American Water Works (AWK) 10-K risk factor changes: FY2020 vs FY2019

In addition to the other information included or incorporated by reference in this Form 10-K, the following [added: material] factors should be considered in evaluating our business and future prospects.

Our utility operations also may be subject to fines, penalties and other sanctions for [removed: the] [added: an] inability to meet these regulatory requirements.

This regulation affects the rates we charge our customers and has a significant impact on our business and [removed: results of] operations.

Generally, the state PUCs authorize us to charge rates that they determine are sufficient to recover our prudently incurred operating expenses, including, but not limited to, operating and maintenance costs, depreciation, financing costs and taxes, and provide us [added: with] the opportunity to earn an appropriate rate of return on invested capital.

[removed: | • |] [added: -] cover our expenses, including purchased water and costs of chemicals, fuel and other commodities used in our operations; [removed: |]

[removed: | • |] [added: -] enable us to recover our investment; and [removed: |]

[removed: | • |] [added: -] provide us with an opportunity to earn an appropriate rate of return on our investment. [removed: |]

Our utilities are also required to have numerous permits, approvals and certificates from the PUCs that regulate their businesses and authorize acquisitions, dispositions, [added: debt and/or equity financing,] and, in certain cases, affiliated transactions.

Even if [added: the] rates [added: approved] are sufficient, we face the risk that we will not achieve the rates of return on our invested capital to the extent permitted by state PUCs.

This could occur if certain conditions exist, including, but not limited to, [removed: if] water usage [removed: is] less than the level anticipated in establishing rates, [added: customers increase their conservation efforts,] or [added: we experience negative impacts of the COVID-19 pandemic, or] if our investments or expenses prove to be higher than the [removed: level] [added: levels] estimated in establishing rates.

Our operations and the quality of water we supply are subject to extensive and increasingly stringent environmental, water quality and health and safety laws and regulations, including with respect to [added: contaminants of] emerging [removed: contaminants,] [added: concern,] compliance with which could impact both our operating costs and capital expenditures, and violations of which could subject us to substantial liabilities and costs, as well as damage to our reputation.

These requirements include, among others, [added: CERCLA,] the Clean Water Act, the Safe Drinking Water Act, the [removed: LCR] [added: LCR,] and [removed: CERCLA.][added: other federal and state requirements.]

[removed: If we deliver water or wastewater services to our customers] that do not comply with regulatory standards, or otherwise violate environmental laws, regulations or permits, or other health and safety and water quality regulations, we could incur substantial fines, penalties or other sanctions or costs, as well as damage to our reputation.

Given the nature of our business which, in part, involves [removed: supplying] [added: providing] water [added: service] for human consumption, any potential non-compliance with, or violation of, environmental, water quality and health and safety laws or regulations would likely pose a more significant risk to us than to a company not similarly involved in the water and wastewater industry.

These laws and [removed: regulations,] [added: regulations] and their enforcement, [removed: generally] have become more stringent over time, and new or stricter requirements could increase our costs.

Attention is being given to [added: contaminants of] emerging [removed: contaminants,] [added: concern,] including, without limitation, chemicals and other substances that currently do not have any regulatory standard in drinking water or have been recently created or discovered (including by means of scientific achievements in the analysis and detection of trace amounts of substances).

Examples of sources of [removed: emerging] contaminants include, but are not limited to, newly created chemical compounds (including, for example, manufactured nanomaterials); human and veterinary products; perfluorinated and polyfluorinated compounds; bacteria, microbes, [removed: viruses,] [added: viruses (including the current novel coronavirus),] amoebae and other pathogens; and residual by-products of disinfection.

In some of our states, PUCs may disapprove of cost recovery, in whole or in part, for implementation of treatment infrastructure for [removed: an emerging] [added: a] contaminant in the absence of a regulatory standard.

Furthermore, given the rapid pace at which [removed: emerging] [added: these] contaminants are being created and/or discovered, we may not be able to detect and/or mitigate all such substances in our drinking water system or supplies, which could have a material adverse impact on our financial condition, results of operations and reputation.

In addition, we believe [removed: emerging] [added: these] contaminants may form the basis for additional or increased federal or state regulatory initiatives and requirements in the future, which could significantly increase the cost of our operations.

As a general rule, sources of public water supply, including rivers, lakes, [removed: streams and] [added: streams,] groundwater [removed: aquifers,] [added: aquifers and recycled water sources,] are held in the public trust and are not [added: generally] owned by private interests.

As a result, we typically do not own the water that we use in our operations, and the availability of our water supply is established through allocation rights (determined by legislation or court decisions) and passing-flow requirements set by governmental [removed: entities.][added: entities or by entering into water purchase agreements.]

For example, in our Monterey County, California operations, we are seeking to augment our sources of water supply, principally to comply with an October [removed: 20,] 2009 cease and desist order (the “2009 Order”), as amended by [removed: an order in] [added: a] July 2016 [added: order] (the “2016 Order”), of the SWRCB that requires [removed: California-American Water Company,] our [removed: wholly owned] [added: California] subsidiary [removed: (“Cal Am”),] to significantly decrease its diversions from the Carmel River in accordance with a reduction schedule that terminates on December 31, 2021 (the “2021 Deadline”).

[removed: We are] also required to augment our Monterey County sources of water supply to comply with the requirements of the Endangered Species Act.

We cannot predict whether [removed: Cal Am] [added: our California subsidiary] will be able to secure alternative sources of water, or if [removed: Cal Am] [added: it] will be [removed: exposed to liabilities, including fines and penalties, if it is unable] [added: able] to meet the 2021 Deadline [added: or the diversion reduction and other remaining requirements] under the [added: 2009 Order and the] 2016 Order.

If [removed: Cal Am or any of our other subsidiaries] [added: we] are unable to secure [removed: an] [added: available or] alternative [removed: source] [added: sources] of water, [removed: or if other adverse consequences result from the events described above,] our business, financial condition, results of operations and cash flows could be adversely affected.

[removed: | • |] [added: -] increased frequency and duration of droughts; [removed: |]

[removed: | • |] [added: -] increased precipitation and flooding; [removed: |]

[removed: | • |] [added: -] increased frequency and severity of storms and other weather events; [removed: |]

[removed: | • |] [added: -] challenges associated with changes in temperature or increases in ocean levels; [removed: |]

[removed: | • |] [added: -] potential degradation of water quality; [removed: |]

[removed: | • |] [added: -] decreases in available water supply and changes in water usage patterns; [removed: |]

[removed: | • |] [added: -] increases in disruptions in service; [removed: |]

[removed: | • |] [added: -] increased costs to repair damaged facilities; or [removed: |]

[removed: | • |] [added: -] increased costs to reduce risks associated with the increasing frequency of natural events, including to improve the resiliency and reliability of our water [removed: production] and [removed: delivery] [added: wastewater treatment and conveyance] facilities and systems. [removed: |]

Although some or all potential expenditures and costs [added: associated] with [removed: respect to] [added: the impact of climate variability and related laws and regulations on] our Regulated Businesses could be recovered through rates, infrastructure replacement surcharges or other regulatory mechanisms, there can be no assurance that state PUCs would authorize rate increases to enable us to recover such expenditures and costs, in whole or in part.

The current regulatory rate setting process may result in a significant delay, also known as “regulatory lag,” from the time that we invest in infrastructure improvements, incur increased operating expenses or experience declining water usage, to the time at which we can seek to address these events in rate case applications; our inability to [added: mitigate or] minimize regulatory lag could adversely affect our business.

Our inability to [added: mitigate or] reduce regulatory lag could have an adverse effect on our financial condition, results of operations, cash flows and liquidity.

We endeavor to [added: mitigate or] reduce regulatory lag by pursuing constructive regulatory [removed: policies.][added: practices.]

Other examples of such [removed: programs] [added: regulatory practices] include [removed: states] [added: expense mechanisms] that allow us to increase rates for certain cost increases that are beyond our control, such as purchased water costs, property or other taxes, or power, conservation, chemical or other expenditures.

The current COVID-19 pandemic may limit or curtail significantly or entirely the ability of PUCs to approve or authorize applications and other requests we may make with respect to our Regulated Businesses, including without limitation any or all types of approvals described above, as PUCs and their staffs seek to reduce, delay or streamline proceedings and other activities.

PUCs and other governmental authorities have taken, and may continue to take, emergency or other actions in light of the COVID-19 pandemic that may impact us, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic and extending or delaying procedural schedules in our regulatory proceedings.

At this time, we are unable to predict the range of impacts that the COVID-19 pandemic and other related events may have on our ability to obtain these approvals as needed or requested by the Regulated Businesses in the ordinary course or at all, or the nature of any further emergency or other action that may be taken by the PUCs or other governmental authorities.

If we deliver water or wastewater services to our customers

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

We are

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

Failure by our California subsidiary to comply with the 2009 Order and the 2016 Order in whole or in part, or the 2021 Deadline, may result in material additional costs or obligations, including fines and penalties, which could have a material adverse effect upon us and our business, results of operations and cash flows.

Furthermore, laws and regulations have been enacted that seek to reduce or limit GHG emissions and require additional reporting and monitoring, and these regulations may become more pervasive or stringent in light of changing governmental agendas and priorities, although the exact nature and timing of these changes is uncertain.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

An example of an area in which laws and regulations are changing and increasing rapidly is with respect to data and consumer privacy, security and protection.

We are becoming subject to an increasing number of data and consumer privacy, security and protection laws and regulations administered by various federal, state and local governments, including, for example, the California Consumer Privacy Act of 2018.

Federal and state governments have also adopted or are proposing other limitations on, or requirements regarding, the collection, distribution, use, security and storage of personally identifiable information.

In addition, the Federal Trade Commission and state attorneys general are applying federal and state consumer protection laws to impose standards on the collection, use and dissemination of data.

Moreover, we expect that current laws, regulations and industry standards concerning privacy, data protection and information security in the United States will continue to evolve and increase, and we cannot determine the impact that compliance with such future laws, regulations or standards will have on us or on our business.

Any failure or perceived failure by us to comply with current or future federal, state, or local data or consumer privacy or security laws, regulations, policies, guidance, industry standards, or legal obligations, or any incident resulting in unauthorized access to, or acquisition, release, or transfer of personally identifiable information or other data relating to our customers, employees and others, may result in private or governmental enforcement actions, litigation, fines and penalties, or adverse perception or publicity about us and our businesses, which could have a material adverse effect on our reputation and business and could result in us incurring substantial costs.

These events could also result in significant diversions of resources, distract management and divert the focus and attention of our security and technical personnel from other critical activities.

Certain of our wastewater systems have commercial and industrial customers that are subject to specific limitations on the type, character and strength of the wastewater they are permitted to discharge into our systems.

The failure by these commercial and industrial customers to comply with their respective discharge requirements could, in turn, negatively impact our operations, damage our facilities or cause us to exceed applicable discharge limitations and requirements.

Liabilities resulting from such exceedance events could adversely and materially affect our business, financial condition, results of operations and cash flows.

For example, during 2020, the Company experienced a decrease in net customer demand related mainly to industrial and commercial customers, which the Company believes to be attributable to the impacts of the COVID-19 pandemic.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

Revenue stability mechanisms are designed to recognize declining sales resulting from reduced consumption, while providing an incentive for customers to use water more efficiently.

See Item 3—Legal Proceedings for information on certain pending lawsuits related to interruptions of water service.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

Litigation and regulatory proceedings are subject to inherent uncertainties and unfavorable rulings can and do occur.

For example, our New York subsidiary experienced increased customer and regulatory scrutiny related to an investigation by the New York State Public Service Commission (the “NYSPSC”) of the unintentional provision by our New York subsidiary of incorrect data to a taxing authority and the failure of a few employees of that subsidiary to properly disclose these issues in a rate case.

A settlement of this investigation was approved by the Supreme Court of the State of New York in September 2018.

The properties of our Regulated Businesses segment include 75 dams, the majority of which are earthen dams.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

In November 2020, the MPWMD certified an FEIR with respect to a proposed acquisition and operation of this system by the MPWMD, and our California subsidiary has filed a petition in court challenging this certification.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

As a specific example, we depend on water meters to record and communicate the amount of water our customers use, and in recent years, we have experienced greater than expected performance failures with certain water meters used in the Regulated Businesses.

When these occur, we work with meter manufacturers to determine and address the cause of such failures.

While these and other failures that we have experienced have not to date had a material adverse effect on our operations, there can be no assurance that efforts to address performance failures or other issues we may experience with water meters will be successful and that these or future failures of water meters or other issues will not have a material adverse effect on us.

Although we do not believe that the technology we have implemented or may in the future implement is at a materially greater risk of failure than that used by other similar organizations, our technology and operations that use or rely on technology remain vulnerable to damage or interruption from, among other things: failure or interruption of the technology or its related systems; loss or failure of power, internet, telecommunications or data network systems; and operator error or improper operation by, the negligent or improper supervision of, or the intentional acts of, employees, contractors and other third parties.

There can be no assurance that we will be successful in designing, developing, deploying, integrating or maintaining these new technologies.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

| | |

| --- | --- |

EPA requirements and similar federal and state laws and regulations.

Passing-flow requirements set minimum volumes of water that must pass through specified water sources, such as rivers and streams, in order to maintain environmental habitats and meet water allocation rights of downstream users.

Allocation rights are imposed to ensure sustainability of major water sources and passing-flow requirements are most often imposed on source waters from smaller rivers, lakes and streams.

Furthermore, Cal Am continues to work constructively with all appropriate agencies to provide necessary information to obtain the required approvals for the Water Supply Project; however, due to the delay in the approval schedule, Cal Am currently does not believe that it will be able to fully comply with the diversion reduction requirements and other remaining requirements under the 2009 Order and the 2016 Order, including the 2021 Deadline.

In addition, new Federal, state and local laws, changes in existing laws, rules or regulations, or administrative interpretations thereof, could impact us.

In December 2017, the TCJA was signed into law, which, among other things, enacted significant and complex changes to the Internal Revenue Code of 1986, as amended (the “Code”), including a reduction in the maximum U.S. federal corporate income tax rate from 35% to 21% as of January 1, 2018, and certain other provisions related specifically to the public utility industry, including the normalization of our deferred income taxes.

The enactment of the TCJA required re-measurement of our deferred income taxes, which materially impacted our 2017 results of operations and financial position and had a lesser impact on our 2018 results of operations and financial position.

Following enactment of the TCJA, the Company adjusted its customer rates and deferred income taxes to reflect the lower income tax rate as mandated by PUCs in jurisdictions that have addressed the issue.

We expect that further impacts to our deferred income taxes will continue to occur through pending or future rate cases or other proceedings in the remaining jurisdictions.

At this time, we cannot predict the impacts on us of the regulatory treatment of the TCJA in these remaining proceedings, or of the enactment or adoption of any Related Interpretations, if and when issued.

Moreover, we are unable to determine or predict the potential impacts, if any, of any other new or amended laws, rules or regulations, or interpretations thereof, including, without limitation, further amendments to the Code or applicable Treasury regulations, to the extent they may be ultimately enacted, adopted or issued, on us or our businesses, financial condition, results of operations, cash flows and liquidity.

Revenue stability mechanisms are designed to allow utilities to recover the fixed cost of operations while supporting water conservation goals.

Any recovery of these costs that we are able to obtain through regulatory proceedings or otherwise may not occur in a timely manner.

For example, New York American Water Company, Inc. (“NYAW”) has been the subject of a New York State Public Service Commission (“NYSPSC”) investigation related to the unintentional provision of incorrect data to a taxing authority that resulted in an over-assessment of real property taxes.

NYAW self-reported this issue to the NYSPSC promptly after NYAW’s senior leadership became aware of it.

Neither NYAW nor any of its employees received any financial benefit as a result of this matter, as all customer overpayments were provided to the local taxing authorities.

The NYSPSC investigation also related to the failure of a few employees working on NYAW’s 2016 general rate case to properly disclose these issues in that rate case.

In September 2018, a settlement of these matters was approved by the Supreme Court of the State of New York, Albany County, and NYAW has been working with the New York State Department of Public Service to implement its terms.

While the settlement resolves the NYSPSC’s investigation involving NYAW and those matters set forth above, there can be no assurance that NYAW will not be subject to additional federal, state or local proceedings regarding these and other related matters, and these proceedings could result in increased oversight and civil, administrative and/or criminal sanctions, which may have a material adverse effect upon our reputation and perception.

Although we do not believe that these systems are at a materially greater risk of failure than other similar organizations, our technology systems remain vulnerable to damage or interruption from:

| • | power loss, computer systems failures, and internet, telecommunications or data network failures; |

| • | operator error or improper operation by, the negligent or improper supervision of, or the intentional acts of, employees and contractors; |

| • | physical and electronic loss of customer or employee data due to security breaches, cyber attacks, hacking, denial of services action, misappropriation of data or other property and similar events; |

| • | computer viruses; and |

| • | severe weather and other events, including without limitation, hurricanes, tornadoes, fires, floods, earthquakes and other disasters. |

These events may result in physical and electronic loss of customer, employee or financial data, security breaches, misappropriation of property and other adverse consequences.

In addition, a lack of or inadequate levels of redundancy for certain of these systems, including billing systems, could exacerbate the impact of any of these events on us.

We may not be successful in developing or acquiring technology that is competitive and responsive to the needs of our business, and we might lack sufficient resources to make the necessary upgrades or replacements of outdated existing technology to enable us to continue to operate at our current level of efficiency.

These efforts support our broader strategic initiatives and are intended to improve our operations and enhance our customer service capabilities.

There can be no assurance that we will be successful in designing, developing, deploying, integrating or maintaining these new technologies, and if they do not perform effectively or adequately serve their respective business objectives, their value to us and our business and operations may be negatively and materially impacted.

Technologies that do not perform as intended or desired may need to be redesigned, redeveloped or abandoned.

Our failure to timely and effectively invest in, develop, deploy and implement improvements to, and properly maintain the operation and integrity of, our new technologies, including related data and other related systems, and/or adequately obtain recovery in rates of the costs and expenses associated with such activities, may adversely affect our ability to achieve intended O&M expense efficiencies or other key performance results and, ultimately, could materially and adversely impact our business, financial condition, results of operations and cash flows.

All of the intellectual property that has been or is being used or developed in connection with these technologies, we believe we own, or have valid licenses to use.

However, competitors, contracting parties or other third parties may bring claims against us to challenge our right to use, license, sub-license, market or monetize, in whole or in part, such intellectual property or derivatives thereof or works made therefrom, and the assertion, defense or protection of our intellectual property rights could be expensive, time-consuming and ultimately unsuccessful.

If we are unable to do so, or it is determined that we do not own or have valid licenses or other rights to any of the intellectual property used in our technologies, we may lose valuable rights to what we regard as our intellectual property, the carrying values of the affected technologies may need to be decreased significantly, and we may be required to obtain or purchase licenses at significant cost from third parties to use the intellectual property.

In any of these cases, we may be unable to execute our long-term strategy, and our financial condition, results of operations and cash flows may be materially and adversely impacted.

Although we intend to adhere to such health and safety standards with a goal of achieving zero injuries, it is extremely challenging to eliminate all safety incidents at all times.

In this regard, our principal external sources of short-term liquidity are our $2.10 billion commercial paper program and our $2.25 billion revolving credit facility.

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 [removed: Statements,”* *Item] [added: Statements,” Item] 1A—Risk [removed: Factors* *and] [added: Factors and] elsewhere in this Form 10-K.

For a discussion and analysis of the Company’s financial statements for fiscal [removed: 2018] [added: 2019] compared to fiscal [removed: 2017,] [added: 2018,] please refer [removed: to* *Item] [added: to Item] 7—Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations* *in] [added: Operations in] the Company’s Annual Report on Form 10-K for the year ended December 31, [removed: 2018,] [added: 2019,] filed with the SEC on February [removed: 19, 2019.*][added: 18, 2020.*]

The Company employs approximately [removed: 6,800] [added: 7,000] professionals who provide drinking water, wastewater and other related services to [removed: approximately] [added: over] 15 million people in 46 states.

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’s utilities operate in [removed: approximately] [added: over] 1,700 communities in 16 states in the United States, with [removed: over 3.4] [added: 3.5] million active customers with services provided by its water and wastewater networks.

Services provided by the Company’s utilities are [removed: generally] subject to regulation by PUCs.

The Company also operates market-based businesses that provide [removed: complementary] [added: water, wastewater and other] services to residential and smaller commercial customers, the U.S. government on military installations, as well as [removed: municipalities, utilities] [added: municipalities] and [removed: industrial] [added: utility] customers, collectively presented as the “Market-Based Businesses.” These Market-Based Businesses are not subject to [added: economic] regulation by state PUCs.

| | [added: | |] For the Years Ended December 31, | | | | | | | | | | | [added: | | | |]

| | [removed: 2019] | | [added: 2020] | | [removed: 2018] | | | | [removed: 2017] [added: 2019] | | | [added: | | | 2018 | | |]

[removed: | Diluted] [added: In 2020, as compared to 2019, diluted] earnings per share [removed: (GAAP): | | | | | | | | | | | |][added: increased $0.48.]

| Net income attributable to common shareholders | [removed: $] | [removed: 3.43] | [added: 91] | | [removed: $] | [removed: 3.15] | | | [removed: $] [added: 46] | [removed: 2.38] | | [added: | | | 32 | | |]

| [added: Impact of] Freedom Industries settlement activities [added: (a)] | [removed: (0.02] | | [removed: )] [added: —] | | [removed: (0.11] | | [removed: )] | | [removed: (0.12] [added: (4)] | | [removed: )] | [added: | | | (20) | | |]

| [removed: Keystone impairment] [added: Impairment] charge | [removed: —] | | [added: —] | | [removed: 0.31] | | | | — | | | [added: | | | 57 | | |]

| Net loss attributable to noncontrolling interest | [removed: —] | | [added: —] | | [removed: (0.01] | | [removed: )] | | — | | | [added: | | | (2) | | |]

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

In [removed: 2019,] [added: 2020,] the Company invested $1.9 billion, primarily in the Regulated Businesses, as discussed below:

*Regulated [removed: Businesses* *Growth] [added: Businesses Growth] and Optimization*

[removed: | • | $1.7] [added: - $1.8] billion capital investment in the Regulated Businesses, the majority for infrastructure improvements and [removed: replacements. |][added: replacements; and]

[removed: | • | $235] [added: - $135] million to fund acquisitions in the Regulated Businesses, which added approximately [removed: 53,100] [added: 37,800] water and wastewater [removed: customers. |][added: customers during 2020, in addition to approximately 14,500 customers added through organic growth during 2020.]

[removed: | • | The] [added: As of February 24, 2021, the] Company has entered into agreements for pending acquisitions in the Regulated Businesses to add approximately [removed: 44,200] [added: 30,000 additional] customers. [removed: |]

On November 20, 2019, the Company and [removed: its] [added: the Company’s] New York subsidiary entered into a Stock Purchase Agreement with [removed: Liberty Utilities Co. (“Liberty”),] [added: Liberty,] pursuant to which Liberty will purchase all of the capital stock of the New York subsidiary [removed: (the “Stock Purchase”)] for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in [removed: that agreement.][added: the Stock Purchase Agreement.]

The [removed: New York subsidiary includes all of the water and wastewater assets of the] Company’s [added: regulated] New York [removed: regulated utility operations, with] [added: operations have] approximately 125,000 [removed: customer connections] [added: customers] in the State of New York.

[removed: Accordingly, the] [added: The] assets and related liabilities of the New York subsidiary were classified as held for sale on the Consolidated Balance Sheets as of December 31, [removed: 2019.][added: 2020.]

See Note [removed: 4—Acquisitions] [added: 6—Acquisitions] and Divestitures in the Notes to Consolidated Financial Statements for additional information.

*Market-Based [removed: Businesses* *Growth and Optimization*][added: Businesses Growth*]

MSG was awarded [removed: contracts] [added: the contract] for ownership, operation and maintenance of the water and wastewater systems at Joint Base [removed: San Antonio] [added: Lewis-McChord] in [removed: Texas, effective September 26, 2019, and the United States Military Academy at West Point, New York,] [added: Washington state,] effective September [removed: 30, 2019.][added: 24, 2020.]

Looking forward, the Company expects to invest between [removed: $8.8] [added: $10.3] billion to [removed: $9.4] [added: $10.5] billion from [removed: 2020] [added: 2021] to [removed: 2024,] [added: 2025,] and between [removed: $20] [added: $22] billion to [removed: $22] [added: $25] billion from [removed: 2020] [added: 2021] to [removed: 2029,] [added: 2030,] including [removed: a range of $1.7 billion to] $1.9 billion in [removed: 2020.][added: 2021.]

[removed: | • |] [added: -] capital investment for infrastructure improvements in the Regulated Businesses of [removed: $8.2] [added: $8.9] billion over the next five years, and between [removed: $18.2] [added: $19] billion and [removed: $19.2] [added: $21] billion over the next 10 years, including $1.6 billion expected in [removed: 2020;] [added: 2021;] and [removed: |]

[removed: | • |] [added: -] growth from acquisitions in the Regulated Businesses to expand the Company’s water and wastewater customer base of between [removed: $600 million] [added: $1.4 billion] to [removed: $1.2] [added: $1.6] billion over the next five years, and between [removed: $2] [added: $3] billion to [removed: $3] [added: $4] billion over the next 10 years, including [removed: a range of $100 million to] $300 million expected in [removed: 2020. |][added: 2021.]

[removed: ][added: ]

[removed: | • | the Regulated Businesses achieved an] [added: The Company’s] adjusted [added: regulated] O&M efficiency [removed: ratio (a non-GAAP measure)] [added: ratio, which is used as a measure] of [removed: 34.5%] [added: the operating performance of the Regulated Businesses, was 34.3%] for the year ended December 31, [removed: 2019,] [added: 2020,] compared to [removed: 35.6%] [added: 34.5%] and [removed: 35.3%] for the [removed: years] [added: year] ended December 31, [removed: 2018 and 2017, respectively. The improvement in the Company’s adjusted O&M efficiency ratio in 2019, when compared to 2018, was due to an increase in operating revenues as well as continued focus on operating costs of the Regulated Businesses; |][added: 2019.]

The Company’s adjusted [added: regulated] O&M efficiency ratio is [added: a non-GAAP measure, and is] defined [added: by the Company] as its operation and maintenance expenses from the Regulated Businesses, divided by the [removed: pro forma] operating revenues from the Regulated Businesses, where both operation and maintenance expenses and [removed: pro forma] operating revenues were adjusted to eliminate purchased water expense.

[removed: The Company also made the following adjustments to] [added: Additionally,] the [removed: O&M efficiency ratio: (i)] [added: Company] excluded [removed: from operation and maintenance expenses is] the impact of certain Freedom Industries chemical spill settlement activities recognized in [removed: 2017,] 2018 and 2019 [added: from operation and maintenance expenses] (see Note [removed: 16—Commitments] [added: 17—Commitments] and Contingencies in the Notes to Consolidated Financial Statements for additional [removed: information); and (ii) excluded from operation and maintenance expenses is the impact of the Company’s January 1, 2018 adoption of Accounting Standards Update 2017-07, *Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost* (“ASU 2017-07”), for 2017, 2018 and 2019.][added: information).]

The Company evaluates its operating performance using this ratio, and believes it is useful to [removed: investors,] [added: investors] because it directly measures improvement in the [added: operating performance and] efficiency of the Regulated Businesses.

The Company’s adjusted [added: regulated] O&M efficiency ratio [added: (i)] is not an accounting measure that is based on [removed: GAAP,] [added: GAAP; (ii) is not based on a standard, objective industry definition or method of calculation; (iii)] may not be comparable to other companies’ operating [removed: measures] [added: measures;] and [added: (iv)] should not be used in place of the GAAP information provided elsewhere in this Form 10-K.

Presented in the table below is the calculation of the Company’s adjusted [added: 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:

| (Dollars in millions) | [removed: 2019] | | [added: 2020] | | [removed: 2018] | | | | [removed: 2017] [added: 2019] | | | [added: | | | 2018 | | |]

| Total operation and maintenance expenses [removed: (a)] | [added: | |] $ | [removed: 1,544] [added: 1,622] | | | [added: | |] $ | [removed: 1,479] [added: 1,544] | | | [added: | |] $ | [removed: 1,369] [added: 1,479] | |

| Less: | | | | | | | | | | | | [added: | | | | | |]

| Operation and maintenance expenses—Market-Based Businesses | [removed: 393] | | [added: 389] | | [removed: 362] | | | | [removed: 337] [added: 393] | | | [added: | | | 362 | | |]

| Operation and maintenance expenses—Other [removed: (a)] | [removed: (31] | | [removed: )] [added: (25)] | | [removed: (42] | | [removed: )] | | [removed: (44] [added: (31)] | | [removed: )] | [added: | | | (42) | | |]

Novel Coronavirus (COVID-19) Pandemic Update

American Water has been monitoring the global impact of COVID-19 pandemic and has taken steps to mitigate adverse impacts to the Company.

The Company has three main areas of focus as part of its response to COVID-19: the care and safety of its employees; the safety of its customers and the communities it serves; and the execution of its business continuity plan.

American Water continues to work with its vendors to prevent disruptions in its supply chain, and, at this time, has not experienced, and does not anticipate, any material negative impacts.

The Company has also been monitoring the impacts of the pandemic on its access to the capital markets, and to the extent such access is adversely affected, American Water may need to consider alternative sources of funding for its operations and for working capital, any of which could increase its cost of capital.

This pandemic continues to evolve, and American Water continues to monitor developments affecting its employees, customers, contractors and vendors and will take additional actions as warranted.

To date, the Company has experienced COVID-19 financial impacts, including an increase in uncollectible accounts expense, additional debt costs, and certain incremental operation and maintenance (“O&M”) expenses.

The Company has also experienced decreased revenues as a result of the suspension of late fees and foregone reconnect fees.

These impacts are collectively referred to as “financial impacts.” See Note 3—Impact of Novel Coronavirus (COVID-19) Pandemic in the Notes to Consolidated Financial Statements for additional information.

The extent to which COVID-19 may further impact American Water, including without limitation, its liquidity, financial condition, and results of operations, will depend on future developments, which presently cannot be predicted.

As of February 24, 2021, American Water has commission orders authorizing deferred accounting for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in two jurisdictions pending.

In addition to approving deferred accounting, to date, two regulatory jurisdictions have also approved cost recovery mechanisms for specified COVID-19 financial impacts.

Regulatory actions to date are presented in the table below:

| | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Commission Actions | | | | | | Description | | | | | | States | | |

| Orders issued | | | | | | Allows the Company to establish regulatory assets to record certain financial impacts related to the COVID-19 pandemic. | | | | | | CA, HI, IA, IL, IN, MD, MO, NJ, PA, VA, WV | | |

| Cost recovery mechanisms | | | | | | California’s Catastrophic Event Memorandum Account allows the Company to track and recover certain financial impacts related to the COVID-19 pandemic. Illinois has authorized cost recovery of COVID-19 financial impacts through a special purpose rider over a 24-month period, which was implemented by the Company’s Illinois subsidiary effective October 1, 2020. Additionally, Illinois approved a bad debt rider tariff on December 16, 2020. This rider will allow the Company to collect actual bad debt expense over last authorized beginning March 2021 over a 24-month period. | | | | | | CA, IL | | |

| Proceedings pending | | | | | | Pending proceedings considering deferred accounting authorization for the future recovery of COVID-19 financial impacts. | | | | | | NY, TN | | |

Consistent with these regulatory orders, the Company has recorded $30 million in regulatory assets and $4 million of regulatory liabilities for the financial impacts related to the COVID-19 pandemic on the Consolidated Balance Sheets as of December 31, 2020.

On December 30, 2020, the Company’s Kentucky subsidiary received an order denying its request to defer to a regulatory asset the financial impacts related to the COVID-19 pandemic.

As of February 24, 2021, six states have ordered active moratoria on the suspension of service disconnections due to non-payment.

The moratoria on disconnects have expired in eight states.

The Company continues to monitor the evolving COVID-19 pandemic and will continue to comply with the current ordered moratoria and any future moratoria implemented.

Financing Activities

To ensure adequate liquidity given the impacts of the COVID-19 pandemic on debt and capital markets, on March 20, 2020, parent company and American Water Capital Corp. (“AWCC”), parent company’s wholly owned finance subsidiary, entered into a Term Loan Credit Agreement that provides for a 364-day term loan facility of up to $750 million (the “Term Loan Facility”).

On March 20, 2020, AWCC borrowed $500 million under the Term Loan Facility, the proceeds of which were used for general corporate purposes of AWCC and American Water, and to provide additional liquidity.

The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020.

Net proceeds of this offering were used to lend funds to parent company and its regulated subsidiaries, repay various senior notes and regulated subsidiary debt obligations at maturity, repay commercial paper obligations and short-term indebtedness under AWCC’s unsecured revolving credit facility, and for general corporate purposes.

See Note 12—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.

The Company sought to take advantage of lower interest rates available in the capital markets in 2020 by refinancing long-term debt, where possible.

In 2020, AWCC and the Company’s regulated subsidiaries issued in the aggregate $311 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.60% to 1.20%, maturing in 2023 to 2027.

The Company used these proceeds to retire an aggregate of $311 million of long-term debt issues at maturity with annual interest rates ranging from 4.45% to 5.60%.

For the years ended December 31, 2020, 2019 and 2018, diluted earnings per share (GAAP) were $3.91, $3.43 and $3.15, respectively.

This increase was primarily driven by continued growth in the Regulated Businesses from infrastructure investment, acquisitions and organic growth, as well as the benefit from depreciation expense related to the assets of the Company’s New York subsidiary, as required by assets held for sale accounting.

Revenues increased as a result of warmer and drier than normal weather during the third quarter of 2020 across several of the Company’s subsidiaries, contributing a benefit of $0.07 per diluted share for 2020.

Revenues from the Company’s residential customers increased from many states experiencing work from home activities due to the COVID-19 pandemic, which were largely offset by decreased revenues from the Company’s commercial and industrial customers as a result of the COVID-19 pandemic.

Partially offsetting these increases were estimated impacts from the COVID-19 pandemic on HOS from increased claims that likely have resulted from more work from home activity.

During the fourth quarter of 2019, the Company recognized a loss of $0.19 per diluted share, relating to the sale of its Keystone operations.

Additionally, during the first quarter of 2019, the Company recorded a benefit of $0.01 per diluted share from the reduction of the liability related to the Freedom Industries chemical spill settlement in West Virginia.

Presented in the table below are the Company’s diluted earnings per share, as determined in accordance with GAAP, and the Company’s adjusted diluted earnings per share (a non-GAAP measure):

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Adjustments: | | | | | | | | | | | |

| Loss on sale of Keystone operations | 0.24 | | | | — | | | | — | | |

| Income tax impact | (0.05 | | ) | | — | | | | — | | |

| Net adjustment | 0.19 | | | | — | | | | — | | |

| Income tax impact | 0.01 | | | | 0.03 | | | | 0.05 | | |

| Net adjustment | (0.01 | | ) | | (0.08 | | ) | | (0.07 | | ) |

| Gain on sale of Contract Services Group contracts | — | | | | (0.08 | | ) | | — | | |

| Income tax impact | — | | | | 0.02 | | | | — | | |

| Net adjustment | — | | | | (0.06 | | ) | | — | | |

| Income tax impact | — | | | | (0.08 | | ) | | — | | |

| Net adjustment | — | | | | 0.22 | | | | — | | |

| Early extinguishment of debt at parent company | — | | | | — | | | | 0.03 | | |

| Income tax impact | — | | | | — | | | | (0.01 | | ) |

| Net adjustment | — | | | | — | | | | 0.02 | | |

| Impact of re-measurement from the TCJA | — | | | | 0.07 | | | | 0.70 | | |

| Total net adjustments | 0.18 | | | | 0.15 | | | | 0.65 | | |

| Adjusted diluted earnings per share (non-GAAP) | $ | 3.61 | | | $ | 3.30 | | | $ | 3.03 | |

For the year ended December 31, 2019, diluted earnings per share (GAAP) were $3.43, an increase of $0.28 per diluted share compared to the prior year, which includes the net adjustments presented in the table above and discussed in greater detail in the “Adjustments to GAAP” section below.

Excluding the net adjustments presented in the table above, adjusted diluted earnings per share (non-GAAP) were $3.61 for the year ended December 31, 2019, an increase of $0.31 per diluted share compared to the prior year.

These results were driven by continued growth in the Regulated Businesses from infrastructure investment, acquisitions and organic growth, and growth in the Market-Based Businesses, primarily from HOS’s 2018 acquisition of Pivotal and from MSG’s addition of two new military contracts in 2018 (Wright-Patterson Air Force Base and Fort Leonard Wood).

Adjustments to GAAP

Adjusted diluted earnings per share represents a non-GAAP financial measure and, as shown in the table above, is calculated as GAAP diluted earnings per share, excluding the impact of one or more of the following events: (i) a loss on the sale in the fourth quarter of 2019 of the Keystone operations; (ii) previously reported settlement activities related to the Freedom Industries chemical spill in West Virginia; (iii) a gain recognized in the third quarter of 2018 on the sale of the majority of CSG’s O&M contracts; (iv) a goodwill and intangible impairment charge in the third quarter of 2018 related to the Keystone operations; (v) an early extinguishment of debt charge at parent company in the third quarter of 2017; and (vi) non-cash re-measurement charges recorded in the fourth quarters of 2017 and 2018 resulting from the impact of the change in the federal corporate income tax rate on the Company’s deferred income taxes from the enactment of the TCJA.

The Company believes that this non-GAAP measure provides investors with useful information by excluding certain matters that may not be indicative of its ongoing operating results, and that providing this non-GAAP measure will allow investors to better understand the businesses’ operating performance and facilitate a meaningful year-to-year comparison of the Company’s results of operations.

Although management uses this non-GAAP financial measure internally to evaluate its results of operations, the Company does not intend results reflected by this non-GAAP measure to represent results as defined by GAAP, and the reader should not consider them as indicators of performance.

This non-GAAP financial measure is derived from the Company’s consolidated financial information but is not presented in the financial statements prepared in accordance with GAAP.

This measure should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP.

In addition, this non-GAAP financial measure as defined and used above, may not be comparable to similarly titled non-GAAP measures used by other companies, and, accordingly, may have significant limitations on its use.

| | |

| --- | --- |

Algonquin Power & Utilities Corp., Liberty’s parent company, executed and delivered an absolute and unconditional guaranty of the performance of all of Liberty’s obligations under the stock purchase agreement.

The Stock Purchase is subject to various conditions, including obtaining regulatory approval, the expiration or termination of the applicable waiting period under the U.S. Hart-Scott-Rodino antitrust law and other customary closing conditions.

The stock purchase agreement may be terminated by either party if the Stock Purchase is not completed by June 30, 2021, subject to extension for up to six months if all of the conditions to closing have been met, other than obtaining regulatory approvals.

Liberty may also terminate the stock purchase agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the New York subsidiary, taken as a whole.

The Company currently estimates that the Stock Purchase is to be completed by early 2021.

During January 2020, HOS was selected by the San Francisco Public Utilities Commission (“SFPUC”) to offer optional water line and sewer line protection services to homeowners across the City and County of San Francisco.

This arrangement provides over 100,000 eligible San Francisco homeowners, served by the SFPUC, the opportunity to purchase optional protection plans from the Company for the water line that runs from a residential property to the connection with the water meter and the sewer line that runs from the residential property to the sewer main.

Highlights of these contract awards are detailed below:

As of December 31, [removed: 2019,] [added: 2020,] a hypothetical increase of interest rates by 1% associated with the Company’s short-term borrowings would result in a [removed: $7] [added: $6] million increase in short-term interest expense.

| | |

| --- | --- |

A holding company originally incorporated in Delaware in 1936, the Company employs approximately [removed: 6,800] [added: 7,000] professionals who provide drinking water, wastewater and other related services to [removed: approximately] [added: over] 15 million people in 46 states.

The Company’s utilities operate in [removed: approximately] [added: over] 1,700 communities in 16 states in the United States, with [removed: over 3.4] [added: 3.5] million active customers in its water and wastewater networks.

Federal, state and local governments also regulate environmental, health and safety, and water quality [added: and water accountability] matters.

Operating revenues for the Regulated Businesses were [removed: $3,094] [added: $3,255] million for [removed: 2019, $2,984] [added: 2020, $3,094] million for [removed: 2018] [added: 2019] and [removed: $2,958] [added: $2,984] million for [removed: 2017,] [added: 2018,] accounting for 86%, [removed: 87%] [added: 86%] and [removed: 88%,] [added: 87%,] respectively, of the Company’s total operating revenues for the same periods.

Presented in the table below is a geographic summary of the Regulated Businesses’ operating revenues and the number of customers the Company serves, by type of service, for and as of the year ended December 31, [removed: 2019:][added: 2020:]

| | [added: | |] Operating Revenues (in millions) | | | | | | | | | | | | | | | [added: | | | | | | | | |] Number of Customers (in thousands) | | | | | | | | | | | [added: | | | | | | | | | |]

| | [added: | |] Water (a) | | | | [added: | |] Wastewater | | | | [added: | |] Total | | | | [added: | |] % of Total | | | [added: | | |] Water | | | [added: | | |] Wastewater | | | [added: | | |] Total | | | [added: | | |] % of Total | | [added: |]

[removed: | (a) | Includes] [added: (a)Includes] other operating revenues consisting primarily of miscellaneous utility charges, fees and rents. [removed: |]

[removed: | (b) | The] [added: (b)The] Company’s “Top Seven States” are determined based upon operating revenues. [removed: |]

[removed: | (c) | Includes] [added: (c)Includes] the Company’s [removed: utilities] [added: utility operations] in the following states: Georgia, Hawaii, Iowa, Kentucky, Maryland, Michigan, New York, Tennessee and [removed: Virginia. |][added: Virginia and other revenue attributable collectively to the Regulated Businesses.]

One single customer may purchase the Company’s services for use by multiple individuals or [removed: businesses, such as homes, apartment complexes, businesses and governmental entities.][added: businesses.]

The Company also serves (i) commercial customers, such as food and beverage providers, commercial property developers and proprietors, and energy suppliers, (ii) fire service customers, where the Company supplies water through its distribution systems to public fire hydrants for firefighting purposes and to private fire customers for use in fire suppression systems in office buildings and other facilities, (iii) industrial customers, such as large-scale manufacturers, mining and production operations, (iv) public authorities, such as government buildings and other public sector facilities, including schools and universities, and (v) other utilities and community water and wastewater systems in the form of bulk contracts for the supply of water or the treatment of [removed: wastewater,] [added: wastewater] for their own customers.

The following chart depicts the allocation of the Company’s Regulated Businesses’ operating revenue of [removed: $3,094] [added: $3,255] million by type, including a breakout of the total water services revenues by class of customer, for the year ended December 31, [removed: 2019:][added: 2020:]

[removed: ][added: ]

[removed: | (a) | Includes] [added: (a)Includes] water revenues from public authorities and other utilities and community water systems under bulk contracts. [removed: |]

[removed: | (b) | Includes] [added: (b)Includes] other operating revenues consisting primarily of miscellaneous utility charges, fees and rents. [removed: |]

Presented in the table below is the number of water and wastewater customers the Company served by class as of December [removed: 31:][added: 31, 2020, 2019 and 2018, which represents approximately 15 million people served as of December 31, 2020:]

| | [added: | | 2020 | | | | | | | | | | | |] 2019 | | | | | | [removed: 2018] | | | | | | [removed: 2017] [added: 2018] | | | | | [added: | | | |]

| (In thousands) | [added: | |] Water | | | [added: | | |] Wastewater | | | [added: | | |] Water | | | [added: | | |] Wastewater | | | [added: | | |] Water | | | [added: | | |] Wastewater | | [added: |]

| Residential | [added: | | 2,948 | | | | | | 236 | | | | | |] 2,914 | | | [added: | | |] 215 | | | [removed: 2,892] | | | [removed: 188] [added: 2,892] | | | [removed: 2,872] | | | [removed: 182] [added: 188] | | [added: |]

| Commercial | [added: | | 225 | | | | | | 15 | | | | | |] 222 | | | [added: | | |] 13 | | | [removed: 222] | | | [removed: 11] [added: 222] | | | [removed: 221] | | | 11 | | [added: |]

| Fire service | [removed: 49] | | [added: 50] | [added: | | | | |] — | | | [removed: 48] | | | [added: 49 | | | | | |] — | | | [removed: 47] | | | [added: 48 | | | | | |] — | | [added: |]

| Industrial | [added: | |] 4 | | | [added: | | |] — | | | [added: | | |] 4 | | | [added: | | |] — | | | [added: | | |] 4 | | | [added: | | |] — | | [added: |]

| Public and other (a) | [removed: 16] | | [added: 17] | [added: | | | | |] 1 | | | [added: | | |] 16 | | | [added: | | |] 1 | | | [added: | | |] 16 | | | [removed: —] | | [added: | 1 | | |]

| Total | [added: | | 3,244 | | | | | | 252 | | | | | |] 3,205 | | | [added: | | |] 229 | | | [removed: 3,182] | | | [removed: 200] [added: 3,182] | | | [removed: 3,160] | | | [removed: 193] [added: 200] | | [added: |]

[removed: | (a) | Includes public authorities and other utilities and community water and wastewater systems under bulk contracts.] Bulk contracts, which are accounted for as a single customer in the table above, generally result in service to multiple customers. [removed: |]

[removed: Excluding acquisitions, the] [added: The] Company plans to invest [removed: $8.2 billion over the next five years and] between [removed: $18] [added: $22] billion and [removed: $19] [added: $25] billion over the next 10 years, including [removed: $1.6 billion in 2020,] [added: acquisitions,] for capital improvements to its Regulated Businesses’ water and wastewater infrastructure, largely for pipe replacement and upgrading aging water and wastewater treatment facilities.

The Company has proactively improved its pipe renewal rate from a 250-year replacement cycle in 2009 to an expected [removed: 115-year] [added: 110-year] replacement cycle by [removed: 2024,] [added: 2025,] which it anticipates will enable the Company to replace nearly [removed: 2,000] [added: 2,200] miles of mains and collection pipes between [removed: 2020] [added: 2021] and [removed: 2024.][added: 2025.]

In addition, from [removed: 2020] [added: 2021] to [removed: 2024,] [added: 2025,] the Company’s capital investment in treatment plants, storage tanks and other key, above-ground facilities is expected to increase, further addressing infrastructure renewal, resiliency, water quality, operational efficiency, technology and innovation, and emerging regulatory compliance needs.

Additionally, the Company [removed: is investing] [added: continues to invest] significantly in resiliency projects to address the impacts of climate and weather variability by hardening its assets.

The operations of the Company’s Regulated Businesses are generally subject to regulation by PUCs in the states in which they operate, with the primary responsibility of the PUCs [removed: to promote] [added: being] the [added: promotion of the] overall public interest by balancing the interest of customers and utility investors.

Specific authority might differ from state to state, but in most states, PUCs review and approve rates charged to customers, accounting treatments, long-term financing programs and cost of capital, operation and maintenance (“O&M”) expenses, capital expenditures, taxes, affiliated transactions and relationships, [removed: reorganizations and] [added: reorganizations,] mergers and acquisitions, [added: and dispositions,] along with imposing certain penalties or granting certain incentives.

Regulatory policies vary from state to state and [removed: could potentially] [added: can] change over time.

The Company attempts to minimize “regulatory lag,” which is the time between the occurrence of an event that triggers a change in the utility’s revenue requirement and [removed: its] [added: the] recognition in [removed: rates.][added: rates of that change.]

| Regulatory Practices | | [added: | | | |] Description | | [added: | | | |] States Allowed | [added: | |]

| Infrastructure replacement [removed: surcharges] [added: surcharge mechanisms] | | [added: | | | |] Allows rates to change periodically, outside a general rate case proceeding, to reflect recovery of capital investments made to replace infrastructure necessary to sustain [removed: safe,] [added: safe and] reliable services for the Company’s customers. These mechanisms typically involve periodic filings and reviews to ensure transparency. | | [added: | | | |] IA, IL, IN, KY, MO, NJ, NY, PA, TN, VA, WV | [added: | |]

| Future test year | | [added: | | | |] A [removed: test] [added: “test year” is a] period used for setting rates, [removed: which begins with] [added: and a future test year describes] the [removed: date] [added: first 12 months that] new rates are [added: proposed to be] effective. [removed: This] [added: The use of a future test year] allows current or projected revenues, expenses and capital investments to be collected on a more timely basis. | | [added: | | | |] CA, HI, IA, IL, IN, KY, NY, PA, TN, VA | [added: | |]

| Hybrid test year | | [removed: Allows] [added: | | | | A historical test year sets rates using data from a 12-month period that ends prior to a general rate case filing. A hybrid test year allows] an update to historical data for “known and measurable” changes that occur subsequent to the historical test year. | | [added: | | | |] MD, MO, NJ, WV | [added: | |]

| Utility plant recovery mechanisms | | [added: | | | |] Allows recovery of the full return on utility plant costs during the construction period, instead of capitalizing an allowance for funds used during [removed: construction.] [added: construction (“AFUDC”).] In addition, some states allow the utility to seek pre-approval of certain capital projects and associated costs. In this pre-approval process, the PUC may assess the prudency of such projects. | | [added: | | | |] CA, IL, KY, NY, PA, TN, VA | [added: | |]

| Expense mechanisms | | [added: | | | |] Allows changes in certain operating expenses, which may fluctuate based on conditions beyond the utility’s control, to be recovered outside of a general rate case proceeding or deferred until the next general rate case proceeding. | | [added: | | | |] CA, IL, MD, MO, NJ, NY, PA, TN, VA | [added: | |]

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| New Jersey | | | $ | 753 | | | | | $ | 43 | | | | | $ | 796 | | | | | 24.5 | | % | | | | 657 | | | | | | 55 | | | | | | 712 | | | | | | 20.4 | | % |

| Pennsylvania | | | 663 | | | | | | 70 | | | | | | 733 | | | | | | 22.5 | | % | | | | 673 | | | | | | 77 | | | | | | 750 | | | | | | 21.6 | | % |

| Missouri | | | 335 | | | | | | 11 | | | | | | 346 | | | | | | 10.6 | | % | | | | 472 | | | | | | 15 | | | | | | 487 | | | | | | 13.9 | | % |

| Illinois | | | 293 | | | | | | 32 | | | | | | 325 | | | | | | 10.0 | | % | | | | 292 | | | | | | 68 | | | | | | 360 | | | | | | 10.3 | | % |

| California | | | 247 | | | | | | 3 | | | | | | 250 | | | | | | 7.7 | | % | | | | 183 | | | | | | 3 | | | | | | 186 | | | | | | 5.3 | | % |

| Indiana | | | 234 | | | | | | 2 | | | | | | 236 | | | | | | 7.3 | | % | | | | 318 | | | | | | 2 | | | | | | 320 | | | | | | 9.2 | | % |

| West Virginia | | | 164 | | | | | | 1 | | | | | | 165 | | | | | | 5.1 | | % | | | | 168 | | | | | | 1 | | | | | | 169 | | | | | | 4.8 | | % |

| Total—Top Seven States (b) | | | 2,689 | | | | | | 162 | | | | | | 2,851 | | | | | | 87.7 | | % | | | | 2,763 | | | | | | 221 | | | | | | 2,984 | | | | | | 85.5 | | % |

| Other (c) | | | 381 | | | | | | 23 | | | | | | 404 | | | | | | 12.3 | | % | | | | 481 | | | | | | 31 | | | | | | 512 | | | | | | 14.5 | | % |

| Total Regulated Businesses | | | $ | 3,070 | | | | | $ | 185 | | | | | $ | 3,255 | | | | | 100.0 | | % | | | | 3,244 | | | | | | 252 | | | | | | 3,496 | | | | | | 100.0 | | % |

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

Examples of these customers are homes, apartment complexes, businesses and governmental entities.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

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(a) Includes public authorities and other utilities and community water and wastewater systems under bulk contracts.

Recently completed projects include a $15 million emergency power generation system installation at New Jersey’s Raritan Millstone Water Treatment Plant which provides automated standby power in the event of a power failure, and $23 million and $27 million Water Treatment Plant Improvement projects to retire obsolete pumping and water treatment facilities located in 100-year floodplains in both Muncie and Richmond, Indiana, respectively.

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

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| Deferred accounting | | | | | | A regulators’ willingness to defer recognition of financial impacts when setting rates for utilities. | | | | | | All | | |

[Table](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [of](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7) [](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)[Contents](#i6f3d4ccfe88f41a0a0429b7142f90e1c_7)

Sale of New York American Water Company, Inc.

On November 20, 2019, the Company and the Company’s New York subsidiary entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co. which it subsequently assigned to its indirect, wholly owned subsidiary Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), pursuant to which Liberty will purchase all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement.

The Company’s regulated New York operations have approximately 125,000 customers in the State of New York.

Algonquin Power & Utilities Corp., Liberty’s ultimate parent company, executed and delivered an absolute and unconditional guaranty of the performance of the obligations of Liberty under the Stock Purchase Agreement.

The Stock Purchase is subject to various conditions, including obtaining approvals and satisfying or waiving other closing conditions.

The Stock Purchase Agreement has an initial termination date of June 30, 2021.

Either party may extend the agreement beyond June 30, 2021, and the Company intends to extend the agreement, if necessary, provided all of the conditions to closing have been or are capable of being met, other than obtaining regulatory approvals.

If not otherwise extended, the ultimate termination date is December 31, 2021.

Liberty may also terminate the Stock Purchase Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the New York subsidiary, taken as a whole.

In the fourth quarter of 2020, the Governor of New York proposed legislation that, among other things, requires the New York State Department of Public Service (“NYSDPS”) to study whether private water suppliers should be placed under municipal control.

On February 3, 2021, the Governor issued a press release announcing that he directed the NYSDPS Special Counsel to commence and lead a municipalization feasibility study to be completed by April 1, 2021.

Meanwhile, the Company’s New York subsidiary continues to work constructively with the NYSDPS and is taking the actions necessary to complete the Stock Purchase.

Subject to satisfying or waiving the various conditions to closing, and assuming no prior termination of the Stock Purchase Agreement by Liberty as described above, the Company remains confident that the Stock Purchase will be completed, though the date of the close of the transaction could be impacted by the timing of the work to be completed by the NYSDPS Special Counsel.

The New Jersey Assembly has also heard legislation to strengthen the WQAA in one committee, and referral to the Assembly Appropriations Committee is pending.

In 2020, legislation in Indiana was passed that created an appraisal process to establish fair value for non-municipal utilities and a presumption that a purchase price not exceeding the appraised value is reasonable.

That legislation also requires that all new municipal water and wastewater systems are subject to the jurisdiction of the utility regulatory commission for ten years.

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| New Jersey | $ | 718 | | | $ | 42 | | | $ | 760 | | | 24.6 | % | | 651 | | | 51 | | | 702 | | | 20.4 | % |

| Pennsylvania | 627 | | | | 62 | | | | 689 | | | | 22.3 | % | | 666 | | | 74 | | | 740 | | | 21.6 | % |

| Missouri | 314 | | | | 11 | | | | 325 | | | | 10.5 | % | | 470 | | | 15 | | | 485 | | | 14.1 | % |

| Illinois | 281 | | | | 24 | | | | 305 | | | | 9.9 | % | | 286 | | | 51 | | | 337 | | | 9.8 | % |

| California | 228 | | | | 4 | | | | 232 | | | | 7.5 | % | | 177 | | | 3 | | | 180 | | | 5.2 | % |

| Indiana | 223 | | | | 1 | | | | 224 | | | | 7.2 | % | | 314 | | | 2 | | | 316 | | | 9.2 | % |

| West Virginia | 158 | | | | 1 | | | | 159 | | | | 5.1 | % | | 166 | | | 1 | | | 167 | | | 4.9 | % |

| Total—Top Seven States (b) | 2,549 | | | | 145 | | | | 2,694 | | | | 87.1 | % | | 2,730 | | | 197 | | | 2,927 | | | 85.2 | % |

| Other states (c) | 378 | | | | 22 | | | | 400 | | | | 12.9 | % | | 475 | | | 32 | | | 507 | | | 14.8 | % |

| Total Regulated Businesses | $ | 2,927 | | | $ | 167 | | | $ | 3,094 | | | 100.0 | % | | 3,205 | | | 229 | | | 3,434 | | | 100.0 | % |

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Recently completed projects include the $25 million raised floodwall project at New Jersey’s Raritan Millstone Water Treatment Plant which provides protection against a 500 year flood, and the $15 million Bel Air, Maryland Reservoir project which provides 90 million gallons of drought mitigation water storage for the region.

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In 2018, similar legislation was passed in Indiana that set new operational requirements for water and wastewater treatment plants as part of the permitting process for construction, installation, or modification of sources, facilities, equipment or devices.

These requirements include capital asset management plans that include annual reviews of infrastructure needs, engineering analysis of useful life, and a rate analysis to support the capital asset management plan.

A life cycle cost-benefit analysis must be done comparing owning and operating a plant to other alternatives to supply water or wastewater services.

Cybersecurity plans must also be developed.

In 2019, additional legislation was passed which set requirements for access to loans or grants such as participation in regional planning events, use of current capital asset management programs, and elimination of the causes of non-revenue water.

The finance authority was also required to establish project prioritization that included consideration of project effects on public health and safety, user rates and charges, plans for collaboration, plans to manage non-revenue water and use of best practices.

Also, in 2018, America’s Water Infrastructure Act of 2018 was signed into law.

The legislation includes policies intended to improve water and wastewater system management and authorization for states to assess consolidation options for systems that do not comply with the federal Safe Drinking Water Act and its rules and regulations.

The legislation increases funding to water system funding programs, including the State Revolving Loan Fund program and the Water Infrastructure Finance and Innovation Act of 2014 (“WIFIA”).

Overall, this brings cost-effective, higher quality services to a larger number of citizens.

In 2018, legislation was enacted in the Company’s Missouri and California subsidiaries changing the public vote requirement for the sale of water or wastewater systems.

In Missouri, the public vote requirement for the sale of a municipal water or wastewater system changed to a simple majority for more than 500 small towns.

Historically, only larger communities required a simple majority, while smaller communities needed a two-thirds majority.

This legislation increases the options for small towns, should they decide to address their water and sewer challenges through an asset sale.

In California, the vote required to allow cities to sell sewer systems changed to a simple majority from a two-thirds majority.

The MPWMD will hold public hearings regarding the findings contained in this preliminary report.

A jury trial will take place to establish the value of the pipeline.

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| Missouri | 77% | | 22% | | 1% |

| Illinois | 55% | | 35% | | 10% |

| California | — | | 64% | | 36% |

Under the 2009 Order, [removed: Cal Am] [added: California-American Water Company, the Company’s California subsidiary (“Cal Am”)] is required, among other things, to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule.

[removed: On] [added: In] December [removed: 13,] 2019, the SWRCB dismissed the petition without prejudice.

However, based on the matters discussed [added: above and] below in [removed: “Monterey] [added: Item 3—Monterey] Peninsula Water Supply [removed: Project,”] [added: Project,] there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever.

The [removed: CPUC’s] [added: 2018] final decision [removed: approving] [added: specifies] the [removed: Water Supply Project permits] [added: procedures for] recovery of all of Cal Am’s prudently incurred costs associated [removed: therewith,] [added: with the Water Supply Project upon its completion,] subject to the frameworks [removed: set forth] [added: included] in the final decision related to cost caps, O&M costs, financing, ratemaking and contingency matters.

[removed: Further] [added: While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further] attempts to comply with the 2009 Order and the 2016 Order, or the 2021 Deadline, may result in material additional costs [removed: or] [added: and] obligations to Cal Am, [removed: and failure to comply could lead to] [added: including] fines and penalties against Cal [removed: Am.][added: Am in the event of noncompliance with the 2009 Order or the 2016 Order.]

In September 2016, the CPUC unanimously approved a [added: 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 [added: the incurred] $50 million in associated [removed: costs,] [added: costs plus AFUDC,] subject to meeting certain criteria.

In September 2018, the CPUC unanimously [removed: adopted a] [added: approved another] final decision finding that (i) the Water Supply [removed: Project, based on Cal Am’s request for a 6.4 million gallons per day desalination plant,] [added: Project] meets the CPUC’s requirements for a CPCN, (ii) the issuance of the final decision should not be delayed, and (iii) an additional procedural phase was not necessary to consider alternative projects.

The reasonableness of [added: the] Water Supply Project costs will be reviewed in the first general rate case filed by Cal Am after [removed: the Water Supply Project] [added: it] becomes operational.

On July 2, 2019, Cal Am notified [added: the] MPWMD and Monterey One Water (collectively, the “Agencies”) that an event of default occurred under the water purchase agreement for the GWR Project because the Agencies failed to deliver to Cal Am by July 1, 2019 advanced treated recycled water produced by the GWR Project.

On July 16, 2019, [added: the] MPWMD and Monterey One Water responded to Cal Am’s event of default notice and estimated that water delivery would begin by mid-October 2019.

On January 2, 2020, Cal Am notified the Agencies that a second event of default occurred under the water purchase agreement because the Agencies failed to achieve the Performance Start Date (the date upon which [added: the] MPWMD’s performance obligations under the water purchase agreement were to commence) by January 1, 2020.

This [removed: appeal] [added: petition] remains pending.

In June 2018, Cal Am submitted a coastal development permit application to the City of Marina [added: (the “City”)] for those project components of the Water Supply Project located within the [removed: City of Marina’s] [added: City’s] coastal zone.

[removed: On March 7,] [added: In May] 2019, the City [added: issued a notice] of [removed: Marina] [added: final local action based upon the denial by the] Planning Commission [removed: adopted a resolution denying] [added: of] Cal Am’s coastal development permit application.

[removed: On May 22, 2019,] [added: Thereafter,] Cal Am appealed this decision to the [removed: California] Coastal [removed: Commission (the “Coastal Commission”),] [added: Commission,] as permitted under the City’s code and the California Coastal Act.

[removed: On] [added: In] October [removed: 28,] 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.

[removed: Staffs] [added: In November 2019, discussions between staffs] of the [removed: CPUC and the] Coastal Commission [removed: met to discuss] [added: and] the [added: CPUC took place regarding the] Coastal [removed: Commission’s] [added: 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 [removed: other matters.][added: the viability of a project that the Coastal Commission staff believes may be a possible alternative to the Water Supply Project.]

[removed: On] [added: In] July [removed: 15,] 2019, the Board of Supervisors heard appeals filed by MCWD and a public advocacy group, at which time it denied the appeals and approved the permit.

[removed: On] [added: In] August [removed: 21,] 2019, MCWD filed a petition in Monterey County Superior Court challenging Monterey County’s approval of Cal Am’s combined development permit application and seeking injunctive relief to enjoin Monterey County and Cal Am from commencing construction of the desalination plant.

[removed: On] [added: In] October [removed: 9,] 2019, after a hearing, the court denied, without prejudice, MCWD’s motion for a preliminary injunction, but issued a stay of the County’s approval of the combined development permit, precluding commencement of physical construction of the desalination [removed: plant until November 19, 2019, at which time the parties were to advise the court of the Coastal Commission’s decision on] [added: plant, but allowing] Cal [removed: Am’s application for a coastal development permit for the slant wells needed] [added: Am] to [removed: source water] [added: continue to obtain permits needed] for the desalination [removed: plant.][added: plant’s construction.]

Because Cal Am may use the test slant well as one of the slant wells for the Water Supply Project, Cal Am sought and obtained from the Coastal Commission permit amendments to allow the test slant well to remain in place and be maintained until February 28, [removed: 2020.][added: 2022.]

On November 26, 2019, the City [removed: of Marina] notified CEMEX that, based on this [added: permanent] easement and Cal Am’s proposed use of the site for the intake wells, CEMEX has breached or will soon breach a prior 1996 annexation agreement (to which Cal Am was not a party).

In late 2016, the Salinas Valley Basin Groundwater Sustainability Agency [removed: (“SVBGSA”)] [added: (the “SVBGSA”)] was formed as a joint powers authority to become the GSA for the Salinas Valley Groundwater Basin and prepare a GSP.

In April 2018, the City [removed: of Marina] filed a notice to become the GSA for the CEMEX site, creating an overlap with the SVBGSA’s filing for the 180/400 Subbasin.

On December 30, 2019, the City [removed: of Marina] filed a lawsuit in [removed: the Supreme] [added: Monterey County Superior] Court [removed: of California] challenging the County’s filing, and SDWR’s acceptance of the filing, as the exclusive GSA for the CEMEX site.

To protect its interest in the matter, Cal Am filed an application to intervene in this lawsuit, which [removed: is scheduled to be heard on February 18, 2020.][added: was granted.]

See Note [removed: 16—Commitments] [added: 17—Commitments] and Contingencies—Contingencies—West Virginia Elk River Freedom Industries Chemical Spill in the Notes to Consolidated Financial Statements for information regarding the final court approval of the global settlement with respect to the January 2014 Freedom Industries, Inc. chemical spill.

The water main is part of [removed: WVAWC’s] [added: the] West Relay pumping station located in the City of [removed: Dunbar.][added: Dunbar, West Virginia and owned by West Virginia-American Water Company, the Company’s West Virginia subsidiary (“WVAWC”).]

The failure of the main caused water outages and low pressure [removed: to] [added: for] up to approximately 25,000 WVAWC customers.

Chattanooga, Tennessee [removed: Water Main Break] Class Action Litigation

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

American Water Works Company, Inc., et al.* was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and [removed: the] Service Company (collectively, the “Tennessee-American Water Defendants”), on behalf of [removed: an alleged] [added: a proposed] class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga [removed: main break] [added: incident] (the “Tennessee Plaintiffs”).

The complaint [removed: alleges] [added: alleged] breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil.

[removed: The] [added: In the complaint as filed, the] Tennessee Plaintiffs [removed: seek] [added: were seeking] an award of unspecified alleged damages for wage losses, business and economic losses, out-of-pocket expenses, loss of use and enjoyment of property and annoyance and inconvenience, as well as punitive damages, attorneys’ fees and pre- and post-judgment interest.

On November 22, 2019, the Tennessee-American Water Defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief may be granted, and, with respect to the Company, [added: a motion to dismiss] for lack of personal jurisdiction.

[removed: The Tennessee-American Water Defendants] [added: TAWC and the Company] believe that [removed: they have] [added: TAWC has] meritorious defenses to the claims raised in this class action complaint, and [removed: they are] [added: TAWC is] vigorously defending [removed: themselves] [added: itself] against these allegations.

See Item 1—Business—Regulated Businesses—Water Supply and Wastewater Services and Item 1A—Risk Factors.

See Monterey Peninsula Water Supply Project below.

The 2016 Order imposes yearly milestones related to construction of the Water Supply Project’s desalination plant facilities.

If any milestone is missed, the SWRCB may impose reductions of up to 1,000 acre-feet per year in the amount of water Cal Am is able to divert from the Carmel River.

If a milestone is missed for reasons that are beyond Cal Am’s control, the SWRCB may waive the diversion reduction.

On October 21, 2020, Cal Am reported to the SWRCB that, due to circumstances beyond its control, it will be unable to meet the 2020 milestones requiring intake well drilling and plant construction due to (i) delays by the California Coastal Commission (the “Coastal Commission”) in considering Cal Am’s application for a permit for the desalination facility’s intake wells, and (ii) a stay issued by the Monterey Superior Court on physical construction of the desalination plant in pending litigation over the plant’s construction permit.

Nevertheless, Cal Am reported that even with a 1,000 acre-foot reduction in Carmel River water supplies, it believed that customer demand could be met without additional rationing in the 2020-2021 water year.

On November 17, 2020, the SWRCB provided its view to Cal Am that the milestone reductions were imposed to ensure a staggered approach to ending unauthorized diversions, and that regardless of fault a 1,000 acre-foot reduction was an appropriate and intended consequence of missing the milestone.

The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual financing costs.

Cal Am has incurred $154 million in aggregate costs as of December 31, 2020 related to the Water Supply Project, which includes $36 million in AFUDC.

While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as the CPUC’s 2016 and 2018 final decisions, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $50 million in construction costs previously approved by the CPUC in its 2016 final decision.

See Note 17—Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion.

On July 30, 2020, the Agencies advised Cal Am that the Performance Start Date under the water purchase agreement for the GWR Project is September 1, 2020.

After June 30, 2021, Cal Am will determine the amount of advanced treated recycled water produced by the GWR Project and delivered to Cal Am during the first fiscal year of the water purchase agreement, to determine the Agencies’ compliance with their performance obligations thereunder.

On November 17, 2020, WRAMP dismissed its appeal in exchange for a waiver of costs.

At the same time, Cal Am submitted an application to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction.

On August 25, 2020, the staff of the Coastal Commission released a report again recommending denial of Cal Am’s application for a coastal development permit.

Although the report concluded that the Water Supply Project would have a negligible impact on groundwater resources, the report also concluded it would impact other coastal resources, such as environmentally sensitive habitat areas and wetlands, and that the Coastal Commission staff believes that a feasible alternative project exists that would avoid those impacts.

The staff’s report also noted disproportionate impacts to communities of concern.

On September 16, 2020, Cal Am withdrew its original jurisdiction application to allow additional time to address the Coastal Commission staff’s environmental justice concerns.

The withdrawal of the original jurisdiction application did not impact Cal Am’s appeal of the City’s denial, which remains pending before the Coastal Commission.

Cal Am refiled the original jurisdiction application on November 6, 2020.

On December 3, 2020, the Coastal Commission sent to Cal Am a notice of incomplete application, identifying certain additional information needed to consider the application complete.

Cal Am is preparing a response to the Coastal Commission’s notice.

On January 21, 2021, the court issued its decision granting in part and denying in part MCWD’s petition.

The court found that the County of Monterey did not completely comply with all of the requirements necessary to approve the combined development permit and set aside its approval so that the County could come into compliance.

The court denied all of MCWD’s other claims.

The court also lifted its stay on physical construction at the plant site.

On May 8, 2020, the City filed a lawsuit, which it amended on June 29, 2020 and October 15, 2020, in Monterey County Superior Court, naming Cal Am and CEMEX as defendants, and MCWRA and MCWD as real parties in interest.

The lawsuit alleges a claim for breach of contract against CEMEX and seeks declaratory relief to void the permanent easement and prohibiting extraction of water by Cal Am’s slant wells at the CEMEX site in excess of 500 acre-feet per year and the export of such water outside the groundwater basin.

On November 17, 2020, Cal Am, CEMEX and MCWRA filed demurrers, which were overruled by the court at a hearing held on February 9, 2021.

On August 4, 2020, MCWD filed a cross-complaint in the May 8, 2020 lawsuit against Cal Am, CEMEX and MCWRA, alleging claims for specific performance of certain provisions of the 1996 annexation agreement related to the property owned by CEMEX on which intake wells for the Water Supply Project will be located, water rights, nuisance, unreasonable water use, and declaratory relief.

On September 9, 2020, Cal Am filed a demurrer and motion to strike challenging the claims asserted by MCWD.

On October 14, 2020, the court sustained, with leave to amend, the demurrers as to the claims for specific performance, enjoinment of invasion of water rights, nuisance and unreasonable water use, and the court overruled the demurrers as to the claim for declaratory relief.

MCWD filed a first amended complaint on November 13, 2020.

On December 7, 2020, Cal Am, CEMEX and MCWRA filed demurrers to the amended claims.

On February 23, 2021, the court sustained, without leave to amend, the demurrer to MCWD’s nuisance claim and overruled the remainder of the demurrers.

A hearing has been scheduled for May 17, 2021.

On September 14, 2020, Cal Am filed a separate but related complaint in Monterey County Superior Court challenging the validity of actions taken by the City and its GSA in adopting a groundwater sustainability plan for the CEMEX site, and the validity of the provisions of such plan.

Due to the overlap of issues in the City’s lawsuit with those in the validation action, the parties stipulated to a stay of the validation action pending determination of the claims in the City’s action.

Cal Am currently believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order.

Regional Desalination Project Litigation

*Review of CPUC-Approved Settlement Agreement*

The Regional Desalination Project (the “RDP”) involved the construction of a desalination facility in the City of Marina, north of Monterey.

The RDP was intended to, among other things, eliminate unauthorized diversions from the Carmel River as required under the 2009 Order.

In December 2010, the CPUC approved the RDP, which was to be implemented through a Water Purchase Agreement and ancillary agreements (collectively, the “Agreements”) among the Marina Coast Water District (“MCWD”), the Monterey County Water Resources Agency (“MCWRA”) and Cal Am.

In 2011, due to a conflict of interest concerning a former member of MCWRA’s Board of Directors, MCWRA stated that the Agreements were void, and, as a result, Cal Am terminated the Agreements.

In April 2015, the CPUC approved a settlement agreement among Cal Am, MCWRA and the County of Monterey to resolve these matters among the parties signing the agreement.

In March 2016, the Supreme Court of California granted MCWD’s petition for review of the CPUC approval, and following the court’s disposition of a related issue in another case, MCWD’s petition for review of the CPUC-approved settlement agreement was remanded to the CPUC.

On September 19, 2019, the CPUC issued a decision affirming its prior decisions with respect to the settlement agreement that resolved matters among the parties thereto associated with the termination of the RDP agreements, after considering the issue remanded by the California Supreme Court.

*Cal Am’s Action for Damages Following RDP Termination*

In October 2012, Cal Am filed a Complaint for Declaratory Relief against MCWRA and MCWD, which was ultimately transferred to the San Francisco County Superior Court, seeking a determination as to whether the Agreements are void as a result of the alleged conflict of interest.

In June 2015, the court entered a final judgment agreeing with Cal Am’s position that four of the five Agreements are void, and one, the credit line agreement, is not void.

In November 2016, the Supreme Court of California denied MCWD’s final appeal of this judgment, which allows further proceedings, discussed below, to determine the amount of damages that may be awarded in the proceeding.

In July 2015, Cal Am and MCWRA filed a Complaint in San Francisco County Superior Court against MCWD and RMC Water and Environment (“RMC”), a private engineering consulting firm which has since been acquired by a national engineering, science and operations company, seeking to recover compensatory damages in excess of $10 million associated with the failure of the RDP, as well as punitive and treble damages, statutory penalties and attorneys’ fees.

Shortly thereafter, complaints seeking similar damages were filed in the same court by MCWD and RMC against Cal Am and MCWRA in excess of $19 million in the aggregate.

In December 2015, the court consolidated all of these complaints into a single action.

On February 15, 2019, the court granted Cal Am’s motion for summary judgment, and as a result, no claims remain pending against Cal Am in this action.

On February 25, 2019, the court granted RMC’s motion for judgment on the pleadings as to certain of Cal Am’s tort claims against it.

On June 20, 2019, the court granted MCWD’s motion for summary judgment related to Cal Am’s tort claims against MCWD, which Cal Am appealed to the California Court of Appeal, and on January 14, 2020, this appeal was denied.

On January 17, 2019, a motion filed by MCWD for summary judgment against Cal Am relating to the contract claims in Cal Am’s complaint was denied.

Trial in this lawsuit had been scheduled to take place in January 2020.

On January 27, 2020, the parties to this lawsuit reached a tentative agreement, which was entered into the court record and would resolve the litigation in part without trial.

Under the terms of this tentative agreement, MCWD and RMC would pay Cal Am an aggregate of $5.2 million in settlement of Cal Am’s contract claims against MCWD and all claims against RMC relating to the RDP.

Under this agreement, Cal Am’s and MCWRA’s right to appeal the dismissal of their tort claims against MCWD would be expressly reserved.

A draft settlement agreement is being reviewed and negotiated by the parties.

Once executed, the settlement agreement would be subject to approval of the San Francisco County Superior Court.

If construction costs exceed $50 million, Cal Am would be allowed to seek additional cost recovery.

The CPUC’s decision directs Cal Am to enter into negotiations regarding expansion of the GWR Project between Monterey One Water and the MPWMD and to indicate whether Cal Am plans to file an application for approval of an agreement to purchase additional water from the GWR Project.

The decision notes, however, that the CPUC will only consider such an application if the Water Supply Project is delayed such that Cal Am would not be able to meet the 2021 Deadline.

The decision accepts Cal Am’s estimates of future water demand in Monterey and concludes that the Water Supply Project is the best project to address those needs, and adopts Cal Am’s most recent cost estimates.

The decision also allows Cal Am to earn an allowance for funds used during construction, or AFUDC, at a rate representative of its actual financing costs.

The final decision adopted frameworks as to cost caps, O&M costs, financing, ratemaking and contingency matters.

In addition, the CPUC final decision imposes numerous reporting and filing requirements to ensure the expenditures for the Water Supply Project are reasonable, including that the financing is the lowest cost and most beneficial for ratepayers, and that construction is progressing in a timely manner and within the authorized cost caps.

In February 2019, the City of Marina and MCWD filed petitions for writ of review before the Supreme Court of California challenging the sufficiency of the final Environmental Impact Report/Environmental Impact Statement adopted by the CPUC in September 2018, which the court declined to consider on August 28, 2019.

On January 9, 2020, the Agencies responded to Cal Am’s December 12, 2019 and January 2, 2020 letters.

In the response, the Agencies acknowledged they remain in default under the water purchase agreement but indicated that corrective action is being taken to attain the Performance Start Date in the near future.

Cal Am appealed the Marina Planning Commission's decision to the City Council, which set a public hearing on the appeal for April 30, 2019.

On April 25, 2019, Cal Am submitted a letter to the City challenging the impartiality of the City and three of its council members with respect to the Water Supply Project.

On April 29, 2019, the City informed Cal Am that it intended to proceed with the hearing with the participation of the challenged City Council members.

[removed: FORM 10-K][added: FORM 10-K]

| ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

For the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2019][added: 2020]

| ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

Commission file [removed: number: 001-34028][added: number: 001-34028]

| Delaware | [added: | |] 51-0063696 | [added: | |]

| (State or other jurisdiction of incorporation or organization) | [added: | |] (I.R.S. Employer Identification No.) | [added: | |]

1 Water [removed: Street, Camden, NJ 08102-1658][added: Street, Camden, NJ 08102-1658]

[removed: (856) 955-4001][added: (856) 955-4001]

| Title of each class | | [added: | | | |] Trading Symbol | | [added: | | | |] Name of each exchange on which registered | [added: | |]

| Common stock, par value $0.01 per share | | [added: | | | |] AWK | | [added: | | | |] New York Stock Exchange | [added: | |]

| Large accelerated filer | | [added: | | | |] ☒ | | [added: | | | |] Accelerated filer | | [added: | | | |] ☐ | [added: | |]

| Non-accelerated filer | | [added: | | | |] ☐ | | [added: | | | |] Smaller reporting company | | [added: | | | |] ☐ | [added: | |]

| | | | | [added: | | | | | | | |] Emerging growth company | | [added: | | | |] ☐ | [added: | |]

Common Stock, $0.01 par [removed: value—$18,615,800,000] [added: value—$20,390,800,000] as of June [removed: 28, 2019] [added: 30, 2020] (solely for purposes of calculating this aggregate market value, American Water has defined its affiliates to include (i) those persons who were, as of June [removed: 28, 2019,] [added: 30, 2020,] its executive officers, directors or known beneficial owners of more than 10% of its common stock, and (ii) such other persons who were deemed, as of June [removed: 28, 2019,] [added: 30, 2020,] to be controlled by, or under common control with, American Water or any of the persons described in clause (i) above).

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: Common Stock, $0.01 par value per [removed: share—180,974,719] [added: share—181,439,255] shares as of February [removed: 13, 2020.][added: 19, 2021.]

Portions of the American Water Works Company, Inc. definitive proxy statement for the [removed: 2020] [added: 2021] Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after December 31, [removed: 2019] [added: 2020] are incorporated by reference into Part III of this report.

| | | [added: | | | |] Page | [added: | |]

| [Forward-Looking [removed: Statements](#s9512545F07AB554B913A6314A54C27C7)] [added: Statements](#i6f3d4ccfe88f41a0a0429b7142f90e1c_13)] | | [removed: [1](#s9512545F07AB554B913A6314A54C27C7)] | [added: | | | [1](#i6f3d4ccfe88f41a0a0429b7142f90e1c_13) | | |]

| Item 1. | [removed: [Business](#sB23EDC1A629E5DBBA486E34A7A52D007)] | [removed: [4](#sB23EDC1A629E5DBBA486E34A7A52D007)] | [added: [Business](#i6f3d4ccfe88f41a0a0429b7142f90e1c_19) | | | [4](#i6f3d4ccfe88f41a0a0429b7142f90e1c_19) | | |]

| Item 1A. | [added: | |] [Risk [removed: Factors](#sBAF6FA3A83355F87902467B4427BA3F0)] [added: Factors](#i6f3d4ccfe88f41a0a0429b7142f90e1c_49)] | [removed: [20](#sBAF6FA3A83355F87902467B4427BA3F0)] | [added: | [25](#i6f3d4ccfe88f41a0a0429b7142f90e1c_49) | | |]

| Item 1B. | [added: | |] [Unresolved Staff [removed: Comments](#s894999C2F6FB5E13ABEB0C87B86104FA)] [added: Comments](#i6f3d4ccfe88f41a0a0429b7142f90e1c_52)] | [removed: [35](#s894999C2F6FB5E13ABEB0C87B86104FA)] | [added: | [40](#i6f3d4ccfe88f41a0a0429b7142f90e1c_52) | | |]

| Item 2. | [removed: [Properties](#s3BB42C45873D52E1BCEC729FDAF7527A)] | [removed: [36](#s3BB42C45873D52E1BCEC729FDAF7527A)] | [added: [Properties](#i6f3d4ccfe88f41a0a0429b7142f90e1c_55) | | | [40](#i6f3d4ccfe88f41a0a0429b7142f90e1c_55) | | |]

| Item 3. | [added: | |] [Legal [removed: Proceedings](#s8A41CAB8E4FF56A880D2641810853004)] [added: Proceedings](#i6f3d4ccfe88f41a0a0429b7142f90e1c_58)] | [removed: [36](#s8A41CAB8E4FF56A880D2641810853004)] | [added: | [40](#i6f3d4ccfe88f41a0a0429b7142f90e1c_58) | | |]

| Item 4. | [added: | |] [Mine Safety [removed: Disclosures](#s04272375354B5DD8A90CBFAB78D4B13E)] [added: Disclosures](#i6f3d4ccfe88f41a0a0429b7142f90e1c_61)] | [removed: [42](#s04272375354B5DD8A90CBFAB78D4B13E)] | [added: | [47](#i6f3d4ccfe88f41a0a0429b7142f90e1c_61) | | |]

| Item 5. | [added: | |] [Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s301532D65B195C8FA4D01913D1A2B07B)] [added: Securities](#i6f3d4ccfe88f41a0a0429b7142f90e1c_67)] | [removed: [43](#s301532D65B195C8FA4D01913D1A2B07B)] | [added: | [48](#i6f3d4ccfe88f41a0a0429b7142f90e1c_67) | | |]

| Item 6. | [added: | |] [Selected Financial [removed: Data](#sEF0644DA63DB500AB92AAA9F94AF3176)] [added: Data](#i6f3d4ccfe88f41a0a0429b7142f90e1c_70)] | [removed: [43](#sEF0644DA63DB500AB92AAA9F94AF3176)] | [added: | [48](#i6f3d4ccfe88f41a0a0429b7142f90e1c_70) | | |]

| Item 7. | [added: | |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sEBDB6E1A74BF5FB2AF393C0C141663DA)] [added: Operations](#i6f3d4ccfe88f41a0a0429b7142f90e1c_73)] | [removed: [44](#sEBDB6E1A74BF5FB2AF393C0C141663DA)] | [added: | [49](#i6f3d4ccfe88f41a0a0429b7142f90e1c_73) | | |]

| Item 7A. | [added: | |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sA41F1227E8445801AFB59B1A37606D4A)] [added: Risk](#i6f3d4ccfe88f41a0a0429b7142f90e1c_121)] | [removed: [71](#sA41F1227E8445801AFB59B1A37606D4A)] | [added: | [75](#i6f3d4ccfe88f41a0a0429b7142f90e1c_121) | | |]

| Item 8. | [added: | |] [Financial Statements and Supplementary [removed: Data](#s690B21885FE652E99D1F574B0E823AB5)] [added: Data](#i6f3d4ccfe88f41a0a0429b7142f90e1c_124)] | [removed: [73](#s690B21885FE652E99D1F574B0E823AB5)] | [added: | [77](#i6f3d4ccfe88f41a0a0429b7142f90e1c_124) | | |]

| Item 9. | [added: | |] [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s293544A6A90255D2B4294D0CBA50989B)] [added: Disclosure](#i6f3d4ccfe88f41a0a0429b7142f90e1c_259)] | [removed: [126](#s293544A6A90255D2B4294D0CBA50989B)] | [added: | [130](#i6f3d4ccfe88f41a0a0429b7142f90e1c_259) | | |]

| Item 9A. | [added: | |] [Controls and [removed: Procedures](#s3CF4E2BA45DF544397265BE80885C24E)] [added: Procedures](#i6f3d4ccfe88f41a0a0429b7142f90e1c_262)] | [removed: [126](#s3CF4E2BA45DF544397265BE80885C24E)] | [added: | [130](#i6f3d4ccfe88f41a0a0429b7142f90e1c_262) | | |]

| Item 9B. | [added: | |] [Other [removed: Information](#s03F85E63304E51A1AB77F96741B02372)] [added: Information](#i6f3d4ccfe88f41a0a0429b7142f90e1c_265)] | [removed: [127](#s03F85E63304E51A1AB77F96741B02372)] | [added: | [130](#i6f3d4ccfe88f41a0a0429b7142f90e1c_265) | | |]

| | [added: | |] [Part [removed: III](#sCEE163B742AB59AD961508E4A3668E06)] [added: III](#i6f3d4ccfe88f41a0a0429b7142f90e1c_268)] | | [added: | | | |]

| Item 10. | [added: | |] [Directors, Executive Officers of the Registrant and Corporate [removed: Governance](#sF0BE3D22B787565BBA44F4E2EA3FD355)] [added: Governance](#i6f3d4ccfe88f41a0a0429b7142f90e1c_271)] | [removed: [128](#sF0BE3D22B787565BBA44F4E2EA3FD355)] | [added: | [131](#i6f3d4ccfe88f41a0a0429b7142f90e1c_271) | | |]

| Item 11. | [added: | |] [Executive [removed: Compensation](#sFFB889D24EF75E149D79AD1D31351C83)] [added: Compensation](#i6f3d4ccfe88f41a0a0429b7142f90e1c_274)] | [removed: [128](#sFFB889D24EF75E149D79AD1D31351C83)] | [added: | [131](#i6f3d4ccfe88f41a0a0429b7142f90e1c_274) | | |]

| Item 12. | [added: | |] [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s48B2818166AD5A7A8C3FC9AF906E1F9C)] [added: Matters](#i6f3d4ccfe88f41a0a0429b7142f90e1c_277)] | [removed: [128](#s48B2818166AD5A7A8C3FC9AF906E1F9C)] | [added: | [131](#i6f3d4ccfe88f41a0a0429b7142f90e1c_277) | | |]

| Item 13. | [added: | |] [Certain Relationships and Related Transactions and Director [removed: Independence](#sFD62FCA7D96855D3B238CFF1C0E4F1CE)] [added: Independence](#i6f3d4ccfe88f41a0a0429b7142f90e1c_280)] | [removed: [128](#sFD62FCA7D96855D3B238CFF1C0E4F1CE)] | [added: | [131](#i6f3d4ccfe88f41a0a0429b7142f90e1c_280) | | |]

| Item 14. | [added: | |] [Principal Accountant Fees and [removed: Services](#s57553DFD00AC58ADA62DD572114BC3A1)] [added: Services](#i6f3d4ccfe88f41a0a0429b7142f90e1c_283)] | [removed: [128](#s57553DFD00AC58ADA62DD572114BC3A1)] | [added: | [131](#i6f3d4ccfe88f41a0a0429b7142f90e1c_283) | | |]

| Item 15. | [added: | |] [Exhibits and Financial Statement [removed: Schedules](#s9CDE71B16ED85841916A639CBF871DFE)] [added: Schedules](#i6f3d4ccfe88f41a0a0429b7142f90e1c_289)] | [removed: [129](#s9CDE71B16ED85841916A639CBF871DFE)] | [added: | [132](#i6f3d4ccfe88f41a0a0429b7142f90e1c_289) | | |]

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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| | | | [Part I](#i6f3d4ccfe88f41a0a0429b7142f90e1c_16) | | | | | |

| | | | [Part II](#i6f3d4ccfe88f41a0a0429b7142f90e1c_64) | | | | | |

| | | | [Part IV](#i6f3d4ccfe88f41a0a0429b7142f90e1c_286) | | | | | |

| [Exhibit Index](#i6f3d4ccfe88f41a0a0429b7142f90e1c_292) | | | | | | [132](#i6f3d4ccfe88f41a0a0429b7142f90e1c_292) | | |

| [Signatures](#i6f3d4ccfe88f41a0a0429b7142f90e1c_295) | | | | | | [137](#i6f3d4ccfe88f41a0a0429b7142f90e1c_295) | | |

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

the expansion of its businesses;

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

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| | [Part I](#s1EA5977A8851555F8F11E2816BB34314) | |

| | [Part II](#s90D112A503DE5CDD9AAA0920ACF857D9) | |

| | [Part IV](#s5DB744D9B7335510BCCCD59E227F9C7F) | |

| [Exhibit Index](#s2FDC478D9EE55CE7B14F64486C68D42A) | | [129](#s2FDC478D9EE55CE7B14F64486C68D42A) |

| [Signatures](#sC0C06CE6156A5AA483C28151994C731E) | | [134](#sC0C06CE6156A5AA483C28151994C731E) |

| • | changes in general economic, political, business and financial market conditions; |

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| --- | --- |

A wholly owned subsidiary of parent company owns the Company’s corporate headquarters, located in Camden, New Jersey, and [removed: it leases] [added: the Company and its operating subsidiaries lease] office space, equipment and furniture from certain of [removed: its] [added: the Company’s] wholly owned subsidiaries.

[removed: | • | 80] [added: - 79] surface water treatment plants; [removed: |]

[removed: | • | 520] [added: - 530] groundwater treatment plants; [removed: |]

[removed: | • | 140] [added: - 150] wastewater treatment plants; [removed: |]

[removed: | • | 52,500] [added: - 53,200] miles of transmission, distribution and collection mains and pipes; [removed: |]

[removed: | • | 1,000] [added: - 1,100] groundwater wells; [removed: |]

[removed: | • | 1,500] [added: - 1,600] water and wastewater pumping stations; [removed: |]

[removed: | • |] [added: -] 1,300 treated water storage facilities; and [removed: |]

[removed: | • | 76] [added: - 75] dams. [removed: |]

Approximately [removed: 51%] [added: 52%] of all properties that the Company owns are located in New Jersey and Pennsylvania.

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Since April 23, 2008, the Company’s common stock has traded on the New York Stock Exchange (“NYSE”) under the symbol “AWK.” As of February [removed: 13, 2020,] [added: 19, 2021,] there were [removed: 180,974,719] [added: 181,439,255] shares of common stock outstanding held by approximately [removed: 2,546] [added: 2,427] record holders.

See Note [removed: 9—Shareholders’] [added: 10—Shareholders’] Equity in the Notes to Consolidated Financial Statements for additional information regarding the Company’s dividends.

The program allows the Company to purchase up to 10 million shares of its outstanding common stock [removed: from time to time] over an unrestricted period of time in the open market or through privately negotiated transactions.

From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through December 31, [removed: 2019,] [added: 2020,] the Company repurchased an aggregate of 4,860,000 shares of its common stock under the program, [removed: including 350,000 shares repurchased during the first quarter] [added: leaving an aggregate] of [removed: 2019.][added: 5,140,000 shares available for repurchase under this program.]

There were no repurchases of common stock in [removed: the last three quarters of 2019.][added: 2020.]

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| | [added: | |] For the Years Ended December 31, | | | | | | | | | | | | | | | | | | | [added: | | | | | | | |]

| (In millions, except per share data) | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | | | [removed: 2017] | | [added: 2017] | | [removed: 2016] | | | | [removed: 2015] [added: 2016] | | |

| Statement of Operations data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Operating revenues | [added: | |] $ | [removed: 3,610] [added: 3,777] | | | [added: | |] $ | [removed: 3,440] [added: 3,610] | | | [added: | |] $ | [removed: 3,357] [added: 3,440] | | | [added: | |] $ | [removed: 3,302] [added: 3,357] | | | [added: | |] $ | [removed: 3,159] [added: 3,302] | |

| Net income attributable to common shareholders | [added: | | 709 | | | | | |] 621 | | | | [added: | |] 567 | | | | [removed: 426] | | [added: 426] | | [removed: 468] | | | | [removed: 476] [added: 468] | | |

| Net income attributable to common shareholders per basic common share | [added: | |] $ | [removed: 3.44] [added: 3.91] | | | [added: | |] $ | [removed: 3.16] [added: 3.44] | | | [added: | |] $ | [removed: 2.39] [added: 3.16] | | | [added: | |] $ | [removed: 2.63] [added: 2.39] | | | [added: | |] $ | [removed: 2.66] [added: 2.63] | |

| Net income attributable to common shareholders per diluted common share | [added: | | 3.91 | | | | | |] 3.43 | | | | [added: | |] 3.15 | | | | [removed: 2.38] | | [added: 2.38] | | [removed: 2.62] | | | | [removed: 2.64] [added: 2.62] | | |

| Balance Sheet data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Total assets | [added: | |] $ | [removed: 22,682] [added: 24,766] | | | [added: | |] $ | [removed: 21,223] [added: 22,682] | | | [added: | |] $ | [removed: 19,482] [added: 21,223] | | | [added: | |] $ | [removed: 18,482] [added: 19,482] | | | [added: | |] $ | [removed: 17,241] [added: 18,482] | |

| Long-term debt and redeemable preferred stock at redemption value | [added: | | 9,333 | | | | | |] 8,644 | | | | [added: | |] 7,576 | | | | [removed: 6,498] | | [added: 6,498] | | [removed: 5,759] | | | | [removed: 5,874] [added: 5,759] | | |

| Other data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Cash dividends declared per common share | [added: | |] $ | [removed: 2.00] [added: 2.20] | | | [added: | |] $ | [removed: 1.82] [added: 2.00] | | | [added: | |] $ | [removed: 1.66] [added: 1.82] | | | [added: | |] $ | [removed: 1.50] [added: 1.66] | | | [added: | |] $ | [removed: 1.36] [added: 1.50] | |

| Net cash provided by operating activities (a) (b) | [added: | | 1,426 | | | | | |] 1,383 | | | | [added: | |] 1,386 | | | | [removed: 1,449] | | [added: 1,449] | | [removed: 1,289] | | | | [removed: 1,195] [added: 1,289] | | |

| Net cash used in investing activities (b) | [removed: (1,945] | | [removed: )] [added: (2,061)] | | [removed: (2,036] | | [removed: )] | | [removed: (1,672] [added: (1,945)] | | [removed: )] | | [removed: (1,590] | | [removed: )] [added: (2,036)] | | [removed: (1,459] | | [removed: )] | [added: | (1,672) | | | | | | (1,590) | | |]

| Net cash provided by financing activities (a) (b) | [added: | | 1,120 | | | | | |] 494 | | | | [added: | |] 726 | | | | [removed: 207] | | [added: 207] | | [removed: 328] | | | | [removed: 290] [added: 328] | | |

| Capital expenditures included in net cash used in investing activities | [removed: (1,654] | | [removed: )] [added: (1,822)] | | [removed: (1,586] | | [removed: )] | | [removed: (1,434] [added: (1,654)] | | [removed: )] | | [removed: (1,311] | | [removed: )] [added: (1,586)] | | [removed: (1,160] | | [removed: )] | [added: | (1,434) | | | | | | (1,311) | | |]

[removed: |] (a) [removed: |] The information for the [removed: years] [added: year] ended December 31, 2016 [removed: and 2015,] has been revised to reflect the retrospective application of Accounting Standards Update 2016-09, *Improvements to Employee Share-Based Payment Accounting*, which was adopted by the Company as of January 1, 2017. [removed: |]

[removed: |] (b) [removed: |] The information for the [removed: years] [added: year] ended December 31, 2016 [removed: and 2015,] has been revised to reflect the retrospective application of Accounting Standards Update 2016-18, *Restricted Cash*, which was adopted by the Company as of December 31, 2017. [removed: |]

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| | [added: | |] Page | [added: | |]

| Audited Consolidated Financial Statements | | [added: | | | |]

| [Report of Independent Registered Public Accounting [removed: Firm](#sA73696F613D05DE9B0116B2D304D0CFC)] [added: Firm](#i6f3d4ccfe88f41a0a0429b7142f90e1c_127)] | [removed: [74](#sA73696F613D05DE9B0116B2D304D0CFC)] | [added: | [78](#i6f3d4ccfe88f41a0a0429b7142f90e1c_127) | | |]

| [Consolidated Balance Sheets as of December 31, [removed: 2019] [added: 2020] and [removed: 2018](#s42FB22CEA5805D049C0FF62AF8D1956C)] [added: 2019](#i6f3d4ccfe88f41a0a0429b7142f90e1c_133)] | [removed: [76](#s42FB22CEA5805D049C0FF62AF8D1956C)] | [added: | [80](#i6f3d4ccfe88f41a0a0429b7142f90e1c_133) | | |]

| [Consolidated Statements of Operations for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#s10B45293B95D510A99C920D9439C2319)] [added: 2018](#i6f3d4ccfe88f41a0a0429b7142f90e1c_139)] | [removed: [78](#s10B45293B95D510A99C920D9439C2319)] | [added: | [82](#i6f3d4ccfe88f41a0a0429b7142f90e1c_139) | | |]

| [Consolidated Statements of Comprehensive Income for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#sCA2C5C52AFF559D49D25336A3635B53D)] [added: 2018](#i6f3d4ccfe88f41a0a0429b7142f90e1c_142)] | [removed: [79](#sCA2C5C52AFF559D49D25336A3635B53D)] | [added: | [83](#i6f3d4ccfe88f41a0a0429b7142f90e1c_142) | | |]

| [Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#s18E02C0E096C5E298B754DE048B8FEB9)] [added: 2018](#i6f3d4ccfe88f41a0a0429b7142f90e1c_148)] | [removed: [80](#s18E02C0E096C5E298B754DE048B8FEB9)] | [added: | [84](#i6f3d4ccfe88f41a0a0429b7142f90e1c_148) | | |]

| [Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#s4057524F29F35C5D8DD591C8706A0F9B)] [added: 2018](#i6f3d4ccfe88f41a0a0429b7142f90e1c_154)] | [removed: [81](#s4057524F29F35C5D8DD591C8706A0F9B)] | [added: | [85](#i6f3d4ccfe88f41a0a0429b7142f90e1c_154) | | |]

| [Notes to Consolidated Financial [removed: Statements](#s6B2F6751CD9054D0A73A57DC75791F72)] [added: Statements](#i6f3d4ccfe88f41a0a0429b7142f90e1c_160)] | [removed: [82](#s6B2F6751CD9054D0A73A57DC75791F72)] | [added: | [86](#i6f3d4ccfe88f41a0a0429b7142f90e1c_160) | | |]

We have audited the accompanying consolidated balance sheets of American Water Works Company, Inc. and its subsidiaries (the “Company”) as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2019,] [added: 2020,] including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in *Internal Control - Integrated Framework* (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2019] [added: 2020] in conformity with accounting principles generally accepted in the United States of America.

[removed: Also] [added: Also,] in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in *Internal Control - Integrated Framework* (2013) issued by the COSO.

As described in Notes 2 and [removed: 7] [added: 4] to the consolidated financial statements, the Company’s consolidated regulatory assets and liabilities balances were [removed: $1,128] [added: $1,127] million and [removed: $1,806] [added: $1,770] million, respectively, as of December 31, [removed: 2019.][added: 2020.]

This assessment includes consideration of factors such as changes in regulatory environments, recent rate [removed: orders, including] [added: orders (including] recent rate orders on recovery of a specific or similar incurred cost to other regulated entities in the same [removed: jurisdictions,] [added: jurisdiction)] and the status of any pending or potential legislation.

The principal considerations for our determination that performing procedures relating to accounting for the effects of rate regulation is a critical audit matter are [removed: there was] [added: the] significant judgment by management [removed: related to the] [added: in] accounting for regulatory assets and [removed: liabilities, including assessing] [added: liabilities relative to] whether [removed: the] regulatory assets continue to meet the criteria for probable future recovery and regulatory liabilities continue to meet the criteria for probable future settlement as a result of changes in regulatory environments, recent rate orders, [removed: including recent rate orders on recovery of a specific or similar incurred cost to other regulated entities in the same jurisdictions,] and the status of any pending or potential legislation.

These procedures also included, among others, evaluating the reasonableness of management’s judgments regarding the probability of recovery and settlement based on the Company’s correspondence with regulators, status of regulatory proceedings, past practices, [removed: recent rate orders on specific or similar incurred cost to other regulated entities in the same jurisdictions,] and other relevant information; evaluating the related accounting and disclosure implications; and evaluating regulatory assets and liabilities balances based on provisions and formulas outlined in rate orders and other correspondence with the Company’s regulators.

| /s/ PricewaterhouseCoopers LLP | [added: | |]

| Philadelphia, Pennsylvania | [added: | |]

| | [added: | |] December 31, [removed: 2019] [added: 2020] | | | | [added: | |] December 31, [removed: 2018] [added: 2019] | | |

| ASSETS | | | | | | | | [added: | | | |]

| Property, plant and equipment | [added: | |] $ | [removed: 23,941] [added: 25,614] | | | [added: | |] $ | [removed: 23,204] [added: 23,941] | |

| Accumulated depreciation | [removed: (5,709] | | [removed: )] [added: (5,904)] | | [removed: (5,795] | | [removed: )] | [added: | (5,709) | | |]

| Property, plant and equipment, net | [removed: 18,232] | | [added: 19,710] | | [removed: 17,409] | | | [added: | 18,232 | | |]

| Current assets: | | | | | | | | [added: | | | |]

| Cash and cash equivalents | [removed: 60] | | [added: 547] | | [removed: 130] | | | [added: | 60 | | |]