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, 2022~~March 31, 2023


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

For the transition period from ______ to ______

Commission file number: 001-34028

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)


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

1 Water Street, Camden, NJ 08102-1658

(Address of principal executive offices) (Zip Code)

(856) 955-4001

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

AWK

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

Class

Shares Outstanding as of ~~October 25, 2022~~April 20, 2023

Common Stock, par value $0.01 per share

~~181,827,874~~194,643,611

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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.

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

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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, ~~(the “Securities Act”),~~ Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words with prospective meanings such as “intend,” “plan,” “estimate,” “believe,” “anticipate,” “expect,” “predict,” “project,” “propose,” “assume,” “forecast,” “likely,” “uncertain,” “outlook,” “future,” “pending,” “goal,” “objective,” “potential,” “continue,” “seek to,” “may,” “can,” “should,” “will” and “could” or the negative of such terms or other variations or similar expressions. Forward-looking statements may relate to, among other things: the Company’s future financial performance, liquidity and cash flows; the timing and amount of rate and revenue adjustments, including through general rate case filings, filings for infrastructure surcharges and other governmental agency authorizations and proceedings, and filings to address regulatory lag; the Company’s growth and portfolio optimization strategies, including the timing and outcome of pending or future acquisition activity; the ability of the Company’s California subsidiary to obtain adequate alternative water supplies in lieu of diversions from the Carmel River; the amount and allocation of projected capital expenditures and related funding requirements; the Company’s ability to repay or refinance debt; the future impacts of increased or increasing financing costs, inflation and interest rates; the Company’s ability to execute its current and long-term business, operational and capital expenditures strategies; the Company’s ability to finance current operations, capital expenditures and growth initiatives by accessing the debt and equity capital markets, including the timing and amount of the Company’s future public equity issuances; the outcome and impact on the Company of governmental and regulatory proceedings and related potential fines, penalties and other sanctions; the ability to meet or exceed the Company’s stated environmental and sustainability goals, including its greenhouse gas (“GHG”) emission reduction, water delivery efficiency and water system resiliency goals; the ability to complete, and the timing and efficacy of, the design, development, implementation and improvement of technology and other strategic initiatives; ~~the impacts to the Company of the COVID-19 pandemic;~~ the ability to capitalize on existing or future utility privatization opportunities; trends in the water and wastewater industries in which the Company operates, including macro trends with respect to the Company’s efforts related to customer, technology and work execution; regulatory, legislative, tax policy or legal developments; and impacts that future significant tax legislation may have on the Company and on its business, results of operations, cash flows and liquidity.

Forward-looking statements are predictions based on 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;~~rates;

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

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

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

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

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

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

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

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

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

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

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

•changes in the Company’s capital requirements;

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

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

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

•the Company’s ability to successfully meet its operational growth projections, 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;~~operations;

•the Company’s Military Services Group (“MSG”) entering into new military installation contracts, price redeterminations, and other agreements and contracts with the U.S. government; and

•realizing anticipated benefits and synergies from new acquisitions;

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

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

•the ability of the Company to redeploy successfully and timely the net proceeds of ~~these transactions~~this transaction into the Company’s Regulated ~~Businesses (as defined herein);~~Businesses;

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

•cost overruns relating to improvements in or the expansion of 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;

•the ability of energy providers, state governments and other third parties to achieve or fulfill their GHG emission reduction goals, including without limitation through stated renewable portfolio standards and carbon transition plans;

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

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

•fluctuations in inflation or interest rates, and the Company’s ability to address or mitigate the impacts thereof;

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

•fluctuations in the value of, or assumptions and estimates related to, its benefit plan assets and liabilities, including with respect to its pension and other post-retirement benefit plans, that could increase ~~the Company’s cost~~expenses and plan funding requirements;

•changes in federal or state general, income and other tax laws, including (i) future significant tax legislation or regulations, and (ii) the availability of, or the Company’s compliance with, the terms of applicable tax credits and tax abatement ~~programs, and (iii) the Company’s ability to utilize its state income tax net operating loss carryforwards;~~programs;

•migration of customers into or out of the Company’s service ~~territories;~~territories and changes in water and energy consumption resulting therefrom;

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•the use by municipalities of the power of eminent domain or other authority to condemn 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, changes in fair value and other adjustments related to the Company’s goodwill or the value of its other assets;

•labor actions, including work stoppages and strikes;

•the Company’s ability to retain and attract highly qualified ~~employees;~~and skilled employees and/or diverse talent;

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

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

These forward-looking statements are qualified by, and should be read together with, the risks and uncertainties set forth above, and the risk factors and other statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (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, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Property, plant and equipment	Property, plant and equipment	$	29,062	$	27,413	Property, plant and equipment	$	30,214	$	29,736
Accumulated depreciation	Accumulated depreciation	(6,426)		(6,329)		Accumulated depreciation	(6,582)		(6,513)
Property, plant and equipment, net	Property, plant and equipment, net	22,636		21,084		Property, plant and equipment, net	23,632		23,223
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	77		116		Cash and cash equivalents	213		85
Restricted funds	Restricted funds	27		20		Restricted funds	29		32
Accounts receivable, net of allowance for uncollectible accounts of $64 and $75, respectively		358		271
Accounts receivable, net of allowance for uncollectible accounts of $55 and $60, respectively						Accounts receivable, net of allowance for uncollectible accounts of $55 and $60, respectively	318		334
Income tax receivable						Income tax receivable	96		114
Unbilled revenues	Unbilled revenues	273		248		Unbilled revenues	289		275
Materials and supplies	Materials and supplies	93		57		Materials and supplies	103		98
Assets held for sale		—		683
Other	Other	189		159		Other	290		312
Total current assets	Total current assets	1,017		1,554		Total current assets	1,338		1,250
Regulatory and other long-term assets:	Regulatory and other long-term assets:					Regulatory and other long-term assets:
Regulatory assets	Regulatory assets	1,075		1,051		Regulatory assets	1,004		990
Seller promissory note from the sale of the Homeowner Services Group	Seller promissory note from the sale of the Homeowner Services Group	720		720		Seller promissory note from the sale of the Homeowner Services Group	720		720
Operating lease right-of-use assets	Operating lease right-of-use assets	90		92		Operating lease right-of-use assets	83		82
Goodwill	Goodwill	1,143		1,139		Goodwill	1,143		1,143
Postretirement benefit assets		208		193
Other	Other	237		242		Other	366		379
Total regulatory and other long-term assets	Total regulatory and other long-term assets	3,473		3,437		Total regulatory and other long-term assets	3,316		3,314
Total assets	Total assets	$	27,126	$	26,075	Total assets	$	28,286	$	27,787

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, 2022		December 31, 2021			March 31, 2023		December 31, 2022
CAPITALIZATION AND LIABILITIES	CAPITALIZATION AND LIABILITIES					CAPITALIZATION AND LIABILITIES
Capitalization:	Capitalization:					Capitalization:
Common stock ($0.01 par value; 500,000,000 shares authorized; 187,169,722 and 186,880,413 shares issued, respectively)		$	2	$	2
Common stock ($0.01 par value; 500,000,000 shares authorized; 200,058,247 and 187,200,539 shares issued, respectively)						Common stock ($0.01 par value; 500,000,000 shares authorized; 200,058,247 and 187,200,539 shares issued, respectively)	$	2	$	2
Paid-in-capital	Paid-in-capital	6,813		6,781		Paid-in-capital	8,519		6,824
Retained earnings	Retained earnings	1,359		925		Retained earnings	1,437		1,267
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(39)		(45)		Accumulated other comprehensive loss	(23)		(23)
Treasury stock, at cost (5,342,477 and 5,269,324 shares, respectively)		(377)		(365)
Treasury stock, at cost (5,414,795 and 5,342,477 shares, respectively)						Treasury stock, at cost (5,414,795 and 5,342,477 shares, respectively)	(388)		(377)
Total common shareholders' equity	Total common shareholders' equity	7,758		7,298		Total common shareholders' equity	9,547		7,693
Long-term debt	Long-term debt	10,940		10,341		Long-term debt	10,485		10,926
Redeemable preferred stock at redemption value	Redeemable preferred stock at redemption value	3		3		Redeemable preferred stock at redemption value	2		3
Total long-term debt	Total long-term debt	10,943		10,344		Total long-term debt	10,487		10,929
Total capitalization	Total capitalization	18,701		17,642		Total capitalization	20,034		18,622
Current liabilities:	Current liabilities:					Current liabilities:
Short-term debt	Short-term debt	634		584		Short-term debt	—		1,175
Current portion of long-term debt	Current portion of long-term debt	265		57		Current portion of long-term debt	727		281
Accounts payable	Accounts payable	220		235		Accounts payable	193		254
Accrued liabilities	Accrued liabilities	610		701		Accrued liabilities	561		706
Accrued taxes	Accrued taxes	69		176		Accrued taxes	74		49
Accrued interest	Accrued interest	116		88		Accrued interest	114		91
Liabilities related to assets held for sale		—		83
Other	Other	216		217		Other	223		255
Total current liabilities	Total current liabilities	2,130		2,141		Total current liabilities	1,892		2,811
Regulatory and other long-term liabilities:	Regulatory and other long-term liabilities:					Regulatory and other long-term liabilities:
Advances for construction	Advances for construction	306		284		Advances for construction	321		316
Deferred income taxes and investment tax credits	Deferred income taxes and investment tax credits	2,372		2,421		Deferred income taxes and investment tax credits	2,483		2,437
Regulatory liabilities	Regulatory liabilities	1,614		1,600		Regulatory liabilities	1,568		1,590
Operating lease liabilities	Operating lease liabilities	78		80		Operating lease liabilities	70		70
Accrued pension expense	Accrued pension expense	250		285		Accrued pension expense	215		235
Other	Other	186		180		Other	192		202
Total regulatory and other long-term liabilities	Total regulatory and other long-term liabilities	4,806		4,850		Total regulatory and other long-term liabilities	4,849		4,850
Contributions in aid of construction	Contributions in aid of construction	1,489		1,442		Contributions in aid of construction	1,511		1,504
Commitments and contingencies (See Note 11)	Commitments and contingencies (See Note 11)					Commitments and contingencies (See Note 11)
Total capitalization and liabilities	Total capitalization and liabilities	$	27,126	$	26,075	Total capitalization and liabilities	$	28,286	$	27,787

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

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Operations (Unaudited)

(In millions, except per share data)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Operating revenues	Operating revenues	$	1,082	$	1,092	$	2,861	$	2,979	Operating revenues		$	938	$	842
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	416		436		1,156		1,286		Operation and maintenance		393		364
Depreciation and amortization	Depreciation and amortization	164		161		485		476		Depreciation and amortization		172		158
General taxes	General taxes	63		78		208		241		General taxes		78		74
Total operating expenses, net	Total operating expenses, net	643		675		1,849		2,003		Total operating expenses, net		643		596
Operating income	Operating income	439		417		1,012		976		Operating income		295		246
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(111)		(101)		(317)		(300)		Interest expense		(115)		(100)
Interest income	Interest income	14		—		39		—		Interest income		14		13
Non-operating benefit costs, net	Non-operating benefit costs, net	19		20		58		59		Non-operating benefit costs, net		9		19
Other, net	Other, net	6		4		38		11		Other, net		11		15
Total other (expense) income	Total other (expense) income	(72)		(77)		(182)		(230)		Total other (expense) income		(81)		(53)
Income before income taxes	Income before income taxes	367		340		830		746		Income before income taxes		214		193
Provision for income taxes	Provision for income taxes	70		62		157		128		Provision for income taxes		44		35
Net income attributable to common shareholders	Net income attributable to common shareholders	$	297	$	278	$	673	$	618	Net income attributable to common shareholders		$	170	$	158

Basic earnings per share:	Basic earnings per share:									Basic earnings per share:
Net income attributable to common shareholders	Net income attributable to common shareholders	$	1.63	$	1.53	$	3.70	$	3.40	Net income attributable to common shareholders		$	0.91	$	0.87
Diluted earnings per share:	Diluted earnings per share:									Diluted earnings per share:
Net income attributable to common shareholders	Net income attributable to common shareholders	$	1.63	$	1.53	$	3.70	$	3.40	Net income attributable to common shareholders		$	0.91	$	0.87
Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic	Basic	182		182		182		182		Basic		186		182
Diluted	Diluted	182		182		182		182		Diluted		186		182

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

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Net income attributable to common shareholders	Net income attributable to common shareholders	$	297	$	278	$	673	$	618	Net income attributable to common shareholders		$	170	$	158
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:									Other comprehensive income, net of tax:
Defined benefit pension plan actuarial loss, net of tax of $1 and $0 for the three months ended September 30, 2022 and 2021, respectively, and $1 and $1 for the nine months ended September 30, 2022 and 2021, respectively		—		1		2		3
Unrealized gain on cash flow hedges, net of tax of $0 and $0 for the three months ended September 30, 2022 and 2021, respectively, and $1 and $0 for the nine months ended September 30, 2022 and 2021, respectively		1		—		4		1
Defined benefit pension plan actuarial loss, net of tax of $0 for the three months ended March 31, 2023 and 2022										Defined benefit pension plan actuarial loss, net of tax of $0 for the three months ended March 31, 2023 and 2022		—		1
Unrealized loss on cash flow hedges, net of tax of $0 for the three months ended March 31, 2023 and 2022										Unrealized loss on cash flow hedges, net of tax of $0 for the three months ended March 31, 2023 and 2022		(2)		—
Unrealized gain on available-for-sale fixed-income securities, net of tax of $0 for the three months ended March 31, 2023 and 2022, respectively										Unrealized gain on available-for-sale fixed-income securities, net of tax of $0 for the three months ended March 31, 2023 and 2022, respectively		2		—
Net other comprehensive income	Net other comprehensive income	1		1		6		4		Net other comprehensive income		—		1
Comprehensive income attributable to common shareholders	Comprehensive income attributable to common shareholders	$	298	$	279	$	679	$	622	Comprehensive income attributable to common shareholders		$	170	$	159

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

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In millions)


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021			2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	673	$	618	Net income	$	170	$	158
Adjustments to reconcile to net cash flows provided by operating activities:	Adjustments to reconcile to net cash flows provided by operating activities:					Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	Depreciation and amortization	485		476		Depreciation and amortization	172		158
Deferred income taxes and amortization of investment tax credits	Deferred income taxes and amortization of investment tax credits	13		121		Deferred income taxes and amortization of investment tax credits	26		(61)
Provision for losses on accounts receivable	Provision for losses on accounts receivable	17		28		Provision for losses on accounts receivable	3		4
Pension and non-pension postretirement benefits	Pension and non-pension postretirement benefits	(37)		(31)		Pension and non-pension postretirement benefits	1		(12)
Other non-cash, net	Other non-cash, net	(31)		(34)		Other non-cash, net	(36)		(3)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables and unbilled revenues	Receivables and unbilled revenues	(129)		(103)		Receivables and unbilled revenues	(1)		(6)
Pension and non-pension postretirement benefit contributions	Pension and non-pension postretirement benefit contributions	(40)		(31)		Pension and non-pension postretirement benefit contributions	(10)		(19)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(9)		28		Accounts payable and accrued liabilities	(60)		(110)
Accrued taxes	Accrued taxes	(148)		25		Accrued taxes	44		113
Other assets and liabilities, net	Other assets and liabilities, net	(30)		(68)		Other assets and liabilities, net	(24)		(68)
Net cash provided by operating activities	Net cash provided by operating activities	764		1,029		Net cash provided by operating activities	285		154
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(1,597)		(1,205)		Capital expenditures	(526)		(424)
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(288)		(78)		Acquisitions, net of cash acquired	(4)		(5)
Net proceeds from sale of assets	Net proceeds from sale of assets	608		—		Net proceeds from sale of assets	—		608
Removal costs from property, plant and equipment retirements, net	Removal costs from property, plant and equipment retirements, net	(85)		(70)		Removal costs from property, plant and equipment retirements, net	(31)		(20)
Net cash used in investing activities		(1,362)		(1,353)
Net cash (used in) provided by in investing activities						Net cash (used in) provided by in investing activities	(561)		159
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	Proceeds from long-term debt	822		1,113		Proceeds from long-term debt	8		11
Repayments of long-term debt	Repayments of long-term debt	(14)		(370)		Repayments of long-term debt	(4)		(5)
Repayments of term loan		—		(500)
Net proceeds from common stock financing						Net proceeds from common stock financing	1,688		—
Net short-term borrowings (repayments) with maturities less than three months	Net short-term borrowings (repayments) with maturities less than three months	50		(97)		Net short-term borrowings (repayments) with maturities less than three months	(1,175)		(263)
Advances and contributions in aid of construction, net of refunds of $13 and $17 for the nine months ended September 30, 2022 and 2021, respectively		64		50
Debt issuance costs and make-whole premium on early debt redemption		(7)		(26)
Advances and contributions in aid of construction, net of refunds of $7 and $3 for the three months ended March 31, 2023 and 2022, respectively						Advances and contributions in aid of construction, net of refunds of $7 and $3 for the three months ended March 31, 2023 and 2022, respectively	10		21
Dividends paid	Dividends paid	(348)		(318)		Dividends paid	(119)		(109)
Other, net	Other, net	(1)		(4)		Other, net	(7)		(8)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	566		(152)		Net cash provided by (used in) financing activities	401		(353)
Net decrease in cash, cash equivalents and restricted funds		(32)		(476)
Net increase (decrease) in cash, cash equivalents and restricted funds						Net increase (decrease) in cash, cash equivalents and restricted funds	125		(40)
Cash, cash equivalents and restricted funds at beginning of period	Cash, cash equivalents and restricted funds at beginning of period	136		576		Cash, cash equivalents and restricted funds at beginning of period	117		136
Cash, cash equivalents and restricted funds at end of period	Cash, cash equivalents and restricted funds at end of period	$	104	$	100	Cash, cash equivalents and restricted funds at end of period	$	242	$	96
Non-cash investing activity:	Non-cash investing activity:					Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period	Capital expenditures acquired on account but unpaid as of the end of period	$	347	$	238	Capital expenditures acquired on account but unpaid as of the end of period	$	338	$	315

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 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, 2021		186.9	$	2			$	6,781				$	925	$	(45)	(5.3)					$	(365)		$	7,298
Balance as of December 31, 2022																						Balance as of December 31, 2022	187.4			$	2		$	6,824			$	1,267		$	(23)			(5.4)		$	(377)		$	7,693
Net income attributable to common shareholders	Net income attributable to common shareholders	—	—		—				158			—		—		—			158			Net income attributable to common shareholders	—			—		—				170			—				—		—			170
Common stock issuances (a)	Common stock issuances (a)	0.2	—		15				—			—		—		(12)			3			Common stock issuances (a)	12.7			—		1,695				—			—				—		(11)			1,684
Net other comprehensive income	Net other comprehensive income	—	—		—				—			1		—		—			1			Net other comprehensive income	—			—		—				—			—				—		—			—
Balance as of March 31, 2022		187.1	$	2	$	6,796			$	1,083		$	(44)	(5.3)		$	(377)		$	7,460
Net income attributable to common shareholders		—	—		—				218			—		—		—			218
Common stock issuances (a)		—	—		8				—			—		—		—			8
Net other comprehensive income		—	—		—				—			4		—		—			4
Dividends ($0.6550 declared per common share)		—	—		—				(120)			—		—		—			(120)
Balance as of June 30, 2022		187.1	$	2	$	6,804			$	1,181		$	(40)	(5.3)		$	(377)		$	7,570
Net income attributable to common shareholders		—	—		—				297			—		—		—			297
Common stock issuances (a)		0.1	—		9				—			—		—		—			9
Net other comprehensive income		—	—		—				—			1		—		—			1
Dividends ($0.6550 declared per common share)		—	—		—				(119)			—		—		—			(119)
Balance as of September 30, 2022		187.2	$	2	$	6,813			$	1,359		$	(39)	(5.3)		$	(377)		$	7,758
Balance as of March 31, 2023																						Balance as of March 31, 2023	200.1			$	2	$	8,519			$	1,437		$	(23)			(5.4)		$	(388)		$	9,547

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


		Common Stock			Paid-in-Capital				Retained Earnings			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, 2020		186.5	$	2			$	6,747				$	102	$	(49)	(5.2)					$	(348)		$	6,454
Balance as of December 31, 2021																						Balance as of December 31, 2021	186.9			$	2		$	6,781			$	925		$	(45)			(5.3)		$	(365)		$	7,298
Net income attributable to common shareholders	Net income attributable to common shareholders	—	—		—				133			—		—		—			133			Net income attributable to common shareholders	—			—		—				158			—				—		—			158
Common stock issuances (a)	Common stock issuances (a)	0.2	—		10				—			—		(0.1)		(15)			(5)			Common stock issuances (a)	0.2			—		15				—			—				—		(12)			3
Net other comprehensive income	Net other comprehensive income	—	—		—				—			1		—		—			1			Net other comprehensive income	—			—		—				—			1				—		—			1
Balance as of March 31, 2021		186.7	$	2	$	6,757			$	235		$	(48)	(5.3)		$	(363)		$	6,583
Net income attributable to common shareholders		—	—		—				207			—		—		—			207
Common stock issuances (a)		0.1	—		8				—			—		—		—			8
Net other comprehensive income		—	—		—				—			2		—		—			2
Dividends ($0.6025 declared per common share)		—	—		—				(110)			—		—		—			(110)
Balance as of June 30, 2021		186.8	$	2	$	6,765			$	332		$	(46)	(5.3)		$	(363)		$	6,690
Net income attributable to common shareholders		—	—		—				278			—		—		—			278
Common stock issuances (a)		—	—		7				—			—		—		—			7
Net other comprehensive income		—	—		—				—			1		—		—			1
Dividends ($0.6025 declared per common share)		—	—		—				(110)			—		—		—			(110)
Balance as of September 30, 2021		186.8	$	2	$	6,772			$	500		$	(45)	(5.3)		$	(363)		$	6,866
Balance as of March 31, 2022																						Balance as of March 31, 2022	187.1			$	2	$	6,796			$	1,083		$	(44)			(5.3)		$	(377)		$	7,460

(a)Includes stock-based compensation, employee stock purchase plan and dividend reinvestment and direct stock 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, 2022,~~March 31, 2023, and the results of operations and cash flows for all periods presented, have been made. All adjustments are of a normal, recurring nature, except as otherwise disclosed.

The unaudited Consolidated 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, ~~2021~~2022 (“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 ~~2022:~~2023:

Standard

Description

Date of Adoption

Application

Effect on the Consolidated Financial Statements

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

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

~~January 1, 2022~~

~~Either modified retrospective or fully retrospective~~

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

~~Disclosures by Business Entities about Government Assistance~~

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

~~January 1, 2022~~

~~Either prospective or retrospective~~

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

~~Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of September 30, 2022:~~

~~Standard~~

~~Description~~

~~Date of Adoption~~

~~Application~~

~~Estimated Effect on the Consolidated Financial Statements~~

~~Accounting for~~ Contract Assets and Contract Liabilities from Contracts with Customers

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

January 1, ~~2023; early adoption permitted~~2023

Prospective

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

Troubled Debt Restructurings and Vintage Disclosures

The main provisions of this standard eliminate the receivables accounting guidance for troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements when a borrower is experiencing financial difficulty. Entities must apply the loan refinancing and restructuring guidance for receivables to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, the amendments in this update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.

January 1, ~~2023; early adoption permitted~~2023

Prospective, with a modified retrospective option for amendments related to the recognition and measurement of TDRs.

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

Property, Plant and Equipment

The New Jersey Economic Development Authority (“NJEDA”) determined that the Company was qualified to receive $161 million in tax credits in connection with its capital investment in its corporate headquarters in Camden, New Jersey. The Company was qualified to receive the tax credits over a 10-year period commencing in 2019.

~~Table~~In March 2023, the NJEDA issued the utilization certificate for the 2020 tax credits to the Company in the amount of ~~Contents~~

$16 million. The Company sold these tax credits to external parties in March 2023 for $15 million. As a result, the Company had assets of $32 million and $97 million in Other current assets and Other long-term assets, respectively, on the Consolidated Balance Sheets as of March 31, 2023. The Company has made the necessary annual filing for the years ended December 31, 2021 and 2022.

Allowance for Uncollectible Accounts

Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowance for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding.

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


		2022		2021			2023		2022
Balance as of January 1	Balance as of January 1	$	(75)	$	(60)	Balance as of January 1	$	(60)	$	(75)
Amounts charged to expense	Amounts charged to expense	(17)		(28)		Amounts charged to expense	(3)		(4)
Amounts written off	Amounts written off	19		22		Amounts written off	5		8
Other, net (a)	Other, net (a)	9		(10)		Other, net (a)	3		(1)
Balance as of September 30		$	(64)	$	(76)
Balance as of March 31						Balance as of March 31	$	(55)	$	(72)

(a)This portion of the allowance for uncollectible accounts is primarily related to COVID-19 related regulatory asset activity. The 2021 activity also includes the portion of the allowance related to the Company’s New York subsidiary, which was sold on January 1, 2022, and is included in assets held for sale on the Consolidated Balance Sheets as of December 31, 2021. See Note 5—Acquisitions and Divestitures for additional information.

Reclassifications

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

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Note 3: Regulatory Matters

General Rate Cases ~~and Infrastructure Surcharges~~

Presented in the table below are annualized incremental revenues, ~~excluding~~including reductions for the amortization of the excess accumulated deferred income ~~tax~~taxes (“EADIT”) that are generally offset in income tax expense, assuming a constant water sales volume and customer count, resulting from general rate case authorizations ~~and infrastructure surcharge authorizations~~ that became effective ~~in the respective period:~~during 2023:

During the Three Months Ended September 30, During the Nine Months Ended September 30,
(In millions) 2022 2021 2022 2021
General rate cases by state (a):
New Jersey (effective September 1, 2022) $ 61 $ — $ 61 $ —
Hawaii (effective July 1, 2022) 2 — 2 —
West Virginia (effective February 25, 2022) — — 15 —
California (effective January 1, 2022 and January 1, 2021) — — 13 22
Pennsylvania (effective January 1, 2022 and January 28, 2021) — — 20 70
Missouri (effective May 28, 2021) — — — 22
Total general rate cases $ 63 $ — $ 111 $ 114
Infrastructure surcharges by state:
Missouri (effective August 11, 2022 and February 1, 2022) $ 18 $ — $ 30 $ —
Tennessee (effective August 8, 2022 and January 1, 2021) 3 — 3 3
Pennsylvania (effective July 1, 2022, April 1, 2022 and January 1, 2021) 9 — 11 8
Kentucky (effective July 1, 2022 and July 1, 2021) 3 1 3 1
New Jersey (effective June 27, 2022 and June 28, 2021) — — 10 14
Indiana (effective March 21, 2022 and March 17, 2021) — — 8 8
West Virginia (effective March 1, 2022 and January 1, 2021) — — 3 5
Illinois (effective January 1, 2022 and January 1, 2021) — — 6 7
Total infrastructure surcharges $ 33 $ 1 $ 74 $ 46


(In millions)	Effective Date	Amount
General rate cases by state:
Virginia	April 24, 2023 (a)	$	11
Pennsylvania	January 28, 2023	138
Illinois	January 1, 2023	67
California, Step Increase	January 1, 2023	13
Total general rate case authorizations		$	229

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

On April 24, 2023, the Virginia State Corporation Commission issued an order approving the settlement of ~~$7 million for~~ the ~~nine months ended~~rate case filed on September ~~30, 2021, for~~26, 2022, by the Company’s ~~New York subsidiary, which was sold on January 1, 2022. See Note 5—Acquisitions and Divestitures for additional information.~~

~~Effective October 1, 2022, the Company’s Pennsylvania subsidiary implemented an infrastructure surcharge for annualized incremental revenues of $8 million.~~

~~On August 17, 2022, the Company’s New Jersey subsidiary was authorized additional annual revenues of $61 million in its~~Virginia subsidiary. The general rate case order approved an $11 million annualized increase in water and wastewater revenues. Interim rates in this proceeding were effective ~~September~~on May 1, 2022, ~~excluding agreed~~and the order requires that the difference between interim and the final approved rates is subject to ~~reductions for EADIT as a result~~refund within 90 days of the ~~Tax Cuts~~order issuance. The order approves the settlement terms with a return on equity of 9.7% and ~~Jobs Act~~a common equity ratio of ~~2017 (the “TCJA”) ($46 million including EADIT reductions)~~40.7%. The annualized revenue increase is driven primarily by significant incremental capital investments since the Virginia subsidiary’s 2020 rate case order ~~incorporated updated estimates of~~that have been completed or are planned through April 30, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs. ~~Beginning January 1, 2023,~~The general rate case order includes recovery of the Company’s ~~New Jersey subsidiary will defer as a regulatory asset or liability, as appropriate,~~Virginia subsidiary’s COVID-19 deferral balance. It also includes approval of the ~~difference between its~~accounting deferral of deviations in pension ~~expense~~ and other ~~post-employment~~postretirement benefits expense from those established in base rates, until the Company’s Virginia subsidiary’s next base rate case.

On December 8, 2022, the Pennsylvania Public Utility Commission issued an order approving the joint settlement of the rate case filed on April 29, 2022, by the Company’s Pennsylvania subsidiary. The general rate case order approved a $138 million annualized increase in water and wastewater revenues, excluding $24 million for previously approved infrastructure filings, and authorizes implementation of the new water and wastewater rates effective January 28, 2023. The rate case proceeding was resolved through a “black box” settlement agreement and did not specify an approved return on equity. The annualized revenue increase is driven primarily by significant incremental capital investments since the Pennsylvania subsidiary’s 2021 rate case order that will be completed through December 31, 2023, increases in pension and other postretirement benefits expense and ~~those amounts included~~increases in ~~base rates.~~production costs, including chemicals, fuel and power costs. The ~~deferral period for this regulatory asset or liability will be two years or, if earlier, will end at the conclusion~~general rate case order also includes recovery of the Company’s ~~New Jersey~~Pennsylvania subsidiary’s next general rate case. The Company’s New Jersey subsidiary also withdrew its request, without prejudice, to recover its existing authorized COVID-19-related regulatory asset in the general rate case and will seek recovery in a separate proceeding within the process established in the New Jersey Board of Public Utilities’ (the “NJBPU”) generic COVID-19-related proceeding.COVID-19 deferral balance.

1211

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On ~~February 24,~~December 15, 2022, the Illinois Commerce Commission issued an order approving the adjustment of base rates requested in a rate case filed on February 10, 2022, by the Company’s ~~West Virginia subsidiary (“WVAWC”) was authorized additional annual revenues of $15~~Illinois subsidiary. As updated in the Illinois subsidiary’s June 29, 2022 rebuttal filing, the request sought $83 million in ~~its~~additional annualized revenues, excluding previously recovered infrastructure surcharges. The general rate case effective February 25, 2022, excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $2 million and the exclusion for infrastructure surcharges is $10 million. Staff of the Public Service Commission of West Virginia moved for reconsideration of the final order on several grounds. WVAWC filed its response to the Staff's Petition for Reconsideration on March 28, 2022, in support of the authorized revenue requirement. On October 21, 2022, the Public Service Commission of West Virginia denied the motion for reconsideration.

~~On November 18, 2021, the California Public Utilities Commission (the “CPUC”) unanimously~~ approved a ~~final decision~~$67 million annualized increase in the test year 2021 general rate case filed by the Company’s California subsidiary, which was retroactive to January 1, 2021. The Company’s California subsidiary received authorization for additional annualized water and wastewater system revenues, excluding previously recovered infrastructure surcharges of ~~$22~~$18 million, excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $4 million and is offset by a like reduction in income tax expense. On February 16, 2022, the Company’s California subsidiary received approval to increase rates by $13 million in 2022 escalation increases, excluding $4 million of reductions related to the TCJA, which was retroactive toeffective January 1, ~~2022.~~

~~On March 2, 2021,~~2023, based on an ~~administrative law judge (“ALJ”) in the Office~~authorized return on equity of Administrative Law of New Jersey filed an initial decision with the NJBPU that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in9.8%, authorized rate base of ~~$29 million associated with the acquisitions~~$1.64 billion, a common equity ratio of ~~Shorelands Water Company, Inc. in 2017~~49.0% and ~~the Borough~~a debt ratio of ~~Haddonfield’s~~51.0%. The annualized revenue increase is being driven primarily by significant water and wastewater systems in 2015. On July 29, 2021, the NJBPU issued an order adopting the ALJ’s initial decision without modification. The Company’s New Jersey subsidiary filed a Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. The Company’s New Jersey subsidiary filed its brief in support of the appeal on March 4, 2022. Response and Reply briefs were filed on June 22, 2022, and August 4, 2022, respectively. There is no financial impact to the Company as a result of the NJBPU’s order,system capital investments since the ~~acquisition adjustments~~Illinois subsidiary’s 2017 rate case order that have been completed or are ~~currently recorded as goodwill on the Consolidated Balance Sheets.~~

On February 25, 2021, the Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, effective January 28, 2021, excluding agreed to reductions in revenues of $19 million for EADIT as a result of the TCJA. The overall increase, net of TCJA reductions, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step was effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate assumptions method, and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annual reduction to revenue is comprised of both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018,planned 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~~2023, expected higher pension and ~~will be amortized over two years.~~other postretirement benefit costs, and increases in production costs, including chemicals, fuel and power costs.

Pending General Rate Case Filings

On March 31, 2023, the Company’s Indiana subsidiary filed a general rate case requesting $87 million in additional annualized revenues, excluding $41 million of revenue from infrastructure filings already approved, which includes three step increases, with $43 million of the increase to be included in rates in January 2024, $18 million in May 2024, and $26 million in May 2025. The general rate case is expected to be completed by the end of January 2024.

On July 1, 2022, the Company’s Missouri subsidiary filed a general rate case requesting an increase of $105 million in additional annualized revenues, excluding infrastructure surcharges at the time of filing of approximately $40 million. Subsequent to the filing of the general rate case, the Company’s Missouri subsidiary filed its semi-annual request for recovery of defined infrastructure investments within its Water and Sewer Infrastructure Rate Adjustment, which adjusted the amount of revenue recovered in the infrastructure surcharges to $51 million and a net annualized revenue increase request of $95 million in the general rate case. On March 3, 2023, a settlement agreement was filed with the Missouri Public Service Commission, reflecting a proposed increase of $44 million in additional annualized revenues, excluding $51 million for infrastructure surcharges. A final decision on this matter is expected in the second quarter of 2023.

On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of ~~$57~~$56 million and a total increase in revenue over the 2024 to 2026 period of ~~$99 million.~~$95 million, all as compared to 2022 revenues. The ~~requested~~Company updated its filing in January 2023 to capture the authorized step increase ~~excludes proposed reductions for EADIT of $1 million as~~effective January 1, 2023. The filing was also updated to incorporate a ~~result of TCJA.~~

~~On July 1, 2022,~~decoupling proposal and a revision to the Company’s ~~Missouri subsidiary filed a general rate case requesting $116 million in~~sales and associated variable expense forecast. The revised filing requested additional annualized revenues ~~excluding~~for the test year 2024 of $37 million, compared to 2023 revenues. This excludes the proposed ~~reductions~~step rate and attrition rate increase for ~~EADIT as a result~~2025 and 2026 of ~~TCJA ($105~~$20 million ~~including EADIT reductions)~~ and ~~infrastructure surcharges.~~

~~On April 29, 2022,~~$19 million, respectively. The total revenue requirement request for the ~~Company’s Pennsylvania subsidiary filed a general~~three-year rate case ~~requesting $185 million in additional annualized water~~cycle, incorporating updates to present rate revenues and wastewater revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges. On October 11, 2022, the Company’s Pennsylvania subsidiary, the Pennsylvania Public Utility Commission’s (the “PaPUC”) Bureau of Investigation and Enforcement, the Pennsylvania Office of Consumer Advocate, and certain other parties to the general rate case jointly filed a petition for settlement with the PaPUC providing for a total annualized revenue increase of $138forecasted demand, is $76 million. The petition for settlement provides for an annualized revenue increase of $150 million excluding agreed to reductions for EADIT as a result of the TCJA ($138 million including EADIT reductions). In addition, the petition for settlement incorporates updated estimates of pension and other post-employment benefits expense, as well as increases in chemicals, fuel and power costs. Furthermore, the petition for settlement includes recovery of the COVID-19 deferral balance. An ALJ will review the petition for settlement and render a recommended decision to the PaPUC on whether it should approve the settlement. After its review of the matter, the PaPUC will issue a final order, which the Company expects to occur by January 2023, with new rates to be effective as of January 28, 2023.

~~Table of Contents~~

On February 10, 2022, the Company’s Illinois subsidiary filed a general rate case requesting $71 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges. The requested increase was subsequently updated in the Illinois subsidiary’s June 29, 2022, rebuttal filing, with the request adjusted to $85 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA ($83 million including EADIT reductions) and infrastructure surcharges. The request was increased in the rebuttal filing to capture higher production costs and expected higher pension and other post-employment benefit costs. Evidentiary hearings were held on August 10, 2022, and on October 28, 2022, the ALJs issued a proposed order recommending $69 million in additional annualized revenues, excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges ($67 million including EADIT reductions), on a proposed return on equity of 9.78%. The final order is expected in late 2022 or early January 2023, with rates effective in January 2023.

On November 15, 2021, the Company’s Virginia subsidiary filed a general rate case requesting $15 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA. Interim rates were effective on May 1, 2022, and the difference between interim and final approved rates is subject to refund. On September 26, 2022, a settlement agreement, supported by all parties except one, was filed with the Virginia State Corporation Commission for a $12 million annual revenue increase excluding agreed to reductions for EADIT as a result of TCJA ($11 million including EADIT reductions). Public hearings were held on September 27 and 28, 2022. A final decision on this matter is expected in the first quarter of 2023.

The Company’s California subsidiary submitted its application on May 3, 2021, to set its cost of capital for 2022 through 2024. ~~According to~~On March 21, 2023, the ~~CPUC’s procedural schedule,~~California Public Utilities Commission (“CPUC”) issued a decision ~~setting~~extending the ~~authorized~~deadline to August 10, 2023, for the cost of capital ~~is expected~~proceeding.

Infrastructure Surcharges

A number of states have authorized the use of regulatory mechanisms that permit rates to be ~~issued~~adjusted outside of a general rate case for certain costs and investments, such as infrastructure surcharge mechanisms that permit recovery of capital investments to replace aging infrastructure. Presented in the ~~fourth quarter~~table below are annualized incremental revenues, assuming a constant water sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2023:


(In millions)	Effective Date	Amount
Infrastructure surcharges by state:
Indiana	(a)	$	26
Missouri	January 16, 2023	14
Pennsylvania	January 1, 2023	3
West Virginia	January 1, 2023	7
Total infrastructure surcharge authorizations		$	50

(a)In 2023, $20 million was effective March 23 and $6 million was effective March 8.

Table of ~~2022.~~Contents

Pending Infrastructure Surcharge Filings

On ~~September 9, 2022,~~March 15, 2023, the Company’s ~~Missouri~~New Jersey subsidiary filed an infrastructure surcharge proceeding requesting ~~$13~~$16 million in additional annualized revenues.

On ~~June 30, 2022, WVAWC~~March 1, 2023, the Company’s Kentucky subsidiary filed an infrastructure surcharge proceeding requesting $8$4 million in additional annualized revenues.

Other Regulatory Matters

In September 2020, the CPUC released a decision under its Low-Income Rate Payer Assistance program rulemaking that required the Company’s California subsidiary to file a proposal to alter its water revenue adjustment mechanism in its next general rate case filing in 2022, which would become effective in January 2024. On October 5, 2020, the Company’s California subsidiary filed an application for rehearing of the decision and following the CPUC’s denial of its rehearing application in September 2021, the Company’s California subsidiary filed a petition for writ of review with the California Supreme Court on October 27, 2021. On May 18, 2022, the California Supreme Court issued a writ of review for the Company’s California subsidiary’s petition and the petitions filed by other entities challenging the decision. Independent of the judicial challenge, California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022, and ~~will become~~became effective on January 1, 2023. In response to the legislation, on ~~October 10, 2022,~~January 27, 2023, the Company’s California subsidiary filed ~~a request for~~an updated application requesting the CPUC to consider ~~the continuation of its~~a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which would be effective 2024 through 2026.

On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (“NJBPU”) that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. On July 29, 2021, the NJBPU issued an order adopting the ALJ’s initial decision without modification. The Company’s New Jersey subsidiary filed a Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. The Company’s New Jersey subsidiary filed its brief in support of the appeal on March 4, 2022. Response and Reply briefs were filed on June 22, 2022, and August 4, 2022, respectively. Oral argument was held on March 22, 2023, and the Company expects a decision by the end of 2023. There is no financial impact to the Company as a result of the NJBPU’s order, since the acquisition adjustments are currently recorded as goodwill on the Consolidated Balance Sheets.

Note 4: Revenue Recognition

Disaggregated Revenues

The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” The Company also operates other ~~market-based~~ businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities, ~~and utility customers,~~ collectively ~~included~~presented throughout this Form 10-Q within ~~“Market-Based Businesses and Other.~~“Other.”

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Presented in the table below are operating revenues disaggregated for the three months ended ~~September 30, 2022:~~March 31, 2023:


		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	$	556	$	1	$	557	Residential	$	460	$	1	$	461
Commercial	Commercial	207		1		208		Commercial	170		1		171
Fire service	Fire service	36		—		36		Fire service	39		—		39
Industrial	Industrial	41		1		42		Industrial	38		—		38
Public and other	Public and other	82		—		82		Public and other	56		—		56
Total water services	Total water services	922		3		925		Total water services	763		2		765
Wastewater services:	Wastewater services:							Wastewater services:
Residential	Residential	45		1		46		Residential	54		—		54
Commercial	Commercial	12		—		12		Commercial	14		—		14
Industrial	Industrial	1		—		1		Industrial	2		—		2
Public and other	Public and other	7		—		7		Public and other	6		—		6
Total wastewater services	Total wastewater services	65		1		66		Total wastewater services	76		—		76
Miscellaneous utility charges	Miscellaneous utility charges	9		—		9		Miscellaneous utility charges	8		—		8
Alternative revenue programs	Alternative revenue programs	—		1		1		Alternative revenue programs	—		9		9
Lease contract revenue	Lease contract revenue	—		2		2		Lease contract revenue	—		2		2
Total Regulated Businesses	Total Regulated Businesses	996		7		1,003		Total Regulated Businesses	847		13		860
Market-Based Businesses and Other		80		(1)		79
Other								Other	78		—		78
Total operating revenues	Total operating revenues	$	1,076	$	6	$	1,082	Total operating revenues	$	925	$	13	$	938

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

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

Revenues from Contracts with Customers Other Revenues Not from Contracts with Customers (a) Total Operating Revenues
Regulated Businesses:
Water services:
Residential $ 545 $ — $ 545
Commercial 197 — 197
Fire service 38 — 38
Industrial 39 — 39
Public and other 72 — 72
Total water services 891 — 891
Wastewater services:
Residential 38 — 38
Commercial 10 — 10
Industrial 1 — 1
Public and other 4 — 4
Total wastewater services 53 — 53
Miscellaneous utility charges 2 — 2
Alternative revenue programs — (4) (4)
Lease contract revenue — 2 2
Total Regulated Businesses 946 (2) 944
Market-Based Businesses and Other 148 — 148
Total operating revenues $ 1,094 $ (2) $ 1,092

~~(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.~~

~~Table of Contents~~

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

Revenues from Contracts with Customers Other Revenues Not from Contracts with Customers (a) Total Operating Revenues
Regulated Businesses:
Water services:
Residential $ 1,467 $ 2 $ 1,469
Commercial 534 1 535
Fire service 109 — 109
Industrial 115 1 116
Public and other 195 — 195
Total water services 2,420 4 2,424
Wastewater services:
Residential 128 1 129
Commercial 33 — 33
Industrial 3 — 3
Public and other 14 — 14
Total wastewater services 178 1 179
Miscellaneous utility charges 27 — 27
Alternative revenue programs — 10 10
Lease contract revenue — 6 6
Total Regulated Businesses 2,625 21 2,646
Market-Based Businesses and Other 216 (1) 215
Total operating revenues $ 2,841 $ 20 $ 2,861

~~Table of Contents~~

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


		Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues			Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:	Regulated Businesses:							Regulated Businesses:
Water services:	Water services:							Water services:
Residential	Residential	$	1,466	$	—	$	1,466	Residential	$	428	$	—	$	428
Commercial	Commercial	511		—		511		Commercial	153		—		153
Fire service	Fire service	112		—		112		Fire service	36		—		36
Industrial	Industrial	105		—		105		Industrial	36		—		36
Public and other	Public and other	172		—		172		Public and other	57		—		57
Total water services	Total water services	2,366		—		2,366		Total water services	710		—		710
Wastewater services:	Wastewater services:							Wastewater services:
Residential	Residential	112		—		112		Residential	41		—		41
Commercial	Commercial	28		—		28		Commercial	10		—		10
Industrial	Industrial	3		—		3		Industrial	1		—		1
Public and other	Public and other	12		—		12		Public and other	3		—		3
Total wastewater services	Total wastewater services	155		—		155		Total wastewater services	55		—		55
Miscellaneous utility charges	Miscellaneous utility charges	18		—		18		Miscellaneous utility charges	9		—		9
Alternative revenue programs	Alternative revenue programs	—		12		12		Alternative revenue programs	—		2		2
Lease contract revenue	Lease contract revenue	—		5		5		Lease contract revenue	—		2		2
Total Regulated Businesses	Total Regulated Businesses	2,539		17		2,556		Total Regulated Businesses	774		4		778
Market-Based Businesses and Other		424		(1)		423
Other								Other	64		—		64
Total operating revenues	Total operating revenues	$	2,963	$	16	$	2,979	Total operating revenues	$	838	$	4	$	842

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

Contract Balances

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

Contract assets of ~~$76~~$100 million and ~~$71~~$86 million are included in unbilled revenues on the Consolidated Balance Sheets as of ~~September 30, 2022,~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. There were ~~$124~~$23 million of contract assets added during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, and ~~$119~~$9 million of contract assets were transferred to accounts receivable during the same period. There were ~~$60~~$18 million of contract assets added during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and ~~$31~~$11 million of contract assets were transferred to accounts receivable during the same period.

Contract liabilities of ~~$75~~$85 million and ~~$19~~$91 million are included in other current liabilities on the Consolidated Balance Sheets as of ~~September 30, 2022,~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. There were ~~$150~~$27 million of contract liabilities added during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, and ~~$94~~$33 million of contract liabilities were recognized as revenue during the same period. There were ~~$141~~$36 million of contract liabilities added during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and ~~$137~~$35 million of contract liabilities were recognized as revenue during the same period.

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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, 2022,~~March 31, 2023, the Company’s operation and maintenance (“O&M”) and capital improvement contracts in ~~Market-Based Businesses~~the MSG and ~~Other~~the Contract Services Group have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and 2073 and have RPOs of ~~$7.0~~$7.1 billion as of ~~September 30, 2022,~~March 31, 2023, as measured by estimated remaining contract revenue. Such contracts are subject to customary termination provisions held by the U.S. government, prior to the agreed-upon contract expiration. Contracts with municipalities and commercial customers expire between 2026 and 2038 and have RPOs of ~~$542~~$576 million as of ~~September 30, 2022,~~March 31, 2023, as measured by estimated remaining contract revenue. Some of the Company’s long-term contracts to operate and maintain the federal government’s, a municipality’s or other party’s water or wastewater treatment and delivery facilities include responsibility for certain maintenance for some of those facilities, in exchange for an annual fee. Unless specifically required to perform certain maintenance activities, the maintenance costs are recognized when the maintenance is performed.

Note 5: Acquisitions and Divestitures

Regulated Businesses

Closed Acquisitions

During the three months ended March 31, 2023, the Company closed on five acquisitions of various regulated water and wastewater systems for a total aggregate purchase price of $3 million,which added approximately 1,400 water and wastewater customers. These transactions were accounted for as asset acquisitions, principally consisting of utility plant.

Pending Acquisitions

On ~~May 27, 2022,~~April 6, 2023, the Company’s Illinois subsidiary entered into an agreement to acquire the assets of the wastewater treatment plant from the City of Granite City for $83 million, subject to adjustment as provided for in the asset purchase agreement. This system provides wastewater service for approximately 26,000 customer connections. The Company expects to close this acquisition by the end of 2023 or early 2024, pending regulatory approval.

Effective March 24, 2023, the Company’s Pennsylvania subsidiary acquired the ~~public wastewater collection and treatment system assets from~~rights to buy the York City Sewer Authority and the City of York for a purchase price of $235 million, in cash, $20 million of which was funded as a deposit to the seller in April 2021 in connection with the execution of the acquisition agreement. The system assets serve, directly and indirectly through bulk contracts, more than 45,000 customers. The acquisition was accounted for as a business combination and the preliminary purchase price allocation will be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date. The preliminary purchase price allocation consisted primarily of $231 million of utility plant and $4 million of goodwill, which is reported in the Company’s Regulated Businesses segment.

~~In addition to the acquisition of the York~~ wastewater system assets ~~noted above, during~~of the ~~nine months ended September 30, 2022, the Company closed on the acquisition~~Township of ~~14 regulated water and wastewater systems~~Towamencin, for an aggregate purchase price of ~~$73 million. Two of these acquisitions were accounted for~~$104 million, subject to adjustment as ~~a business combination. Assets acquired from these acquisitions consisted principally of utility plant.~~

provided in the asset purchase agreement. This system provides wastewater services to approximately 6,300 customer connections in seven townships in Montgomery County, Pennsylvania. The ~~pro forma impact of the Company’s acquisitions was not material~~Company expects to ~~the Consolidated Statements of Operations for the periods ended September 30, 2022 and 2021.~~

~~Pending Acquisitions~~close this acquisition by mid-year 2024, pending regulatory approval.

On October 11, 2022, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater assets of the Butler Area Sewer Authority for a total purchase price of $232 million in cash, subject to adjustment as provided for in the ~~Asset Purchase Agreement.~~asset purchase agreement. This system provides wastewater service for approximately 14,700 customer connections. The Company expects to close this acquisition by the end of 2023, pending regulatory approval.

On March 29, 2021, the Company’s New Jersey subsidiary entered into an agreement to acquire the water and wastewater assets of Egg Harbor City for $22 million. The water and wastewater systems currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the New Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition in ~~late 2022 or early~~ 2023.

~~Sale of New York American Water Company, Inc.~~

On January 1, 2022, the Company completed the previously disclosed sale of its regulated utility operations in New York to Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), an indirect, wholly owned subsidiary of Algonquin Power & Utilities Corp. Liberty purchased from the Company all of the capital stock of the Company’s New York subsidiary for a purchase price of $608 million in cash. During the first quarter of 2022, the Company recognized a loss on sale of $2 million.

~~Sale of Michigan American Water Company~~

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

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~~Sale of Homeowner Services Group~~

On December 9, 2021, the Company sold all of the equity interests in subsidiaries that comprised the Company’s Homeowner Services Group (“HOS”) to a wholly owned subsidiary of funds advised by Apax Partners LLP, a global private equity advisory firm (the “Buyer”), for total consideration of approximately $1.275 billion, resulting in pre-tax gain on sale of $748 million during the fourth quarter of 2021. The consideration was comprised of $480 million in cash, a seller promissory note issued by the Buyer in the principal amount of $720 million, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023. See Note 13—Fair Value of Financial Information for additional information relating to the seller promissory note and contingent cash payment. For the nine months ended September 30, 2022, the Company recorded post-closing adjustments, primarily related to working capital, of pre-tax income of $20 million, which is included in Other, net on the Consolidated Statements of Operations.

The seller note has a five-year term, is payable in cash, and bears interest at a rate of 7.00% per year during the term. The Company recognized $13 million and $38 million of interest income during the three and nine months ended September 30, 2022, respectively, from the seller note.

The Company and the Buyer also entered into revenue share agreements, pursuant to which the Company is to receive 10% of the revenue generated from customers who are billed for home warranty services through an applicable Company subsidiary (an “on-bill” arrangement), and 15% of the revenue generated from any future on-bill arrangements entered into after the closing. Unless earlier terminated, this agreement has a term of up to 15 years, which may be renewed for up to two five-year periods. The Company recognized $2 million and $6 million of income during the three and nine months ended September 30, 2022, respectively, from the revenue share agreements, which is included in Other, net on the Consolidated Statements of Operations.

Note 6: Shareholders’ Equity

Common Stock Offering

On March 3, 2023, the Company completed an underwritten public offering of an aggregate of 12,650,000 shares of its common stock. Upon closing of this offering, the Company received, after deduction of the underwriting discount and before deduction of offering expenses, net proceeds of approximately $1,688 million. The Company used the net proceeds of the offering to repay short-term commercial paper obligations of American Water Capital Corp. (“AWCC”), the wholly owned finance subsidiary of American Water, and for general corporate purposes.

Accumulated Other Comprehensive Loss

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, 2023 and 2022, ~~and 2021,~~ respectively:

Defined Benefit Pension Plans Loss on Cash Flow Hedges Accumulated Other Comprehensive Loss
Employee Benefit Plan Funded Status Amortization of Prior Service Cost Amortization of Actuarial Loss
Balance as of December 31, 2021 $ (107) $ 1 $ 67 $ (6) $ (45)
Other comprehensive income before reclassifications — — — 4 4
Amounts reclassified from accumulated other comprehensive loss — — 2 — 2
Net other comprehensive income — — 2 4 6
Balance as of September 30, 2022 $ (107) $ 1 $ 69 $ (2) $ (39)
Balance as of December 31, 2020 $ (106) $ 1 $ 63 $ (7) $ (49)
Other comprehensive loss before reclassifications — — — 1 1
Amounts reclassified from accumulated other comprehensive loss — — 3 — 3
Net other comprehensive income — — 3 1 4
Balance as of September 30, 2021 $ (106) $ 1 $ 66 $ (6) $ (45)


	Defined Benefit Pension Plans						Loss on Cash Flow Hedges		Gain on Fixed-Income Securities		Accumulated Other Comprehensive Loss
	Employee Benefit Plan Funded Status		Amortization of Prior Service Cost		Amortization of Actuarial Loss
Balance as of December 31, 2022	$	(93)	$	1	$	70	$	(1)	$	—	$	(23)
Other comprehensive income (loss) before reclassifications	—		—		—		(2)		2		—
Amounts reclassified from accumulated other comprehensive loss	—		—		—		—		—		—
Net other comprehensive income (loss)	—		—		—		(2)		2		—
Balance as of March 31, 2023	$	(93)	$	1	$	70	$	(3)	$	2	$	(23)

Balance as of December 31, 2021	$	(107)	$	1	$	67	$	(6)	$	—	$	(45)
Other comprehensive income (loss) before reclassifications	—		—		—		—		—		—
Amounts reclassified from accumulated other comprehensive loss	—		—		1		—		—		1
Net other comprehensive income (loss)	—		—		1		—		—		1
Balance as of March 31, 2022	$	(107)	$	1	$	68	$	(6)	$	—	$	(44)

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

~~Table~~An unrealized gain (loss) on available-for-sale fixed-income securities is reclassified to net income upon sale of ~~Contents~~

the securities as a realized gain or loss and is included in Other, net in the accompanying Consolidated Statements of Operations.

Dividends

On ~~September~~March 1, ~~2022,~~2023, the Company paid a quarterly cash dividend of $0.6550 per share to shareholders of record as of ~~August 9, 2022.~~February 7, 2023.

On ~~October 27, 2022,~~April 26, 2023, the Company’s Board of Directors declared a quarterly cash dividend payment of ~~$0.6550~~$0.7075 per share, payable on ~~December~~June 1, ~~2022,~~2023, to shareholders of record as of ~~November 8, 2022.~~May 9, 2023. Future dividends, when and as declared at the discretion of the Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other factors. See Note ~~10—Shareholders'~~9—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.

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Note 7: Long-Term Debt

~~On May 5, 2022, American Water Capital Corp. (“AWCC”)~~During the three months ended March 31, 2023, the Company’s regulated subsidiaries issued in the aggregate $8 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.00% to 0.74%, ~~issued $800~~with a weighted average interest rate of 0.01%, maturing in 2025 through 2041. During the three months ended March 31, 2023, AWCC and the Company’s regulated subsidiaries made sinking fund payments for, or repaid at maturity, $4 million in aggregate principal amount of ~~4.45% senior notes due 2032. At closing, AWCC received, after deduction~~outstanding long-term debt, with annual interest rates ranging from 0.00% to 3.12%, a weighted average interest rate of ~~underwriting discounts~~1.12%, and ~~before deduction of offering expenses, net proceeds of approximately $792 million. AWCC used the net proceeds of the offering: (i)~~maturity dates ranging from 2024 to ~~lend funds to the~~2051.

The Company ~~and its subsidiaries in its Regulated Businesses segment; (ii) to repay AWCC’s commercial paper obligations; and (iii) for general corporate purposes.~~

~~In April 2022, the Company~~has entered into ~~several~~eleven 10-year treasury lock agreements, with notional amounts totaling ~~$400~~$300 million, to reduce interest rate exposure on debt expected to be issued in 2023. These treasury lock agreements terminate in January 2024, and have an average fixed ~~interest~~ rate of ~~2.89%~~3.47%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. ~~In May 2022,~~Upon termination, the ~~Company terminated the treasury lock agreements, realizing a net~~cumulative gain ~~of approximately $4 million, to~~or loss recorded in accumulated other comprehensive gain or loss will be amortized through interest, net over ~~a 10-year period, in accordance with~~ the ~~tenor~~term of the ~~debt issuance on May 5, 2022.~~ new debt.

No ineffectiveness was recognized on hedging instruments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 or 2022.

In addition to the senior notes issued by AWCC as described above, during the nine months ended September 30, 2022, the Company’s regulated subsidiaries issued in the aggregate $22 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.00% to1.75%, with a weighted average interest rate of 1.05%, maturing in 2027 through 2042. During the nine months ended September 30, 2022, AWCC and the Company’s regulated subsidiaries made sinking fund payments for, or repaid at maturity, $14 million in aggregate principal amount of outstanding long-term debt, with annual interest rates ranging from 0.00% to 12.25%, a weighted average interest rate of 2.18%, and maturity dates ranging from 2022 to 2051.

Note 8: Short-Term Debt

Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets and, if and to the extent necessary, borrowings under the AWCC revolving credit facility and ~~in the future,~~ issuances of equity. ~~Additionally, proceeds from the aforementioned sales of HOS and the Company’s New York subsidiary will be used primarily for capital investment in the Regulated Businesses.~~

The ~~Company maintains an unsecured~~ revolving credit facility ~~with~~provides $2.75 billion in aggregate total commitments from a diversified group of financial institutions. The termination date of the credit agreement with respect to AWCC’s revolving credit facility is October 2027. The revolving credit facility is used principally to support ~~its~~AWCC’s commercial paper program, to provide additional liquidity support and to provide a ~~sublimit for the issuance~~sub-limit of up to $150 million infor letters of credit. ~~On October 26,~~As of March 31, 2023 and December 31, 2022, ~~AWCC~~there were noborrowings and ~~certain lenders amended and restated the~~$78 million of outstanding letters of credit ~~agreement with respect to~~under the revolving credit ~~facility to, among other things, increase~~facility.

At March 31, 2023, there was no outstanding short-term debt as the ~~maximum commitments under the facility to $2.75 billion from $2.25 billion and to extend the expiration date~~proceeds of the ~~facility~~common stock offering were used to ~~October 2027 from March 2025. Subject to satisfying certain conditions,~~repay the credit agreement also permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million and to request extensions of its expiration date for up to two one-year periods. Also, effective October 26, 2022, the maximum aggregate principal amount of short-term ~~borrowings authorized for issuance under AWCC’s~~ commercial paper ~~program was increased~~obligations, see Note 6—Shareholders’ Equity for additional information relating to ~~$2.60 billion from $2.10 billion.~~the common stock offering.

~~Short-term~~At December 31, 2022, short-term debt ~~consists~~consisting of commercial paper borrowings ~~totaling $634~~totaled $1,177 million, ~~and $584 million as~~or net of ~~September 30, 2022, and December 31, 2021, respectively.~~discount $1,175 million. The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately ~~3.22%~~4.41% and ~~0.20% at September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, and December 31, 2021,~~ there were no~~borrowings outstanding under the revolving credit facility, and there were~~ no commercial paper borrowings outstanding with maturities greater than three months.

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


		As of September 30, 2022							As of March 31, 2023
		Commercial Paper Limit		Letters of Credit		Total (a)			Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)	(In millions)							(In millions)
Total availability	Total availability	$	2,100	$	150	$	2,250	Total availability	$	2,600	$	150	$	2,750
Outstanding debt	Outstanding debt	(634)		(75)		(709)		Outstanding debt	—		(78)		(78)
Remaining availability as of September 30, 2022		$	1,466	$	75	$	1,541
Remaining availability as of March 31, 2023								Remaining availability as of March 31, 2023	$	2,600	$	72	$	2,672

(a)Total remaining availability of ~~$1.54~~$2.67 billion as of ~~September 30, 2022,~~March 31, 2023, may be accessed through revolver draws.

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

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	As of December 31, 2022
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,600	$	150	$	2,750
Outstanding debt	(1,177)		(78)		(1,255)
Remaining availability as of December 31, 2022	$	1,423	$	72	$	1,495

(a)Total remaining availability of ~~$1.59~~$1.50 billion as of December 31, ~~2021,~~2022, may be accessed through revolver draws.

Presented in the table below is the Company’s total available liquidity as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively:

Cash and Cash Equivalents Availability on Revolving Credit Facility Total Available Liquidity
(In millions)
Available liquidity as of September 30, 2022 $ 77 $ 1,541 $ 1,618
Available liquidity as of December 31, 2021 $ 116 $ 1,590 $ 1,706


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)
Available liquidity as of March 31, 2023	$	213	$	2,672	$	2,885
Available liquidity as of December 31, 2022	$	85	$	1,495	$	1,580

Note 9: Income Taxes

The Company’s effective income tax rate was ~~19.1%~~20.6% and ~~18.2%~~18.1% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and 18.9% and 17.2% for the nine months ended September 30, 2022 and 2021,~~ respectively. The increase in the Company’s effective income tax rate for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, was primarily due to athe decrease in the amortization of EADIT pursuant to regulatory orders. The amortization of EADIT is generally offset with reduction in revenue.

~~Other Tax Matters~~

On ~~July 8,~~August 16, 2022, ~~Pennsylvania Governor Tom Wolf~~the Inflation Reduction Act of 2022 (the “IRA”) was signed into ~~law Act 53 of 2022, which reduces the Pennsylvania state corporateincome tax rate in yearly increments starting January 1, 2023, with~~law. The IRA contains a ~~new rate of 8.99% and ending effective January 1, 2031, with a rate of 4.99%. Under Accounting Standards Codification Topic 740, Income Taxes~~Corporate Alternative Minimum Tax (“ASC 740”), the tax effects of changes in tax laws must be recognized in the period in which the law is enacted. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. As such, the Company’s accumulated deferred income tax (“ADIT”CAMT”) balances for their Pennsylvania subsidiary were remeasured during the quarter ended September 30, 2022, to estimate the impacts of the recently enacted tax rate. The remeasurement reduces the ADIT liability by $132 million and creates a corresponding regulatory liability since the EADIT is expected to be returned to customers in a future rate case. However, since the rate is declining in yearly increments, the total EADIT will be subject to change. The rate change impacts to the non-regulated companies have been deemed immaterial.

~~On September 27, 2022, Iowa’s Department of Revenue announced a reduction in the state’s top corporate rate from 9.8% to 8.4%~~provision, effective January 1, 2023. ~~The remeasurement reduces~~To determine if a company is considered an applicable corporation subject to CAMT, the ~~ADIT liability~~company’s average adjusted financial statement income (“AFSI”) for the ~~Company’s Iowa subsidiary by~~three consecutive years preceding the tax year must exceed $1 ~~million~~billion. An applicable corporation must make several adjustments to net income when determining AFSI. During the first quarter of 2023, the Company evaluated the potential impacts of the CAMT provision within the IRA and ~~creates a corresponding regulatory liability since~~believes it does not exceed the ~~EADIT balance~~$1 billion AFSI threshold, and therefore, is ~~expected~~not currently subject to ~~be returned~~CAMT in 2023. The Company is continuing to ~~customers in a future rate case. The rate impacts~~assess the impact of the initial guidance regarding the application of the CAMT and will continue to ~~the non-regulated companies have been deemed immaterial.~~monitor as additional guidance is released.

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Note 10: Pension and Other Postretirement Benefits

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Components of net periodic pension benefit credit:
Components of net periodic pension benefit cost (credit):										Components of net periodic pension benefit cost (credit):
Service cost	Service cost	$	8	$	9	$	23	$	27	Service cost		$	4	$	8
Interest cost	Interest cost	16		16		48		49		Interest cost		22		16
Expected return on plan assets	Expected return on plan assets	(31)		(31)		(92)		(95)		Expected return on plan assets		(23)		(31)
Amortization of prior service credit	Amortization of prior service credit	(1)		(1)		(3)		(2)		Amortization of prior service credit		(1)		(1)
Amortization of actuarial loss	Amortization of actuarial loss	5		7		15		20		Amortization of actuarial loss		4		5
Net periodic pension benefit credit		$	(3)	$	—	$	(9)	$	(1)
Net periodic pension benefit cost (credit)										Net periodic pension benefit cost (credit)		$	6	$	(3)

Components of net periodic other postretirement benefit credit:	Components of net periodic other postretirement benefit credit:									Components of net periodic other postretirement benefit credit:
Service cost	Service cost	$	1	$	1	$	3	$	3	Service cost		$	1	$	1
Interest cost	Interest cost	3		2		8		6		Interest cost		4		3
Expected return on plan assets	Expected return on plan assets	(5)		(5)		(15)		(15)		Expected return on plan assets		(3)		(5)
Amortization of prior service credit	Amortization of prior service credit	(8)		(8)		(24)		(24)		Amortization of prior service credit		(8)		(8)
Amortization of actuarial loss										Amortization of actuarial loss		1		—
Net periodic other postretirement benefit credit	Net periodic other postretirement benefit credit	$	(9)	$	(10)	$	(28)	$	(30)	Net periodic other postretirement benefit credit		$	(5)	$	(9)

The Company contributed $9$10 million and ~~$27~~$9 million for the funding of its defined benefit pension plans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and contributed $10 million and $28 million for the funding of its defined benefit pension plans for the three and nine months ended September 30, 2021,~~ respectively. There were no material contributions and $13 million of contributions for the funding of the Company’s other postretirement benefit plans for the three and nine months ended September 30, 2022, respectively, and $3 million of contributions for each of the three and nine months ended September 30, 2021. The Company expects to make pension contributions to the plan trusts of $9$29 million during the remainder of ~~2022.~~2023.

There were no contributions for the three months ended March 31, 2023 and $10 million of contributions for the three months ended March 31, 2022 for the funding of the Company’s other postretirement benefit plans.

Note 11: Commitments and Contingencies

Contingencies

The Company is routinely involved in legal actions incident to the normal conduct of its business. As of ~~September 30, 2022,~~March 31, 2023, the Company has accrued approximately $4$6 million of probable loss contingencies and has estimated that the maximum amount of losses associated with reasonably possible loss contingencies that can be reasonably estimated is $3$5 million. For certain matters, claims and actions, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such matters, claims or actions, other than as described in this Note 11—Commitments and Contingencies, will not have a material adverse effect on the Company.

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

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

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

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Dunbar, West Virginia Water Main Break Class Action Litigation

On the evening of June 23, 2015, a 36-inch pre-stressed concrete transmission water main, installed in the early 1970s, failed. The water main is part of the West Relay pumping station located in the City of Dunbar, West Virginia and owned by ~~WVAWC.~~the Company’s West Virginia subsidiary (“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.

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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 February 2020, the Jeffries plaintiffs filed a motion seeking class certification on the issues of breach of contract and negligence, and to determine the applicability of punitive damages and a multiplier for those damages if imposed. In July 2020, the Circuit Court entered an order granting the Jeffries plaintiffs’ motion for certification of a class regarding certain liability issues but denying certification of a class to determine a punitive damages multiplier. In August 2020, WVAWC filed a Petition for Writ of Prohibition in the Supreme Court of Appeals of West Virginia seeking to vacate or remand the Circuit Court’s order certifying the issues class. OnIn January ~~28,~~ 2021, the Supreme Court of Appeals remanded the case back to the Circuit Court for further consideration in light of a decision issued in another case relating to the class certification issues raised on appeal. On July 5, 2022, the Circuit Court entered an order again certifying a class to address at trial certain liability issues but not to consider damages. On August 26, 2022, WVAWC filed another Petition for Writ of Prohibition in the Supreme Court of Appeals of West Virginia challenging ~~this latest class certification~~the West Virginia Circuit Court’s July 5, 2022 order. The Writ Petition has been supported by an amicus brief filed by certain water and utility industry trade groups. ~~The~~On February 9, 2023, the Supreme Court of Appeals ~~will decide whether to accept~~accepted the Writ Petition by issuing a Rule to Show ~~Cause.~~Cause and scheduling oral argument for April 26, 2023.

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

Chattanooga, Tennessee Water Main Break Class Action Litigation

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

On September 17, 2019, a complaint captioned Bruce, et al. v. American Water Works Company, Inc., et al.was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and American Water Works Service Company, Inc. (“Service Company” and, together with TAWC and the Company, collectively, the “Tennessee-American Water Defendants”), on behalf of a proposed class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga incident (the “Tennessee Plaintiffs”). The complaint alleged breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil. In the complaint as originally filed, the Tennessee Plaintiffs were seeking an award of unspecified alleged damages for wage losses, business and economic losses, out-of-pocket expenses, loss of use and enjoyment of property and annoyance and inconvenience, as well as punitive damages, attorneys’ fees and pre- and post-judgment interest. In September 2020, the court dismissed all of the Tennessee Plaintiffs’ claims in their complaint, except for the breach of contract claims against TAWC, which remain pending. In October 2020, TAWC answered the complaint, and the parties have been engaging in discovery. AOn January 12, 2023, after hearing ~~that had been originally scheduled~~oral argument, the court issued an oral ruling denying the Tennessee Plaintiffs’ motion for ~~October 2022~~class certification. On February 9, 2023, the Tennessee Plaintiffs sought reconsideration of the ruling by the court, and any final ruling is appealable to ~~address~~ the ~~question~~Tennessee Court of ~~class certification has been postponed to January 2023.~~Appeals, as allowed under Tennessee law.

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

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Alternative Water Supply in Lieu of Carmel River Diversions

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

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

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

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

In September 2018, the CPUC unanimously approved another final decision finding that the Water Supply Project meets the CPUC’s requirements for a certificate of public convenience and necessity and an additional procedural phase was not necessary to consider alternative projects. The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual ~~weighted average cost of capital.~~financing costs. The 2018 final decision specifies the procedures for recovery of all of Cal Am’s prudently incurred costs associated with the Water Supply Project upon its completion, subject to the frameworks included in the final decision related to cost caps, operation and maintenance costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project costs will be reviewed by the CPUC when Cal Am seeks cost recovery for the Water Supply Project. Cal Am is also required to implement mitigation measures to avoid, minimize or offset significant environmental impacts from the construction and operation of the Water Supply Project and comply with a mitigation monitoring and reporting program, a reimbursement agreement for CPUC costs associated with that program, and reporting requirements on plant operations following placement of the Water Supply Project in service. Cal Am has incurred ~~$206~~$218 million in aggregate costs as of ~~September 30, 2022~~March 31, 2023 related to the Water Supply Project, which includes ~~$55~~$60 million in AFUDC.

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

On December 5, 2022, the ~~parties completed testimony related to this~~ CPUC ~~proceeding, and the parties are now meeting and conferring to set hearing dates during the fourth quarter of 2022.~~

~~On September 30, 2022, a CPUC-assigned ALJ~~ issued a ~~proposed~~final decision that ~~would, if adopted by the CPUC, authorize~~authorizes Cal Am to enter into the amended water purchase agreement, and specifically to increase pumping capacity and reliability of groundwater extraction from the Seaside Groundwater Basin. The ~~proposed~~final decision sets the cost cap for the proposed facilities at approximately ~~$45 million, and the remaining $36 million of costs initially requested have been deferred to a subsequent filing. Under the proposed decision,~~$62 million. Cal Am may seek recovery of amounts above the cost cap in a subsequent rate filing or general rate case. Additionally, the ~~proposed~~final decision ~~recommended~~authorizes AFUDC ~~be authorized~~ at Cal Am’s actual weighted average cost of ~~debt.~~ debt for most of the facilities.

On ~~October 20,~~December 30, 2022, ~~the parties filed their comments to the proposed decision.~~ Cal Am ~~currently expects~~filed with the CPUC an application for rehearing of the CPUC’s December 5, 2022 final decision. On March 30, 2023, the CPUC issued a ~~CPUC ruling~~decision denying Cal Am’s application for rehearing, but adopting its proposed AFUDC for already incurred and future costs. The decision also provides Cal Am the opportunity to ~~be issued by the end~~serve supplemental testimony to increase its cost cap for certain of ~~2022. After that, this matter will remain open as part of a Phase 2 proceeding to update supply and demand amounts for~~ the Water Supply ~~Project~~Project’s extraction wells. The amended water purchase agreement and a memorandum of understanding to ~~address~~negotiate certain milestones related to the expansion of the ~~deferred capital requests.~~GWR Project have been signed by the relevant parties.

While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the ~~2009 Order and the 2016 Order,~~Orders, as well as ~~the CPUC’s 2016 and 2018~~relevant final decisions of the CPUC related thereto, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the ~~$50~~$112 million in aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its 2016 final decision and its December 2022 final decision, as amended by its March 30, 2023 rehearing decision.

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Coastal Development Permit Application

In ~~June~~ 2018, Cal Am submitted a coastal development permit application (the “Marina Application”) to the City of Marina (the “City”) for those project components of the Water Supply Project located within the City’s coastal zone. Members of the City’s Planning Commission, as well as City councilpersons, have publicly expressed opposition to the Water Supply Project. In May 2019, the City issued a notice of final local action based upon the denial by the Planning Commission of ~~Cal Am’s coastal development permit application.~~the Marina 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 (the “Original Jurisdiction Application”) to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction. 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 theAfter Coastal Commission staff recommendation, at which time the CPUC raised questions about the Coastal Commission staff’s findings on water supply and demand, groundwater impacts and the viability of a project that the Coastal Commission staff believes may be a possible alternative to the Water Supply Project.

~~In August 2020, the staff of the Coastal Commission released a report again~~issued reports 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~~Original Jurisdiction Application, noting potential impacts 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~~possible disproportionate impacts to communities of ~~concern. In~~concern, in September 2020, Cal Am withdrew ~~its original jurisdiction application to allow additional time~~the Original Jurisdiction Application in order to address the ~~Coastal Commission~~ staff’s environmental justice concerns. The withdrawal of the ~~original jurisdiction application~~Original Jurisdiction Application did not impact Cal Am’s appeal of the City’s denial of the Marina Application, which remains pending before the Coastal Commission. In November 2020, Cal Am refiled the ~~original jurisdiction application in November 2020. In December 2020, the Coastal Commission sent to~~Original Jurisdiction Application.

On October 5, 2022, Cal Am announced a ~~notice~~phasing plan for the proposed desalination plant component of ~~incomplete application, identifying certain~~the Water Supply Project. The desalination plant and slant wells originally approved by the CPUC would produce up to 6.4 million gallons of desalinated water per day. Under the phased approach, the facilities would initially be constructed to produce up to 4.8 million gallons per day of desalinated water, enough to meet anticipated demand through about 2030, and would limit the number of slant wells initially constructed. As demand increases in the future, desalination facilities would be expanded to meet the additional ~~information~~demand. The phased approach seeks to meet near-term demand by allowing for additional supply as it becomes needed, ~~to consider the application complete. In March 2021,~~while also providing an opportunity for regional future public participation and was developed by Cal Am ~~provided responses to~~based on feedback received from the Coastal Commission’s notice of incomplete application. In June 2021, the Coastal Commission responded, acknowledging the responses and requesting certain additional information before the application could be considered complete. Cal Am responded with the requested additional information on January 11, 2022, and on February 8,community.

On November 18, 2022, the Coastal Commission ~~requested additional information,~~approved the Marina Application and the Original Jurisdiction Application with respect to the phased development of the proposed desalination plant, subject to compliance with a number of conditions, all of which Cal Am ~~responded with additional information.~~expects to satisfy. On ~~September 1,~~December 29, 2022, the City, Marina Coast Water District (“MCWD”), MCWD’s groundwater sustainability agency, and the MPWMD jointly filed a petition for writ of mandate in Monterey County Superior Court against the Coastal Commission, ~~deemed~~alleging that the Coastal Commission violated the California Coastal Act and the California Environmental Quality Act in issuing a coastal development permit to Cal ~~Am’s application complete. A hearing on~~Am for construction of the ~~application~~slant wells. Cal Am is ~~expected~~named as a real party in ~~November 2022.~~interest. This matter remains pending.

Following the issuance of the coastal development permit, Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining the remaining required ~~approvals~~permits for the Water Supply Project. However, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. ~~Beginning in January~~For the year ended December 31, 2022, Cal Am ~~expects to be able to comply~~has complied with the diversion ~~reduction requirements~~limitations contained in the 2016 ~~Order, but continued~~Order. Continued compliance with the diversion ~~reduction requirements for~~limitations in 2023 and future years may be impacted by a number of factors, including, without limitation, continued drought conditions in California and the exhaustion of water supply reserves, and will ~~depend on~~require successful development of alternate water supply sources sufficient to meet customer demand. The ~~2009 Order and the 2016 Order~~Orders remain in effect until Cal Am certifies to the SWRCB, and the SWRCB concurs, that Cal Am has obtained a permanent supply of water to substitute for past unauthorized Carmel River diversions. While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the ~~2009 Order and the 2016 Order~~Orders may result in material additional costs and obligations to Cal Am,including fines and penalties against Cal Am in the event of noncompliance with the ~~2009 Order~~Orders.

West Virginia Elk River Freedom Industries Chemical Spill

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

As of March 31, 2023, $0.5 million of the aggregate Settlement amount of $126 million remains reflected in accrued liabilities, and $0.5 million in an offsetting insurance receivable remains reflected in other current assets on the Consolidated Balance Sheets pending resolution of all asserted actual or potential claims associated with this matter. The amount reflected in accrued liabilities reflects the status of the liability and the ~~2016 Order.~~offsetting insurance receivable reflected in other current assets, each as of as of March 31, 2023.

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Note 12: Earnings per Common Share

Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted ~~EPS~~earnings per share (“EPS”) calculations:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Numerator:
Net income attributable to common shareholders $ 297 $ 278 $ 673 $ 618
Denominator:
Weighted-average common shares outstanding—Basic 182 182 182 182
Effect of dilutive common stock equivalents — — — —
Weighted-average common shares outstanding—Diluted 182 182 182 182

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	For the Three Months Ended March 31,
	2023		2022
Numerator:
Net income attributable to common shareholders	$	170	$	158

Denominator:
Weighted-average common shares outstanding—Basic	186		182
Effect of dilutive common stock equivalents	—		—
Weighted-average common shares outstanding—Diluted	186		182

The effect of dilutive common stock equivalents is related to outstanding ~~stock options,~~ restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding RSUs and PSUs granted under the Company’s 2017 Omnibus Equity Compensation Plan, as well as estimated shares to be purchased under the Company’s 2017 Nonqualified Employee Stock Purchase Plan. Less than one million share-based awards were excluded from the computation of diluted EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ because their effect would have been anti-dilutive under the treasury stock method.

Note 13: Fair Value of Financial Information

Fair Value of Financial Instruments

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

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

Seller promissory note from the sale of ~~HOS~~the Homeowner Services Group (“HOS”) — The carrying amount reported on the Consolidated Balance Sheets for the seller promissory note, included as part of the consideration from the sale of HOS, is $720 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. This amount represents the principal amount owed under the seller note, for which the Company expects to receive full payment. The accounting fair value measurement of the seller note approximated ~~$681~~$696 million and ~~$720~~$686 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The accounting fair value measurement is an estimate that is reflective of changes in benchmark interest rates. The seller note is classified as Level 3 within the fair value hierarchy.

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

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

As of September 30, 2022
Carrying Amount At Fair Value
Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements $ 3 $ — $ — $ 3 $ 3
Long-term debt (excluding finance lease obligations) 11,205 8,378 47 1,397 9,822
As of December 31, 2021
Carrying Amount At Fair Value
Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements $ 4 $ — $ — $ 6 $ 6
Long-term debt (excluding finance lease obligations) 10,396 10,121 60 1,637 11,818

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	As of March 31, 2023
	Carrying Amount		At Fair Value
			Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	3	$	—	$	—	$	3	$	3
Long-term debt (excluding finance lease obligations)	11,211		8,814		50		1,440		10,304

	As of December 31, 2022
	Carrying Amount		At Fair Value
			Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	3	$	—	$	—	$	3	$	3
Long-term debt (excluding finance lease obligations)	11,207		8,599		49		1,427		10,075

Recurring Fair Value Measurements

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


		As of September 30, 2022									As of March 31, 2023
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Restricted funds	Restricted funds	$	28	$	—	$	—	$	28	Restricted funds	$	29	$	—	$	—	$	29
Rabbi trust investments	Rabbi trust investments	20		—		—		20		Rabbi trust investments	20		—		—		20
Deposits	Deposits	7		—		—		7		Deposits	8		—		—		8
Other investments	Other investments	23		—		—		23		Other investments
Money market and other										Money market and other	54		—		—		54
Fixed-Income Securities										Fixed-Income Securities	148		7		—		155
Contingent cash payment from the sale of HOS	Contingent cash payment from the sale of HOS	—		—		72		72		Contingent cash payment from the sale of HOS	—		—		72		72
Total assets	Total assets	78		—		72		150		Total assets	259		7		72		338

Liabilities:	Liabilities:									Liabilities:
Deferred compensation obligations	Deferred compensation obligations	23		—		—		23		Deferred compensation obligations	24		—		—		24
Mark-to-market derivative liability										Mark-to-market derivative liability	—		2		—		2
Total liabilities	Total liabilities	23		—		—		23		Total liabilities	24		2		—		26
Total assets	Total assets	$	55	$	—	$	72	$	127	Total assets	$	235	$	5	$	72	$	312

As of December 31, 2021
Level 1 Level 2 Level 3 Total
Assets:
Restricted funds $ 21 $ — $ — $ 21
Rabbi trust investments 23 — — 23
Deposits 27 — — 27
Other investments 17 — — 17
Contingent cash payment from the sale of HOS — — 72 72
Total assets 88 — 72 160
Liabilities:
Deferred compensation obligations 27 — — 27
Total liabilities 27 — — 27
Total assets $ 61 $ — $ 72 $ 133

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	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	32	$	—	$	—	$	32
Rabbi trust investments	21		—		—		21
Deposits	7		—		—		7
Other investments
Money market and other	61		—		—		61
Fixed-Income Securities	147		6		—		153
Contingent cash payment from the sale of HOS	—		—		72		72
Mark-to-market derivative asset	—		1		—		1
Total assets	268		7		72		347

Liabilities:
Deferred compensation obligations	24		—		—		24
Total liabilities	24		—		—		24
Total assets	$	244	$	7	$	72	$	323

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

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

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

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

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

Other investments—~~Other~~The Company maintains a Voluntary Employees’ Beneficiary Association trust for purposes of paying active union employee medical benefits (“Active VEBA”). The investments in the Active VEBA trust primarily ~~represent~~consist of money market funds ~~used for active employee benefits.~~ and available-for-sale fixed income securities.

The money market and other investments have original maturities of three months or less when purchased. The fair value measurement of the money market and other investments is based on observable market prices and therefore included in the recurring fair value measurements hierarchy as Level 1.

The available-for-sale fixed income securities are primarily investments in U.S. Treasury securities and government bonds. The majority of U.S. Treasury securities and government bonds have been categorized as Level 1 because they trade in highly-liquid and transparent markets. Certain U.S. Treasury securities are based on prices that reflect observable market information, such as actual trade information of similar securities, and are therefore categorized as Level 2, because the valuations are calculated using models which utilize actively traded market data that the Company can corroborate.

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The Company includes other investments ~~in other current assets~~measured and recorded at fair value on the Consolidated Balance ~~Sheets.~~Sheets of $64 million and $67 million in Other current assets, as of March 31, 2023 and December 31, 2022, respectively, and $146 million and $147 million in Other long-term assets, as of March 31, 2023 and December 31, 2022, respectively. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income until realized.

The following tables summarize the unrealized positions for available-for-sale fixed income securities as of March 31, 2023 and December 31, 2022:


	As of March 31, 2023
	Amortized Cost Basis		Gross unrealized gains		Gross unrealized losses		Fair Value
Available-for-sale fixed-income securities	$	153	$	6	$	4	$	155


	As of December 31, 2022
	Amortized Cost Basis		Gross unrealized gains		Gross unrealized losses		Fair Value
Available-for-sale fixed-income securities	$	153	$	—	$	—	$	153

The fair value of the Company’s available-for-sale fixed income securities, summarized by contractual maturities, as of March 31, 2023, is as follows:


	Amount
Other investments - Available-for-sale fixed-income securities
Less than one year	$	61
1 year - 5 years	80
5 years - 10 years	3
Greater than 10 years	11
Total	$	155

Contingent cash payment from the sale of HOS—The Company’s contingent cash payment derivative included as part of the consideration from the sale of HOS, payable upon satisfaction of certain conditions on or before December 31, 2023, is included in other ~~long-term~~current assets on the Consolidated Balance Sheets. The accounting fair value measurement of the contingent cash payment isapproximated $72 million, which is reflective of changes in the benchmark interest rate and estimated using the probability of the outcome of receipt of the $75 million, a Level 3 input.

Note 14: Leases

The Company has operating and finance leases involving real property, including facilities, utility assets, vehicles, and equipment. Certain operating leases have renewal options r~~anging from~~ranging from one to 60 years. The exercise of lease renewal options is at the Company’s sole discretion. Renewal options that the Company was reasonably certain to exercise are included in the Company’s right-of-use (“ROU”) assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 37 years, ~~six~~five years, and four years, respectively.

The Company participates in a number of arrangements with various public entities (“Partners”) in West Virginia. Under these arrangements, the Company transferred a portion of its utility plant to the Partners in exchange for an equal principal amount of Industrial Development Bonds (“IDBs”) issued by the Partners under the Industrial Development and Commercial Development Bond Act. The Company leased back the utility plant under agreements for a period of 30 to 40 years. The Company has recorded these agreements as finance leases in property, plant and equipment, as ownership of the assets will revert back to the Company at the end of the lease term. The carrying value of the finance lease assets was ~~$146~~$144 million and $145 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022, 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 are excluded from the ~~finance~~ lease disclosure presented below.

The Company also enters into O&M agreements with the Partners. The Company pays an annual fee for use of the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $1$3 million in ~~2022,~~2023, $4 million in ~~2023~~2024 through ~~2026,~~2027, and ~~$48~~$45 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.

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Rental expenses under operating ~~and finance~~ leases were $3 million and $3 million for each of the three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021, and $9 million and $10 million for the nine months ended September 30, 2022 and September 30, 2021,~~ respectively.

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, cash paid for amounts in lease liabilities, which includes operating ~~and financing~~ cash flows from operating ~~and finance~~ leases, were $3 ~~million and $9 million, respectively.~~million. For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, there were ROU assets obtained in exchange for new operating lease liabilities of $4$2 million.

As of ~~September 30, 2022,~~March 31, 2023, the weighted-average remaining lease term of the ~~finance lease and~~ operating leases ~~were four years and~~was 17 years, ~~respectively,~~ and the weighted-average discount rate of the ~~finance lease and~~ operating leases ~~were 12% and~~was 4%~~, respectively.~~.

The future maturities of lease liabilities as of ~~September 30, 2022~~March 31, 2023 were ~~$3 million in 2022, $10~~$8 million in 2023, $9 million in 2024, $9 million in 2025, $8 million in 2026, $6 million in 2027, and ~~$88~~$76 million thereafter. As of ~~September 30, 2022,~~March 31, 2023, imputed interest was ~~$42~~$38 million.

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Note 15: Segment Information

The Company’s operating segments are comprised of ~~the revenue-generating components of~~ its businesses ~~for~~ which generate revenue, incur expense and have separate financial information which is ~~internally produced and~~ regularly used by management to make operating decisions, assess performance and allocate resources. The Company operates its businesses primarily through one reportable segment, the Regulated Businesses segment. ~~“Market-Based~~The Regulated Businesses segment also includes inter-segment revenues, costs and ~~Other” includes market-based~~interest which are eliminated to reconcile to the Consolidated Statements of Operations.

The Company also operates other businesses, primarily MSG, that ~~individually,~~ do not meet the criteria of a reportable segment in accordance with GAAP, and are collectively presented throughout this Form 10-Q within “Other,” which is consistent with how management assesses the results of these businesses. Other also includes corporate costs that are not allocated to the Company’s ~~operating segments,~~Regulated Businesses, interest income related to the seller promissory note and income from the revenue share agreement from the sale of HOS, eliminations of inter-segment transactions and fair value adjustments ~~and associated income and deductions~~ related to acquisitions that have not been allocated to the ~~operating segments for evaluation of performance and allocation of resource purposes.~~Regulated Businesses segment. The adjustments related to the acquisitions are reported in ~~Market-Based Businesses and~~ Other as they are excluded from segment performance measures evaluated by management.

~~As a result of~~The seller promissory note from the sale of HOS has a five-year term, is payable in cash, and bears interest at a rate of 7.00% per year during the ~~categories which were previously shown as “Market-Based Businesses” and “Other” have been combined and shown as “Market-Based Businesses and Other.” Segment results~~term. The Company recognized $13 million of interest income from the seller note for each of the three ~~and nine~~ months ended ~~September 30, 2021, have been adjusted retrospectively to reflect this change.~~March 31, 2023 and 2022.

The Company recognized $3 million and $2 million of income during the three months ended March 31, 2023 and 2022, respectively, from the revenue share agreements from the sale of HOS, which is included in Other, net on the Consolidated Statements of Operations.

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Presented in the tables below is summarized segment information:


		As of or for the Three Months Ended September 30, 2022							As of or for the Three Months Ended March 31, 2023
		Regulated Businesses		Market-Based Businesses and Other		Consolidated			Regulated Businesses		Other		Consolidated
Operating revenues	Operating revenues	$	1,003	$	79	$	1,082	Operating revenues	$	860	$	78	$	938
Depreciation and amortization	Depreciation and amortization	161		3		164		Depreciation and amortization	169		3		172
Total operating expenses, net	Total operating expenses, net	574		69		643		Total operating expenses, net	572		71		643
Interest expense	Interest expense	(81)		(30)		(111)		Interest expense	(87)		(28)		(115)
Interest income	Interest income	1		13		14		Interest income	1		13		14
Income before income taxes		373		(6)		367
Provision for income taxes		71		(1)		70
Provision (benefit) for income taxes								Provision (benefit) for income taxes	46		(2)		44
Net income (loss) attributable to common shareholders	Net income (loss) attributable to common shareholders	302		(5)		297		Net income (loss) attributable to common shareholders	174		(4)		170
Total assets	Total assets	24,366		2,760		27,126		Total assets	25,626		2,660		28,286
Cash paid for capital expenditures	Cash paid for capital expenditures	598		4		602		Cash paid for capital expenditures	524		2		526

As of or for the Three Months Ended September 30, 2021
Regulated Businesses Market-Based Businesses and Other Consolidated
Operating revenues $ 944 $ 148 $ 1,092
Depreciation and amortization 151 10 161
Total operating expenses, net 563 112 675
Interest expense (73) (28) (101)
Interest income — — —
Income (loss) before income taxes 332 8 340
Provision for income taxes 60 2 62
Net income (loss) attributable to common shareholders 273 5 278
Total assets 22,818 2,515 25,333
Cash paid for capital expenditures 447 6 453

As of or for the Nine Months Ended September 30, 2022
Regulated Businesses Market-Based Businesses and Other Consolidated
Operating revenues $ 2,646 $ 215 $ 2,861
Depreciation and amortization 473 12 485
Total operating expenses, net 1,658 191 1,849
Interest expense (227) (90) (317)
Interest income 1 38 39
Income before income taxes 835 (5) 830
Provision for income taxes 154 3 157
Net income (loss) attributable to common shareholders 681 (8) 673
Total assets 24,366 2,760 27,126
Cash paid for capital expenditures 1,588 9 1,597


	As of or for the Three Months Ended March 31, 2022
	Regulated Businesses		Other		Consolidated
Operating revenues	$	778	$	64	$	842
Depreciation and amortization	155		3		158
Total operating expenses, net	538		58		596
Interest expense	(70)		(30)		(100)
Interest income	—		13		13
Provision (benefit) for income taxes	36		(1)		35
Net income (loss) attributable to common shareholders	160		(2)		158
Total assets	22,973		2,721		25,694
Cash paid for capital expenditures	422		2		424

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As of or for the Nine Months Ended September 30, 2021
Regulated Businesses Market-Based Businesses and Other Consolidated
Operating revenues $ 2,556 $ 423 $ 2,979
Depreciation and amortization 449 27 476
Total operating expenses, net 1,658 345 2,003
Interest expense (216) (84) (300)
Interest income — — —
Income (loss) before income taxes 752 (6) 746
Provision (benefit) for income taxes 130 (2) 128
Net income (loss) attributable to common shareholders 623 (5) 618
Total assets 22,818 2,515 25,333
Cash paid for capital expenditures 1,191 14 1,205

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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, ~~2021.~~2022. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about the Company’s business, operations and financial performance. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements whenever they appear in this Form 10-Q. The Company’s actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those that are discussed under “Forward-Looking Statements” and elsewhere in this Form 10-Q. The Company has a disclosure committee consisting of members of senior management and other key employees involved in the preparation of the Company’s SEC reports. The disclosure committee is actively involved in the review and discussion of the Company’s SEC filings.

Overview

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

Financial Results

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, diluted earnings per share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were ~~$1.63 and $3.70, respectively,~~$0.91, an increase of ~~$0.10 and $0.30, respectively,~~$0.04, as compared to the same ~~periods~~period in the prior year. ~~These increases were~~This increase was primarily driven by the implementation of new rates in the Regulated Businesses ~~from infrastructure~~for the recovery of capital and acquisition investments, ~~acquisitions and organic growth,~~ offset somewhat by impacts from inflationary pressures on production costs and higher interest costs. Results for the three and nine months ended September 30, 2022, also reflect the favorable impact of weather, estimated at $0.06 per share, primarily due to hot and dry weather in the third quarter of 2022 as compared to a $0.01 per share unfavorable impact and $0.02 per share favorable impact for the three and nine months ended September 30, 2021, respectively. Also, included in the results for the three and nine months ended September 30, 2022, are $0.06 and $0.18 per share, respectively, from interest income earned on the seller note and income earned on revenue share agreements, which compares to Homeowner Services Group (“HOS”) operating results for the three and nine months ended September 30, 2021, of $0.09 and $0.25 per share, respectively. Lastly, the operating results for the Company’s New York subsidiary, which was sold on January 1, 2022, were $0.09 and $0.10 per share, for the three and nine months ended September 30, 2021, respectively. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.

Growth Through Capital Investment in Infrastructure and Regulated Acquisitions

The Company continues to grow its businesses, with the majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, and (ii) regulated acquisitions to expand the Company’s services to new customers. The Company plans to invest approximately ~~$2.5~~$2.9 billion across its footprint in ~~2022.~~2023. During the first ~~nine~~three months of ~~2022,~~2023, the Company invested ~~$1.9 billion,~~$538 million, primarily in the Regulated Businesses, as discussed below:

Regulated Businesses - Growth and Optimization

•$~~1.6 billion~~532 million capital investment in the Regulated Businesses, the substantial majority for infrastructure improvements and replacements; and

•$~~288~~3 million to fund acquisitions in the Regulated Businesses, which added approximately ~~65,300~~1,400 customers, in addition to approximately ~~14,000~~4,000 customers added through organic growth. ~~This includes~~

Effective March 24, 2023, the Company’s Pennsylvania ~~subsidiary’s acquisition of~~subsidiary acquired the rights to buy the wastewater system assets ~~from~~of the ~~York City Sewer Authority and the City~~Township of ~~York on May 27, 2022,~~Towamencin, for ~~a cash~~an aggregate purchase price of ~~$235~~$104 million, ~~$20 million of which was funded~~subject to adjustment as ~~a deposit~~provided in the asset purchase agreement. This system provides wastewater services to ~~the seller~~approximately 6,300 customer connections in ~~April 2021~~seven townships in ~~connection with the execution of the~~Montgomery County, Pennsylvania. The Company expects to close this acquisition ~~agreement.~~

~~Table of Contents~~

by mid-year 2024, pending regulatory approval.

Table of Contents

As of ~~September 30, 2022,~~March 31, 2023, the Company has entered into 27 agreements for pending acquisitions in the Regulated Businesses, including the ~~Egg Harbor City agreement~~agreements discussed above, to add approximately ~~21,600~~48,200 additional customers.

~~Sale~~On April 6, 2023, the Company’s Illinois subsidiary entered into an agreement to acquire the assets of ~~Homeowner Services Group~~the wastewater treatment plant from the City of Granite City for $83 million, subject to adjustment as provided for in the asset purchase agreement. This system provides wastewater service for approximately 26,000 customer connections. The Company expects to close this acquisition by the end of 2023 or early 2024, pending regulatory approval.

Other Matters

Environmental, Health and Safety, and Water Quality Regulation

On ~~December 9, 2021,~~March 14, 2023, the United States Environmental Protection Agency (“EPA”) announced the proposed National Primary Drinking Water Regulation (“NPDWR”) for six per- and polyfluoroalkyl substances (“PFAS”) including perfluorooctanoic acid (“PFOA”), perfluorooctane sulfonic acid (“PFOS”), perfluorononanoic acid (“PFNA”), hexafluoropropylene oxide dimer acid (“HFPO-DA”, commonly known as “GenX Chemicals”), perfluorohexane sulfonic acid (“PFHxS”), and perfluorobutane sulfonic acid (“PFBS”). The proposed regulations would establish legally enforceable levels for PFAS in drinking water. While the Company ~~sold all~~has been anticipating the rulemaking, the Company is carefully reviewing the NPDWR to assess the four parts per trillion requirements for PFAS and the application of the ~~equity interests in subsidiaries that comprised~~Hazard Index approach for PFNA, PFBS, PFHxS, and GenX Chemicals. The Company’s review will inform the ~~Company’s Homeowner Services Group (“HOS”)~~comments on the proposed rulemaking it plans to a wholly owned subsidiary of funds advised by Apax Partners LLP, a global private equity advisory firm (the “Buyer”), for total consideration of approximately $1.275 billion, resulting in pre-tax gain on sale of $748 million during the fourth quarter of 2021. The consideration was comprised of $480 million in cash, a seller promissory note issued by the Buyer in the principal amount of $720 million, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023. See Note 13—Fair Value of Financial Information for additional information relatingsubmit to the ~~seller promissory note and contingent cash payment. For the nine months ended September~~EPA by May 30, 2022, the Company recorded post-close adjustments, primarily related to working capital, of pre-tax income of $20 million, which is included in Other, net on the Consolidated Statements of Operations.

The Company ~~and~~is evaluating the ~~Buyer also entered into revenue share agreements, pursuant~~estimated capital expenditures for additional treatment over the next three to which the Company is to receive 10% of the revenue generated from customers who are billed for home warranty services through an applicable Company subsidiary (an “on-bill” arrangement), and 15% of the revenue generated from any future on-bill arrangements entered into after the closing. Unless earlier terminated, this agreement has a term of up to 15five years, ~~which may be renewed for up to two five-year periods.~~including additional estimated operating expenses. The Company ~~recognized $2 million~~supports sound policies that will ensure compliance by all water utilities while protecting customers and ~~$6 million of income during the three and nine months ended September 30, 2022, respectively,~~communities from the ~~revenue share agreements, which~~costly burden of monitoring and mitigating PFAS. The Company continues to strongly advocate for policies that hold polluters accountable and is ~~included in Other, net on~~currently part of Multi-District Litigation against multiple PFAS manufacturers to ensure that the ~~Consolidated Statements of Operations.~~

~~Sale of New York American Water Company, Inc.~~

~~Sale of Michigan American Water Company~~

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

~~Military Services Group~~

~~On June 30, 2022, MSG was awarded a contract~~ultimate responsibility for the ~~ownership, operation, maintenance and replacement~~cleanup of these contaminants is attributed to the wastewater utility system assets at Naval Station Mayport in Jacksonville, Florida. The contract was effective July 1, 2022, and its total revenue is approximately $341 million over a 50-year period, subject to an annual economic price adjustment. MSG operates and maintains water and/or wastewater systems and related capital programs as part of the U.S. government’s Utilities Privatization Program. This contract represents the 18th installation in MSG’s footprint and the first contract with respect to a U.S. Navy installation.

~~Table of Contents~~

~~Environmental, Social Responsibility and Governance~~

The Company considers environmental, social responsibility and governance (“ESG”) principles fundamental to its corporate strategy and values. In September 2021, the Company issued its sixth biennial Sustainability Report, covering its sustainability performance for calendar years 2020 and 2019. The report can be accessed on the Company’s website.

~~On October 31, 2022, the Company added the following disclosures and announced the following goals to support its continued commitment to embedding ESG principles throughout its business:~~

•The Company created new medium- and long-term goals that are science-based and aligned with the Paris Agreement, for scope 1 (direct) and scope 2 (indirect, derived from the Company’s purchase of energy) greenhouse gas emissions reductions. The new goals aim to reduce absolute scope 1 and 2 emissions 50% by 2035 (2020 baseline year) and achieve net zero scope 1 and scope 2 emissions by 2050. They complement the Company’s existing short-term goal of reducing absolute scope 1 and 2 greenhouse gas emissions by more than 40% by 2025 (2007 baseline year).

•The Company worked with a third party to assist in evaluating and calculating an estimate of the Company’s scope 3 greenhouse gas emissions, which included estimating emissions from Categories 1 (Purchased Goods and Services), 2 (Capital Goods), 3 (Fuel and Energy Related Activities) and 6 (Business Travel).polluters.

Operational Excellence

The Company’s adjusted regulated operation and maintenance (“O&M”) efficiency ratio was 33.6% for the twelve months ended ~~September 30, 2022,~~March 31, 2023, as compared to 33.9% for the twelve months ended ~~September 30, 2021.~~March 31, 2022. The ratio reflects an increase in operating revenues for the Regulated Businesses, after considering the adjustment for the amortization of the excess accumulated deferred income taxes (“EADIT”) shown in the table below, as well as the continued focus on operating costs.

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

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

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


		For the Twelve Months Ended September 30,							For the Twelve Months Ended March 31,
(Dollars in millions)	(Dollars in millions)	2022			2021			(Dollars in millions)	2023			2022
Total operation and maintenance expenses	Total operation and maintenance expenses	$	1,647		$	1,715		Total operation and maintenance expenses	$	1,619		$	1,723
Less:	Less:							Less:
Operation and maintenance expenses—Market-Based Businesses and Other		315			406
Operation and maintenance expenses—Other								Operation and maintenance expenses—Other	258			403
Total operation and maintenance expenses—Regulated Businesses	Total operation and maintenance expenses—Regulated Businesses	1,332			1,309			Total operation and maintenance expenses—Regulated Businesses	1,361			1,320
Less:	Less:							Less:
Regulated purchased water expenses	Regulated purchased water expenses	153			154			Regulated purchased water expenses	153			155
Allocation of non-operation and maintenance expenses	Allocation of non-operation and maintenance expenses	32			41			Allocation of non-operation and maintenance expenses	26			29
Adjusted operation and maintenance expenses—Regulated Businesses (i)	Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,147		$	1,114		Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,182		$	1,136

Total operating revenues	Total operating revenues	$	3,812		$	3,902		Total operating revenues	$	3,889		$	3,881
Less:	Less:							Less:
Operating revenues—Market-Based Businesses and Other		338			559
Operating revenues—Other								Operating revenues—Other	302			474
Total operating revenues—Regulated Businesses	Total operating revenues—Regulated Businesses	3,474			3,343			Total operating revenues—Regulated Businesses	3,587			3,407
Less:	Less:							Less:
Regulated purchased water revenues (a)	Regulated purchased water revenues (a)	153			154			Regulated purchased water revenues (a)	153			155
Revenue reductions from the amortization of EADIT	Revenue reductions from the amortization of EADIT	(92)			(93)			Revenue reductions from the amortization of EADIT	(85)			(102)
Adjusted operating revenues—Regulated Businesses (ii)	Adjusted operating revenues—Regulated Businesses (ii)	$	3,413		$	3,282		Adjusted operating revenues—Regulated Businesses (ii)	$	3,519		$	3,354

Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	33.6		%	33.9		%	Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	33.6		%	33.9		%

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

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Regulatory Matters

General Rate Cases ~~and Infrastructure Surcharges~~

Presented in the table below are annualized incremental revenues, ~~excluding~~including reductions for the amortization of the EADIT that are generally offset in income tax expense, assuming a constant water sales volume and customer count, resulting from general rate case authorizations ~~and infrastructure surcharge authorizations~~ that became effective ~~in the respective period:~~during 2023:


(In millions)	Effective Date	Amount
General rate cases by state:
Virginia	April 24, 2023 (a)	$	11
Pennsylvania	January 28, 2023	138
Illinois	January 1, 2023	67
California, Step Increase	January 1, 2023	13
Total general rate case authorizations		$	229

~~Effective October 1, 2022, the Company’s Pennsylvania subsidiary implemented an infrastructure surcharge for annualized incremental revenues of $8 million.~~

~~On August 17, 2022, the Company’s New Jersey subsidiary was authorized additional annual revenues of $61 million in its~~Virginia subsidiary. The general rate case order approved an $11 million annualized increase in water and wastewater revenues. Interim rates in this proceeding were effective ~~September~~on May 1, 2022, ~~excluding agreed~~and the order requires that the difference between interim and the final approved rates is subject to ~~reductions for EADIT as a result~~refund within 90 days of the ~~Tax Cuts~~order issuance. The order approves the settlement terms with a return on equity of 9.7% and ~~Jobs Act~~a common equity ratio of ~~2017 (the “TCJA”) ($46 million including EADIT reductions)~~40.7%. The annualized revenue increase is driven primarily by significant incremental capital investments since the Virginia subsidiary’s 2020 rate case order ~~incorporated updated estimates of~~that have been completed or are planned through April 30, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs. ~~Beginning~~The general rate case order includes recovery of the Company’s Virginia subsidiary’s COVID-19 deferral balance. It also includes approval of the accounting deferral of deviations in pension and other postretirement benefits expense from those established in base rates, until the Company’s Virginia subsidiary’s next base rate case.

On December 15, 2022, the Illinois Commerce Commission issued an order approving the adjustment of base rates requested in a rate case filed on February 10, 2022, by the Company’s Illinois subsidiary. As updated in the Illinois subsidiary’s June 29, 2022 rebuttal filing, the request sought $83 million in additional annualized revenues, excluding previously recovered infrastructure surcharges. The general rate case order approved a $67 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $18 million, effective January 1, 2023, based on an authorized return on equity of 9.8%, authorized rate base of $1.64 billion, a common equity ratio of 49.0% and a debt ratio of 51.0%. The annualized revenue increase is being driven primarily by significant water and wastewater system capital investments since the Illinois subsidiary’s 2017 rate case order that have been completed or are planned through December 31, 2023, expected higher pension and other postretirement benefit costs, and increases in production costs, including chemicals, fuel and power costs.

Pending General Rate Case Filings

On March 31, 2023, the Company’s ~~New Jersey~~Indiana subsidiary ~~will defer as~~filed a regulatory asset or liability, as appropriate, the difference between its pension expense and other post-employment benefits expense and those amounts included in base rates. The deferral period for this regulatory asset or liability will be two years or, if earlier, will end at the conclusion of the Company’s New Jersey subsidiary’s next general rate case. The Company’s New Jersey subsidiary also withdrew its request, without prejudice, to recover its existing authorized COVID-19-related regulatory asset in the general rate case requesting $87 million in additional annualized revenues, excluding $41 million of revenue from infrastructure filings already approved, which includes three step increases, with $43 million of the increase to be included in rates in January 2024, $18 million in May 2024, and ~~will seek recovery~~$26 million in ~~a separate proceeding within~~May 2025. The general rate case is expected to be completed by the ~~process established in the New Jersey Board~~end of ~~Public Utilities’ (the “NJBPU”) generic COVID-19-related proceeding.~~January 2024.

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On ~~February 24,~~July 1, 2022, the Company’s ~~West Virginia~~Missouri subsidiary ~~(“WVAWC”) was authorized additional annual revenues of $15 million in its~~filed a general rate case ~~effective February 25, 2022,~~requesting an increase of $105 million in additional annualized revenues, excluding ~~agreed~~infrastructure surcharges at the time of filing of approximately $40 million. Subsequent to ~~reductions for EADIT as a result~~the filing of the ~~TCJA. The EADIT reduction~~general rate case, the Company’s Missouri subsidiary filed its semi-annual request for recovery of defined infrastructure investments within its Water and Sewer Infrastructure Rate Adjustment, which adjusted the amount of revenue recovered in ~~revenues is $2~~the infrastructure surcharges to $51 million and a net annualized revenue increase request of $95 million in the ~~exclusion for infrastructure surcharges is $10 million. Staff of~~general rate case. On March 3, 2023, a settlement agreement was filed with the Missouri Public Service Commission, reflecting a proposed increase of West Virginia moved for reconsideration of the final order on several grounds. WVAWC filed its response to the Staff's Petition for Reconsideration on March 28, 2022, in support of the authorized revenue requirement. On October 21, 2022, the Public Service Commission of West Virginia denied the motion for reconsideration.

On November 18, 2021, the California Public Utilities Commission (the “CPUC”) unanimously approved a final decision in the test year 2021 general rate case filed by the Company’s California subsidiary, which was retroactive to January 1, 2021. The Company’s California subsidiary received authorization for additional annualized water and wastewater revenues of $22 million, excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $4 million and is offset by a like reduction in income tax expense. On February 16, 2022, the Company’s California subsidiary received approval to increase rates by $13$44 million in ~~2022 escalation increases, excluding $4 million of reductions related to the TCJA, which was retroactive to January 1, 2022.~~

On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the NJBPU that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. On July 29, 2021, the NJBPU issued an order adopting the ALJ’s initial decision without modification. The Company’s New Jersey subsidiary filed a Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. The Company’s New Jersey subsidiary filed its brief in support of the appeal on March 4, 2022. Response and Reply briefs were filed on June 22, 2022, and August 4, 2022, respectively. There is no financial impact to the Company as a result of the NJBPU’s order, since the acquisition adjustments are currently recorded as goodwill on the Consolidated Balance Sheets.

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

~~Pending General Rate Case Filings~~2023.

~~Table of Contents~~

Infrastructure Surcharges

A number of states have authorized the use of regulatory mechanisms that permit rates to be ~~issued~~adjusted outside of a general rate case for certain costs and investments, such as infrastructure surcharge mechanisms that permit recovery of capital investments to replace aging infrastructure. Presented in the ~~fourth quarter of 2022.~~table below are annualized incremental revenues, assuming a constant water sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2023:


(In millions)	Effective Date	Amount
Infrastructure surcharges by state:
Indiana	(a)	$	26
Missouri	January 16, 2023	14
Pennsylvania	January 1, 2023	3
West Virginia	January 1, 2023	7
Total infrastructure surcharge authorizations		$	50

(a)In 2023, $20 million was effective March 23 and $6 million was effective March 8.

Pending Infrastructure Surcharge Filings

On ~~June 30, 2022, WVAWC~~March 1, 2023, the Company’s Kentucky subsidiary filed an infrastructure surcharge proceeding requesting $8$4 million in additional annualized revenues.

Table of Contents

Other Regulatory Matters

~~Table of Contents~~

Consolidated Results of Operations

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
(In millions)	(In millions)									(In millions)
Operating revenues	Operating revenues	$	1,082	$	1,092	$	2,861	$	2,979	Operating revenues	$	938	$	842
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	416		436		1,156		1,286		Operation and maintenance	393		364
Depreciation and amortization	Depreciation and amortization	164		161		485		476		Depreciation and amortization	172		158
General taxes	General taxes	63		78		208		241		General taxes	78		74
Total operating expenses, net	Total operating expenses, net	643		675		1,849		2,003		Total operating expenses, net	643		596
Operating income	Operating income	439		417		1,012		976		Operating income	295		246
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(111)		(101)		(317)		(300)		Interest expense	(115)		(100)
Interest income	Interest income	14		—		39		—		Interest income	14		13
Non-operating benefit costs, net	Non-operating benefit costs, net	19		20		58		59		Non-operating benefit costs, net	9		19
Other, net	Other, net	6		4		38		11		Other, net	11		15
Total other (expense) income	Total other (expense) income	(72)		(77)		(182)		(230)		Total other (expense) income	(81)		(53)
Income before income taxes	Income before income taxes	367		340		830		746		Income before income taxes	214		193
Provision for income taxes	Provision for income taxes	70		62		157		128		Provision for income taxes	44		35
Net income attributable to common shareholders	Net income attributable to common shareholders	$	297	$	278	$	673	$	618	Net income attributable to common shareholders	$	170	$	158

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Segment Results of Operations

The Company’s operating segments are comprised of ~~the revenue-generating components of~~ its ~~business for~~businesses which generate revenue, incur expense and have separate financial information which is ~~internally produced and~~ regularly used by management to make operating decisions, assess performance and allocate resources. The Company operates its businesses primarily through one reportable segment, the Regulated Businesses segment. ~~“Market-Based Businesses and Other” includes market-based~~The Company also operates other businesses, primarily MSG, that ~~individually,~~ do not meet the criteria of a reportable segment in accordance with GAAP, and are collectively presented throughout this Form 10-Q within “Other.” Other also includes corporate costs that are not allocated to the Company’s ~~operating segments,~~Regulated Businesses, interest income related to the seller promissory note and income from the revenue share agreement from the sale of HOS, eliminations of inter-segment transactions and fair value adjustments ~~and associated income and deductions~~ related to acquisitions that have not been allocated to the ~~operating segments for evaluation of performance and allocation of resource purposes. The adjustments related to the acquisitions are reported in Market-Based~~Regulated Businesses ~~and Other as they are excluded from segment performance measures evaluated by management.~~segment. This presentation is consistent with how management assesses the results of these businesses.

As a result of the sale of HOS, the categories which were previously shown as “Market-Based Businesses” and “Other” have been combined and shown as “Market-Based Businesses and Other.” Segment results for the three and nine months ended September 30, 2021, have been adjusted retrospectively to reflect this change.

~~Table of Contents~~

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,
		2022		2021		2022		2021				2023		2022
(In millions)	(In millions)									(In millions)
Operating revenues	Operating revenues	$	1,003	$	944	$	2,646	$	2,556	Operating revenues		$	860	$	778
Operation and maintenance	Operation and maintenance	355		338		991		983		Operation and maintenance		330		315
Depreciation and amortization	Depreciation and amortization	161		151		473		449		Depreciation and amortization		169		155
General taxes	General taxes	58		74		194		226		General taxes		73		68
Other income (expenses)	Other income (expenses)	(56)		(49)		(153)		(146)		Other income (expenses)		(68)		(44)
Income before income taxes		373		332		835		752
Provision for income taxes	Provision for income taxes	71		60		154		130		Provision for income taxes		46		36
Net income attributable to common shareholders	Net income attributable to common shareholders	$	302	$	273	$	681	$	623	Net income attributable to common shareholders		174		160

Operating Revenues

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
(In millions)	(In millions)									(In millions)
Water services:	Water services:									Water services:
Residential	Residential	$	557	$	545	$	1,469	$	1,466	Residential		$	461	$	428
Commercial	Commercial	208		197		535		511		Commercial		171		153
Fire service	Fire service	36		38		109		112		Fire service		39		36
Industrial	Industrial	42		39		116		105		Industrial		38		36
Public and other	Public and other	83		68		205		184		Public and other		65		59
Total water services	Total water services	926		887		2,434		2,378		Total water services		774		712
Wastewater services:	Wastewater services:									Wastewater services:
Residential	Residential	46		38		129		112		Residential		54		41
Commercial	Commercial	12		10		33		28		Commercial		14		10
Industrial	Industrial	1		1		3		3		Industrial		2		1
Public and other	Public and other	7		4		14		12		Public and other		6		3
Total wastewater services	Total wastewater services	66		53		179		155		Total wastewater services		76		55
Other (a)	Other (a)	11		4		33		23		Other (a)		10		11
Total operating revenues	Total operating revenues	$	1,003	$	944	$	2,646	$	2,556	Total operating revenues		$	860	$	778

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

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		For the Three Months Ended September 30,		For the Nine Months Ended September 30,			For the Three Months Ended March 31,
		2022	2021	2022	2021			2023	2022
(Gallons in millions)	(Gallons in millions)					(Gallons in millions)
Billed water services volumes:	Billed water services volumes:					Billed water services volumes:
Residential	Residential	51,841	53,526	124,006	133,282	Residential		33,808	34,160
Commercial	Commercial	24,102	23,981	58,802	58,559	Commercial		16,836	16,339
Industrial	Industrial	10,326	10,400	28,451	26,843	Industrial		8,840	8,619
Fire service, public and other	Fire service, public and other	15,504	14,978	39,708	38,385	Fire service, public and other		11,688	11,756
Total billed water services volumes	Total billed water services volumes	101,773	102,885	250,967	257,069	Total billed water services volumes		71,172	70,874

~~Included in operating revenues for~~For the three months ended ~~September 30, 2021, was $45 million related to the Company’s New York operations. Excluding the Company’s New York operations, for the three months ended September 30, 2022,~~March 31, 2023, operating revenues increased ~~$104~~$82 million, primarily due ~~to: (i)~~to a ~~$56~~$71 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various ~~states; (ii) a $13~~states and an $11 million increase from water and wastewater acquisitions, as well as organic growth in existing systems; (iii) a $19 million estimated net increase due to warmer and drier than normal weather in the third quarter of 2022, particularly in the Company’s New Jersey and Missouri service territories; and (iv) a $6 million net increase as a result of reduced amortization of EADIT, primarily in the Company’s New Jersey subsidiary.

Included in operating revenues for the nine months ended September 30, 2021, was $97 million related to the Company’s New York operations. Excluding the Company’s New York operations, for the nine months ended September 30, 2022, operating revenues increased $187 million, primarily due to: (i) a $128 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; (ii) a $25 million increase from water and wastewater acquisitions, as well as organic growth in existing systems; (iii) a $13 million net increase as a result of reduced amortization of EADIT, primarily in the Company’s New Jersey subsidiary; and (iv) a $13 million estimated net increase primarily due to warmer and drier than normal weather in the third quarter of 2022 in the Company’s New Jersey and Missouri service territories, which was offset by warmer and drier than normal weather in the second quarter of 2021 in the Northeast.systems.

Operation and Maintenance

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
(In millions)	(In millions)									(In millions)
Employee-related costs	Employee-related costs	$	126	$	132	$	378	$	391	Employee-related costs		$	129	$	126
Production costs	Production costs	114		101		291		268		Production costs		93		84
Operating supplies and services	Operating supplies and services	62		56		174		171		Operating supplies and services		57		57
Maintenance materials and supplies	Maintenance materials and supplies	22		19		64		66		Maintenance materials and supplies		22		22
Customer billing and accounting	Customer billing and accounting	17		17		44		49		Customer billing and accounting		13		13
Other	Other	14		13		40		38		Other		16		13
Total	Total	$	355	$	338	$	991	$	983	Total		$	330	$	315

~~Included in operation and maintenance expense for~~For the three ~~and nine~~ months ended September 30, 2021, was $12 million and $36 million, respectively, related to the Company’s New York operations. Excluding the Company’s New York operations, for the three and nine months ended September 30, 2022,March 31, 2023, operation and maintenance expense increased ~~$29~~$15 million, ~~and $44 million, respectively,~~ primarily due to inflationary pressures which resulted in increased fuel, power, and chemicals costs.

Depreciation and Amortization

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, depreciation and amortization increased ~~$10~~$14 million, ~~and $24 million, respectively,~~ primarily due to additional utility plant placed in service from capital infrastructure investments and acquisitions.

~~Table of Contents~~

General Taxes

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, general taxes ~~decreased $16~~increased $5 million, primarily due to an increase in the New Jersey Gross Receipts Tax and ~~$32~~incremental property taxes.

Other Income (Expenses)

For the three months ended March 31, 2023, other (expenses) increased $24 million, ~~respectively,~~ primarily ~~related~~due to higher interest expense as a result of an $800 million long-term debt issuance in May 2022 and higher interest rates on short-term debt. The increase was also due to higher net periodic pension and other postretirement benefit costs in the ~~sale of the Company’s New York operations.~~current period.

Provision for Income Taxes

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Regulated Businesses’ provision for income taxes increased ~~$11 million and $24 million, respectively.~~$10 million. The Regulated Businesses’ effective income tax rate was ~~19.0%~~20.9% and ~~18.1%~~18.4% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and 18.4% and 17.3% for the nine months ended September 30, 2022 and 2021,~~ respectively. The ~~Regulated Businesses’ effective income tax rate for~~increase was primarily due to the ~~three and nine months ended September 30, 2022, reflects~~decrease in the amortization of EADIT pursuant to regulatory orders.

~~Market-Based Businesses and Other~~

~~Presented~~ The amortization of EADIT is generally offset with a reduction in ~~the table below is information for Market-Based Businesses and Other:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
(In millions)
Operating revenues $ 79 $ 148 $ 215 $ 423
Operation and maintenance 61 98 165 303
Depreciation and amortization 3 10 12 27
Interest expense (30) (28) (90) (84)
Interest income 13 — 38 —
Income (loss) before income taxes (6) 8 (5) (6)
Provision (benefit) for income taxes (1) 2 3 (2)
Net loss attributable to common shareholders $ (5) $ 5 $ (8) $ (5)

~~Operating Revenues~~

For the three and nine months ended September 30, 2022, operating revenues decreased $69 million and $208 million, respectively, due primarily to the sale of HOS. HOS operating revenues for the three and nine months ended September 30, 2021, were $79 million and $233 million, respectively. Excluding the Company’s HOS operations, for the three and nine months ended September 30, 2022, operating revenues increased $9 million and $25 million, respectively, largely driven by an increase in capital and O&M projects in MSG, primarily at Joint Base Lewis-McChord and the United States Military Academy at West Point, New York.

~~Operation and Maintenance~~

For the three and nine months ended September 30, 2022, operation and maintenance expense decreased $37 million and $138 million, respectively, primarily due to the sale of HOS. HOS operation and maintenance expenses for the three and nine months ended September 30, 2021, were $49 million and $151 million, respectively. Excluding the Company’s HOS operations, for the three and nine months ended September 30, 2022, operation and maintenance expense increased $12 million and $13 million, respectively, largely driven by cost associated with increased capital and O&M projects in MSG, as discussed above.

~~Depreciation and Amortization~~

~~For the three and nine months ended September 30, 2022, depreciation and amortization decreased $7 million and $15 million, respectively, primarily due to the sale of HOS.~~

~~Interest Income~~

For the three and nine months ended September 30, 2022, interest income increased $13 million and $38 million, respectively, due to interest recognized on the seller note related to the sale of HOS. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.revenue.

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Other

Presented in the table below is information for Other:


	For the Three Months Ended March 31,
		2023		2022
(In millions)
Operating revenues		$	78	$	64
Operation and maintenance		63		50
Depreciation and amortization		3		3
Interest expense		(28)		(30)
Interest income		13		13
Provision (benefit) for income taxes		(2)		(1)
Net loss attributable to common shareholders		(4)		(2)

Operating Revenues

For the three months ended March 31, 2023, operating revenues increased $14 million, due primarily to the increase in capital projects in MSG, primarily at the United States Military Academy at West Point, New York and revenue for Naval Station Mayport in Jacksonville, Florida, awarded on June 30, 2022, with the performance start date for operation on March 1, 2023.

Operation and Maintenance

For the three months ended March 31, 2023, operation and maintenance expense increased $13 million, primarily due to cost associated with increased capital projects in MSG and expenses for Naval Station Mayport, as discussed above.

Legislative Updates

During ~~2022,~~2023, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of ~~October 31, 2022:~~

•Indiana passed Senate Enrolled Act 272, which requires public reporting of a non-jurisdictional utility’s asset management programs. Non-jurisdictional utilities are exempt from the jurisdiction of the Indiana Utility Regulatory Commission (the “IURC”). The legislation also creates a water and wastewater research and extension program at a state university to serve as a repository for data collected from utilities. Additionally, the legislation establishes oversight and a receivership program in the IURC for non-jurisdictional utilities with violations that create environmental or human health and safety issues. Legislation was signed by the Governor on March 7, 2022, and became effective on July 1, 2022.

•Indiana passed water and wastewater utility asset financing legislation, Senate Enrolled Act 273, which authorizes the recovery of property tax in Distribution System Improvement Charge filings. The legislation also permits the IURC to allow recovery through tracking mechanisms for changes in property tax and for costs attributable to referenda or action by elected or appointed individuals. Legislation was signed by the Governor on March 10, 2022, and became effective on July 1, 2022.

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

•Illinois passed House Bill 900/Public Act 102-0698, which contains appropriations to the Department of Commerce and Economic Opportunity of $3 million for the purposes of the Water and Sewer Finance Assistance Act (H.B. 414/Public Act 102-0262) and $55 million for the purposes of the federal Low-Income Household Water Assistance Program (LIHWAP). Legislation was signed by the Governor on April 19, 2022, with these provisions of the bill taking effect on July 1, 2022.

•Tennessee passed Senate Bill 2282 and House Bill 2346, which requires all utilities to implement a cyber security plan and update it every two years to provide for the protection of the utility’s facilities from unauthorized use, alteration, ransom, or destruction of electronic data. The relevant regulatory body will verify if a utility has complied or impose reasonable sanctions if out of compliance. Utility compliance will be required by July 1, 2023. Legislation was signed by the Governor on June 1, 2022, and became effective immediately.

•The Missouri General Assembly passed state and local property tax tracker legislation, Senate Bill 745, which requires a utility to defer to a regulatory asset or liability account any difference in what was actually paid in state or local property taxes and what was used to set the revenue requirement in the utility’s most recently completed general rate case. Legislation was signed by the Governor on June 29, 2022, and became effective on August 28, 2022.

~~During 2022, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of October 31, 2022:~~26, 2023:

•California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022 and ~~will become~~was effective on January 1, 2023.

•Indiana passed House Bill 1417, which allows for deferred accounting and subsequent recovery through rates of regulatory assets, with or without Indiana Utility Regulatory Commission (the “IURC”) approval. There are several requirements: (i) the costs must be deferred as a regulatory asset, (ii) only incremental costs may be deferred, and (iii) the IURC must find the costs to be reasonable and prudent. Legislation was signed by the Governor and became effective on April 20, 2023.

During 2023, the Company’s regulatory jurisdictions passed the following legislation, which is not yet effective as of April 26, 2023:

•Indiana passed Senate Bill 180, which allows for consolidated revenue to support post-acquisition capital improvements in wastewater systems via a service enhancement improvement recovery mechanism.

Condemnation and Eminent Domain

All or portions of the Regulated Businesses’ utility assets could be acquired by state, municipal or other government entities through one or more of the following methods: (i) eminent domain (also known as condemnation); (ii) the right of purchase given or reserved by a municipality or political subdivision when the original certificate of public convenience and necessity ~~(a “CPCN”~~(“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 inthe jurisdiction of 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~~(“Cal Am”) are the subject of a ~~purchase of those assets without an additional public vote. This service territory represents approximately 40,000 customers. In~~potential condemnation action by the Monterey Peninsula Water Management District (the “MPWMD”) stemming from a November 2018 ~~Measure J was certified to have passed.~~

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

ballot initiative. In ~~November~~ 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (1) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (2) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (3) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. In ~~November~~ 2020, the MPWMD certified a final environmental impact report, ~~(“FEIR”),~~ analyzing the environmental impacts of the MPWMD’s project to (1) acquire the Monterey system assets through the power of eminent domain, if necessary, and (2) expand its geographic boundaries to include all parts of this system.

In February 2021, the MPWMD filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries. In June 2021, LAFCO’s commissioners voted to require a third-party independent financial study as to the feasibility of an acquisition by the MPWMD of the Monterey system assets. OnIn December 6, 2021, LAFCO’s commissioners denied the MPWMD’s application to become a retail water provider, determining that the MPWMD does not have the authority to proceed with a condemnation of the Monterey system assets, and on January 5, 2022, LAFCO’s commissioners confirmed the denial. On February 28, 2022, LAFCO’s commissioners voted to deny the MPWMD’s application for reconsideration of LAFCO’s confirmation of denial.assets. On April 1, 2022, the MPWMD filed a lawsuit against LAFCO challenging its decision to deny the MPWMD’s application seeking approval to become a retail water provider. ~~On June 17, 2022, the court granted, with conditions, a motion by Cal Am to intervene in the MPWMD’s lawsuit against LAFCO.~~

By letter dated October 3, 2022, the MPWMD notified Cal Am of ~~MPWMD’s~~a decision to appraise the Monterey system ~~assets. MPWMD also requested~~assets and requesting access to a number of Cal Am’s properties and documents to assist the MPWMD with such an appraisal. Cal Am ~~is in~~responded by letter on October 24, 2022, denying the ~~process of responding to this letter and intends to deny such~~ request ~~as it believes~~for access, stating that the MPWMD does not have the right to appraise ~~the Monterey~~Cal Am’s system ~~assets~~ without ~~first obtaining~~ LAFCO approval to become a retail water provider. Notwithstanding the denial by LAFCO of the MPWMD’s application seeking to be a retail water provider, the MPWMD notified Cal Am by letter dated April 3, 2023, of its offer to purchase the Monterey system assets for $448.8 million. Cal Am’s response is due by April 30, 2023, and it currently plans to reject the offer. The MPWMD has reserved its right to determine whether to acquire the Monterey system assets through the exercise of eminent domain. For more information on the lawsuit against LAFCO, see Item 3—Legal Proceedings in the Form 10-K and Part II, Item 1—Legal Proceedings—Proposed Acquisition of Monterey System Assets—Local Area Formation Commission Litigation in this Form 10-Q.

Also, five municipalities in the Chicago, Illinois area (approximately 30,300 customers in total) formed a water agency and filed an eminent domain lawsuit against the Company in January 2013, seeking to condemn the water pipeline that serves those five municipalities. ~~Before filing its eminent domain~~During a valuation trial held in January 2023, the parties settled the lawsuit and the water agency ~~made an offer of $38 million for~~dismissed the eminent domain case, and as a result the Company will retain the pipeline. ~~The parties have filed~~As part of the dismissal, the Company’s Illinois subsidiary and another subsidiary entered into a settlement agreement with the ~~court updated valuation reports. A valuation trial has been scheduled for January 2023.~~water agency agreeing to, among other things, maintain through December 31, 2027, the utility-specific wholesale water rate passed through to customers of the pipeline, such that the rate, exclusive of other pass-through charges, remains no higher than the current rate.

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

Tax Matters

On August 16, 2022, ~~President Biden signed into law~~ the Inflation Reduction Act of 2022 (the “IRA”). was signed into law. The IRA contains a Corporate Alternative Minimum Tax (“CAMT”) provision, effective January 1, 2023. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1 billion. An applicable corporation must make several adjustments to ~~AFSI~~net income when determining AFSI. During the first quarter of 2023, the Company evaluated the potential impacts of the CAMT ~~under~~provision within the ~~new law. Due~~IRA and believes it does not exceed the $1 billion AFSI threshold, and therefore, is not currently subject to CAMT in 2023. The Company is continuing to assess the ~~lack~~impact of the initial guidance ~~currently available~~ regarding the ~~implementation~~application of the ~~IRA, including adjustments~~CAMT and will continue to ~~AFSI, it~~monitor as additional guidance is ~~premature to project the impact to the Company.~~released.

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On July 8, 2022, Pennsylvania Governor Tom Wolf signed into law Act 53 of 2022, which reduces the Pennsylvania State Income Tax Rate in yearly increments starting January 1, 2023, with a new rate of 8.99% and ending effective January 1, 2031, with a rate of 4.99%. Under Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”), the tax effects of changes in tax laws must be recognized in the period in which the law is enacted. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. As such, the Company’s accumulated deferred income tax (“ADIT”) balances for their Pennsylvania subsidiary were remeasured during the quarter ended September 30, 2022 to estimate the impacts of the recently enacted tax rate. The remeasurement reduces the ADIT liability by $132 million and creates a corresponding regulatory liability since the EADIT is expected to be returned to customers in a future rate case. However, since the rate is declining in yearly increments, the total EADIT will be subject to change. The rate change impacts to the non-regulated companies have been deemed immaterial.

On September 27, 2022, Iowa’s Department of Revenue announced a reduction in the state’s top corporate rate from 9.8% to 8.4% effective January 1, 2023. The remeasurement reduces the ADIT liability for the Company’s Iowa subsidiary by $1 million and creates a corresponding regulatory liability since the EADIT balance is expected to be returned to customers in a future rate case. The rate impacts to the non-regulated companies have been deemed immaterial.

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 American Water Capital Corp.’s ~~(AWCC)~~(“AWCC”) revolving credit facility, and ~~in the future,~~ issuances of equity.

The Company expects to fund future maturities of long-term debt through a combination of external debt and, to the extent available, cash flows from operations. Since the Company expects its capital investments over the next few years to be greater than its cash flows from operating activities, the Company currently plans to fund the excess of its capital investments over its cash flows from operating activities for the next five years through a combination of long-term debt and equity issuances, in addition to the remaining proceeds from the ~~sales~~sale of HOS. The remaining proceeds from the sale of HOS include receipt of a seller promissory note, plus interest, and ~~the Company’s New York subsidiary.~~a contingent cash payment payable upon satisfaction of certain conditions on or before December 31, 2023. If necessary, the Company may delay certain capital investments or other funding requirements or pursue financing from other sources to preserve liquidity. In this event, the Company believes it can rely upon cash flows from operations to meet its obligations and fund its minimum required capital investments for an extended period of time.

On March 3, 2023, the Company completed an underwritten public offering of an aggregate of 12,650,000 shares of its common stock. Upon closing of this offering, the Company received, after deduction of the underwriting discount and before deduction of offering expenses, net proceeds of approximately $1,688 million. The Company ~~maintains an unsecured~~used the net proceeds of the offering to repay short-term commercial paper obligations of AWCC, the wholly owned finance subsidiary of American Water, and for general corporate purposes.

The Company’s revolving credit facility ~~with~~provides $2.75 billion in aggregate total commitments from a diversified group of financial institutions. ~~AWCC’s~~The revolving credit facility is used principally to support ~~its~~AWCC’s commercial paper program, to provide additional liquidity support, and to provide ~~a sublimit~~ for the issuance of up to $150 million in letters of credit. ~~On October 26, 2022, AWCC and certain lenders amended and restated the credit agreement with respect to the revolving credit facility to, among other things, increase the~~The maximum ~~commitments~~aggregate principal amount of short-term borrowings authorized for issuance under ~~the facility to $2.75 billion from $2.25 billion and to extend the expiration date of the facility to October 2027 from March 2025.~~AWCC’s commercial paper program is $2.60 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 and to request extensions of its expiration date for up to two one-year periods. See Part II, Item 5—Other Information for additional information about the amendment and restatement of this credit agreement.

~~Also, effective October 26, 2022, the maximum aggregate principal amount of short-term borrowings authorized under AWCC’s commercial paper program was increased to $2.60 billion from $2.10 billion.~~million. As of ~~September 30, 2022,~~March 31, 2023 and December 31, ~~2021,~~2022, there were no borrowings and $78 million of outstanding letters of credit under the revolving credit facility. ~~Short-term~~At March 31, 2023, there was no outstanding short-term debt ~~consists~~as the proceeds of the equity securities offering were used to repay the short-term commercial paper ~~borrowings totaling $634 million and $584 million outstanding as of September 30, 2022 and~~obligations. At December 31, ~~2021, respectively. The~~2022, the weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately ~~3.22% and 0.20% at September 30, 2022 and December 31, 2021, respectively.~~

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4.41%.

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 of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, as well as the available capacity for each:


		As of September 30, 2022							As of March 31, 2023
		Commercial Paper Limit		Letters of Credit		Total (a)			Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)	(In millions)							(In millions)
Total availability	Total availability	$	2,100	$	150	$	2,250	Total availability	$	2,600	$	150	$	2,750
Outstanding debt	Outstanding debt	(634)		(75)		(709)		Outstanding debt	—		(78)		(78)
Remaining availability as of September 30, 2022		$	1,466	$	75	$	1,541
Remaining availability as of March 31, 2023								Remaining availability as of March 31, 2023	$	2,600	$	72	$	2,672

(a)Total remaining availability of $2.67 billion as of March 31, 2023, may be accessed through revolver draws.


	As of December 31, 2022
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,600	$	150	$	2,750
Outstanding debt	(1,177)		(78)		(1,255)
Remaining availability as of December 31, 2022	$	1,423	$	72	$	1,495

(a)Total remaining availability of $~~1.54~~1.50 billion as of ~~September 30,~~December 31, 2022, may be accessed through revolver draws.

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

Presented in the table below is the Company’s total available liquidity as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively:


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)
Available liquidity as of March 31, 2023	$	213	$	2,672	$	2,885
Available liquidity as of December 31, 2022	$	85	$	1,495	$	1,580

The Company believes that its ability to access the debt and equity capital markets, the revolving credit facility and cash flows from operations will generate sufficient cash to fund the Company’s short-term requirements. The Company believes it has sufficient liquidity and the ability to manage its expenditures, should there be a disruption of the capital and credit markets. However, there can be no assurance that the lenders will be able to meet existing commitments to AWCC under the revolving credit facility, or that AWCC will be able to access the commercial paper or loan markets in the future on acceptable terms or at all. See Note 8—Short-Term Debt in the Notes to Consolidated Financial Statements for additional information.

On May 5, 2022, AWCC issued $800 million aggregate principal amount of its 4.45% senior notes due 2032. At closing, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of approximately $792 million. AWCC used the net proceeds of the offering: (i) to lend funds to theThe Company ~~and its subsidiaries in its Regulated Businesses segment; (ii) to repay AWCC’s commercial paper obligations; and (iii) for general corporate purposes.~~

No ineffectiveness was recognized on hedging instruments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 or 2022.

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Cash Flows from Operating Activities

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


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021			2023		2022
(In millions)	(In millions)					(In millions)
Net income	Net income	$	673	$	618	Net income	$	170	$	158
Add (less):	Add (less):					Add (less):
Depreciation and amortization	Depreciation and amortization	485		476		Depreciation and amortization	172		158
Deferred income taxes and amortization of investment tax credits	Deferred income taxes and amortization of investment tax credits	13		121		Deferred income taxes and amortization of investment tax credits	26		(61)
Other non-cash activities (a)	Other non-cash activities (a)	(51)		(37)		Other non-cash activities (a)	(32)		(11)
Changes in working capital (b)	Changes in working capital (b)	(316)		(118)		Changes in working capital (b)	(41)		(71)
Pension and non-pension postretirement benefit contributions	Pension and non-pension postretirement benefit contributions	(40)		(31)		Pension and non-pension postretirement benefit contributions	(10)		(19)
Net cash provided by operating activities	Net cash provided by operating activities	$	764	$	1,029	Net cash provided by operating activities	$	285	$	154

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

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

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, cash provided by operating activities ~~decreased $265~~increased $131 million, primarily due to changes in deferred taxes and working ~~capital and~~capital. The change in deferred ~~taxes. The changes were~~taxes was driven by ~~$313 million of estimated tax payments for taxable gains on~~ the ~~sales~~settlement of the deferred tax liability related to the Company’s ~~HOS business and its~~ New York regulated operations ~~as well as~~that was sold in the ~~contribution~~first quarter of ~~$45 million to the American Water Charitable Foundation, partially~~2022. Partially offset by ~~an increase~~the change in ~~net income.~~other non-cash activities including activity in regulatory accounts and pension and non-pension postretirement benefits.

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Cash Flows from Investing Activities

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


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021			2023		2022
(In millions)	(In millions)					(In millions)
Net capital expenditures	Net capital expenditures	$	(1,597)	$	(1,205)	Net capital expenditures	$	(526)	$	(424)
Acquisitions		(288)		(78)
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	(4)		(5)
Net proceeds from sale of assets	Net proceeds from sale of assets	608		—		Net proceeds from sale of assets	—		608
Other investing activities, net (a)	Other investing activities, net (a)	(85)		(70)		Other investing activities, net (a)	(31)		(20)
Net cash used in investing activities		$	(1,362)	$	(1,353)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	$	(561)	$	159

(a)Includes removal costs from property, plant and equipment retirements.

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, cash used in investing activities increased $9$720 million, primarily due to ~~increased payments for capital expenditures and acquisitions offset by~~ proceeds ~~of $608 million~~ received from the sale of the Company's New York ~~operations.~~operations in the first quarter of 2022 and increased payments for capital expenditures and acquisitions. The Company plans to invest approximately ~~$2.5~~$2.9 billion across its footprint in ~~2022.~~

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2023.

Cash Flows from Financing Activities

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


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2022		2021			2023		2022
(In millions)	(In millions)					(In millions)
Proceeds from long-term debt	Proceeds from long-term debt	$	822	$	1,113	Proceeds from long-term debt	$	8	$	11
Repayments of long-term debt	Repayments of long-term debt	(14)		(370)		Repayments of long-term debt	(4)		(5)
Repayments of term loan		—		(500)
Net proceeds from common stock financing						Net proceeds from common stock financing	1,688		—
Net short-term borrowings (repayments) with maturities less than three months	Net short-term borrowings (repayments) with maturities less than three months	50		(97)		Net short-term borrowings (repayments) with maturities less than three months	(1,175)		(263)
Debt issuance costs and make-whole premium on early debt redemption		(7)		(26)
Dividends paid	Dividends paid	(348)		(318)		Dividends paid	(119)		(109)
Other financing activities, net (a)	Other financing activities, net (a)	63		46		Other financing activities, net (a)	3		13
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	$	566	$	(152)	Net cash provided by (used in) financing activities	$	401	$	(353)

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

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, cash provided by financing activities increased ~~$718~~$754 million, primarily due to the common stock offering. This was partially offset by repayment in full ~~at maturity~~ of the ~~$500 million term loan~~short-term commercial paper obligations during the first quarter of 2021 and repayments of long-term debt due to the prepayment of $327 million in aggregate principal amount of AWCC’s outstanding senior notes during the second quarter of 2021 with no comparable repayments in 2022. These changes were partially offset by lower proceeds from long-term debt.2023.

Debt Covenants

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

Covenants in certain long-term notes and the revolving credit facility require the Company to maintain a ratio of consolidated debt to consolidated capitalization (as defined in the relevant documents) of not more than 0.70 to 1.00. On ~~September 30, 2022,~~March 31, 2023, the Company’s ratio was ~~0.60~~0.54 to 1.00 and therefore the Company was in compliance with the covenants.

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Security Ratings

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of ~~October 31, 2022,~~April 26, 2023, as issued by ~~the following rating agencies:~~Moody’s Investors Service on December 19, 2022, and S&P Global Ratings on February 6, 2023:

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 mortgage bonds and tax-exempt securities or borrowings under state revolving funds, to lower the overall cost of debt.

Dividends

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

Application of Critical Accounting Policies and Estimates

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

Recent Accounting Standards

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

American Water maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the 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 objective.

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, 2022.~~March 31, 2023.

Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of ~~September 30, 2022,~~March 31, 2023, 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, 2022,~~March 31, 2023, 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 our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 in Part II, Item 1—~~Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Company’s Form 10-K. In accordance with the SEC’s disclosure rules, the Company has elected to disclose environmental proceedings involving the Company and a governmental authority if the amount of potential monetary sanctions, exclusive of interest and costs, that the Company reasonably believes will result from such proceeding is $1 million or more.

Alternative Water Supply in Lieu of Carmel River Diversions

Monterey Peninsula Water Supply Project

CPUC Final Approval of Water Supply Project

~~In September 2022, the parties completed testimony in~~On March 30, 2023, the CPUC ~~proceeding to review and approve~~issued a decision denying Cal Am’s application ~~to amend~~for rehearing, but adopting its proposed AFUDC for already incurred and ~~restate the water purchase agreement for the GWR Project.~~future costs. The ~~parties are now meeting and conferring to set hearing dates during the fourth quarter of 2022.~~

~~On September 30, 2022, a CPUC-assigned ALJ issued a proposed~~ decision ~~that would, if adopted by the CPUC, authorize~~also provides Cal Am the opportunity to ~~enter into~~serve supplemental testimony to increase its cost cap for certain of the Water Supply Project’s extraction wells. The amended water purchase agreement and ~~specifically~~a memorandum of understanding to ~~increase pumping capacity~~negotiate certain milestones related to the expansion of the GWR Project have been signed by the relevant parties.

While Cal Am believes that its expenditures to date have been prudent and ~~reliability of groundwater extraction from~~necessary to comply with the ~~Seaside Groundwater Basin. The proposed decision sets the cost cap for the proposed facilities at approximately $45 million,~~2009 Order and the ~~remaining $36 million~~2016 Order, as well as relevant final decisions of ~~costs initially requested have been deferred to a subsequent filing. Under~~ the ~~proposed decision,~~CPUC related thereto, Cal Am ~~may seek recovery~~cannot currently predict its ability to recover all of amounts above the cost cap in a subsequent rate filing or general rate case. Additionally, the proposed decision recommended AFUDC be authorized at Cal Am’s actual weighted average cost of debt. On October 20, 2022, the parties filed their comments to the proposed decision. Cal Am currently expects a CPUC ruling to be issued by the end of 2022. After that, this matter will remain open as part of a Phase 2 proceeding to update supplyits costs and ~~demand amounts for~~expenses associated with the Water Supply Project and ~~to address certain of the deferred capital requests.~~

~~Coastal Development Permit Application~~

~~Cal Am responded to the Coastal Commission’s February 8, 2022, request for additional information with respect to the original jurisdiction application~~there can be no assurance that Cal Am ~~had refiled~~will be able to recover all of such costs and expenses in ~~November 2020. On September 1, 2022, the Coastal Commission deemed Cal Am’s application complete. A hearing on the application is expected in November 2022.~~

~~On October 5, 2022, Cal Am announced a phasing plan for its proposed desalination plant, part~~excess of the ~~proposed Water Supply Project. The desalination plant and slant wells~~$112 million in aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its 2016 final decision and its December 2022 final decision, as amended by its March 30, 2023 rehearing decision.

Test Slant Well Permitting

The application for extension of the State Lands Commission lease was approved, and the lease will now expire on December 16, 2027.

Proposed Acquisition of Monterey System Assets — Local Area Formation Commission Litigation

Notwithstanding the denial by LAFCO of the MPWMD’s application seeking to be a retail water provider, which is currently ~~pending before~~being challenged by the ~~Coastal Commission would produce up to 6.4 million gallons of desalinated water per day. Under~~MPWMD, the phased approach, the facilities would initially be constructed to produce up to 4.8 million gallons per day of desalinated water, enough to meet anticipated demand through about 2030, and limiting the number of slant wells initially constructed. As demand increases in the future, desalination facilities would be expanded to meet the additional demand. The phased approach seeks to meet near-term demand by allowing for additional supply as it becomes needed, while also providing an opportunity for regional future public participation and was developed byMPWMD notified Cal Am ~~based on feedback received from~~by letter dated April 3, 2023, of its offer to purchase the ~~community.~~

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

~~On August 26, 2022, WVAWC filed a Petition~~Monterey system assets for ~~Writ of Prohibition in~~$448.8 million. Cal Am’s response is due by April 30, 2023, and it currently plans to reject the ~~Supreme Court of Appeals of West Virginia challenging the West Virginia Circuit Court’s July 5, 2022, order certifying a class~~offer. The MPWMD has reserved its right to address at trial certain liability issues but not to consider damages. The Writ Petition has been supported by an amicus brief filed by certain water and utility industry trade groups. The Supreme Court of Appeals will decidedetermine whether to ~~accept~~acquire the ~~Writ Petition by issuing a Rule to Show Cause.~~

~~Chattanooga, Tennessee Class Action Litigation~~

~~A hearing that had been originally scheduled for October 2022 to address~~Monterey system assets through the ~~question~~exercise of ~~class certification has been postponed to January 2023.~~

~~Other Matters~~

On April 2, 2021, American Water Resources, LLC (“AWR”), which prior to the sale of HOS was one of the indirect, wholly owned subsidiaries comprising the Company’s former HOS operations, received a grand jury subpoena in connection with an investigation by the U.S. Attorney’s Office for the Eastern District of New York (the “EDNY”) regarding AWR’s operations and contractor network in the New York City metropolitan area. On September 9, 2022, a former employee of AWR pled guilty in U.S. District Court to two felony charges in connection with the matters being investigated by the EDNY. The Company continues to believe that the investigation is not focused on the Company and is cooperating fully with the investigation. While it is not possible at

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this time to predict the outcome of the investigation or determine the amount, if any, of fines, penalties or other liabilities that may be incurred in connection with it, the Company does not currently believe that the investigation will have a material adverse effect on the Company’s results of operations, financial condition or liquidity.eminent domain.

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.

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

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

The Company did not repurchase shares of common stock during the three months ended ~~September 30, 2022.~~March 31, 2023. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through ~~September 30, 2022,~~March 31, 2023, 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.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

~~Amendment and Restatement of Credit Agreement~~

On October 26, 2022, the parent company and AWCC amended and restated that certain Second Amended and Restated Credit Agreement, dated as of March 21, 2018 (the “Existing Credit Agreement”), by entering into that certain Third Amended and Restated Credit Agreement, by and among the parent company, AWCC, each of the lenders party thereto (each, a “Lender”), Wells Fargo Bank, National Association, as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and Mizuho Bank, Ltd., PNC Bank, National Association, and Bank of America, N.A., as co-documentation agents (the “Credit Agreement”), with respect to AWCC’s unsecured revolving credit facility thereunder. See Part I, Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information about the revolving credit facility.

The parent company has executed the Credit Agreement solely to acknowledge and agree that (i) obligations owing by AWCC under the Credit Agreement will constitute “debt” under that certain Support Agreement, dated as of June 22, 2000, as amended by that First Amendment to Support Agreement dated as of July 26, 2000, by and between the parent company and AWCC (the “Support Agreement”), which serves as a functional equivalent of a guarantee by the parent company of AWCC’s payment obligations under the Credit Agreement, and (ii) the Credit Agreement contains representations, warranties and covenants that relate to the parent company and that a breach of any of those representations or warranties, or a failure by AWCC to comply with such covenants, could result in an event of default under the Credit Agreement.

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The Credit Agreement increases the total maximum commitments under the Existing Credit Agreement to $2.75 billion from $2.25 billion and extends the expiration of the Existing Credit Agreement to October 2027 from March 2025. AWCC may from time to time cause the total maximum commitments under the Credit Agreement to be increased, provided that the aggregate amount of all such commitment increases may not exceed $500 million. AWCC may also request from the Lenders an extension of the expiration date of the Credit Agreement for up to two one-year periods. Such increases and extensions must satisfy certain conditions and, in the case of a request to extend the expiration date of the Credit Agreement, receive approval of the Required Lenders, all as set forth in the Credit Agreement. As of October 26, 2022, no amounts have been borrowed by AWCC under the Credit Agreement, except with respect to letters of credit previously issued under the Credit Agreement’s $150 million letter of credit sublimit.

The Credit Agreement contains certain representations and warranties made by AWCC and the parent company at the time it was entered into and, under its terms, AWCC must be in compliance with specified covenants, including (i) the requirement that AWCC maintains a ratio of total consolidated debt to consolidated total capitalization of not more than 0.70 to 1.0, computed in accordance with the terms of the Credit Agreement, (ii) a restriction on the incurrence of liens (other than liens permitted by the Credit Agreement) on the assets of the parent company, AWCC or any of the parent company’s significant subsidiaries, (iii) restrictions on sale-leaseback transactions by AWCC, the parent company or any of the parent company’s significant subsidiaries, (iv) not causing the Support Agreement to be canceled or terminated, or amended in such a way as to adversely affect the rights of the Lenders, and (v) AWCC engaging in any business, operations or activities other than financing activities for and on behalf of the parent company and its other subsidiaries. The Credit Agreement does not include any credit rating triggers. Certain of the financial covenants with respect to the facility were increased to reflect changes in American Water’s size, business and operations since the execution and delivery of the Existing Credit Agreement.

The occurrence of an event of default under the Credit Agreement could result in the acceleration of the repayment obligations of AWCC thereunder. The events of default in the Credit Agreement include, but are not limited to (i) the failure of AWCC to pay when due principal or interest under the Credit Agreement, (ii) the failure to observe or perform AWCC’s covenants contained in the Credit Agreement (including the covenants described in the preceding paragraph), subject in certain circumstances to grace periods and notice requirements provided in the Credit Agreement, (iii) any representation, warranty, certification or statement made by or on behalf of AWCC under the Credit Agreement or under any loan document or other document delivered pursuant to the Credit Agreement or a loan document being incorrect in any material respect when made, (iv) the failure of AWCC, the parent company or any significant subsidiary of the parent company to pay amounts due under certain other indebtedness, (v) the default of the parent company in the performance or observance of any obligation or condition under specified provisions of the Support Agreement, (vi) the occurrence of certain bankruptcy events, judgments or decrees against AWCC, the parent company or any of the parent company’s significant subsidiaries, (vii) the failure of AWCC, the parent company or any of the parent company’s significant subsidiaries to pay or otherwise discharge certain monetary judgments, (viii) the occurrence of certain events under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or with respect to certain employee pension benefit plans covered by ERISA, (ix) the unenforceability of any material provision of the Support Agreement, or the assertion by any court or governmental or regulatory body having jurisdiction over the parent company of the unenforceability of any such provision in writing, or the contesting by the parent company of the validity or enforceability of any such provision, (x) the occurrence of a change of control (as defined in the Credit Agreement) involving the parent company, or (xi) the parent company ceasing to own, directly or indirectly, all of the common stock of AWCC.

In the ordinary course of business, certain of the Lenders and their respective affiliates have from time to time engaged, and likely will in the future engage, in transactions with, and from time to time have performed various financial advisory, commercial banking, investment banking, treasury, trustee and other services for, and likely will in the future perform such services for, AWCC and American Water, for which they received, or will continue to receive, customary fees or compensation. In addition, affiliates of certain of the Lenders act as issuing and paying agent or dealer under AWCC’s commercial paper program.

The foregoing description of the Credit Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Credit Agreement, which is attached to this Form 10-Q as ~~Exhibit 10.1~~ ~~and incorporated herein by reference.~~

~~Increase in Size of AWCC’s Commercial Paper Program~~

On October 26, 2022, AWCC increased the size of its program to permit the issuance of short-term commercial paper notes by AWCC in an aggregate principal amount not to exceed $2.60 billion outstanding at any time, an increase from the prior maximum size of $2.10 billion. The notes issued by AWCC under the commercial paper program are considered “debt” for purposes of the Support Agreement. The offer and sale of the commercial paper notes and related obligations of the parent company under the Support Agreement have not been and will not be registered under the Securities Act in reliance upon the exemption provided by Section 4(a)(2) thereof, and may not be offered or sold absent registration or an applicable exemption from such registration requirements. The information contained in this Form 10-Q shall not constitute an offer to sell or the solicitation of an offer to buy commercial paper

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~~notes issued by AWCC from time to time under its commercial paper program or the related support obligations of the parent company under the Support Agreement.~~

~~New 2022 Annual Performance Plan Goals~~

~~In alignment with the Company’s commitment to inclusion, diversity and equity, in the first quarter of 2022, two new people-related goals were added to the Company’s 2022 Annual Performance Plan:female percentage of the Company’s overall workforce, and ethnic and racial percentage of the Company’s overall workforce.~~None.

ITEM 6. EXHIBITS


Exhibit Number						Exhibit Description
3.1						Restated Certificate of Incorporation of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to American Water Works Company, Inc.’s Quarterly Report on Form 10-Q, File No. 001-34028, filed November 6, 2008).
3.2						Amended and Restated Bylaws of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, File No. 001-34028, filed December ~~10, 2020)~~.
~~4.1~~						Indenture, dated as of December 4, 2009, between American Water Capital Corp. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed December 3, 2010).8
~~4.2~~						~~Officers’ Certificate of American Water Capital Corp.~~, dated May 5, 2022, establishing the terms and authorizing the issuance of the 4.450% Senior Notes due 2032 (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed May 5, 2022)202 2 ).
*10.1						~~Third Amended and Restated Credit Agreement, dated as~~Form of ~~October 26, 2022, by and among~~ American Water Works Company, Inc., American Water Capital Corp., each of the Lenders party thereto, Wells Fargo Bank, National Association, as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and Mizuho Bank, Ltd., PNC Bank, National Association, U.S. Bank National Association, and Bank of America, N.A., as co-documentation agents. 2017 Omnibus Equity Compensation Plan 2023 Restricted Stock Unit Grant.
~~22.1~~*10.2						~~Guaranteed Securities (incorporated by reference to Exhibit 22.1 to~~Form of American Water Works Company, Inc.~~’s Quarterly Report on~~ 2017 Omnibus Equity Compensation Plan 2023 Restricted Stock Unit Grant (for CEO, CFO and COO).
*10.3						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Performance Stock Unit Grant Form ~~10-Q, File No. 001-34028, filed July 27, 2022)~~A-1.
*10.4						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Performance Stock Unit Grant Form A-2 (for CEO, CFO and COO).
*10.5						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Performance Stock Unit Grant Form B-1.
*10.6						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Performance Stock Unit Grant Form B-2 (for CEO, CFO and COO).
*31.1						Certification of M. Susan Hardwick, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2						Certification of John C. Griffith, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
**32.1						Certification of M. Susan Hardwick, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
**32.2						Certification of John C. Griffith, 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).

* Filed herewith. ~~Certain exhibits to this document have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish the omitted exhibits to the SEC upon request.~~

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the ~~31st~~26th day of ~~October, 2022.~~April, 2023.


			AMERICAN WATER WORKS COMPANY, INC.
			(REGISTRANT)
By			/s/ M. SUSAN HARDWICK
			M. Susan Hardwick President and Chief Executive Officer (Principal Executive Officer)
By			/s/ JOHN C. GRIFFITH
			John C. Griffith Executive Vice President and Chief Financial Officer (Principal Financial Officer)
By			/s/ MELISSA K. WIKLE
			Melissa K. Wikle Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

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		Page
Forward-Looking Statements		1
	Part I. Financial Information
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3330
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5043
Item 4.	Controls and Procedures	5044
	Part II. Other Information
Item 1.	Legal Proceedings	5245
Item 1A.	Risk Factors	5345
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5345
Item 3.	Defaults Upon Senior Securities	5346
Item 4.	Mine Safety Disclosures	5346
Item 5.	Other Information	5346
Item 6.	Exhibits	5546

Signatures		5647


	During the Three Months Ended September 30,				During the Nine Months Ended September 30,
(In millions)	2022		2021		2022		2021
General rate cases by state (a):
New Jersey (effective September 1, 2022)	$	61	$	—	$	61	$	—
Hawaii (effective July 1, 2022)	2		—		2		—
West Virginia (effective February 25, 2022)	—		—		15		—
California (effective January 1, 2022 and January 1, 2021)	—		—		13		22
Pennsylvania (effective January 1, 2022 and January 28, 2021)	—		—		20		70
Missouri (effective May 28, 2021)	—		—		—		22
Total general rate cases	$	63	$	—	$	111	$	114

Infrastructure surcharges by state:
Missouri (effective August 11, 2022 and February 1, 2022)	$	18	$	—	$	30	$	—
Tennessee (effective August 8, 2022 and January 1, 2021)	3		—		3		3
Pennsylvania (effective July 1, 2022, April 1, 2022 and January 1, 2021)	9		—		11		8
Kentucky (effective July 1, 2022 and July 1, 2021)	3		1		3		1
New Jersey (effective June 27, 2022 and June 28, 2021)	—		—		10		14
Indiana (effective March 21, 2022 and March 17, 2021)	—		—		8		8
West Virginia (effective March 1, 2022 and January 1, 2021)	—		—		3		5
Illinois (effective January 1, 2022 and January 1, 2021)	—		—		6		7
Total infrastructure surcharges	$	33	$	1	$	74	$	46


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