

AWK

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

Class

Shares Outstanding as of ~~October 28, 2020~~April 27, 2021

Common Stock, ~~$0.01~~ par value $0.01 per share

~~181,271,995~~181,469,196

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* * *

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

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FORWARD-LOOKING STATEMENTS

Statements included in Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words with prospective meanings such as “intend,” “plan,” “estimate,” “believe,” “anticipate,” “expect,” “predict,” “project,” “propose,” “assume,” “forecast,” “likely,”�� “uncertain,” “outlook,” “future,” “pending,” “goal,” “objective,” “potential,” “continue,” “seek to,” “may,” “can,” “should,” “will” and “could” or the negative of such terms or other variations or similar expressions. Forward-looking statements may relate to, among other things: the Company’s future financial performance, liquidity and cash flows; rate and revenue adjustments, including through general rate case filings, filings for infrastructure surcharges and other governmental agency authorizations and filings to address regulatory lag; growth and portfolio optimization strategies, including the timing and outcome of pending or future acquisition activity, the completion of the announced sale of the Company’s New York subsidiary and the amount of proceeds anticipated to be received therefrom; the ability of the Company’s California subsidiary to obtain adequate alternative water supplies in lieu of diversions from the Carmel ~~River;~~River and to comply with certain regulatory orders and interpretations thereof with respect to such diversions; the amount and allocation of projected capital expenditures and related funding requirements; the Company’s ability to repay or refinance debt; the ability to execute its current and long-term business, operational and capital expenditures strategies; its ability to finance current operations, capital expenditures and growth initiatives by accessing the debt and equity capital markets; the outcome and impact on the Company of ~~legal and similar~~ governmental and regulatory investigations and proceedings and related potential fines, penalties and other sanctions; the ability to complete, and the timing and efficacy of, the design, development, implementation and improvement of technology and other strategic initiatives; the impacts to the Company of the current pandemic health event resulting from the novel coronavirus (“COVID-19”); the ability to capitalize on existing or future utility privatization opportunities; trends in the 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 ~~projected~~ impacts that ~~the Tax Cuts and Jobs Act (the “TCJA”) or other~~ future significant tax legislation may have on the Company and on its business, results of operations, cash flows and liquidity.

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

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

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

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

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

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

•changes in laws, governmental regulations and policies, including with respect to environmental, health and safety, consumer and data privacy, water quality and water quality accountability, contaminants of emerging ~~contaminants,~~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;

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

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

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

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

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

•changes in the Company’s capital requirements;

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

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

•the Company’s ability to obtain adequate and cost-effective supplies of equipment (including personal protective equipment), chemicals, electricity, fuel, water and other raw materials;

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

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

•entering into contracts and other agreements with, or otherwise obtaining, new customers or partnerships in the Market-Based Businesses; and

•realizing anticipated benefits and synergies from new acquisitions;

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

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

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

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

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

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

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

•fluctuations in interest rates;

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

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

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

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

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

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

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

•labor actions, including work stoppages and strikes;

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

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

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

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These forward-looking statements are qualified by, and should be read together with, the risks and uncertainties set forth above, and the risk factors and other statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the “Form 10-K”) and in this Form 10-Q, and readers should refer to such risks, uncertainties and risk factors in evaluating such forward-looking statements. Any forward-looking statements the Company makes shall speak only as of the date this Form 10-Q was filed with the U.S. Securities and Exchange Commission (“SEC”). Except as required by the federal securities laws, the Company does not have any obligation, and it specifically disclaims any undertaking or intention, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on the Company’s businesses, either viewed independently or together, or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing factors should not be construed as exhaustive.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Property, plant and equipment	Property, plant and equipment	$	25,133	$	23,941	Property, plant and equipment	$	25,934	$	25,614
Accumulated depreciation	Accumulated depreciation	(5,866)		(5,709)		Accumulated depreciation	(6,029)		(5,904)
Property, plant and equipment, net	Property, plant and equipment, net	19,267		18,232		Property, plant and equipment, net	19,905		19,710
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	560		60		Cash and cash equivalents	69		547
Restricted funds	Restricted funds	39		31		Restricted funds	30		29
Accounts receivable, net of allowance for uncollectible accounts of $52 and $41, respectively		358		294
Accounts receivable, net of allowance for uncollectible accounts of $67 and $60, respectively						Accounts receivable, net of allowance for uncollectible accounts of $67 and $60, respectively	274		321
Unbilled revenues	Unbilled revenues	201		172		Unbilled revenues	219		206
Materials and supplies	Materials and supplies	49		44		Materials and supplies	52		47
Assets held for sale	Assets held for sale	618		566		Assets held for sale	654		629
Other	Other	142		118		Other	168		127
Total current assets	Total current assets	1,967		1,285		Total current assets	1,466		1,906
Regulatory and other long-term assets:	Regulatory and other long-term assets:					Regulatory and other long-term assets:
Regulatory assets	Regulatory assets	1,144		1,128		Regulatory assets	1,127		1,127
Operating lease right-of-use assets	Operating lease right-of-use assets	97		103		Operating lease right-of-use assets	98		95
Goodwill	Goodwill	1,504		1,501		Goodwill	1,511		1,504
Postretirement benefit assets	Postretirement benefit assets	155		159		Postretirement benefit assets	167		173
Intangible assets	Intangible assets	58		67		Intangible assets	52		55
Other	Other	202		207		Other	199		196
Total regulatory and other long-term assets	Total regulatory and other long-term assets	3,160		3,165		Total regulatory and other long-term assets	3,154		3,150
Total assets	Total assets	$	24,394	$	22,682	Total assets	$	24,525	$	24,766

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

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)

September 30, 2020 December 31, 2019
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,437,589 and 185,903,727 shares issued, respectively) $ 2 $ 2
Paid-in-capital 6,739 6,700
Retained earnings (accumulated deficit) 157 (207)
Accumulated other comprehensive loss (38) (36)
Treasury stock, at cost (5,168,086 and 5,090,855 shares, respectively) (348) (338)
Total common shareholders' equity 6,512 6,121
Long-term debt 9,580 8,639
Redeemable preferred stock at redemption value 4 5
Total long-term debt 9,584 8,644
Total capitalization 16,096 14,765
Current liabilities:
Short-term debt 1,044 786
Current portion of long-term debt 67 28
Accounts payable 162 203
Accrued liabilities 505 596
Accrued taxes 64 46
Accrued interest 101 84
Liabilities related to assets held for sale 138 128
Other 179 174
Total current liabilities 2,260 2,045
Regulatory and other long-term liabilities:
Advances for construction 262 240
Deferred income taxes and investment tax credits 2,060 1,893
Regulatory liabilities 1,777 1,806
Operating lease liabilities 83 89
Accrued pension expense 386 411
Other 79 78
Total regulatory and other long-term liabilities 4,647 4,517
Contributions in aid of construction 1,391 1,355
Commitments and contingencies (See Note 11)
Total capitalization and liabilities $ 24,394 $ 22,682

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

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

~~Consolidated Statements of Operations (Unaudited)~~

~~(In millions, except per share data)~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2020 2019 2020 2019
Operating revenues $ 1,079 $ 1,013 $ 2,854 $ 2,708
Operating expenses:
Operation and maintenance 419 395 1,193 1,132
Depreciation and amortization 154 144 451 430
General taxes 73 68 225 209
(Gain) on asset dispositions and purchases 0 0 0 (9)
Total operating expenses, net 646 607 1,869 1,762
Operating income 433 406 985 946
Other income (expense):
Interest, net (99) (97) (296) (284)
Non-operating benefit costs, net 12 4 37 12
Other, net 6 5 17 23
Total other income (expense) (81) (88) (242) (249)
Income before income taxes 352 318 743 697
Provision for income taxes 88 78 179 174
Net income attributable to common shareholders $ 264 $ 240 $ 564 $ 523
Basic earnings per share: (a)

Net income attributable to common shareholders $ 1.46 $ 1.33 $ 3.11 $ 2.90
Diluted earnings per share: (a)

Net income attributable to common shareholders $ 1.46 $ 1.33 $ 3.11 $ 2.89
Weighted-average common shares outstanding:
Basic 181 181 181 181
Diluted 182 181 181 181

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


	March 31, 2021		December 31, 2020
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,727,874 and 186,466,707 shares issued, respectively)	$	2	$	2
Paid-in-capital	6,757		6,747
Retained earnings	235		102
Accumulated other comprehensive loss	(48)		(49)
Treasury stock, at cost (5,260,064 and 5,168,215 shares, respectively)	(363)		(348)
Total common shareholders' equity	6,583		6,454
Long-term debt	9,325		9,329
Redeemable preferred stock at redemption value	3		4
Total long-term debt	9,328		9,333
Total capitalization	15,911		15,787
Current liabilities:
Short-term debt	1,115		1,282
Current portion of long-term debt	311		329
Accounts payable	134		189
Accrued liabilities	466		591
Accrued taxes	76		50
Accrued interest	98		88
Liabilities related to assets held for sale	80		137
Other	171		215
Total current liabilities	2,451		2,881
Regulatory and other long-term liabilities:
Advances for construction	267		270
Deferred income taxes and investment tax credits	2,223		2,113
Regulatory liabilities	1,736		1,770
Operating lease liabilities	84		81
Accrued pension expense	368		388
Other	83		83
Total regulatory and other long-term liabilities	4,761		4,705
Contributions in aid of construction	1,402		1,393
Commitments and contingencies (See Note 12)	0		0
Total capitalization and liabilities	$	24,525	$	24,766

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

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American Water Works Company, Inc. and Subsidiary Companies

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

(In ~~millions)~~millions, except per share data)

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


	For the Three Months Ended March 31,
		2021		2020
Operating revenues		$	888	$	844
Operating expenses:
Operation and maintenance		419		383
Depreciation and amortization		157		145
General taxes		83		77
Total operating expenses, net		659		605
Operating income		229		239
Other income (expense):
Interest, net		(98)		(96)
Non-operating benefit costs, net		20		13
Other, net		4		3
Total other income (expense)		(74)		(80)
Income before income taxes		155		159
Provision for income taxes		22		35
Net income attributable to common shareholders		$	133	$	124

Basic earnings per share:
Net income attributable to common shareholders		$	0.73	$	0.69
Diluted earnings per share: (a)
Net income attributable to common shareholders		$	0.73	$	0.68
Weighted-average common shares outstanding:
Basic		181		181
Diluted		182		181

(a)Amounts may not calculate due to rounding.

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

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of ~~Cash Flows~~Comprehensive Income (Unaudited)

(In millions)

For the Nine Months Ended September 30,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 564 $ 523
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization 451 430
Deferred income taxes and amortization of investment tax credits 174 163
Provision for losses on accounts receivable 22 18
(Gain) on asset dispositions and purchases 0 (9)
Pension and non-pension postretirement benefits (10) 13
Other non-cash, net (37) (51)
Changes in assets and liabilities:
Receivables and unbilled revenues (121) (54)
Pension and postretirement benefit contributions (31) (23)
Accounts payable and accrued liabilities (17) (16)
Other assets and liabilities, net (7) (49)
Net cash provided by operating activities 988 945
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,314) (1,115)
Acquisitions, net of cash acquired (59) (85)
Proceeds from sale of assets 2 17
Removal costs from property, plant and equipment retirements, net (75) (71)
Net cash used in investing activities (1,446) (1,254)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,250 1,191
Repayments of long-term debt (266) (153)
Proceeds from term loan 500 0
Net short-term borrowings with maturities less than three months (242) (491)
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $17 and $11 for the nine months ended September 30, 2020 and 2019, respectively 6 13
Advances and contributions for construction, net of refunds of $20 and $25 for the nine months ended September 30, 2020 and 2019, respectively 20 16
Debt issuance costs (12) (11)
Dividends paid (290) (263)
Anti-dilutive share repurchases 0 (36)
Net cash provided by financing activities 966 266
Net increase (decrease) in cash, cash equivalents and restricted funds 508 (43)
Cash, cash equivalents and restricted funds at beginning of period 91 159
Cash, cash equivalents and restricted funds at end of period $ 599 $ 116
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period $ 236 $ 245


	For the Three Months Ended March 31,
		2021		2020
Net income attributable to common shareholders		$	133	$	124
Other comprehensive income (loss), net of tax:
Defined benefit pension plan actuarial loss, net of tax of $0 and $0 for the three months ended March 31, 2021 and 2020, respectively		1		1
Unrealized loss on cash flow hedges, net of tax of $0 and $(2) for the three months ended March 31, 2021 and 2020, respectively		0		(6)
Net other comprehensive income (loss)		1		(5)
Comprehensive income attributable to common shareholders		$	134	$	119

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,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	133	$	124
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	157		145
Deferred income taxes and amortization of investment tax credits	26		38
Provision for losses on accounts receivable	11		6
Pension and non-pension postretirement benefits	(10)		(1)
Other non-cash, net	(41)		(18)
Changes in assets and liabilities:
Receivables and unbilled revenues	26		(4)
Pension and postretirement benefit contributions	(9)		(10)
Accounts payable and accrued liabilities	(57)		(91)
Other assets and liabilities, net	(57)		(9)
Net cash provided by operating activities	179		180
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(342)		(408)
Acquisitions, net of cash acquired	(3)		(21)
Proceeds from sale of assets	0		2
Removal costs from property, plant and equipment retirements, net	(18)		(23)
Net cash used in investing activities	(363)		(450)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	2		8
Repayments of long-term debt	(25)		(6)
(Repayments of) proceeds from term loan	(500)		500
Net proceeds from revolving credit facility borrowings	0		215
Net short-term borrowings with maturities less than three months	334		139
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $15 and $11 for the three months ended March 31, 2021 and 2020, respectively	(11)		(5)
Advances and contributions for construction, net of refunds of $6 and $8 for the three months ended March 31, 2021 and 2020, respectively	7		7
Dividends paid	(100)		(90)
Net cash (used in) provided by financing activities	(293)		768
Net (decrease) increase in cash, cash equivalents and restricted funds	(477)		498
Cash, cash equivalents and restricted funds at beginning of period	576		91
Cash, cash equivalents and restricted funds at end of period	$	99	$	589
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period	$	223	$	256

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 Stock			Paid-in-Capital				Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss		Treasury Stock					Total Shareholders' Equity				Common Stock					Paid-in-Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Treasury Stock					Total Shareholders' Equity
		Shares	Par Value								Shares			At Cost				Shares				Par Value									Shares							At Cost
Balance as of December 31, 2019		185.9	$	2			$	6,700				$	(207)	$	(36)	(5.1)					$	(338)		$	6,121
Balance as of December 31, 2020																						Balance as of December 31, 2020	186.5			$	2		$	6,747			$	102		$	(49)			(5.2)		$	(348)		$	6,454
Net income attributable to common shareholders	Net income attributable to common shareholders	—	—		—				124			—		—		—			124			Net income attributable to common shareholders	—			—		—				133			—				—		—			133
Common stock issuances (a)	Common stock issuances (a)	0.3	—		13				—			—		(0.1)		(10)			3			Common stock issuances (a)	0.2			—		10				—			—				(0.1)		(15)			(5)
Net other comprehensive loss	Net other comprehensive loss	—	—		—				—			(5)		—		—			(5)			Net other comprehensive loss	—			—		—				—			1				—		—			1
Balance as of March 31, 2020		186.2	$	2	$	6,713			$	(83)		$	(41)	(5.2)		$	(348)		$	6,243
Net income attributable to common shareholders		—	—		—				176			—		—		—			176
Common stock issuances (a)		0.2	—		17				—			—		—		—			17
Net other comprehensive loss		—	—		—				—			2		—		—			2
Dividends ($0.55 declared per common share)		—	—		—				(100)			—		—		—			(100)
Balance as of June 30, 2020		186.4	$	2	$	6,730			$	(7)		$	(39)	(5.2)		$	(348)		$	6,338
Net income attributable to common shareholders		—	—		—				264			—		—		—			264
Common stock issuances (a)		—	—		9				—			—		—		—			9
Net other comprehensive loss		—	—		—				—			1		—		—			1
Dividends ($0.55 declared per common share)		—	—		—				(100)			—		—		—			(100)
Balance as of September 30, 2020		186.4	$	2	$	6,739			$	157		$	(38)	(5.2)		$	(348)		$	6,512
Balance as of March 31, 2021																						Balance as of March 31, 2021	186.7			$	2	$	6,757			$	235		$	(48)			(5.3)		$	(363)		$	6,583

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

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		Common Stock			Paid-in-Capital				Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss		Treasury Stock					Total Shareholders' Equity				Common Stock					Paid-in-Capital				Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss				Treasury Stock					Total Shareholders' Equity
		Shares	Par Value								Shares			At Cost				Shares				Par Value									Shares							At Cost
Balance as of December 31, 2018		185.4	$	2			$	6,657				$	(464)	$	(34)	(4.7)					$	(297)		$	5,864
Cumulative effect of change in accounting principle		—	—		—				(2)			—		—		—			(2)
Net income attributable to common shareholders		—	—		—				113			—		—		—			113
Common stock issuances (a)		0.2	—		11				—			—		(0.1)		(5)			6
Repurchases of common stock		—	—		—				—			—		(0.3)		(36)			(36)
Net other comprehensive loss		—	—		—				—			(13)		—		—			(13)
Balance as of March 31, 2019		185.6	$	2	$	6,668			$	(353)		$	(47)	(5.1)		$	(338)		$	5,932
Net income attributable to common shareholders		—	—		—				170			—		—		—			170
Common stock issuances (a)		0.1	—		15				—			—		—		—			15
Dividends ($0.50 declared per common share)		—	—		—				(90)			—		—		—			(90)
Balance as of June 30, 2019		185.7	$	2	$	6,683			$	(273)		$	(47)	(5.1)		$	(338)		$	6,027
Balance as of December 31, 2019																						Balance as of December 31, 2019	185.9			$	2		$	6,700			$	(207)		$	(36)			(5.1)		$	(338)		$	6,121
Net income attributable to common shareholders	Net income attributable to common shareholders	—	—		—				240			—		—		—			240			Net income attributable to common shareholders	—			—		—				124			—				—		—			124
Common stock issuances (a)	Common stock issuances (a)	0.2	—		12				—			—		—		—			12			Common stock issuances (a)	0.3			—		13				—			—				(0.1)		(10)			3
Net other comprehensive loss	Net other comprehensive loss	—	—		—				—			1		—		—			1			Net other comprehensive loss	—			—		—				—			(5)				—		—			(5)
Dividends ($0.50 declared per common share)		—	—		—				(90)			—		—		—			(90)
Balance as of September 30, 2019		185.9	$	2	$	6,695			$	(123)		$	(46)	(5.1)		$	(338)		$	6,190
Balance as of March 31, 2020																						Balance as of March 31, 2020	186.2			$	2	$	6,713			$	(83)		$	(41)			(5.2)		$	(348)		$	6,243

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

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

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American Water Works Company, Inc. and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited)

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

Note 1: Basis of Presentation

The unaudited Consolidated Financial Statements included in this report include the accounts of American Water Works Company, Inc. and all of its subsidiaries (the “Company” or “American Water”), in which a controlling interest is maintained after the elimination of intercompany balances and transactions. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting, and the rules and regulations for reporting on Quarterly Reports on Form 10-Q (“Form 10-Q”). Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. In the opinion of management, all adjustments necessary for a fair statement of the financial position as of ~~September 30, 2020,~~March 31, 2021, and the results of operations and cash flows for all periods presented, have been made. All adjustments are of a normal, recurring nature, except as otherwise disclosed.

The unaudited Consolidated Financial Statements and Notes included in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (“Form 10-K”), which provides a more complete discussion of the Company’s accounting policies, financial position, operating results and other matters. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year, primarily due to the seasonality of the Company’s operations.

Note 2: Significant Accounting Policies

New Accounting Standards

Presented in the table below are new accounting standards that were adopted by the Company in ~~2020:~~2021:

Standard

Description

Date of Adoption

Application

Effect on the Consolidated Financial Statements

~~Measurement of Credit Losses on Financial Instruments~~

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

~~January 1, 2020~~

~~Modified retrospective~~

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

~~Changes to the Disclosure Requirements for Fair Value Measurement~~

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

~~January 1, 2020~~

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

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

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

March 12, 2020 through December 31, 2022

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

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

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

~~Standard~~

~~Description~~

~~Date of Adoption~~

~~Application~~

~~Estimated Effect on the Consolidated Financial Statements~~

Simplifying the Accounting for Income Taxes

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

January 1, ~~2021; early adoption permitted~~
2021

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

The ~~Company is evaluating any~~standard did not have a material impact on ~~its~~the Consolidated Financial ~~Statements, as well~~Statements.

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Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of March 31, 2021:

Standard

Description

Date of Adoption

Application

Estimated Effect on the ~~timing of adoption.~~
Consolidated Financial Statements

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

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

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

Either modified retrospective or fully retrospective

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

Cash, Cash Equivalents and Restricted Funds

Presented in the table below is a reconciliation of the cash and cash equivalents and restricted funds amounts as presented on the Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended ~~September 30:~~March 31:


		2020		2019			2021		2020
Cash and cash equivalents(a)	Cash and cash equivalents(a)	$	560	$	94	Cash and cash equivalents(a)	$	69	$	556
Restricted funds	Restricted funds	39		22		Restricted funds	30		33
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	$	599	$	116	Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	$	99	$	589

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

Allowance for Uncollectible Accounts

Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowance for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding. An increase in the allowance for uncollectible accounts for the period ending ~~September 30, 2020~~March 31, 2021 reflects the impacts from the current novel coronavirus (“COVID-19”) pandemic, including an increase in uncollectible accounts expense and a reduction in amounts written off due to shutoff ~~moratoriums~~moratoria in place across the Company’s subsidiaries.

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


		2020		2019			2021		2020
Balance as of January 1	Balance as of January 1	$	(41)	$	(45)	Balance as of January 1	$	(60)	$	(41)
Amounts charged to expense	Amounts charged to expense	(22)		(18)		Amounts charged to expense	(11)		(6)
Amounts written off	Amounts written off	9		22		Amounts written off	0		7
Less: Allowance for uncollectible accounts included in assets held for sale (a)	Less: Allowance for uncollectible accounts included in assets held for sale (a)	2		0		Less: Allowance for uncollectible accounts included in assets held for sale (a)	4		2
Balance as of September 30		$	(52)	$	(41)
Balance as of March 31						Balance as of March 31	$	(67)	$	(40)

(a)This portion of the allowance for uncollectible accounts is related to the pending transactions contemplated by the Stock Purchase Agreement among the Company, the Company’s New York subsidiary and an affiliate of Liberty Utilities Co., and is included in assets held for sale on the Consolidated Balance Sheets. See Note 5—6—Acquisitions and Divestitures for additional information.

Reclassifications

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

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Note 3: Impact of Novel Coronavirus (COVID-19) Pandemic

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

As of ~~November 4, 2020,~~May 3, 2021, American Water has commission orders authorizing deferred accounting or cost recovery for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in 3 jurisdictions pending. ~~In addition~~NaN jurisdiction, Kentucky, issued an order denying a request to ~~approving deferred accounting,~~defer to ~~date, 2~~a regulatory ~~jurisdictions have also approved cost recovery mechanisms for specified~~asset the financial impacts related to the COVID-19 ~~financial impacts. Regulatory~~pandemic. Other regulatory actions to date are presented in the table below:

Commission Actions

Description

States

Orders issued with deferred accounting

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

~~CA,~~ HI, IA, ~~IL,~~ IN, MD, ~~MO,~~ NJ, PA (a), VA, WV

~~Cost~~Orders issued with cost recovery ~~mechanisms~~

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

CA, IL, MO

Proceedings pending

~~Proceedings pending seeking commission orders authorizing~~Pending proceedings considering deferred accounting authorization for the future ~~cost~~ recovery of COVID-19 financial impacts.

~~KY,~~ NY, TN

(a)The Pennsylvania Public Utility Commission (the “PaPUC”) has granted deferral authority on incremental expenses above those embedded in rates resulting from COVID-19. The Company’s Pennsylvania subsidiary has filed for confirmation to defer as a regulatory asset all identified COVID-19 financial impacts, with the proceeding currently pending before the PaPUC.

Consistent with these regulatory orders, the Company has recorded ~~$29~~$43 million in regulatory assets and $3$5 million of regulatory liabilities for the financial impacts related to the COVID-19 pandemic on the Consolidated Balance Sheets as of ~~September 30, 2020.~~March 31, 2021.

As of May 3, 2021, 5 states continue moratoria on the suspension of service disconnections due to non-payment. The moratoria on disconnects have expired in 9 states.

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Note 4: Regulatory Matters

General Rate Cases and Infrastructure Surcharges

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


(In millions)	During the Three Months Ended March 31, 2021		During the Three Months Ended March 31, 2020
General rate cases by state:
Pennsylvania (a)	$	70	$	0
California (b)	0		5
Total general rate cases	$	70	$	5

Infrastructure surcharges by state:
Indiana (effective March 17, 2021)	$	8	$	0
Pennsylvania (effective January 1, 2021 and January 1, 2020)	8		10
Illinois (effective January 1, 2021 and January 1, 2020)	7		7
West Virginia (effective January 1, 2021 and January 1, 2020)	5		3
Tennessee (effective January 1, 2021)	3		0
New Jersey (effective January 1, 2020)	0		10
Total infrastructure surcharges	$	31	$	30

(a)The Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, excluding a reduction in revenues for tax savings passed back to customers as a result of the Tax Cuts and Jobs Act of 2017 (the “TCJA”), over two steps. The EADIT reduction in revenues is $19 million. The overall increase, net of TCJA, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step will be effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate assumption method (“ARAM”), and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annually includes both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018 through December 31, 2020 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.

(b)The Company’s California subsidiary received approval for the third year (2020) step increase associated with its most recent general rate case authorization, effective January 1, 2020.

On April 7, 2021, the Company’s Missouri subsidiary was authorized additional annualized revenues of $22 million, excluding a reduction in revenues for tax savings passed back to customers as a result of the TCJA. The EADIT reduction in revenues is $25 million and is offset by a like reduction in income tax expense. The protected EADIT balance of $72 million is being returned to customers using the ARAM, and the unprotected EADIT balance of $74 million is being returned to customers over 10 years. The $25 million EADIT reduction includes both the protected and unprotected catch-up period EADIT of $13 million. The catch-up period of January 1, 2018 through May 31, 2021 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over 2.5 years.

On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (the “NJBPU”) that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which seeks approval of acquisition adjustments in rates of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in April 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. The Company’s New Jersey subsidiary filed exceptions to the initial decision and recommendations by the ALJ, which were responded to by the New Jersey Division of Rate Counsel. The Company is now awaiting a decision by the NJBPU.

Due in part to the COVID-19 pandemic, the New York State Public Service Commission approved, through a series of orders, the Company’s New York subsidiary’s request to postpone the previously approved step increase, originally scheduled to go into effect April 1, 2020 until May 1, 2021. The orders provided a make whole provision to recover the delayed revenues with no earnings impact. These delays impact rates for all metered and fire customers, which the Company is authorized to recover in a make-whole surcharge, which began May 1, 2021.

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Pending General Rate Case Filings

On April 30, 2021, the Company’s West Virginia subsidiary filed a general rate case requesting $32 million in annualized incremental revenues excluding proposed reductions in revenues for tax savings to be passed back to customers as a result of TCJA and infrastructure surcharges. The proposed EADIT reduction in revenues is $1 million and the exclusion for infrastructure surcharges is $10 million.

On August 28, 2020, the Company’s Iowa subsidiary filed a general rate case requesting $3 million in annualized incremental revenues. Office of Consumer Advocate (“OCA”) and intervenor direct testimony was filed on December 17, 2020 and cross-reply testimony was filed on December 31, 2020. The Company’s Iowa subsidiary reply testimony was filed on January 14, 2021, and OCA rebuttal testimony was filed on February 8, 2021. Evidentiary hearings were held on March 3 and March 4, 2021. An order is anticipated between May 4, 2021 and June 30, 2021 with new rates effective in July 2021.

On July 1, 2019, the Company’s California subsidiary filed a general rate case requesting $26 million in annualized incremental revenues for 2021, and increases of $10 million and $11 million in the escalation year of 2022 and the attrition year of 2023, respectively. On October 11, 2019, the Company filed its 100-day update for the same proceeding and updated the request to $27 million in annualized incremental revenues for 2021, and increases of $10 million in both the escalation year of 2022 and the attrition year of 2023, respectively. On September 10, 2020, the California Public Utilities Commission (the “CPUC”) approved the Company’s California subsidiary’s motion for interim rates, establishing a memorandum account to track the difference between interim and final rates adopted by the CPUC in this proceeding, which were effective on January 1, 2021. Following settlement discussions among all parties to the proceeding, on January 22, 2021 and January 25, 2021, the Company’s California subsidiary filed with the CPUC a comprehensive settlement entered into among the Company’s California subsidiary, the Public Advocates Office, and other intervenors. These settlement agreements resolved all matters in dispute among the parties to the settlements. These settlements, as well as resolution of issues raised by non-settling parties, are now before the CPUC for approval.

On January 22, 2020, the Company’s California subsidiary submitted a request to delay by one year its cost of capital filing and maintain its current authorized cost of capital through 2021. On March 12, 2020, the CPUC granted the request for a one-year extension of the cost of capital filing to May 1, 2021, to set its authorized cost of capital beginning January 1, 2022. On January 5, 2021, the Company’s California subsidiary submitted a request to further delay by one year its cost of capital filing and maintain the authorized cost of capital through 2022. On February 22, 2021, the CPUC denied the request to further delay the cost of capital filing. The Company’s California subsidiary submitted its cost of capital application on May 3, 2021. Once approved by the CPUC, the new authorized cost of capital will be effective January 1, 2022.

Note 4:5: Revenue Recognition

Disaggregated Revenues

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

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Presented in the table below are operating revenues disaggregated for the three months ended ~~September 30, 2020:~~March 31, 2021:


		Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues			Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:	Regulated Businesses:							Regulated Businesses:
Water services:	Water services:							Water services:
Residential	Residential	$	562	$	0	$	562	Residential	$	430	$	0	$	430
Commercial	Commercial	187		—		187		Commercial	144		—		144
Fire service	Fire service	37		—		37		Fire service	37		—		37
Industrial	Industrial	38		—		38		Industrial	32		—		32
Public and other	Public and other	58		—		58		Public and other	44		—		44
Total water services	Total water services	882		0		882		Total water services	687		0		687
Wastewater services:	Wastewater services:							Wastewater services:
Residential	Residential	35		—		35		Residential	36		—		36
Commercial	Commercial	8		—		8		Commercial	9		—		9
Industrial	Industrial	1		—		1		Industrial	1		—		1
Public and other	Public and other	4		—		4		Public and other	4		—		4
Total wastewater services	Total wastewater services	48		—		48		Total wastewater services	50		—		50
Miscellaneous utility charges	Miscellaneous utility charges	10		—		10		Miscellaneous utility charges	8		—		8
Alternative revenue programs	Alternative revenue programs	—		2		2		Alternative revenue programs	—		9		9
Lease contract revenue	Lease contract revenue	—		3		3		Lease contract revenue	—		1		1
Total Regulated Businesses	Total Regulated Businesses	940		5		945		Total Regulated Businesses	745		10		755
Market-Based Businesses	Market-Based Businesses	139		—		139		Market-Based Businesses	137		—		137
Other	Other	(5)		0		(5)		Other	(4)		0		(4)
Total operating revenues	Total operating revenues	$	1,074	$	5	$	1,079	Total operating revenues	$	878	$	10	$	888

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

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

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

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

Contract Balances

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

Contract assets of ~~$27~~$50 million and $39 million are included in unbilled revenues on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively. Contract assets of $17 million and $13 million are included in unbilled revenues on the Consolidated Balance Sheets as of ~~September 30,~~March 31, 2020 and December 31, 2019, respectively. There were ~~$43~~$19 million of contract assets added during the ~~nine~~three months ended ~~September 30,~~March 31, 2021, and $8 million of contract assets were transferred to accounts receivable during the same period. There were $11 million of contract assets added during the three months ended March 31, 2020, and ~~$29~~$7 million of contract assets were transferred to accounts receivable during the same period.

Contract liabilities of ~~$36~~$44 million and $35 million are included in other current liabilities on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively. Contract liabilities of $34 million and $27 million are included in other current liabilities on the Consolidated Balance Sheets as of ~~September 30,~~March 31, 2020 and December 31, 2019, respectively. There were ~~$91~~$57 million of contract liabilities added during the ~~nine~~three months ended ~~September 30,~~March 31, 2021, and $48 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, 2020, and ~~$82~~$29 million of contract liabilities were recognized as revenue during the same period.

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Remaining Performance Obligations

Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future from contracts that are in progress. The Company enters into agreements for the provision of services to water and wastewater facilities for the U.S. military, municipalities and other customers. As of ~~September 30, 2020,~~March 31, 2021, the Company’s O&M and capital improvement contracts in the Market-Based Businesses have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and ~~2070~~2071 and have RPOs of $6.3 billion as of ~~September 30, 2020,~~March 31, 2021, as measured by estimated remaining contract revenue. Such contracts are subject to customary termination provisions held by the U.S. government, prior to the agreed-upon contract expiration. Contracts with municipalities and commercial customers expire between 2021 and 2038 and have RPOs of ~~$490~~$547 million as of ~~September 30, 2020,~~March 31, 2021, 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 5:6: Acquisitions and Divestitures

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company closed on the acquisition of 152 regulated water systems for a total aggregate purchase price of $3 million. Assets acquired from these acquisitions, principally utility plant, totaled $3 million.

Subsequent to March 31, 2021, the Company closed on 3 regulated water and wastewater systems for a total aggregate purchase price of ~~$59~~$1 million. ~~Assets acquired from these acquisitions, principally utility plant, totaled $81~~

On April 6, 2021, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater assets of the York City Sewer Authority for $235 million, plus an amount of average daily revenue calculated for the period between the final meter reading and ~~liabilities assumed totaled $27 million, including~~the date of closing. This system currently directly and indirectly serves more than 45,000 customers through bulk contracts. In connection with the execution of the acquisition agreement, the Company’s Pennsylvania subsidiary paid a $20 million deposit to the seller on April 30, 2021, which is refundable in the event the agreement is terminated prior to closing of ~~contributions in aid~~the acquisition. The Company expects to close this acquisition by the beginning of ~~construction~~2022, pending regulatory approval.

On March 29, 2021, the Company’s New Jersey subsidiary entered into an agreement to acquire the water and ~~assumed debt~~wastewater assets of $6Egg Harbor City for $22 million. The ~~Company recorded additional goodwill of $5 million associated with~~ 2 of its acquisitions, which is reported in its Regulated Businesses segment. Several of these acquisitions were accounted for as business combinations, as the Company continues to grow its business through regulated acquisitions. The preliminary purchase price allocations related to acquisitions accounted for as business combinations will be finalized once the valuation of assets acquired has been completed, no later than one year after their acquisition date.

~~Subsequent to September 30, 2020, the Company closed on 5 regulated~~ water and wastewater systems ~~for a total aggregate purchase price~~currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the New Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition in the second half of ~~$74 million.~~2021, pending regulatory approval.

Assets Held for Sale

On November 20, 2019, the Company and the Company’s New York subsidiary, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co., which it subsequently assigned to its indirect, wholly owned subsidiary Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), pursuant to which Liberty will purchase all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement. The Company’s regulated New York operations have approximately 125,000 ~~customer connections~~customers in the State of New York. Algonquin Power & Utilities Corp., Liberty’s ultimate parent company, executed and delivered an absolute and unconditional guaranty of the performance of all of the obligations of Liberty under the Stock Purchase Agreement. The Stock Purchase is subject to various conditions, including obtaining ~~regulatory~~ approvals and satisfying or waiving other closing conditions. The Stock Purchase Agreement has an initial termination date of June 30, 2021. Either party may ~~be terminated by either party if~~extend the ~~Stock Purchase is not completed by~~initial termination date beyond June 30, 2021, ~~subject~~and the Company intends to ~~extension for up to six months~~extend such date, if necessary, provided all of the conditions to closing have been or are capable of being met, other than obtaining regulatory approvals. If not otherwise extended, the ultimate termination date is December 31, 2021. Liberty may also terminate the Stock Purchase Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the Company’s New York subsidiary, taken as a whole. Progress toward completion of the transaction continues, and subject to satisfying or waiving the various conditions to closing and assuming the transaction is not terminated as described above prior to closing, the Company expects that the Stock Purchase will be completed in early 2021. Accordingly, theThe assets and related liabilities of the Company’s New York subsidiary were classified as held for sale on the Consolidated Balance Sheets as of ~~September 30, 2020.~~March 31, 2021.

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Presented in the table below are the components of assets held for sale and liabilities related to assets held for sale of the New York subsidiary as of ~~September 30, 2020:~~March 31, 2021:


	~~September 30, 2020~~March 31, 2021
~~Current assets~~	$	19
Property, plant and equipment	~~491~~$	523
Current assets	13
Regulatory assets	6477
Goodwill	3931
Other assets	510
Assets held for sale	$	~~618~~654
Current liabilities	18
~~Deferred income taxes~~	6814
Regulatory liabilities	4148
Other liabilities	1118
Liabilities related to assets held for sale	$	~~138~~80

Note 6:7: Shareholders' Equity

Accumulated Other Comprehensive Loss

Presented in the table below are the changes in accumulated other comprehensive loss by component, net of tax, for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively:


		Defined Benefit Pension Plans						Foreign Currency Translation			Gain (Loss) on Cash Flow Hedges					Accumulated Other Comprehensive Loss			Defined Benefit Pension Plans												Loss on Cash Flow Hedges				Accumulated Other Comprehensive Loss
															Employee Benefit Plan Funded Status					Amortization of Prior Service Cost				Amortization of Actuarial Loss
Balance as of December 31, 2020																		Balance as of December 31, 2020	$	(106)			$	1			$	63			$	(7)			$	(49)
Other comprehensive loss before reclassifications																		Other comprehensive loss before reclassifications	—				—				—				0				0
Amounts reclassified from accumulated other comprehensive loss																		Amounts reclassified from accumulated other comprehensive loss	—				—				1				—				1
Net other comprehensive income (loss)																		Net other comprehensive income (loss)	—				—				1				0				1
Balance as of March 31, 2021																		Balance as of March 31, 2021	$	(106)			$	1			$	64			$	(7)			$	(48)
		Employee Benefit Plan Funded Status		Amortization of Prior Service Cost		Amortization of Actuarial Loss				Foreign Currency Translation				Gain (Loss) on Cash Flow Hedges					Accumulated Other Comprehensive Loss
Balance as of December 31, 2019	Balance as of December 31, 2019	$	(94)	$	1	$	60				Balance as of December 31, 2019		$			(94)					$	1			$	60			$	(3)			$	(36)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	—		—		—		—						(4)				(4)		Other comprehensive loss before reclassifications	—				—				—				(6)				(6)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	—		—		2		—			—					2		Amounts reclassified from accumulated other comprehensive loss	—				—				1				—				1
Net other comprehensive income (loss)	Net other comprehensive income (loss)	—		—		2		—			(4)					(2)		Net other comprehensive income (loss)	—				—				1				(6)				(5)
Balance as of September 30, 2020		$	(94)	$	1	$	62	$	0		$	(7)				$	(38)

Balance as of December 31, 2018		$	(102)	$	1	$	56	$	1		$	10				$	(34)
Other comprehensive loss before reclassifications		—		—		—		—			(13)					(13)
Amounts reclassified from accumulated other comprehensive loss		—		—		2		(1)			—					1
Net other comprehensive income (loss)		—		—		2		(1)			(13)					(12)
Balance as of September 30, 2019		$	(102)	$	1	$	58	$	0		$	(3)				$	(46)
Balance as of March 31, 2020																		Balance as of March 31, 2020	$	(94)			$	1			$	61			$	(9)			$	(41)

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

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

Dividends

On ~~September 1, 2020,~~March 2, 2021, the Company paid a quarterly cash dividend of $0.55 per share to shareholders of record as of ~~August 12, 2020.~~February 8, 2021.

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On ~~October 26, 2020,~~April 28, 2021, the Company’s Board of Directors declared a quarterly cash dividend payment of ~~$0.55~~$0.6025 per share, payable on ~~December 2, 2020~~June 1, 2021 to shareholders of record as of ~~November 10, 2020.~~May 11, 2021. 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—10—Shareholders' Equity in the Notes to Consolidated Financial Statements in the Company’s Form 10-K for additional information regarding the payment of dividends on the Company’s common stock.

Note 7:8: Long-Term Debt

~~On April 14, 2020,~~During the three months ended March 31, 2021, American Water Capital Corp. (“AWCC”) completed a $1.0 billion debt offering, which included the sale of $500 million aggregate principal amount of its 2.80% senior notes due 2030 and $500 million aggregate principal amount of its 3.45% senior notes due 2050. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of $989 million. AWCC used the net proceeds of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to fund sinking fund payments for, and to repay at maturity, $28 million in aggregate principal amount of outstanding long-term debt of AWCC and certain of the Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper obligations and short-term indebtedness under AWCC’s $2.25 billion unsecured revolving credit facility; and (iv) for general corporate purposes.

During March 2020, the Company entered into 4 10-year treasury lock agreements, each with a notional amount of $100 million, to reduce interest rate exposure on debt, which was subsequently issued on April 14, 2020. These treasury lock agreements had an average fixed rate of 0.94%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. On April 8, 2020 the Company terminated these 4 treasury lock agreements with an aggregate notional amount of $400 million, realizing a net loss of $6 million, to be amortized through interest, net over a 10 year period, in accordance with the terms of the $1.0 billion new debt issued on April 14, 2020. NaN ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2020 and 2019.

~~In addition to the senior notes issued by AWCC as described above, during the nine months ended September 30, 2020, AWCC~~ and the Company’s regulated subsidiaries issued in the aggregate ~~$250~~$2 million of ~~senior notes,~~ private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.00% to 5.00%, with a weighted average interest rate of ~~0.98%~~0.17%, maturing in ~~2020~~2021 through ~~2048.~~2047. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, AWCC and the Company’s regulated subsidiaries retired or paid at maturity an aggregate of ~~$266~~$25 million of various long-term debt issues with annual interest rates ranging from 0.00% to 12.25%, with a weighted average interest rate of ~~5.31%~~8.35%, maturing in ~~2020~~2021 through 2048.

Note 8:9: Short-Term Debt

~~To ensure adequate liquidity given~~Liquidity needs for capital investment, working capital and other financial commitments are funded through cash flows from operations, public and private debt offerings, commercial paper markets and, if and to the ~~impacts~~extent necessary, borrowings under the AWCC revolving credit facility. The revolving credit facility provides $2.25 billion in aggregate total commitments from a diversified group of financial institutions. The termination date of the ~~COVID-19 pandemic on debt~~credit agreement with respect to AWCC’s revolving credit facility is March 21, 2025. The facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support and ~~capital markets, on~~to provide a sub-limit of up to $150 million for letters of credit.

On March 20, 2020, AWCC entered into a Term Loan Credit Agreement, by and among ~~American Water,~~parent company, AWCC and the lenders party thereto ~~which provides for a term loan facility of up to $750 million~~ (the “Term Loan Facility”). ~~On March 20,~~As of December 31, 2020, ~~AWCC borrowed~~ $500 million of principal was outstanding under the Term Loan Facility, the proceeds of which were used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020.Facility. The Term Loan Facility commitments ~~terminate~~terminated at maturity on March 19, ~~2021. AWCC may prepay all or a portion of amounts due under~~2021 and the Term Loan Facility ~~without any premium or penalty.~~was repaid in full. Borrowings under the Term Loan Facility ~~bear~~bore interest at a variable annual rate based on LIBOR, plus a margin of 0.80%. ~~The credit agreement for the Term Loan Facility contains the same affirmative~~

Short-term debt consists of commercial paper and ~~negative covenants and events of default as under AWCC’s $2.25 billion revolving credit facility. As of September 30, 2020, $500 million of principal was outstanding under the Term Loan Facility.~~

~~On April 1, 2020, the termination date of the credit agreement with respect to AWCC’s revolving~~ credit facility ~~was extended, pursuant to the terms~~borrowings totaling $1.12 billion and $786 million as of ~~the credit agreement, from~~ March ~~21, 2024 to March 21, 2025. As of September 30,~~31, 2021 and December 31, 2020, AWCC had 0 outstanding borrowings and $76 million of outstanding letters of credit under the revolving credit facility, and $545 million of outstanding commercial paper, with $1.63 billion available to fulfill short-term liquidity needs and to issue letters of credit. During the first six months of 2020, the Company borrowed and subsequently repaid $650 million under the revolving credit facility.respectively. The weighted-average interest rate on AWCC’s outstanding short-term borrowings, including $500 million of outstanding principal ~~outstanding under~~on the Term Loan Facility as of ~~September 30,~~December 31, 2020, was approximately ~~0.55%~~0.17% and ~~1.86%~~0.53% at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. As of March 31, 2021 and December 31, 2020, there were 0 commercial paper or credit facility 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 available capacity for each:


	As of March 31, 2021
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding debt	(1,115)		(76)		(1,191)
Remaining availability as of March 31, 2021	$	985	$	74	$	1,059

(a)Total remaining availability of $1.06 billion as of March 31, 2021 may be accessed through revolver draws.

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

(a)Total remaining availability of $1.39 billion as of December 31, 2020 may be accessed through revolver draws.

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


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)
Available liquidity as of March 31, 2021	$	69	$	1,059	$	1,128
Available liquidity as of December 31, 2020	$	547	$	1,388	$	1,935

Note 9:10: Income Taxes

The Company’s effective income tax rate was ~~25.0%~~14.2% and ~~24.5%~~22.0% for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and 24.1% and 25.0% for the nine months ended September 30, 2020 and 2019,~~ respectively. The ~~increase~~decrease in the Company’s effective income tax rate for the three months ended ~~September 30, 2020 was primarily due to a lower effective tax rate in 2019. The decrease in the Company’s effective income tax rate for the nine months ended September 30, 2020~~March 31, 2021 was primarily due to an increase in the amortization of ~~excess accumulated deferred income taxes~~EADIT due to regulatory orders resulting from the ~~Tax Cuts and Jobs Act,~~TCJA, and an increase in deductions for stock based compensation benefits.

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

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2020 2019 2020 2019
Components of net periodic pension benefit cost:
Service cost $ 8 $ 7 $ 24 $ 21
Interest cost 18 21 55 62
Expected return on plan assets (28) (23) (84) (68)
Amortization of prior service credit (1) (1) (3) (3)
Amortization of actuarial loss 7 8 23 24
Net periodic pension benefit cost before settlements 4 12 15 36
Settlements (a)
0 0 1 0
Net periodic pension benefit cost $ 4 $ 12 $ 16 $ 36
Components of net periodic other postretirement benefit credit:
Service cost $ 1 $ 1 $ 3 $ 3
Interest cost 3 4 9 11
Expected return on plan assets (5) (5) (14) (14)
Amortization of prior service credit (9) (9) (25) (26)
Amortization of actuarial loss 0 1 1 3
Net periodic other postretirement benefit credit $ (10) $ (8) $ (26) $ (23)

~~(a)~~Due to the amount of lump sum payment distributions from the Company’s New York Water Service Corporation Pension Plan, settlement charges of less than $1 million and $1 million were recorded during the three and nine months ended September 30, 2020, respectively. There were 0 settlement charges recorded during the three and nine months ended September 30, 2019. In accordance with existing regulatory accounting treatment, the Company has maintained the settlement charges in regulatory assets on the Consolidated Balance Sheets. The amount is being amortized in accordance with existing regulatory practice.


	For the Three Months Ended March 31,
	2021		2020
Components of net periodic pension benefit cost:
Service cost	$	9	$	8
Interest cost	17		19
Expected return on plan assets	(32)		(28)
Amortization of prior service credit	(1)		(1)
Amortization of actuarial loss	7		8
Net periodic pension benefit cost	$	0	$	6

Components of net periodic other postretirement benefit credit:
Service cost	$	1	$	1
Interest cost	2		3
Expected return on plan assets	(5)		(4)
Amortization of prior service credit	(8)		(8)
Amortization of actuarial loss	0		1
Net periodic other postretirement benefit credit	$	(10)	$	(7)

The Company contributed $9 million and ~~$31~~$10 million for the funding of its defined benefit pension plans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, and contributed $9 million and $23 million for the funding of its defined benefit pension plans for the three and nine months ended September 30, 2019,~~ respectively. The Company made 0 contributions for the funding of its other postretirement benefit plans for each of the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. The Company expects to make pension contributions to the plan trusts of ~~up to $8~~$28 million during the remainder of ~~2020.~~2021.

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

Contingencies

The Company is routinely involved in legal actions incident to the normal conduct of its business. As of ~~September 30, 2020,~~March 31, 2021, the Company has accrued approximately ~~$10~~$5 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 ~~$4 million.~~$4 million. For certain matters, claims and actions, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such matters, claims or actions, other than as described in this Note ~~11—~~12—Commitments and Contingencies, will not have a material adverse effect on the Company.

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West Virginia Elk River Freedom Industries Chemical Spill

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

The aggregate pre-tax amount contributed by WVAWC of the $126 million portion of the Settlement with respect to the Company, net of insurance recoveries, is $19 million. As of ~~September 30, 2020,~~March 31, 2021, $0.5 million of the aggregate Settlement amount of $126 million has been reflected in accrued liabilities, and $0.5 million in offsetting insurance receivables have been reflected in other current assets on the Consolidated Balance Sheets. The amount reflected in accrued liabilities as of ~~September 30, 2020~~March 31, 2021 reflects reductions in the liability and appropriate reductions to the offsetting insurance receivable reflected in other current assets, associated with payments made to the Settlement fund, the receipt of a determination by the Settlement fund’s appeal adjudicator on all remaining medical claims and the calculation of remaining attorneys’ fees and claims administration costs. The Company funded WVAWC’s contributions to the Settlement through existing sources of liquidity.

Dunbar, West Virginia Water Main Break Class Action Litigation

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

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

~~In October 2017, WVAWC filed with the court a motion seeking to dismiss all of the~~ ~~Jeffries~~ plaintiffs’ counts alleging statutory and common law tort claims. Furthermore, WVAWC asserted that the Public Service Commission of West Virginia, and not the court, has primary jurisdiction over allegations involving violations of the applicable tariff, the public utility code and related rules. In May 2018, the court, at a hearing, denied WVAWC’s motion to apply the primary jurisdiction doctrine, and in October 2018, the court issued a written order to that effect. On February 21, 2019, the court issued an order denying WVAWC’s motion to dismiss the ~~Jeffries~~ ~~plaintiffs’ tort claims.~~

On February 4, 2020, the ~~Jeffries~~ Jeffries plaintiffs filed a motion seeking class certification on the issues of breach of contract and negligence, and to determine the applicability of punitive damages and a multiplier for those damages if imposed. ~~A hearing on class certification was held on March 11, 2020, followed by a status conference on April 7, 2020.~~ On ~~June 11,~~July 14, 2020, the ~~court ruled that it would partially grant~~Circuit Court entered an order granting the Jeffriesplaintiffs’ motion for certification of ana class regarding certain liability issues ~~class and would deny the request for~~but denying certification of a class to determine a punitive damages ~~multiplier for the class.~~multiplier. On ~~July 14, 2020, the court entered an order reflecting its June 11, 2020 rulings, and on~~ August 31, 2020, WVAWC filed a Petition for a Writ of Prohibition in the Supreme Court of Appeals of West Virginia seeking to vacate or remand the ~~certification of~~Circuit Court order certifying the issues class. At the request of the parties, ~~the trial court entered an order~~ on September 10, 2020, tothe Circuit Court ordered the stay of all matters in the class proceeding pending consideration of this petition. ~~A trial date~~On December 3, 2020, the Supreme Court of Appeals issued an order to show cause stating that there are sufficient grounds for oral argument to consider prohibiting the class ~~proceeding has been set~~certification order. On January 28, 2021, the Supreme Court of Appeals granted a motion by the Jeffries plaintiffs to remand the case back to the Circuit Court for ~~April 12, 2021, but~~further consideration in light of a recent Supreme Court of Appeals decision issued in another case relating to the ~~Company believes that it will likely be delayed.~~class certification issues raised.

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

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Chattanooga, Tennessee Water Main Break Class Action Litigation

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

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

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

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

Alternative Water Supply in Lieu of Carmel River Diversions

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

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

Cal Am is currently involved in developing the Monterey Peninsula Water Supply Project (the “Water Supply Project”), which includes the construction of a desalination plant, to be owned by Cal Am, and the construction of wells that would supply water to the desalination plant. In addition, the Water Supply Project also includes Cal Am’s purchase of water from a groundwater replenishment project (the “GWR Project”) between Monterey One Water and the Monterey Peninsula Water Management District (the “MPWMD”). The Water Supply Project is intended, among other things, to fulfill Cal Am’s obligations under the 2009 Order and the 2016 Order.

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

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In September 2018, the CPUC unanimously approved another final decision finding that (i) the Water Supply Project meets the CPUC’s requirements for a certificate of public convenience and necessity, (ii) the issuance of the final decision should not be delayed, and (iii) an additional procedural phase was not necessary to consider alternative projects. The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual financing costs. The 2018 final decision specifies the procedures for recovery of all of Cal Am’s prudently incurred costs associated with the Water Supply Project upon its completion, subject to 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 in the first general rate case filed by Cal Am after it becomes operational. Cal Am has incurred ~~$147~~$161 million in aggregate costs as of ~~September 30, 2020~~March 31, 2021 related to the Water Supply Project, ~~including $33~~which includes $38 million in AFUDC. While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as the CPUC’s 2016 and 2018 final decisions, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $50 million in construction costs previously approved by the CPUC in its 2016 final decision.

Coastal Development Permit Application

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

On August 25, 2020, the staff of the Coastal Commission released a report again recommending denial of Cal Am’s application for a coastal development permit. Although the report concluded that the Water Supply Project would have a negligible impact on groundwater resources, the report also concluded it would impact other coastal resources, such as environmentally sensitive habitat areas and wetlands, and that the Coastal Commission staff believes that a feasible alternative project exists that would avoid those impacts. The staff’s report also noted disproportionate impacts to communities of concern. On September 16, 2020, Cal Am withdrew its original jurisdiction application to allow additional time to address the Coastal Commission staff’s environmental justice concerns, and Cal Am intends to refile this application with the Coastal Commission in November 2020. Once the application is refiled and the Coastal Commission deems it to be complete, it is required to process and take action on the application within 180 days.concerns. The withdrawal of the original jurisdiction application did not impact Cal Am’s appeal of the City’s denial, which remains pending before the Coastal Commission. Cal Am refiled the original jurisdiction application on November 6, 2020. On December 3, 2020, the Coastal Commission sent to Cal Am a notice of incomplete application, identifying certain additional information needed to consider the application complete. In March 2021, Cal Am provided responses to the Coastal Commission’s notice of incomplete application. The original jurisdiction application remains pending.

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

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Numerator:	Numerator:									Numerator:
Net income attributable to common shareholders	Net income attributable to common shareholders	$	264	$	240	$	564	$	523	Net income attributable to common shareholders	$	133	$	124

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

The effect of dilutive common stock equivalents is related to outstanding stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding ~~restricted stock units~~RSUs and ~~performance stock units~~PSUs granted under the Company’s 2017 Omnibus Equity Compensation Plan, as well as estimated shares to be purchased under the Company’s 2017 Nonqualified Employee Stock Purchase Plan. Less than 1000000 share-based awards were excluded from the computation of diluted EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ because their effect would have been anti-dilutive under the treasury stock method.

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

Fair Value of Financial Instruments

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

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

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.

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


													As of March 31, 2021
		Carrying Amount		At Fair Value as of September 30, 2020									Carrying Amount		At Fair Value
				Level 1		Level 2		Level 3		Total					Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	Preferred stock with mandatory redemption requirements	$	6	$	0	$	0	$	7	$	7	Preferred stock with mandatory redemption requirements	$	4	$	0	$	0	$	5	$	5
Long-term debt (excluding finance lease obligations)	Long-term debt (excluding finance lease obligations)	9,644		9,477		418		1,726		11,621		Long-term debt (excluding finance lease obligations)	9,634		8,821		405		1,665		10,891

		Carrying Amount		At Fair Value as of December 31, 2019									As of December 31, 2020
				Level 1		Level 2		Level 3		Total			Carrying Amount		At Fair Value
															Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	Preferred stock with mandatory redemption requirements	$	7	$	0	$	0	$	9	$	9	Preferred stock with mandatory redemption requirements	$	5	$	0	$	0	$	7	$	7
Long-term debt (excluding finance lease obligations)	Long-term debt (excluding finance lease obligations)	8,664		7,689		417		1,664		9,770		Long-term debt (excluding finance lease obligations)	9,656		9,639		415		1,753		11,807

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Recurring Fair Value Measurements

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


		At Fair Value as of September 30, 2020									As of March 31, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Restricted funds	Restricted funds	$	39	$	0	$	0	$	39	Restricted funds	$	30	$	0	$	0	$	30
Rabbi trust investments	Rabbi trust investments	18		0		0		18		Rabbi trust investments	21		0		0		21
Deposits	Deposits	4		0		0		4		Deposits	6		0		0		6
Other investments	Other investments	18		0		0		18		Other investments	16		0		0		16
Total assets	Total assets	79		0		0		79		Total assets	73		0		0		73

Liabilities:	Liabilities:									Liabilities:
Deferred compensation obligations	Deferred compensation obligations	23		0		0		23		Deferred compensation obligations	25		0		0		25
Total liabilities	Total liabilities	23		0		0		23		Total liabilities	25		0		0		25
Total assets	Total assets	$	56	$	0	$	0	$	56	Total assets	$	48	$	0	$	0	$	48


		At Fair Value as of December 31, 2019									As of December 31, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Restricted funds	Restricted funds	$	31	$	0	$	0	$	31	Restricted funds	$	29	$	0	$	0	$	29
Rabbi trust investments	Rabbi trust investments	17		0		0		17		Rabbi trust investments	19		0		0		19
Deposits	Deposits	3		0		0		3		Deposits	4		0		0		4
Other investments	Other investments	8		0		0		8		Other investments	11		0		0		11
Total assets	Total assets	59		0		0		59		Total assets	63		0		0		63

Liabilities:	Liabilities:									Liabilities:
Deferred compensation obligations	Deferred compensation obligations	21		0		0		21		Deferred compensation obligations	24		0		0		24
Total liabilities	Total liabilities	21		0		0		21		Total liabilities	24		0		0		24
Total assets	Total assets	$	38	$	0	$	0	$	38	Total assets	$	39	$	0	$	0	$	39

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

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

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

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

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Mark-to-market derivative assets and liabilities—The Company ~~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 treasury lock agreements, classified as economic hedges and cash flow hedges, respectively, in order to fix the interest cost on existing or forecasted debt. The Company may use fixed-to-floating interest rate swaps, typically designated as fair-value hedges, to achieve a targeted level of variable-rate debt as a percentage of total debt. The Company uses a calculation of future cash inflows and estimated future outflows, which are discounted, to determine the current fair value. Additional inputs to the present value calculation include the contract terms, counterparty credit risk, interest rates and market volatility. The Company ~~has~~had no significant mark-to-market derivatives outstanding as of ~~September 30, 2020.~~March 31, 2021.

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

Note ~~14:~~15: Leases

The Company has operating and finance leases involving real property, including facilities, utility assets, vehicles, and equipment. Certain operating leases have renewal options ranging from one to 60 years. The exercise of lease renewal options is at the Company’s sole discretion. Renewal options that the Company was reasonably certain to exercise are included in the Company’s right-of-use (“ROU”) assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 39 years, six years, and five years, respectively. Certain lease agreements include variable rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company participates in a number of arrangements with various public entities (“Partners”) in West Virginia. Under these arrangements, the Company transferred a portion of its utility plant to the Partners in exchange for an equal principal amount of Industrial Development Bonds (“IDBs”) issued by the Partners under the Industrial Development and Commercial Development Bond Act. The Company leased back the utility plant under agreements for a period of 30 to 40 years. The Company has recorded these agreements as finance leases in property, plant and equipment, as ownership of the assets will revert back to the Company at the end of the lease term. The carrying value of the finance lease assets was ~~$147~~$146 million and $147 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020, respectively. The Company determined that the finance lease obligations and the investments in IDBs meet the conditions for offsetting, and as such, are reported net on the Consolidated Balance Sheets and excluded from the finance lease disclosure presented below.

The Company also enters into O&M agreements with the Partners. The Company pays an annual fee for use of the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $4$4 million in ~~2020~~2021 through ~~2024,~~2025, and ~~$56~~$52 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.

Rental expenses under operating and finance leases were ~~$3 million and $10~~$3 million and $4 millionfor the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and March 31, 2020, respectively.

~~Presented~~For the three months ended March 31, 2021, cash paid for amounts in ~~the table below is supplemental cash flow information:~~

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

~~(a)Includes~~lease liabilities, which includes operating and financing cash flows from operating and finance ~~leases.~~leases, was $3 million. For the three months ended March 31, 2021, ROU assets obtained in exchange for new operating lease liabilities was $6 million.

~~Table~~As of ~~Contents~~

~~Presented in~~March 31, 2021, the ~~table below are the weighed-average~~weighted-average remaining lease ~~terms~~term of the finance lease and operating leases were five years and 18 years, respectively, and the weighted-average discount ~~rates for~~rate of the finance lease and operating ~~leases:~~leases were 12% and 4%, respectively.


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

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

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

Amount
2020 $ 3
2021 13
2022 12
2023 8
2024 7
Thereafter 101
Total lease payments 144
Imputed interest (50)
Total $ 94
March 31, 2021 are $10 million in 2021, $12 million in 2022, $9 million in 2023, $8 million in 2024, $7 million in 2025 and $96 million thereafter. At March 31, 2021 imputed interest was $47 million.

Note ~~15:~~16: Segment Information

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

~~Presented in the tables below is summarized segment information:~~

As of or for the Three Months Ended September 30, 2020
Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues $ 945 $ 139 $ (5) $ 1,079
Depreciation and amortization 138 7 9 154
Total operating expenses, net 543 108 (5) 646
Interest, net (72) 0 (27) (99)
Income before income taxes 346 31 (25) 352
Provision for income taxes 85 7 (4) 88
Net income attributable to common shareholders 261 23 (20) 264
Total assets 21,946 1,110 1,338 24,394
Cash paid for capital expenditures 442 1 1 444

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As of or for the Three Months Ended September 30, 2019
Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues $ 883 $ 136 $ (6) $ 1,013
Depreciation and amortization 132 9 3 144
Total operating expenses, net 505 108 (6) 607
Interest, net (74) 1 (24) (97)
Income before income taxes 313 30 (25) 318
Provision for income taxes 77 7 (6) 78
Net income attributable to common shareholders 236 23 (19) 240
Total assets 19,787 1,060 1,391 22,238
Cash paid for capital expenditures 399 2 2 403
Presented in the tables below is summarized segment information:


		As of or for the Nine Months Ended September 30, 2020									As of or for the Three Months Ended March 31, 2021
		Regulated Businesses		Market-Based Businesses		Other		Consolidated			Regulated Businesses		Market-Based Businesses		Other		Consolidated
Operating revenues	Operating revenues	$	2,468	$	399	$	(13)	$	2,854	Operating revenues	$	755	$	137	$	(4)	$	888
Depreciation and amortization	Depreciation and amortization	417		20		14		451		Depreciation and amortization	147		5		5		157
Total operating expenses, net	Total operating expenses, net	1,558		309		2		1,869		Total operating expenses, net	543		114		2		659
Interest, net	Interest, net	(218)		1		(79)		(296)		Interest, net	(71)		(1)		(26)		(98)
Income before income taxes	Income before income taxes	744		91		(92)		743		Income before income taxes	163		22		(30)		155
Provision for income taxes	Provision for income taxes	183		23		(27)		179		Provision for income taxes	28		6		(12)		22
Net income attributable to common shareholders	Net income attributable to common shareholders	561		68		(65)		564		Net income attributable to common shareholders	135		17		(19)		133
Total assets	Total assets	21,946		1,110		1,338		24,394		Total assets	22,032		892		1,601		24,525
Cash paid for capital expenditures	Cash paid for capital expenditures	1,303		7		4		1,314		Cash paid for capital expenditures	338		2		2		342


		As of or for the Nine Months Ended September 30, 2019									As of or for the Three Months Ended March 31, 2020
		Regulated Businesses		Market-Based Businesses		Other		Consolidated			Regulated Businesses		Market-Based Businesses		Other		Consolidated
Operating revenues	Operating revenues	$	2,323	$	402	$	(17)	$	2,708	Operating revenues	$	720	$	128	$	(4)	$	844
Depreciation and amortization	Depreciation and amortization	394		26		10		430		Depreciation and amortization	135		6		4		145
Total operating expenses, net	Total operating expenses, net	1,455		322		(15)		1,762		Total operating expenses, net	503		99		3		605
Interest, net	Interest, net	(221)		3		(66)		(284)		Interest, net	(72)		1		(25)		(96)
Income before income taxes	Income before income taxes	671		86		(60)		697		Income before income taxes	162		30		(33)		159
Provision for income taxes	Provision for income taxes	169		22		(17)		174		Provision for income taxes	40		8		(13)		35
Net income attributable to common shareholders	Net income attributable to common shareholders	502		64		(43)		523		Net income attributable to common shareholders	123		22		(21)		124
Total assets	Total assets	19,787		1,060		1,391		22,238		Total assets	20,575		1,037		1,934		23,546
Cash paid for capital expenditures	Cash paid for capital expenditures	1,092		10		13		1,115		Cash paid for capital expenditures	404		3		1		408

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

The following discussion should be read together with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-Q, and in the Company’s Form 10-K for the year ended December 31, ~~2019.~~2020. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about the Company’s business, operations and financial performance. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements whenever they appear in this Form 10-Q. The Company’s actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those that are discussed under “Forward-Looking ~~Statements,”~~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 committee is actively involved in the review and discussion of the Company’s SEC filings.

Overview

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

Novel Coronavirus (COVID-19) Pandemic Update

American Water continues to monitor the ~~global impact of the novel coronavirus (“COVID-19”)~~COVID-19 pandemic and ~~take~~has taken steps to mitigate ~~potential risks~~adverse impacts to the Company. ~~American Water~~The Company has three main areas of focus as part of its response to COVID-19: the care and safety of its employees; the safety of its customers and the communities it serves; and the execution of its business continuity plan. American Water continues to work with its vendors to ~~understand the potential impacts to~~prevent disruptions in its supply chain, and, at this time, has not experienced, and does not anticipate, any material negative ~~impacts to its supply chain. American Water~~impacts. The Company also continues to monitor the impacts of the COVID-19 pandemic on its access to the capital markets, and to the extent such access is adversely affected, American Water may need to consider alternative sources of funding for its operations and for working capital, any of which could increase its cost of capital.

This pandemic continues to be an evolving situation, and American Water is monitoring developments affecting its employees, customers, contractors and vendors and will take additional actions as warranted. To date, theThe Company has experienced ~~COVID-19~~ financial impacts ~~including an increase~~resulting from lower revenues from the suspension of late fees and foregone reconnect fees in ~~uncollectible accounts expense, additional debt costs, and~~certain states, certain incremental operation and maintenance (“O&M”) ~~expenses.~~expenses, an increase in uncollectible accounts expense and additional debt costs. ~~The Company has also experienced decreased revenues as a result of the waiver of late fees and foregone reconnect fees.~~ These impacts are collectively referred to as “financial impacts.” See Note 3—Impact of Novel Coronavirus (COVID-19) Pandemic in the Notes to Consolidated Financial Statements for additional information. The extent to which COVID-19 may further impact American Water, including without limitation, its liquidity, financial condition, and results of operations, will depend on future developments, which presently ~~are highly uncertain and~~ cannot be predicted.

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As of ~~November 4, 2020,~~May 3, 2021, American Water has commission orders authorizing deferred accounting or cost recovery for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in three jurisdictions pending. ~~In addition~~One jurisdiction, Kentucky, issued an order denying a request to ~~approving deferred accounting,~~defer to ~~date, two~~a regulatory ~~jurisdictions have also approved cost recovery mechanisms for specified~~asset the financial impacts related to the COVID-19 ~~financial impacts. Regulatory~~pandemic. Other regulatory actions to date are presented in the table below:

Commission Actions

Description

States

Orders issued with deferred accounting

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

~~CA,~~ HI, IA, ~~IL,~~ IN, MD, ~~MO,~~ NJ, PA (a), VA, WV

~~Cost~~Orders issued with cost recovery ~~mechanisms~~

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

CA, IL, MO

Proceedings pending

~~Proceedings pending seeking commission orders authorizing~~Pending proceedings considering deferred accounting authorization for the future ~~cost~~ recovery of COVID-19 financial impacts.

~~KY,~~ NY, TN

~~Financing Activities~~

~~To ensure adequate liquidity given~~As of May 3, 2021, five states continue moratoria on the ~~impacts~~suspension of service disconnections due to non-payment. The moratoria on disconnects have expired in nine states. The Company continues to monitor the evolving COVID-19 pandemic ~~on debt~~ and ~~capital markets, on March 20, 2020, American Water~~will continue to comply with the current ordered moratoria and American Water Capital Corp. (“AWCC”), a wholly owned finance subsidiary of American Water, entered into a Term Loan Credit Agreement that provides for a term loan facility of up to $750 million (the “Term Loan Facility”). On March 20, 2020, AWCC borrowed $500 million under the Term Loan Facility, the proceeds of which were used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020. See Note 8—Short-Term Debt in the Notes to Consolidated Financial Statements for additional information.

On April 14, 2020, AWCC completed a $1.0 billion debt offering which included the sale of $500 million aggregate principal amount of its 2.80% senior notes due 2030 and $500 million aggregate principal amount of its 3.45% senior notes due 2050. Net proceeds of this offering were used to lend funds to parent company and its regulated subsidiaries, repay various senior notes and regulated subsidiary debt obligations at maturity, repay commercial paper obligations and short-term indebtedness under AWCC’s unsecured revolving credit facility, and for general corporate purposes. See Note 7—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.

The Company sought to take advantage of lower interest rates available in the capital markets in 2020 by refinancing long-term debt, where possible. In the first nine months of 2020, AWCC and the Company’s regulated subsidiaries issued in the aggregate $236 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.60% to 1.20%, maturing in 2023. The Company used these proceeds to retire an aggregate of $236 million of long-term debt issues with annual interest rates ranging from 4.45% to 5.60%.

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any future moratoria implemented.

Financial Results

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, diluted earnings per share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were ~~$1.46 and $3.11, respectively,~~$0.73, an increase of ~~$0.13 and $0.22~~$0.05 per diluted share, ~~respectively,~~ as compared to the prior year. ~~These increases were~~This increase was primarily driven by continued growth in the Regulated Businesses from infrastructure investment, acquisitions and organic growth, ~~as well as the benefit from depreciation expense related to the assets of the Company’s New York subsidiary, as required~~and were partially offset by assets held for sale accounting. Additionally, during the third quarter of 2020, net income increased as a result of warmer and drier than normal weather across several of the Company’s subsidiaries, andadditional costs associated with an increase in ~~revenues, primarily from the Company’s residential customers from many states experiencing stay at home activities due to the COVID-19 pandemic.~~

~~Partially offsetting these increases were estimated impacts from the COVID-19 pandemic on the~~claims in 2021 in Homeowner Services Group (“HOS”) from ~~some delay in new partner relationships and launch of new products. Additionally,~~extreme cold weather across the country during the first quarter of ~~2019, the Company recorded~~2021, primarily in Texas and Illinois, and a ~~$4 million pre-tax benefit from the reduction~~continuation of ~~the liability related~~more stay-at-home activities as experienced throughout most of 2020 due to the ~~Freedom Industries chemical spill settlement in West Virginia. See “Segment Results of Operations” below for additional information.~~COVID-19 pandemic.

Growth—through capital investment in infrastructure and regulated acquisitions, as well as strategic growth opportunities in the Market-Based Businesses

The Company expects to continue to grow its businesses, with the majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, and (ii) regulated acquisitions to expand the Company’s services to new customers. The Company also expects to continue to grow the Market-Based Businesses, which leverages its core water and wastewater competencies. The Company plans to invest approximately $1.9 billion across its footprint in 2021. During the first ~~nine~~three months of ~~2020,~~2021, the Company invested ~~$1.38 billion,~~$342 million, primarily in the Regulated Businesses, as discussed below:

Regulated Businesses - Growth and Optimization

•$~~1.31 billion~~336 million capital investment in the Regulated Businesses, the majority for infrastructure improvements and ~~replacements.~~replacements; and

•$593 million to fund acquisitions in the Regulated Businesses, which added approximately ~~23,100~~600 water and wastewater customers through the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, in addition to approximately ~~10,900~~3,600 customers added through organic growth through the ~~nine~~three months ended ~~September~~March 31, 2021.

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On April 6, 2021, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater assets of the York City Sewer Authority for $235 million, plus an amount of average daily revenue calculated for the period between the final meter reading and the date of closing. This system currently directly and indirectly serves more than 45,000 customers through bulk contracts. In connection with the execution of the acquisition agreement, the Company’s Pennsylvania subsidiary paid a $20 million deposit to the seller on April 30, ~~2020.~~2021, which is refundable in the event the agreement is terminated prior to closing of the acquisition. The Company expects to close this acquisition by the beginning of 2022, 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 the second half of 2021, pending regulatory approval.

During ~~October 2020,~~April 2021, the Company closed on the acquisition of ~~five~~three regulated water and wastewater systems adding approximately ~~13,100~~300 customers, for a total aggregate purchase price of ~~$74~~$1 million. As of ~~November 4, 2020,~~May 3, 2021, the Company has entered into agreements for pending acquisitions in the Regulated Businesses to add approximately ~~19,000~~86,000 additional customers. ~~The Company plans to invest approximately $1.9 billion as planned across its footprint in 2020.~~

~~Market-Based Businesses Growth~~

Military Services Group (“MSG”) was awarded the contract for ownership, operation and maintenance of the water and wastewater systems at Joint Base Lewis-McChord in Washington state, effective September 24, 2020. Joint Base Lewis-McChord is comprised of Fort Lewis and McChord Air Force Base. The joint base has a population of approximately 110,000, comprised of 40,000 active personnel, 60,000 family members and 15,000 civilian and contract employees. The total contract award includes estimated revenues of approximately $771 million over a 50-year period, subject to an annual economic price adjustment.

Sale of New York American Water Company, Inc.

On November 20, 2019, the Company and the Company’s New York subsidiary entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co, which it subsequently assigned to its indirect, wholly owned subsidiary Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), pursuant to which Liberty will purchase all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement. The Company’s regulated New York operations have approximately 125,000 ~~customer connections~~customers in the State of New York. Algonquin Power & Utilities Corp., Liberty’s ultimate parent company, executed and delivered an absolute and unconditional guaranty of the performance of all of the obligations of Liberty under the Stock Purchase Agreement. The Stock Purchase is subject to various conditions, including obtaining ~~regulatory~~ approvals and satisfying or waiving other closing conditions. The Stock Purchase Agreement has an initial termination date of June 30, 2021. Either party may ~~be terminated by either party if~~extend the ~~Stock Purchase is not completed by~~initial termination date beyond June 30, 2021, ~~subject~~and the Company intends to ~~extension for up to six months~~extend such date, if necessary, provided all of the conditions to closing have been or are capable of being met, other than obtaining regulatory approvals. If not otherwise extended, the ultimate termination date is December 31, 2021. Liberty may also terminate the Stock Purchase Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the Company’s New York subsidiary, taken as a whole.

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~~On October 28,~~In 2020, the Governor of ~~the State of~~ New York ~~issued a press release discussing~~ proposed legislation ~~intended to hold utilities accountable for failing to prepare for and respond to frequent and extreme weather events. In the press release, the Governor stated~~ that, ~~the proposed legislation also would,~~ among other things, ~~amend the utility franchise revocation process for recurring failures and require~~required the New York State Department of Public Service ~~Commission (the “NYSPSC”~~(“NYSDPS”) to study whether private water suppliers should be placed under municipal control. On February 3, 2021, the Governor issued a press release announcing that he directed the NYSDPS Special Counsel to commence and lead a municipalization feasibility study (the “Study”). The Study was released on March 29, 2021 finding that municipalization was feasible and in the public interest. The Study focused primarily on the imminent need for tax relief for the Company’s New York ~~subsidiary will review~~subsidiary’s customers and ~~respond~~included recommendations to ~~any such legislation if~~eliminate the Special Franchise Tax and ~~when~~create a ~~bill is introduced. Meanwhile,~~new public authority to potentially acquire all or a portion of the system. Despite the Study’s findings, the Governor’s budget was released without addressing the Special Franchise Tax and without the creation of an authority. The Company’s New York subsidiary continues to work constructively with the ~~NYSPSC~~NYSDPS, including through ongoing settlement discussions among all parties to the proceeding held on April 16, 2021, and ~~is taking the~~continues to take all actions necessary to ~~complete~~facilitate the completion of the Stock Purchase. Subject to satisfying or waiving the various conditions to closing, and assuming no prior termination of the ~~transaction is not terminated~~Stock Purchase Agreement by Liberty as described above, ~~prior to closing,~~ the Company ~~expects~~remains confident that the Stock Purchase will be ~~completed in early 2021.Accordingly, the~~completed.

The assets and related liabilities of the Company’s New York subsidiary were classified as held for sale on the Consolidated Balance Sheets as of ~~September 30, 2020.~~March 31, 2021. See Note 5—6—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.

Operational Excellence

The Company’s adjusted regulated O&M efficiency ratio, which is used as a measure of the operating performance of the Regulated Businesses, was ~~34.2%~~34.1% for the twelve months ended ~~September 30, 2020,~~March 31, 2021, as compared to ~~34.8%~~34.5% for the twelve months ended ~~September 30, 2019.~~March 31, 2020. The improvement in this ratio reflects the continued focus on operating costs, as well as an increase in operating revenues for the Regulated Businesses.

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

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

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


		For the Twelve Months Ended September 30,							For the Twelve Months Ended March 31,
(Dollars in millions)	(Dollars in millions)	2020			2019			(Dollars in millions)	2021			2020
Total operation and maintenance expenses	Total operation and maintenance expenses	$	1,605		$	1,526		Total operation and maintenance expenses	$	1,658		$	1,562
Less:	Less:							Less:
Operation and maintenance expenses—Market-Based Businesses	Operation and maintenance expenses—Market-Based Businesses	386			398			Operation and maintenance expenses—Market-Based Businesses	404			386
Operation and maintenance expenses—Other	Operation and maintenance expenses—Other	(20)			(49)			Operation and maintenance expenses—Other	(26)			(27)
Total operation and maintenance expenses—Regulated Businesses	Total operation and maintenance expenses—Regulated Businesses	1,239			1,177			Total operation and maintenance expenses—Regulated Businesses	1,280			1,203
Less:	Less:							Less:
Regulated purchased water expenses	Regulated purchased water expenses	146			133			Regulated purchased water expenses	152			139
Allocation of non-operation and maintenance expenses	Allocation of non-operation and maintenance expenses	34			32			Allocation of non-operation and maintenance expenses	43			31
Adjusted operation and maintenance expenses—Regulated Businesses (i)	Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,059		$	1,012		Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,085		$	1,033

Total operating revenues	Total operating revenues	$	3,756		$	3,558		Total operating revenues	$	3,822		$	3,640
Less:	Less:							Less:
Operating revenues—Market-Based Businesses	Operating revenues—Market-Based Businesses	536			540			Operating revenues—Market-Based Businesses	549			533
Operating revenues—Other	Operating revenues—Other	(18)			(22)			Operating revenues—Other	(17)			(22)
Total operating revenues—Regulated Businesses	Total operating revenues—Regulated Businesses	3,238			3,040			Total operating revenues—Regulated Businesses	3,290			3,129
Less:	Less:							Less:
Regulated purchased water revenues (a)	Regulated purchased water revenues (a)	146			133			Regulated purchased water revenues (a)	152			139
Revenue reductions for the amortization of excess accumulated deferred income taxes								Revenue reductions for the amortization of excess accumulated deferred income taxes	(46)			—
Adjusted operating revenues—Regulated Businesses (ii)	Adjusted operating revenues—Regulated Businesses (ii)	$	3,092		$	2,907		Adjusted operating revenues—Regulated Businesses (ii)	$	3,184		$	2,990

Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	34.2		%	34.8		%	Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	34.1		%	34.5		%

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

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Regulatory Matters

General Rate Cases and Infrastructure Surcharges

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

(In millions) During the Three Months Ended September 30, 2020 During the Nine Months Ended September 30, 2020
General rate cases by state:
Indiana (a) $ — $ 13
California (b) — 5
Total general rate cases $ — $ 18
Infrastructure surcharges by state:
Pennsylvania (effective January 1, 2020, April 1, 2020 and July 1, 2020) $ 4 $ 19
Kentucky (effective July 1, 2020) 1 1
New Jersey (effective January 1, 2020 and June 29, 2020) — 20
Missouri (effective June 27, 2020) — 10
Tennessee (c) — 2
Illinois (effective January 1, 2020) — 7
West Virginia (effective January 1, 2020) �� 3
Total infrastructure surcharges $ 5 $ 62


(In millions)	During the Three Months Ended March 31, 2021		During the Three Months Ended March 31, 2020
General rate cases by state:
Pennsylvania (a)	$	70	$	—
California (b)	—		5
Total general rate cases	$	70	$	5

Infrastructure surcharges by state:
Indiana (effective March 17, 2021)	$	8	$	—
Pennsylvania (effective January 1, 2021 and January 1, 2020)	8		10
Illinois (effective January 1, 2021 and January 1, 2020)	7		7
West Virginia (effective January 1, 2021 and January 1, 2020)	5		3
Tennessee (effective January 1, 2021)	3		—
New Jersey (effective January 1, 2020)	—		10
Total infrastructure surcharges	$	31	$	30

(a)The Company’s ~~Indiana~~Pennsylvania subsidiary ~~filed~~was authorized additional annualized revenues of $90 million, excluding a reduction in revenues for ~~and, on May 4, 2020, received approval~~tax savings passed back to ~~implement,~~customers as a ~~$13~~result of the TCJA, over two steps. The EADIT reduction in revenues is $19 million. The overall increase, net of TCJA, is $71 million ~~increase for~~in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step will be effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate ~~year, effective May~~assumption method (“ARAM”), and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annually includes both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, ~~2020.~~2018 through December 31, 2020 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.

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

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

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

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

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

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Pending General Rate Case Filings

On August 28, 2020, the Company’s Iowa subsidiary filed a general rate case requesting $3 million in annualized incremental revenues. ~~Intervenor~~Office of Consumer Advocate (“OCA”) and intervenor direct testimony ~~is due~~was filed on December 17, 2020 ~~with evidentiary~~and cross-reply testimony was filed on December 31, 2020. The Company’s Iowa subsidiary reply testimony was filed on January 14, 2021, and OCA rebuttal testimony was filed on February 8, 2021. Evidentiary hearings ~~scheduled to start~~were held on March 3 and March 4, 2021. An order is ~~expected by April~~anticipated between May 4, 2021 and June 30, 2021 with new rates effective byin July ~~1, 2021.~~

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

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

On July 1, 2019, the Company’s California subsidiary filed a general rate case requesting $26 million in annualized incremental revenues for 2021, and increases of $10 million and $11 million in the escalation year of 2022 and the attrition year of 2023, respectively. On October 11, 2019, the Company filed its ~~100 day~~100-day update for the same proceeding and updated the request to $27 million in annualized incremental revenues for 2021, and increases of $10 million ~~and $10 million~~ in both the escalation year of 2022 and the attrition year of 2023, respectively. ~~As a result of the COVID-19 pandemic,~~On September 10, 2020, the California Public Utilities Commission (the “CPUC”) suspended the procedural schedule in the general rate case and directed the parties to participate in an alternative dispute resolution process and provide a joint status conference statement by November 15, 2020. On September 10, 2020, the CPUC approved the Company’s California subsidiary’s motion for interim rates, establishing a memorandum account to track the difference between interim and final rates adopted by the CPUC in this proceeding, which ~~will have an~~were effective ~~date of~~on January 1, 2021. Following settlement discussions among all parties to the proceeding, on January 22, 2021 and January 25, 2021, the Company’s California subsidiary filed with the CPUC a comprehensive settlement entered into among the Company’s California subsidiary, the Public Advocates Office, and other intervenors. These settlement agreements resolved all matters in dispute among the parties to the settlements. These settlements, as well as resolution of issues raised by non-settling parties, are now before the CPUC for approval.

~~In 2018,~~ On January 5, 2021, the Company’s ~~Virginia~~California subsidiary filed a general rate case requesting $5 million in annualized incremental revenues. On May 1, 2019, interim rates subject to refund were implemented and will remain in effect until a final decision is received on this general rate case filing. On June 18, 2020, the Company’s Virginia subsidiary, Virginia State Corporation Commission Staff, the Office of the Attorney General, Division of Consumer Counsel, and the City of Alexandria submitted a ~~partial stipulation~~request to further delay by one year its cost of ~~settlement.~~capital filing and maintain the authorized cost of capital through 2022. On ~~July 10, 2020,~~February 22, 2021, the ~~hearing examiner recommended that~~CPUC denied the ~~Commission approve~~request to further delay the ~~partial settlement. On July 31, 2020, the parties filed comments to the hearing examiner’s reports focused~~cost of capital filing. The Company’s California subsidiary submitted its cost of capital application on the outstanding issues in the case, which include approval of the partial settlement and the appropriate capital structure to apply for the Company’s future earnings tests. The Company is awaiting a final decisionMay 3, 2021. Once approved by the ~~Commission. Virginia does not have a statutory date for~~CPUC, the ~~Commission to make a final decision in this case.~~new authorized cost of capital will be effective January 1, 2022.

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~~Pending Infrastructure Surcharge Filings~~

~~Presented in the table below are the Company’s pending infrastructure surcharge filings representing annualized incremental revenues:~~


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

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

~~Tax Matters~~

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

Legislative Updates

During ~~2020,~~2021, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of ~~November 4, 2020:~~May 3, 2021:

•Indiana House Enrolled Act ~~1131~~349 establishes ~~an appraisal process~~a tax rider for ~~non-municipal~~water and wastewater utilities based upon a change in state or federal income tax law. The legislation also requires the Indiana Finance Authority to ~~establish fair~~prioritize loans that secure long-term benefits over shorter term projects.

During 2021, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of May 3, 2021:

•The Kentucky General Assembly has adopted House Bill 465 relating to the acquisition of water and wastewater utilities. The legislation affirms a method in valuing water and wastewater systems above net book value and ~~creates~~establishes a ~~presumption that the appraised value is a reasonable purchase price. Additionally, all new municipal systems~~timeline of 60 days for Public Service Commission approval of an acquisition. The legislation will ~~now~~ be ~~regulated for 10 years.~~effective on June 30, 2021.

•Indiana ~~Senate~~House Enrolled Act ~~254 authorizes recovery without~~1287 creates a ~~full rate case~~mechanism that reduces the required upfront cost to new customers for ~~service enhancements for health, safety or environmental concerns for above ground infrastructure, and exempts relocation from distribution system improvement charge recovery caps.~~

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

•~~West Virginia Senate Bill 739 allows the Public Service Commission of West Virginia~~utility to ~~force utility management changes up~~extend service to ~~and including an acquisition of a distressed or failing water or wastewater system, based~~underserved areas. This legislation will be effective on financial, managerial and technical ability among other factors, by a neighboring system that has the ability to assume control and protect consumers. The bill also includes guidance for customer notification, commission orders, and new rate mechanisms for cost recovery of these acquisitions.

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

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

•Virginia Senate Bill 831 directs the Virginia State Corporation Commission to establish fair market value for the state, and the legislation authorizes a water or sewer public utility acquiring a water or sewer system to elect to have its rate base established by using the fair market value. The Virginia State Corporation Commission issued an order on August 27, 2020 adopting the proposed rules governing Water or Wastewater Utility Applications Seeking Fair Valuation of Acquisitions of Municipal Water or Wastewater Systems effective as of OctoberJuly 1, ~~2020.~~2021.

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

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Condemnation and Eminent Domain

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

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

OnIn August ~~19,~~ 2019, the MPWMD’s General Manager issued a report that recommends that the MPWMD board (1) develop criteria to determine which water systems should be considered for ~~acquisition,~~acquisition; (2) examine the feasibility of acquiring the Monterey system assets and consider public ownership of smaller systems only if the MPWMD becomes the owner of a larger ~~system,~~system; (3) evaluate whether itthe acquisition of the Monterey system assets by the MPWMD is in the public interest ~~to acquire the Monterey system assets~~ and sufficiently ~~satisfy~~satisfies the criterion of “feasible” as provided in Measure J,J; (4) ensure there is significant potential for cost savings before agreeing to commence an ~~acquisition,~~acquisition; and (5) develop more fully alternate operating plans before deciding whether to consider a Resolution of Necessity.

OnIn November 6, 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (1) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (2) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (3) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. On June 12, 2020, the MPWMD issued a draft environmental impact report for the potential acquisition of the Monterey system assets and a related district boundary adjustment that would be required if the MPWMD were to acquire and operate certain of the Monterey system assets located outside the MPWMD’s ~~boundaries, and on July 31, 2020, the Company’s California subsidiary submitted comments to this draft report.~~boundaries. On September 15, 2020, the MPWMD gave notice of its intention to appraise the Monterey system assets and related property interests. On September 29, 2020, the Company’s California subsidiary declined to make the Monterey system assets and related property interests available for inspection or to comply with any of the other requests contained in the MPWMD’s notice. On October 7, 2020, the MPWMD issued a final environmental impact report (“FEIR”), and on ~~October 29,~~November 4, 2020, the ~~MPWMD’s board of directors~~MPWMD certified the FEIR, ~~as drafted,~~ which purports to analyze 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. ~~The~~On November 25, 2020, the Company’s California subsidiary ~~is reviewing~~filed a petition challenging this certification in court. See Item 3—Legal Proceedings—Challenge of Certification—Proposed Monterey System Final Environmental Impact Report in the ~~FEIR and is considering further action.~~Company’s Form 10-K.

~~The~~On February 26, 2021, the MPWMD ~~will be required to file~~filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 5658 parcels of land into the MPWMD’s boundaries. Approval by LAFCO is a precondition to the MPWMD’s ability to file an eminent domain proceeding against the Company’s California subsidiary to acquire the Monterey system assets. If the MPWMD were to make a final determination that an acquisition of the Monterey system assets is feasible, it would then need to file a multi-year eminent domain proceeding against the Company’s California subsidiary. In that proceeding, it would first need to establish its right to take the Monterey system assets. If such right is established, the amount of just compensation to be paid to the California subsidiary for such assets would then need to be determined. The MPWMD has stated that it anticipates filing such an eminent domain proceeding in late 2021 or early 2022.

Also, five municipalities in the Chicago, Illinois area (approximately 30,300 customers in total) formed a water agency and filed an eminent domain lawsuit against the Company’s Illinois subsidiary in January 2013, seeking to condemn the water pipeline that serves those five municipalities. Before filing its eminent domain lawsuit, the water agency made an offer of $38 million for the pipeline. The parties have filed with the court updated valuation reports. ~~Although the date of the~~A valuation trial ~~is not currently~~has been scheduled ~~it is not likely to commence until~~for the ~~second quarter~~week of October 25, 2021.

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

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Consolidated Results of Operations

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

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

The main factors contributing to the $24 million and $41 million increases in net income attributable to common shareholders for the three and nine months ended September 30, 2020, respectively, are described in “Segment Results of Operations” below. Partially offsetting these increases in net income was higher interest expense at parent company supporting growth in the business during the three and nine months ended September 30, 2020.


	For the Three Months Ended March 31,
		2021		2020
(In millions)
Operating revenues		$	888	$	844
Operating expenses:
Operation and maintenance		419		383
Depreciation and amortization		157		145
General taxes		83		77
Total operating expenses, net		659		605
Operating income		229		239
Other income (expense):
Interest, net		(98)		(96)
Non-operating benefit costs, net		20		13
Other, net		4		3
Total other income (expense)		(74)		(80)
Income before income taxes		155		159
Provision for income taxes		22		35
Net income attributable to common shareholders		$	133	$	124

Segment Results of Operations

The Company’s operating segments are comprised of the revenue-generating components of its business for which separate financial information is internally produced and regularly used by management to make operating decisions, assess performance and allocate resources. The Company operates its business primarily through one reportable segment, the Regulated Businesses segment. The Company also operates market-based businesses that, individually, do not meet the criteria of a reportable segment in accordance with GAAP, and are collectively presented as the Market-Based Businesses, which is consistent with how management assesses the results of these businesses.

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Regulated Businesses Segment

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
(In millions)	(In millions)									(In millions)
Operating revenues	Operating revenues	$	945	$	883	$	2,468	$	2,323	Operating revenues		$	755	$	720
Operation and maintenance	Operation and maintenance	335		310		932		875		Operation and maintenance		320		298
Depreciation and amortization	Depreciation and amortization	138		132		417		394		Depreciation and amortization		147		135
General taxes	General taxes	69		64		211		195		General taxes		76		72
(Gain) on asset dispositions and purchases		—		(1)		(3)		(9)
Other income (expenses)	Other income (expenses)	(56)		(64)		(166)		(196)		Other income (expenses)		(48)		(54)
Income before income taxes	Income before income taxes	346		313		744		671		Income before income taxes		163		162
Provision for income taxes	Provision for income taxes	85		77		183		169		Provision for income taxes		28		40
Net income attributable to common shareholders	Net income attributable to common shareholders	261		236		561		502		Net income attributable to common shareholders		135		123

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Operating Revenues

Presented in the tables below is information regarding the main components of the Regulated Businesses’ operating ~~revenues, with explanations for material variances provided in the ensuing discussions:~~revenues:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
(In millions)	(In millions)									(In millions)
Water services:	Water services:									Water services:
Residential	Residential	$	562	$	504	$	1,435	$	1,297	Residential		$	430	$	399
Commercial	Commercial	187		188		471		477		Commercial		144		142
Fire service	Fire service	37		37		110		106		Fire service		37		37
Industrial	Industrial	38		38		101		104		Industrial		32		32
Public and other	Public and other	60		63		178		183		Public and other		53		56
Total water services	Total water services	884		830		2,295		2,167		Total water services		696		666
Wastewater services		48		43		137		123
Wastewater services:										Wastewater services:
Residential										Residential		36		31
Commercial										Commercial		9		8
Industrial										Industrial		1		1
Public and other										Public and other		4		3
Total wastewater services										Total wastewater services		50		43
Other (a)	Other (a)	13		10		36		33		Other (a)		9		11
Total operating revenues	Total operating revenues	$	945	$	883	$	2,468	$	2,323	Total operating revenues		$	755	$	720

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


		For the Three Months Ended September 30,		For the Nine Months Ended September 30,			For the Three Months Ended March 31,
		2020	2019	2020	2019			2021	2020
(Gallons in millions)	(Gallons in millions)					(Gallons in millions)
Billed water services volumes:	Billed water services volumes:					Billed water services volumes:
Residential	Residential	57,917	50,962	135,875	125,835	Residential		36,859	35,550
Commercial	Commercial	23,556	24,207	56,434	60,840	Commercial		15,898	17,080
Industrial	Industrial	9,925	10,423	26,422	28,232	Industrial		8,069	8,439
Fire service, public and other	Fire service, public and other	14,783	14,541	37,414	37,751	Fire service, public and other		10,863	11,546
Billed water services volumes		106,181	100,133	256,145	252,658
Total billed water services volumes						Total billed water services volumes		71,689	72,615

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For the three months ended ~~September 30, 2020,~~March 31, 2021, operating revenues increased ~~$62~~$35 million, primarily due to: (i) ~~$36~~$43 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; (ii) ~~$11~~$8 million increase from water and wastewater acquisitions, as well as organic growth in existing systems; and (iii) ~~$17 million increase in demand, including an estimated $14 million from warmer and drier than normal weather in the third quarter of 2020, and an estimated $10 million of favorable impact from theCOVID-19 pandemic, primarily from increased revenues from the Company’s residential customers.~~

For the nine months ended September 30, 2020, operating revenues increased $145 million, primarily due to: (i) $97 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; (ii) $27 million increase from water and wastewater acquisitions, as well as organic growth in existing systems; (iii) $26 million increase in demand, primarily driven by weather, including warmer and drier than normal weather in the third quarter of 2020 and unusually wet weather conditions experienced in the Northeast and Midwest during the second quarter of 2019; and (iv) $5$20 million decrease in ~~other operating~~ revenues due to the ~~impacts~~amortization of ~~the~~ EADIT, which is generally offset with a reduction in income tax expense.

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Operation and Maintenance

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
(In millions)	(In millions)									(In millions)
Employee-related costs	Employee-related costs	$	125	$	116	$	369	$	348	Employee-related costs		$	130	$	125
Production costs	Production costs	100		95		253		239		Production costs		78		72
Operating supplies and services	Operating supplies and services	65		57		175		168		Operating supplies and services		57		56
Maintenance materials and supplies	Maintenance materials and supplies	18		17		56		54		Maintenance materials and supplies		24		19
Customer billing and accounting	Customer billing and accounting	14		15		41		39		Customer billing and accounting		17		14
Other	Other	13		10		38		27		Other		14		12
Total	Total	$	335	$	310	$	932	$	875	Total		$	320	$	298

For the three months ended ~~September 30, 2020,~~March 31, 2021, operation and maintenance expense increased ~~$25~~$22 million, primarily due to: (i) ~~$9 million increase in employee-related costs primarily from higher headcount and related compensation expense supporting growth in the businesses; (ii)~~ $5 million increase in production costs primarily due to higher purchased water usage and costs across several subsidiaries, including the Company’s California and Illinois subsidiaries; and (iii) $8 million increase in operating supplies and technology services.

~~For the nine months ended September 30, 2020, operation and maintenance expense increased $57 million, primarily due to: (i) $21~~ million increase in employee-related costs primarily from higher headcount and related compensation expense in support of the growth in the ~~business, as well as higher group insurance costs due to higher premiums in 2020, and higher pension expense due to higher service costs;~~business; (ii) ~~$14~~$6 million increase in production costs primarily due to higher purchased water usage and costs across several ~~subsidiaries, including the Company’s California and Illinois~~ subsidiaries; (iii) $7$5 million increase in ~~operating~~maintenance materials and supplies primarily due to timing of maintenance and ~~technology services;~~tank painting projects in the Company’s New Jersey subsidiary; and (iv) ~~$11~~$3 million increase in ~~other operation~~customer billing and ~~maintenance expense principally~~accounting primarily due to ~~favorable insurance claims activity in 2019,~~ higher ~~property insurance premiums and a $4 million reduction to the liability related to the Freedom Industries chemical spill, recorded in the first quarter of 2019.~~uncollectible costs.

Depreciation and Amortization

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, depreciation and amortization increased $6$12 million, ~~and $23 million, respectively,~~ primarily due to additional utility plant placed in service ~~partially offset by the pre-tax benefit of $3 million~~from capital infrastructure investments and $10 million for the three and nine months ended September 30, 2020, respectively, from depreciation expense not recorded related to the assets of the Company’s New York subsidiary, as required by assets held for sale accounting.

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acquisitions.

General Taxes

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, general taxes increased $5$4 million, ~~and $16 million, respectively,~~ primarily due to increased capital investments, ~~which resulted in increased property tax assessments,~~including acquisitions and an increase in the New Jersey Gross Receipts ~~Tax, and other tax rate increases across the Company’s footprint. Additionally, the Company’s Pennsylvania subsidiary received tax credits lowering the Company’s general tax expense in 2019.~~

~~(Gain) on Asset Dispositions and Purchases~~

For the three and nine months ended September 30, 2020, (gain) on asset dispositions and purchases decreased $1 million and $6 million, respectively. The decrease during the nine months ended September 30, 2020 was primarily due to a $6 million pre-tax gain recognized on a land sale in the Company’s Pennsylvania subsidiary during the second quarter of 2019.Tax.

Other Income (Expenses)

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, other income (expenses) increased $8$6 million, ~~and $30 million, respectively,~~ primarily due to the reduction in the non-service cost components of pension and other postretirement benefits expense resulting from higher asset ~~returns and favorable actuarial performance.~~returns.

Provision for Income Taxes

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the ~~Company’s~~Regulated Businesses’ provision for income taxes ~~increased $8 million and $14 million, respectively.~~decreased $12 million. The ~~Company’s~~Regulated Businesses’ effective income tax rate was ~~25.0%~~17.2% and ~~24.5%~~24.7% for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and 24.1% and 25.0% for the nine months ended September 30, 2020 and 2019,~~ respectively. The ~~increase~~decrease in the ~~Company’s~~Regulated Businesses’ effective income tax rate for the three months ended ~~September 30, 2020 was primarily due to a lower effective tax rate in 2019. The decrease in the Company’s effective income tax rate for the nine months ended September 30, 2020~~March 31, 2021 was primarily due to an increase in the amortization of EADIT ~~due to regulatory orders resulting~~ from the ~~TCJA, and an increase~~settlement of regulatory orders. The amortization of EADIT is generally offset with reductions in ~~stock based compensation benefits.~~revenue.

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Market-Based Businesses

Presented in the table below is information for the Market-Based ~~Businesses, with explanations for material variances provided in the ensuing discussions:~~Businesses:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
(In millions)	(In millions)									(In millions)
Operating revenues	Operating revenues	$	139	$	136	$	399	$	402	Operating revenues		$	137	$	128
Operation and maintenance	Operation and maintenance	99		98		284		292		Operation and maintenance		107		91
Depreciation and amortization	Depreciation and amortization	7		9		20		26		Depreciation and amortization		5		6
Income before income taxes	Income before income taxes	31		30		91		86		Income before income taxes		22		30
Provision for income taxes	Provision for income taxes	7		7		23		22		Provision for income taxes		6		8
Net income attributable to common shareholders	Net income attributable to common shareholders	23		23		68		64		Net income attributable to common shareholders		17		22

Operating Revenues

For the three months ended ~~September 30, 2020,~~March 31, 2021, operating revenues increased $3$9 million primarily due ~~to: (i) $15 million~~to an increase in ~~MSG from increased~~ capital ~~upgrades~~and O&M projects in the Military Services Group (“MSG”), across several of the Company’s military bases, primarily at ~~Fort Leonard Wood, Wright-Patterson Air Force Base and Fort Polk, and the addition of two new military contracts in 2019 (Joint Base San Antonio and~~ the United States Military Academy at West Point, New York); (ii) $2 million increase in HOS primarily from price increases for existing customers and contract growth; (iii) $11 million decrease from the sale of the Company’s Keystone Clearwater Solutions, LLC (“Keystone”) operations in the fourth quarter of 2019; and (vi) $2 million decrease from the expiration of the Company’s contract with the Township of Edison, New Jersey in 2019.

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For the nine months ended September 30, 2020, operating revenues decreased $3 million, primarily due to: (i) $41 million decrease from the sale of the Company’s Keystone operations in the fourth quarter of 2019; (ii) $5 million decrease from the expiration of the Company’s contract with the Township of Edison, New Jersey in 2019; (iii) $3 million decrease from the sale and termination of several of the Company’s Contract Services Group’s O&M contracts during 2019; (iv) $39 million increase in MSG from increased capital upgrades primarily atYork, Fort Leonard Wood ~~Fort Polk, Wright-Patterson Air Force Base~~ and ~~Fort Hood, and the addition of two new military contracts in 2019 (Joint~~Joint Base San ~~Antonio and the United States Military Academy at West Point, New York); and (v) $10 million increase in HOS primarily from price increases for existing customers and contract growth.~~Antonio.

Operation and Maintenance

For the three months ended ~~September 30, 2020, operation and maintenance~~March 31, 2021, O&M expense increased $1$16 million, primarily due ~~to:~~to (i) ~~$13 million increase in~~costs associated with MSG from increased capital upgrades as discussed above; and (ii) ~~$9 million decrease~~additional costs associated with an increase of claims in 2021 in HOS, from extreme cold weather across the ~~sale~~country during the first quarter of ~~the Company’s Keystone operations,~~2021, primarily in Texas and Illinois, and a continuation of more stay-at-home activities as ~~discussed above; and (iii) $3 million decrease from the expiration~~experienced throughout most of ~~the Company’s contract with the Township of Edison, New Jersey in 2019.~~

~~For the nine months ended September 30,~~ 2020 operation and maintenance expense decreased $8 million, primarily due to: (i) $34 million decrease from the sale of the Company’s Keystone operations, as discussed above; (ii) $5 million decrease from the expiration of the Company’s contract with the Township of Edison, New Jersey in 2019; and (iii) $33 million increase in MSG from increased capital upgrades, as discussed above.

~~Depreciation and Amortization~~

~~For the three and nine months ended September 30, 2020, depreciation and amortization decreased $2 million and $6 million, respectively, primarily~~ due to the ~~sale of the Company’s Keystone operations in the fourth quarter of 2019.~~COVID-19 pandemic.

Liquidity and Capital Resources

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

Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets, and, if and to the extent necessary, borrowings under AWCC’s revolving credit ~~facility. In light~~facility, and, in the future, issuances of ~~the impact of the COVID-19 pandemic on the financial and capital markets, on~~ ~~March 20, 2020, AWCC entered into the~~ ~~$750 million~~ ~~Term Loan Facility and immediately executed a~~ ~~$500 million~~ ~~draw thereunder to support the Company’s short-term liquidity by retaining that amount in cash.~~ ~~The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020. The Term Loan Facility commitments terminate on March 19, 2021.~~ During the first nine months of 2020, the Company also utilized its existing sources of liquidity, such as current cash balances, cash flows from operations and borrowings under the revolving credit facility as necessary or desirable to meet the Company’s short-term liquidity requirements. The Company had cash and cash equivalents of $560 million as of ~~September 30, 2020~~.

equity. The Company’s revolving credit facility provides $2.25 billion in aggregate total commitments from a diversified group of financial institutions. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support, and to provide for the issuance of up to $150 million in letters of credit. The maximum aggregate principal amount of short-term borrowings authorized for issuance under AWCC’s commercial paper program is $2.10 billion. Subject to satisfying certain conditions, the credit agreement also permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million. As of September 30, 2020, AWCC had no outstanding borrowings and $76 million of outstanding letters of credit under the revolving credit facility, and $545 million of outstanding commercial paper, with $1.63 billion available to fulfill short-term liquidity needs and to issue letters of credit. During the first six months of 2020, the Company borrowed, and subsequently repaid $650 million under the revolving credit facility. The weighted-average interest rate on AWCC’s outstanding short-term borrowings, including $500 million of outstanding principal on the Term Loan Facility (as defined below) as of ~~September 30,~~December 31, 2020, was approximately ~~0.55%~~0.17% and ~~1.86%~~0.53% at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. ~~On April 1, 2020,~~

To ensure adequate liquidity given the ~~termination date~~impacts of the ~~credit agreement with respect~~COVID-19 pandemic on debt and capital markets, on March 20, 2020, AWCC entered into a Term Loan Credit Agreement, by and among parent company, AWCC and the lenders party thereto (the “Term Loan Facility”). The proceeds were used for general corporate purposes of AWCC and American Water and to ~~AWCC’s revolving credit facility~~provide additional liquidity. As of December 31, 2020, $500 million of principal was ~~extended, pursuant to~~outstanding under the ~~terms of~~Term Loan Facility. The Term Loan Facility commitments terminated at maturity on March 19, 2021 and the ~~credit agreement, from March 21, 2024 to March 21, 2025.~~Term Loan Facility was repaid in full.

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Presented in the ~~table~~tables below is the aggregate credit facility commitments, commercial paper limit and letter of credit availability under the revolving credit facility, as well as the available capacity for ~~each as of September 30, 2020:~~each:

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


	As of March 31, 2021
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding debt	(1,115)		(76)		(1,191)
Remaining availability as of March 31, 2021	$	985	$	74	$	1,059

(a)Total remaining availability of ~~$1.63~~$1.06 billion as of ~~September 30,~~March 31, 2021 may be accessed through revolver draws.


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

(a)Total remaining availability of $1.39 billion as of December 31, 2020 may be accessed through revolver draws.

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


		Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity			Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)	(In millions)							(In millions)
Available liquidity as of September 30, 2020		$	560	$	1,629	$	2,189
Available liquidity as of March 31, 2021								Available liquidity as of March 31, 2021	$	69	$	1,059	$	1,128
Available liquidity as of December 31, 2020								Available liquidity as of December 31, 2020	$	547	$	1,388	$	1,935

The Company believes that existing sources of liquidity are sufficient to meet its cash requirements for the foreseeable future. ~~However, as the impacts of the COVID-19 pandemic on the economy, the financial and capital markets, and the Company’s operations evolve, the Company will continue to assess its liquidity needs.~~ Though not currently anticipated, no assurances can be provided that the lenders will meet existing commitments to AWCC under the revolving credit facility, or that AWCC will be able to access the commercial paper or loan markets in the future on acceptable terms.In the event of a sustained market deterioration, the Company may need to obtain additional sources of liquidity, which would require the Company to evaluate available alternatives and take appropriate actions. See Note 8—9—Short-Term Debt in the Notes to Consolidated Financial Statements for additional information.

On April 14, 2020, AWCC completed a $1.0 billion debt offering, which included the sale of $500 million aggregate principal amount of its 2.80% senior notes due 2030 and $500 million aggregate principal amount of its 3.45% senior notes due 2050. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of $989 million. AWCC used the net proceeds of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to fund sinking fund payments for, and to repay at maturity, $28 million in aggregate principal amount of outstanding long-term debt of AWCC and certain of the Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper obligations and short-term indebtedness under AWCC’s $2.25 billion unsecured revolving credit facility; and (iv) for general corporate purposes. In connection with the debt offering, the Company entered into four 10-year treasury lock agreements during March 2020, each with a notional amount of $100 million, to reduce interest rate exposure on debt. These treasury lock agreements had an average fixed rate of 0.94% and were terminated on April 8, 2020. See Note 7—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.

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Cash Flows Provided by Operating Activities

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


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019			2021		2020
(In millions)	(In millions)					(In millions)
Net income	Net income	$	564	$	523	Net income	$	133	$	124
Add (less):	Add (less):					Add (less):
Depreciation and amortization	Depreciation and amortization	451		430		Depreciation and amortization	157		145
Deferred income taxes and amortization of investment tax credits	Deferred income taxes and amortization of investment tax credits	174		163		Deferred income taxes and amortization of investment tax credits	26		38
Other non-cash activities (a)	Other non-cash activities (a)	(25)		(29)		Other non-cash activities (a)	(40)		(13)
Changes in working capital (b)	Changes in working capital (b)	(139)		(89)		Changes in working capital (b)	(88)		(104)
Settlement of cash flow hedges		(6)		(30)
Pension and postretirement healthcare contributions	Pension and postretirement healthcare contributions	(31)		(23)		Pension and postretirement healthcare contributions	(9)		(10)
Net cash flows provided by operations		$	988	$	945
Net cash flows provided by operating activities						Net cash flows provided by operating activities	$	179	$	180

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

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

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, cash flows provided by operating activities ~~increased $43~~decreased $1 million, primarily due to the change in other non-cash activities including activity in regulatory accounts, partially offset by an increase in net income and the decrease in cash paid for the settlement of cash flow hedges in 2020 compared to the prior year in connection with AWCC’s 2020 and 2019 debt offerings. The main factors contributing to the increase in net income are described in “Consolidated Results of Operations” and “Segment Results of Operations” above. Partially offsetting these increases was a change in working capital. The change in working capital ~~was primarily the result of the following: (i) an increase in~~due to decreased accounts receivable ~~net due to~~resulting from increased revenues compared to the same period in the prior year and the impact of the COVID-19 pandemic in 2020; and (ii) a increase in unbilled revenues as a result of MSG achieving significant capital project milestones during 2020.collections.

Cash Flows Used in Investing Activities

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


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019			2021		2020
(In millions)	(In millions)					(In millions)
Net capital expenditures	Net capital expenditures	$	(1,314)	$	(1,115)	Net capital expenditures	$	(342)	$	(408)
Acquisitions	Acquisitions	(59)		(85)		Acquisitions	(3)		(21)
Other investing activities, net (a)	Other investing activities, net (a)	(73)		(54)		Other investing activities, net (a)	(18)		(21)
Net cash flows used in investing activities	Net cash flows used in investing activities	$	(1,446)	$	(1,254)	Net cash flows used in investing activities	$	(363)	$	(450)

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

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, cash used in inv~~esting~~esting activities ~~increased $192~~decreased $87 million, primarily due to ~~continued investment across all infrastructure categories, mainly replacement~~the timing of payments for capital expenditures and ~~renewal~~the timing of transmission and distribution infrastructure in the Company’s Regulated Businesses. Additionally, proceeds from the sale of assets were higher in 2019 compared to 2020. Partially offsetting these increases was a decrease in acquisitions primarily due to the acquisition of the City of Alton, Illinois’ regional wastewater system for $55 million in the second quarter of 2019. acquisitions. The Company plans to invest approximately $1.9 billion ~~as planned~~ across its footprint in ~~2020.~~2021.

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Cash Flows ~~Provided by~~from Financing Activities

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


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019			2021		2020
(In millions)	(In millions)					(In millions)
Proceeds from long-term debt	Proceeds from long-term debt	$	1,250	$	1,191	Proceeds from long-term debt	$	2	$	8
Repayments of long-term debt	Repayments of long-term debt	(266)		(153)		Repayments of long-term debt	(25)		(6)
Proceeds from term loan		500		—

Net repayments of short-term borrowings		(242)		(491)
(Repayments of) proceeds from term loan						(Repayments of) proceeds from term loan	(500)		500
Net proceeds from revolving credit facility borrowings						Net proceeds from revolving credit facility borrowings	—		215
Net proceeds from short-term borrowings						Net proceeds from short-term borrowings	334		139
Dividends paid	Dividends paid	(290)		(263)		Dividends paid	(100)		(90)
Anti-dilutive stock repurchases		—		(36)
Other financing activities, net (a)	Other financing activities, net (a)	14		18		Other financing activities, net (a)	(4)		2
Net cash flows provided by financing activities		$	966	$	266
Net cash flows (used in) provided by financing activities						Net cash flows (used in) provided by financing activities	$	(293)	$	768

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

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, cash flows provided by financing activities ~~increased $700~~ decreased $1,061 million, primarily due to the $500 million borrowed under the Term Loan Facility during the first quarter of 2020 ~~lower~~which was repaid in full at maturity in 2021 and $215 million net ~~repayments~~borrowings under the revolving credit facility during the first quarter of ~~commercial paper borrowings and no anti-dilutive stock repurchases in~~ 2020, partially offset by ~~higher net repayments of long-term debt and higher dividends paid in 2020.~~increased proceeds from commercial paper borrowings.

Debt Covenants

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

Covenants in certain long-term notes ~~the Term Loan Facility~~ and the revolving credit facility require the Company to maintain a ratio of consolidated debt to consolidated capitalization (as defined in the relevant documents) of not more than 0.70 to 1.00. On ~~September 30, 2020,~~March 31, 2021, the Company’s ratio was 0.62 to 1.00 and therefore the Company was in compliance with the covenants.

Security Ratings

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of ~~November 4, 2020~~May 3, 2021 as issued by the following rating agencies:

Securities

Moody's Investors Service

Standard & Poor's Ratings Service

Rating outlook

Stable

Senior unsecured debt

Baa1

Commercial paper

P-2

A-1

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

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

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

Dividends

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

Application of Critical Accounting Policies and Estimates

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

Recent Accounting Standards

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk in the normal course of business, including changes in commodity prices, equity prices and interest rates. For further discussion of its exposure to market risk, see Part II, Item 7A—Quantitative and Qualitative Disclosures about Market Risk in the Company’s Form 10-K. ~~Except as described below, there~~There have been no significant changes to the Company’s exposure to market risk since December 31, ~~2019.~~2020.

~~On April 8, 2020, the Company terminated four treasury lock agreements with an aggregate notional amount of $400 million, and as a result, the~~The Company had no significant derivative instruments outstanding as of ~~September 30, 2020.~~March 31, 2021.

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.

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of ~~September 30, 2020.~~March 31, 2021.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2020,~~March 31, 2021, the Company’s disclosure controls and procedures were effective at a reasonable level of assurance.

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Changes in Internal Control over Financial Reporting

The Company concluded that there have been no changes in internal control over financial reporting that occurred during the three months ended ~~September 30, 2020,~~March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

Alternative Water Supply in Lieu of Carmel River Diversions

Monterey Peninsula Water Supply Project

~~CPUC Final Approval of Water Supply Project~~

Cal Am’s ability to move forward on the Water Supply Project, which is intended, among other things, to fulfill Cal Am’s obligations under the 2009 Order and the 2016 Order, is subject to administrative review by the CPUC and other government agencies, obtaining necessary permits, and intervention from other parties. The CPUC’s 2016 and 2018 final decisions with respect to the Water Supply Project permit recovery of all of Cal Am’s prudently incurred costs associated therewith and adopt Cal Am’s related cost estimates, which amounted to an aggregate of $279 million plus allowance for funds used during construction (“AFUDC”) at a rate representative of Cal Am’s actual financing cost, subject to the frameworks related to cost caps, O&M costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project costs will be reviewed in the first general rate case filed by Cal Am after it becomes operational. Cal Am has incurred $147 million in aggregate costs as of September 30, 2020 related to the Water Supply Project, including $33 million in AFUDC. While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as the CPUC’s 2016 and 2018 final decisions, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $50 million in construction costs previously approved by the CPUC in its 2016 final decision. See Note 11—Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion.

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

Coastal Development Permit Application

~~On August 25, 2020, Coastal Commission staff released a report again recommending denial of~~In March 2021, Cal Am’s application for a coastal development permit. Although the report concluded that the Water Supply Project would have a negligible impact on groundwater resources, the report also concluded it would impact other coastal resources, such as environmentally sensitive habitat areas and wetlands, and thatAm provided responses to the Coastal ~~Commission staff believes that a feasible alternative project exists that would avoid those impacts.~~Commission’s notice of incomplete application. The ~~staff’s report also noted disproportionate impacts to communities of concern. On September 16, 2020, Cal Am withdrew its~~ original jurisdiction application to allow additional time to address Coastal Commission staff’s environmental justice concerns, and Cal Am intends to refile this application with the Coastal Commission in November 2020. Once the application is refiled and the Coastal Commission deems it to be complete, it is required to process and take action on the application within 180 days. The withdrawal of the original jurisdiction application did not impact Cal Am’s appeal of the City’s denial, which remains ~~pending before the Coastal Commission.~~

Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining required approvals for the Water Supply Project. However, based on the foregoing, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. Due to the delays by the Coastal Commission and a stay issued by the Monterey Superior Court on physical construction of the desalination plant, which Cal Am believes are circumstances beyond its control, Cal Am has notified the SWRCB that interim 2020 milestones set forth in the 2016 Order for intake well drilling and construction of the plant related to the Water Supply Project will not be met. The failure by Cal Am to meet such milestones could trigger a diversion reduction requirement under the 2016 Order, but the SWRCB may waive the diversion reduction if it finds that the failure to meet the interim milestone was due to circumstances beyond Cal Am’s control. Cal Am and the SWRCB’s staff are discussing a process for requesting from the SWRCB such a waiver. Cal Am also believes that these circumstances beyond its control will cause it to be unable to fully comply with the remaining milestones in the 2016 Order, and may affect its ability to comply with other remaining requirements under the 2009 Order and the 2016 Order, including the 2021 Deadline. While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the 2009 Order and the 2016 Order, or the 2021 Deadline, may result in material additional costs or obligations to Cal Am,including fines and penalties against Cal Am in the event of noncompliance with the 2009 Order and the 2016 Order. See Note 11—Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion.

~~Table of Contents~~

~~Desalination Plant Development Permit~~

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

Water Supply Project Land ~~Use~~ Acquisition and Slant Well Site Use

~~A hearing on~~On February 16, 2021, the City’s December 30, 2019 lawsuit filed in the Monterey County Superior Court challenging the County’s filing, and SDWR’s acceptance of the filing, as the exclusive GSA for the CEMEX site has been scheduled for March 29, 2021.

~~On September 14, 2020, Cal Am~~City filed a separate but related in rem reverse validation complaint challenging the ~~validity of actions taken~~adoption by the ~~City in adopting~~County of Monterey of a ~~groundwater sustainability plan~~GSP for the CEMEX ~~site, and the validity~~site. This complaint remains pending.

Other Matters

On April 2, 2021, American Water Resources, LLC (“AWR”), an indirect, wholly owned subsidiary of the ~~provisions~~parent company, received a grand jury subpoena for certain of ~~such plan.~~its records in connection with an investigation by the U.S. Attorney’s Office for the Eastern District of New York (the “EDNY”). A ~~case management conference has been set for January 12, 2021.~~

~~On May 8, 2020, the City filed a lawsuit,~~portion of HOS, which ~~it amended on June 29, 2020, in Monterey County Superior Court, naming Cal Am~~provides warranty protection programs and ~~CEMEX as defendants,~~other home services to residential customers, is conducted through AWR. The subpoena seeks information about AWR’s operations and MCWRA and MCWD as real parties in interest. The lawsuit alleges a claim for breach of contract against CEMEX and seeks a declaration voiding the permanent easement to Cal Am and prohibiting extraction of water by Cal Am’s slant wells at the CEMEX site in excess of 500 acre-feet per year and the export of such water outside the groundwater basin. Cal Am is vigorously defending itself against the claims raisedits contractor network in the ~~City’s lawsuit. To that effect, Cal Am has filed a demurrer and motion to strike, and each of CEMEX and MCWRA has also filed a demurrer. Arguments~~New York City metropolitan area. Based on the ~~demurrers~~subpoena and ~~motions~~discussions with the EDNY, the investigation does not appear to ~~strike were heard~~be focused on the parent company or the operations of any of its other subsidiaries. AWR is fully cooperating with the investigation. While it is not possible at ~~a hearing held on September 1, 2020. Following~~this time to predict the hearing, on September 30, 2020, the court (i) overruled the demurrers as to the claim for declaratory relief, (ii) sustained the demurrers as to the breach of contract claim but permitted the plaintiff the right to amend its claim, and (iii) denied the motions to strike.

~~On August 4, 2020, MCWD filed a cross-complaint against Cal Am, CEMEX and MCWRA, alleging claims for specific performance of certain provisions~~outcome of the ~~1996 annexation agreement related to~~investigation or determine the ~~property owned by CEMEX on which intake wells for~~amount, if any, of fines, penalties or other liabilities that may be incurred in connection with it, the ~~Water Supply Project~~Company does not currently believe that the investigation will ~~be located, water rights, nuisance, unreasonable water use, and declaratory relief. On September 9, 2020, Cal Am filed~~have a demurrer and motion to strike challenging the claims asserted by MCWD. On October 14, 2020, the court sustained, with leave to amend, the demurrers as to the claims for specific performance, enjoinment of invasion of water rights, nuisance and unreasonable water use, and the court overruled the demurrers as to the claim for declaratory relief.

~~Dunbar, West Virginia Water Main Break Class Action Litigation~~

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

~~Chattanooga, Tennessee Water Main Break Class Action Litigation~~

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

liquidity.

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ITEM 1A. RISK FACTORS

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

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

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

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

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

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

•~~enable us to recover our investment; and~~

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

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

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

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

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

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

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

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

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

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

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

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

~~Table of Contents~~

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

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

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

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

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

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

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

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

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

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

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

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

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

~~Table of Contents~~

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

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

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

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

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

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

~~Table of Contents~~

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

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

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

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

~~Table of Contents~~

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

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

The Company did not repurchase shares of common stock during the three months ended ~~September 30, 2020.~~March 31, 2021. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through ~~September 30, 2020,~~March 31, 2021, the Company repurchased an aggregate of 4,860,000 shares of common stock under the program, leaving an aggregate of 5,140,000 shares available for repurchase under this program.

~~Table of Contents~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit Number						Exhibit Description
#2.1						Stock Purchase Agreement, dated November 20, 2019, by and among American Water Works Company, Inc., New York American Water Company, Inc. and Liberty Utilities Co. (incorporated by reference to Exhibit 2.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed November 20, 2019).
3.1						Restated Certificate of Incorporation of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed November 6, 2008).
3.2						Amended and Restated Bylaws of American Water Works Company, Inc. (incorporated by reference to Exhibit ~~3.2~~3.1 to the Company’s ~~Quarterly~~Current Report on Form ~~10-Q,~~8-K, File No. 001-34028, filed ~~August 5, 2015)~~December 10, 2020).
*10.1						~~Offer Letter for Employment, dated August 5, 2020, between~~ American Water Works Company, Inc. ~~and Adam Noble.~~2017 Omnibus Equity Compensation Plan 2021 Restricted Stock Unit Grant.
*10.2						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Restricted Stock Unit Grant (for ~~Adam Noble)~~Walter J. Lynch).
*10.3						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Restricted Stock Unit Grant (for M. Susan Hardwick).
*10.4						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Restricted Stock Unit Grant (for Michael A. Sgro).
*10.5						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form A.
*10.6						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form A (for Walter J. Lynch).
*10.7						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form A (for M. Susan Hardwick).
*10.8						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form A (for Michael A. Sgro).
*10.9						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form B.
*10.10						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form B (for Walter J. Lynch).
*10.11						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form B (for M. Susan Hardwick).
*10.12						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2021 Performance Stock Unit Grant Form B (for Michael A. Sgro).
*10.13						Offer Letter for Employment, dated February 16, 2021, between American Water Works Company, Inc. and Cheryl Norton.
*10.14						Separation Agreement and General Release, dated as of November 5, 2020, between American Water Works Company, Inc. and Brian Chin.
*10.15						Separation Agreement and General Release, dated as of March 9, 2021, between American Water Works Company, Inc. and Bruce Hauk.
*31.1						Certification of Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2						Certification of M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
**32.1						Certification of Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
**32.2						Certification of M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

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# Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish the omitted schedules and exhibits to the SEC upon ~~request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any exhibits or schedules so furnished.~~request.

* Filed herewith.

** Furnished herewith

~~Table of Contents~~

The Stock Purchase Agreement filed as Exhibit 2.1 hereto has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the parties thereto, or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Stock Purchase Agreement (i) were made by the parties thereto only for purposes of that agreement and as of specific dates; (ii) were made solely for the benefit of the parties to the Stock Purchase Agreement; (iii) may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Stock Purchase Agreement (such disclosures include information that has been included in public disclosures, as well as additional non-public information); (iv) may have been made for the purposes of allocating contractual risk between the parties to the Stock Purchase Agreement instead of establishing these matters as facts; and (v) may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors.

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the ~~4th~~3rd day of ~~November, 2020.~~May, 2021.


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

5746


		Page
Forward-Looking Statements		1
	Part I. Financial Information
Item 1.	Consolidated Financial Statements	34
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4441
Item 4.	Controls and Procedures	4441
	Part II. Other Information
Item 1.	Legal Proceedings	4643
Item 1A.	Risk Factors	4843
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5343
Item 3.	Defaults Upon Senior Securities	5443
Item 4.	Mine Safety Disclosures	5443
Item 5.	Other Information	5443
Item 6.	Exhibits	5544

Signatures		5746


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


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


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

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