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

The following discussion should be read together with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-Q, and in the Company’s Form 10-K for the year ended December 31, 2023. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about the Company’s business, operations and financial performance. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements whenever they appear in this Form 10-Q. The Company’s actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those that are discussed under “Forward-Looking Statements” and elsewhere in this Form 10-Q. The Company has a disclosure committee consisting of members of senior management and other key employees involved in the preparation of the Company’s SEC reports. The disclosure committee is actively involved in the review and discussion of the Company’s SEC filings.

Overview

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

Financial Results

For the three and nine months ended September 30, 2024, diluted earnings per share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were $1.80 and $4.17, respectively, compared to $1.66 and $4.03 per share in the same periods in 2023. Results for the three and nine months ended September 30, 2024, include increased revenues from the implementation of new rates in the Regulated Businesses from capital and acquisition investments. Results also reflect increased production and employee related costs, increased depreciation and higher financing costs used to fund the current capital investment plan. Results for the three and nine months ended September 30, 2024, reflect the net favorable impact of warmer, drier weather compared to normal, estimated at $0.04 and $0.07 per share, respectively. Results for the three and nine months ended September 30, 2023, reflect the net favorable impact of weather compared to normal, estimated at $0.04 and $0.11 per share, respectively. Results for the three and nine months ended September 30, 2024, include additional interest income of $0.03 and $0.07 per share, respectively, resulting from the early 2024 amendment to the secured seller note from the sale of the former HOS business.

Growth Through Capital Investment in Infrastructure and Regulated Acquisitions

The Company continues to grow its businesses, with the substantial majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, (ii) regulated acquisitions to expand the Company’s services to new customers and (iii) organic growth in existing systems. The Company now plans to invest approximately $3.3 billion in these growth strategies in 2024. During the first nine months of 2024, the Company invested $2.0 billion, in the Regulated Businesses, as discussed below.

• $1.9 billion capital investment in the Regulated Businesses for infrastructure improvements and replacements; and

• $119 million to fund acquisitions in the Regulated Businesses, which added approximately 33,400 customers. This includes the acquisition by the Company's Illinois subsidiary of a wastewater treatment plant and related assets from Granite City on March 11, 2024, for a cash purchase price of $86 million, which added approximately 26,000 wastewater customers, including 15,500 customers indirectly in surrounding communities.

• Added approximately 14,700 new customers through organic growth in existing systems.

On September 26, 2024, the Pennsylvania Commonwealth Court issued an order dismissing the appeals of Center Township and Summit Township, which sought to reverse the November 9, 2023, order entered by the PaPUC which approved a settlement agreement without modification with respect to the Company’s Pennsylvania subsidiary’s application to acquire the wastewater collection and treatment system assets (the “System Assets”) from the Butler Area Sewer Authority. On October 29, 2024, the Pennsylvania subsidiary acquired the System Assets from the Butler Area Sewer Authority for a purchase price of $230 million, in cash. This system provides wastewater service for approximately 15,000 customer connections. The acquisition will be accounted for as a business combination in the fourth quarter of 2024 and the preliminary purchase price allocation consists primarily of utility plant.

Effective March 24, 2023, the Company’s Pennsylvania subsidiary acquired the rights to buy the wastewater system assets of Towamencin Township, for an aggregate purchase price of $104 million. On August 28, 2024, Towamencin Township and the Company’s Pennsylvania subsidiary began the process to terminate the asset purchase agreement. On October 15, 2024, the Pennsylvania Public Utility Commission (“PaPUC”) issued a Certificate of Filing, which approves the termination of the asset purchase agreement with respect to this acquisition. As a result, the asset purchase agreement and all rights and obligations of the Company’s Pennsylvania subsidiary thereunder have been terminated without penalty.

In December 2020, the Company’s Pennsylvania subsidiary entered into an agreement (an acquisition intended to comply with Act 12 (discussed below)) to acquire the wastewater collection system assets of Brentwood Borough (“Brentwood”) for a purchase price of approximately $19 million. On February 22, 2024, the PaPUC denied the Pennsylvania subsidiary’s application to acquire Brentwood. On April 3, 2024, the Pennsylvania subsidiary filed an appeal of the decision with the Pennsylvania Commonwealth Court, asserting, among other things, the PaPUC did not apply the correct legal standard in its decision. The Company cannot currently predict the outcome of this appeal, and the matter remains pending.

As of October 30, 2024, the Company had entered into 22 agreements with a total aggregate purchase price of $169 million for pending acquisitions in the Regulated Businesses, to add approximately 43,400 additional customers.

On February 7, 2024, the PaPUC proposed the Tentative Supplemental Implementation Order (“TSIO”) which seeks to make certain changes to the process by which the PaPUC considers and decides applications to acquire water and wastewater assets under Pennsylvania’s existing utility valuation law, known as Act 12 of 2016 (“Act 12”). The TSIO proposes, among other things, a reasonableness review ratio that would be applied to help guide the determination on the overall prudency of the transaction and reasonableness of the purchase price. On July 2, 2024, the PaPUC issued the Final Supplemental Implementation Order (“FSIO”), which largely adopts the provisions in the TSIO. The provisions of the FSIO are not retroactive and apply to acquisition applications filed after July 2, 2024. Separately, legislation has also been introduced in the Pennsylvania House of Representatives that would amend Act 12 and establish new guidelines for evaluating applicable acquisitions. The proposed bills were reported out of committee but have not yet been considered by the full House of Representatives. The Company cannot currently predict the outcome of these or other legislative initiatives, or their impacts, but the Company intends to continue to support outcomes that allow for consolidation and investment in water and wastewater infrastructure in Pennsylvania and in its other regulated jurisdictions.

Other Matters

Environmental, Health and Safety, and Water Quality Regulation

On April 10, 2024, the U.S. Environmental Protection Agency (“EPA”) announced a final National Primary Drinking Water Regulation (“NPDWR”) for six PFAS, including perfluorooctanoic acid (“PFOA”), perfluorooctane sulfonic acid (“PFOS”), perfluorononanoic acid (“PFNA”), hexafluoropropylene oxide dimer acid (“HFPO-DA”, commonly known as “GenX Chemicals”), perfluorohexane sulfonic acid (“PFHxS”), and perfluorobutane sulfonic acid (“PFBS”). The NPDWR for PFAS establishes legally enforceable levels, called Maximum Contaminant Levels (“MCLs”), for PFAS in drinking water. Utilities will be required to complete their initial monitoring for PFAS by 2027, followed by ongoing compliance monitoring. Utilities will be required to comply with the new MCLs by April 2029, implementing solutions to reduce PFAS levels where needed. Beginning in April 2029, utilities that exceed any of the PFAS MCLs will be required to provide notification to the public of the violation.

As previously disclosed, the Company estimates an investment of approximately $1 billion of capital expenditures to install additional treatment facilities over a five-year period in order to comply with the new regulations. Additionally, the Company estimates that it will incur annual operating expenses of up to approximately $50 million related to testing and treatment, with the majority of the operating expenses beginning after the April 2029 compliance deadline. The actual level of capital investment and expenses may differ from these estimates and will be dependent upon market dynamics upon implementation of solutions to comply with the NPDWR for PFAS.

The Company supports sound policies and compliance with the NPDWR for PFAS by all water utilities, while protecting customers and communities from the costly burden of monitoring and mitigating PFAS contamination in water systems. The Company continues to advocate for policies that hold polluters accountable and is participating in the multi-district litigation and other lawsuits filed against certain PFAS manufacturers seeking damages and reimbursement of costs incurred and continuing to be incurred to address contamination of public water supply systems by PFAS. For more information on the PFAS multi-district litigation, see Part II, Item 1—Legal Proceedings—PFAS Multi-District Litigation, in the Company’s Form 10-Q for the quarter ended June 30, 2024.

On April 19, 2024, the EPA issued a final rule to designate PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). The Company, along with a coalition (Water Coalition Against PFAS) of many other water and wastewater organizations, is actively advocating for and supporting bipartisan legislation that would provide PFAS liability protections under CERCLA for water and wastewater systems, as passive receivers of PFAS, and to hold polluters, and not the public or customers, accountable for PFAS related liability.

On October 8, 2024, the EPA announced a final NPDWR for lead and copper in drinking water known as the Lead and Copper Rule Improvements (“LCRI”). The compliance date (“Compliance Date”) for the final rule is estimated to begin in the fourth quarter of 2027, three years after the date of publication in the federal register. The LCRI includes requirements related to (1) achieving lead replacement by the end of 2037, 10 years from the Compliance Date; (2) locating legacy lead pipes; (3) improving tap sampling; (4) lowering the lead action level; and (5) strengthening protections to reduce exposure. The LCRI builds on the Lead and Copper Rule Revisions (“LCRR”) that were finalized in 2021 with the LCRI deferring the due date for several requirements from the LCRR for three years. The EPA is requiring water systems to replace all lead and certain galvanized service lines under their control no later than 10 years after the Compliance Date. The Company is in the process of reviewing the specific requirements of the LCRI to determine capital expenditures and operating costs. Capital expenditures and operating costs associated with compliance with federal water quality regulations have been traditionally recognized by PUCs as appropriate for inclusion in establishing rates.

The Company continues to comply with the EPA’s existing Lead and Copper Rule requirements by replacing lead service lines in accordance with current scientific guidance and utilizing appropriate corrosion control techniques as necessary to comply with current water quality regulatory requirements.

The Company met the LCRR requirements, effective October 16, 2024, identified as enforceable by the EPA. Remaining LCRR requirements are deferred under the LCRI.

Cybersecurity Incident

On October 3, 2024, the Company identified unauthorized activity within its computer networks and systems, which the Company determined to be the result of a cybersecurity incident. Upon identification of this activity, the Company immediately activated its incident response protocols and third-party cybersecurity experts to assist with containment and mitigation activities and to investigate the nature and scope of the incident. The Company also promptly notified law enforcement and has coordinated fully with them. As part of the incident response, and in order to protect its systems and data, the Company disconnected and deactivated certain of its systems, which have since been reconnected and reactivated upon verification that those systems were secure.

The Company believes that all necessary containment, mitigation and restoration activities related to this incident have been completed. None of the Company’s water or wastewater facilities were impacted by this incident. Although the Company is unable to predict the full impact of this incident, the Company does not expect that the incident will have a material effect on the Company or its financial condition or results of operations. An understanding of the full scope, nature and impacts of this incident remains subject to an ongoing investigation. In addition, a number of putative class action lawsuits have been filed in connection with this cybersecurity incident, alleging claims related to consumer protection and data privacy. The Company is reviewing these lawsuits and intends to defend itself vigorously.

Regulatory Matters

General Rate Cases

Presented in the table below are annualized incremental revenues, including reductions for the amortization of the excess accumulated deferred income taxes (“EADIT”) that are generally offset in income tax expense, assuming a constant sales volume and customer count, resulting from general rate case authorizations that are effective during 2024:

(In millions)			Effective Date						Amount
General rate cases by state:
New Jersey			September 15, 2024						$	80
Pennsylvania			August 7, 2024						99
Indiana, Step Increases			(a)						48
Kentucky			May 3, 2024 (b)						11
West Virginia			February 25, 2024						18
Total general rate case authorizations									$	256

(a)In 2024, $23 million was effective May 10 and $25 million was effective February 21.

(b)The Kentucky Public Service Commission issued its final order on May 3, 2024. On May 16, 2024, the Kentucky subsidiary filed a petition for rehearing.

On September 4, 2024, the New Jersey Board of Public Utilities (“NJBPU”) issued an order approving without modification the stipulation of settlement of a general rate case filed on January 19, 2024, by the Company’s New Jersey subsidiary. The general rate case order approved an $80 million annualized increase in the New Jersey subsidiary’s water and wastewater revenues, effective September 15, 2024, based on (i) an authorized return on equity of 9.60%, (ii) an authorized rate base of $5.1 billion, (iii) a common equity ratio of 55.00%, and (iv) a long-term debt ratio of 45.00%. The annualized revenue increase is driven primarily by $1.3 billion of incremental capital investments since the New Jersey subsidiary’s last general rate case. The New Jersey subsidiary will continue to defer as a regulatory asset or liability, as appropriate, until its next general rate case, the difference between its pension expense and other postretirement benefits expense and those amounts included in base rates.

On July 22, 2024, the PaPUC released an order approving the adjustment of base rates requested in a general rate case filed by the Company’s Pennsylvania subsidiary on November 8, 2023. The PaPUC approved a $99 million annualized increase in the Pennsylvania subsidiary’s water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $20 million, based on (i) an authorized return on equity of 9.45%, (ii) an authorized rate base of $5.8 billion, which reflects, as requested and included in the general rate case, approximately $1.0 billion in capital investments to be made through mid-2025, (iii) a common equity ratio of 55.30%, and (iv) a long-term debt ratio of 44.70%. Certain acquisitions that were or remain pending, including the acquisition of the wastewater collection and treatment system of the Butler Area Sewer Authority, were excluded from authorized base rates. The new rates were effective on August 7, 2024, except that new wastewater rates for two recently acquired systems, including the City of York, will take effect during the first half of 2025 in accordance with the terms of the relevant acquisition agreements. As part of its approval of this rate adjustment, the PaPUC initiated an investigation into certain reported water service and water quality issues in the Pennsylvania subsidiary’s Northeastern service territory, which reports had been provided during public input hearings convened in the general rate case.

On May 3, 2024, the Kentucky Public Service Commission (the “KPSC”) issued an order approving the adjustment of base rates requested in a rate case filed on June 30, 2023, by the Company’s Kentucky subsidiary. The general rate case order approved an $11 million annualized increase in water revenues, excluding infrastructure surcharge revenues of $10 million which continue to be recovered in the Kentucky subsidiary’s approved infrastructure mechanism. The annualized increase is based upon an authorized return on equity of 9.70%, authorized rate base of $489 million, which reflects capital investments through January 31, 2025, and a capital structure with a common equity ratio of 52.22%. Interim rates in this proceeding were effective on February 6, 2024, and the order required that the difference between interim and final approved rates be subject to refund no later than August 26, 2024. On May 16, 2024, the Kentucky subsidiary filed with the KPSC a petition for rehearing of the KPSC’s order, seeking clarification and/or correction of certain computational inconsistencies that the Kentucky subsidiary believes are reflected in the KPSC’s order with respect to the authorized amount of annualized revenues to be received by the Kentucky subsidiary. The petition for rehearing also requested that any revisions become effective February 6, 2024, with any difference between the adjusted amount and initial approved rates subject to refund or collection. On May 28, 2024, the KPSC granted the request for rehearing, and the Kentucky subsidiary expects resolution of this proceeding later in 2024.

On February 23, 2024, the West Virginia Public Service Commission issued an order approving the adjustment of base rates requested in a rate case filed on May 1, 2023, by the Company’s West Virginia subsidiary. The general rate case order approved an $18 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $7 million, based on an authorized return on equity of 9.80%, authorized rate base of $886 million, which reflects capital investments through February 2024, a common equity ratio of 50.10% and a long-term debt ratio of 49.90%. The increased water and wastewater revenues related to the base rate adjustment are being driven primarily by (i) $220 million of related water and wastewater system capital investments made since the completion of the West Virginia subsidiary’s previous rate case, (ii) higher pension and other postretirement benefit costs, and (iii) increases in production costs, including chemicals, fuel and power costs.

On February 14, 2024, the Indiana Utility Regulatory Commission (“IURC”) issued an order approving the adjustment of base rates requested in a rate case filed on March 31, 2023, by the Company’s Indiana subsidiary. The general rate case order approved a $66 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges, based on an authorized return on equity of 9.65%, authorized rate base of $1.8 billion, a common equity ratio of 56.15% and a debt ratio of 43.85%. For purposes of determining rates, the adjustment is based on an equity component of 48.19% due to the regulatory practice in Indiana of including certain zero-cost items or tax credit balances in the capital structure calculation. The annualized revenue increase will include three step increases, with $25 million of the increase to be included in rates in February 2024, $23 million in May 2024, and $18 million in May 2025. The increases are being driven primarily by (i) over $875 million of water and wastewater system capital investments since the completion of the Indiana subsidiary’s last rate case and through April 30, 2025, (ii) higher pension and other postretirement benefit costs, and (iii) increases in production costs, including chemicals, fuel and power costs.

Pending General Rate Case Filings

On August 2, 2024, the Company’s Hawaii subsidiary filed a general rate case requesting approximately $2 million in annualized incremental revenues, which is based on a proposed return on equity of 10.67% and a capital structure with an equity component of 52.11% and debt component of 47.89%. The requested annualized incremental revenue is driven primarily by approximately $41 million in capital investments made and to be made by the Hawaii subsidiary through 2025. The Hawaii subsidiary anticipates that the general rate case proceeding will be completed by mid-2025.

On July 1, 2024, the Company’s Missouri subsidiary filed a general rate case requesting approximately $148 million in annualized incremental revenues. The request is based on a return on equity of 10.75% and a capital structure with an equity component of 50.54% and a long-term debt component of 49.46%. The requested annualized incremental revenue is driven primarily by $1.5 billion of incremental capital investments completed and planned by the Missouri subsidiary from January 2023 through May 2026. On July 31, 2024, the Missouri Public Service Commission issued an order establishing the test year in this case, which modified the Missouri subsidiary’s original proposal for a future test year through May 2026, and instead reverted to a true-up period through December 31, 2024, with an allowance for proposed discrete adjustments subsequent to this date. On September 6, 2024, the Missouri subsidiary filed supplemental testimony to revise the request to approximately $123 million in annualized incremental revenues and define the specific discrete adjustments proposed through the rate effective period, which lowered the incremental capital investments completed and planned to $1.1 billion through May 2025. The Missouri subsidiary anticipates that the general rate case proceeding will be completed by mid-2025.

On May 1, 2024, the Company’s Iowa subsidiary filed a general rate case requesting approximately $21 million in additional annualized revenues, which is based on a proposed return on equity of 10.75% and a capital structure with an equity component of 52.57% and debt component of 47.43%. The requested annualized revenue increase is driven primarily by approximately $157 million in capital investments made and to be made by the Iowa subsidiary through March 2026. Interim rates became effective May 11, 2024, with the difference between interim and final approved rates subject to refund. On August 29, 2024, the Iowa subsidiary submitted supplemental testimony consistent with the procedural schedule, which was subsequently challenged by the parties in the proceeding. On October 4, 2024, the Iowa Utilities Commission issued an order that granted the inclusion of the supplemental filing and extended the procedural schedule in the case beyond the statutory ten-month period. The Iowa subsidiary now expects resolution of this proceeding by May 2025.

On May 1, 2024, the Company’s Tennessee subsidiary filed a general rate case requesting approximately $14 million in additional annualized revenues, which is based on a proposed return on equity of 10.75% and a capital structure with an equity component of 54.52% and debt component of 45.48%. The requested annualized revenue increase is driven primarily by approximately $173 million in capital investments made and to be made by the Tennessee subsidiary through December 2025.

On January 25, 2024, the Company’s Illinois subsidiary filed tariffs for new water and wastewater rates. The request seeks a two-step rate increase consisting of aggregate annualized incremental revenue, based on a proposed return on equity of 10.75%, of (i) approximately $132 million, excluding infrastructure surcharges of $5 million, effective January 1, 2025, based on a future test year through December 31, 2025, with average rate base and a capital structure with an equity component of 52.27% and a debt component of 47.73%, and (ii) approximately $16 million effective January 1, 2026, based on a future test year to include end of period rate base and a capital structure with an equity component of 54.43% and a debt component of 45.57%. The requested increases are driven primarily by an estimated $557 million in capital investments to be made by the Illinois subsidiary from January 2024 through December 2025. The request also proposes a treatment and compliance rider to address recovery of future environmental compliance investments, and a modification to the existing volume balancing account mechanism to include full production cost recovery. The requested increase was subsequently updated in the Illinois subsidiary’s June 20, 2024, rebuttal filing, with the first step request adjusted to $140 million in additional annualized revenues. On October 24, 2024, a proposed order was issued by the administrative law judge in the proceeding, recommending a 9.84% return on equity and a capital structure with an equity component of 49.00% and a debt component of 51.00%. In addition, the proposed order recommended against the Illinois subsidiary’s second-step increase. The recommendations in the proposed order may be accepted, modified or rejected by the Illinois Commerce Commission. A final order in the case is expected no later than December 17, 2024, with new rates implemented January 1, 2025.

On December 15, 2023, the Company’s California subsidiary submitted a request to delay by one year its cost of capital filing and maintain its current authorized cost of capital through 2025. On February 2, 2024, the California Public Utilities Commission (“CPUC”) granted the request for a one-year extension of the cost of capital filing to May 1, 2025, to set its authorized cost of capital beginning January 1, 2026.

On November 1, 2023, the Company’s Virginia subsidiary filed a general rate case requesting $20 million in additional annualized revenues. The request is based on a proposed return on equity of 10.95% and a capital structure with an equity component of 45.67% and a debt and other component of 54.33%. The requested increase is driven by approximately $110 million in capital investments between May 2023 and April 2025. The request also proposed a revenue decoupling mechanism and seeks deferral of certain production cost adjustments. Interim rates became effective May 1, 2024, with the difference between interim and final approved rates subject to refund. On September 20, 2024, the Virginia subsidiary filed with the Virginia State Corporation Commission (the “SCC”) a “black box” stipulation of settlement which agreed to a $15 million annualized increase in the Virginia subsidiary’s revenues. The stipulation of settlement also agreed, solely for purposes of the Virginia subsidiary’s future filings requiring a stated cost of capital and/or capital structure (including its annual information and water and wastewater infrastructure surcharge filings), that its return on equity will be 9.70% and its capital structure will consist of an equity component of 45.67% and a debt and other component of 54.33%. The stipulation of settlement remains subject to SCC review and approval.

On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of $56 million and a total increase in revenue over the 2024 to 2026 period of $95 million, all as compared to 2022 revenues. The Company updated its filing in January 2023 to capture the authorized step increase effective January 1, 2023. The filing was also updated to incorporate a decoupling proposal and a revision to the Company’s sales and associated variable expense forecast. The revised filing requested additional annualized revenues for the test year 2024 of $37 million, compared to 2023 revenues. This excludes the proposed step rate and attrition rate increase for 2025 and 2026 of $20 million and $19 million, respectively. The total revenue requirement request for the three-year rate case cycle, incorporating updates to present rate revenues and forecasted demand, is $76 million. On November 17, 2023, the California subsidiary filed with the CPUC a partial settlement agreement reached with the CPUC’s Public Advocates Office, which would determine the amount of incremental annualized water and wastewater revenue to be received by the California subsidiary to be $20 million in the 2024 test year, $16 million in the 2025 escalation year, and $15 million in the 2026 attrition year. The partial settlement agreement addresses the California subsidiary’s revenue requirement request but does not address rate design or certain other matters, such as the requested inclusion and implementation of a revenue stability mechanism to separate the California subsidiary’s revenue and water sales. On August 27, 2024, a proposed decision was issued in the proceeding which, among other provisions, recommended adoption by the CPUC of the partial settlement agreement and recommended denial of the California subsidiary’s proposed Water Resources Sustainability Plan decoupling mechanism and its currently effective Annual Consumption Adjustment Mechanism. On September 16, 2024, and September 23, 2024, the California subsidiary submitted comments in the proceeding continuing to support its position and recommending the CPUC revise the proposed decision to approve the Water Resource Sustainability Plan decoupling mechanism and maintain the Annual Consumption Adjustment Mechanism. The CPUC will consider the proposed decision and all responsive comments and will issue a final decision in the proceeding, which is currently scheduled for December 5, 2024, with new rates implemented retroactively to January 1, 2024.

Infrastructure Surcharges

A number of states have authorized the use of regulatory mechanisms that permit rates to be adjusted outside of a general rate case for certain costs and investments, such as infrastructure surcharge mechanisms that permit recovery of capital investments to replace aging infrastructure. Presented in the table below are annualized incremental revenues, assuming a constant sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2024:

(In millions)			Effective Date						Amount
Infrastructure surcharges by state:
Missouri			(b)						$	47
Pennsylvania			(c)						21
New Jersey			April 30, 2024						9
Iowa			March 1, 2024						1
West Virginia (a)			March 1, 2024						7
Illinois			January 1, 2024						5
Total infrastructure surcharge authorizations									$	90

(a)On March 5, 2024, the West Virginia Public Service Commission directed the Company’s West Virginia subsidiary to interpret the distribution system improvement charge (“DSIC”) Order as having included within the DSIC the three-year amortization of a prior authorized deferral associated with a large treatment plant project. The inclusion of this deferral increased the net incremental revenue by $0.7 million to a total of $6.6 million effective March 1, 2024.

(b)In 2024, $21 million was effective July 11 and $26 million was effective January 20.

(c)In 2024, $14 million was effective July 1 and $7 million was effective April 1.

Pending Infrastructure Surcharge Filings

On September 3, 2024, the Company’s Missouri subsidiary filed an infrastructure surcharge proceeding requesting $17 million in additional annualized revenues.

On August 30, 2024, the Company’s Kentucky subsidiary filed an infrastructure surcharge proceeding requesting $2 million in additional annualized revenues.

On June 28, 2024, the Company’s West Virginia subsidiary filed an infrastructure surcharge proceeding requesting $4 million in additional annualized revenues.

Other Regulatory Matters

In September 2020, the CPUC released a decision under its Low-Income Rate Payer Assistance program rulemaking that required the Company’s California subsidiary to file a proposal to alter its water revenue adjustment mechanism in its next general rate case filing in 2022, which would have become effective upon receiving an order in the current pending rate case. On October 5, 2020, the Company’s California subsidiary filed an application for rehearing of the decision and following the CPUC’s denial of its rehearing application in September 2021, the Company’s California subsidiary filed a petition for writ of review with the California Supreme Court on October 27, 2021. On May 18, 2022, the California Supreme Court issued a writ of review for the California subsidiary’s petition and the petitions filed by other entities challenging the decision. On July 8, 2024, the California Supreme Court issued a unanimous opinion concluding that the CPUC did not regularly seek to exercise its authority when it prohibited water utilities from proposing to continue their water revenue adjustment mechanisms. Accordingly, the California Supreme Court vacated the portion of the CPUC’s 2020 decision relating to this prohibition against continuation of such water revenue adjustment mechanisms.

Independent of the judicial challenge, California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022, and became effective on January 1, 2023. In response to the legislation, on January 27, 2023, the Company’s California subsidiary filed an updated application requesting the CPUC to consider a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which, if adopted, will become effective upon receiving an order in the current pending rate case, as discussed above.

Consolidated Results of Operations

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

			For the Three Months Ended September 30,												For the Nine Months Ended September 30,
(In millions)			2024						2023						2024						2023
Operating revenues			$	1,323					$	1,167					$	3,483					$	3,202
Operating expenses:
Operation and maintenance			496						436						1,339						1,248
Depreciation and amortization			200						177						581						523
General taxes			84						76						246						227
Other			—						—						(1)						(1)
Total operating expenses, net			780						689						2,165						1,997
Operating income			543						478						1,318						1,205
Other (expense) income:
Interest expense			(132)						(117)						(387)						(342)
Interest income			22						23						71						52
Non-operating benefit costs, net			7						9						23						26
Other, net			13						14						31						37
Total other (expense) income			(90)						(71)						(262)						(227)
Income before income taxes			453						407						1,056						978
Provision for income taxes			103						84						244						205
Net income attributable to common shareholders			$	350					$	323					$	812					$	773

Segment Results of Operations

The Company’s operating segments are comprised of its businesses which generate revenue, incur expense and have separate financial information which is regularly used by management to make operating decisions, assess performance and allocate resources. The Company operates its business primarily through one reportable segment, the Regulated Businesses segment. Other, primarily includes MSG, which does not meet the criteria of a reportable segment in accordance with GAAP. Other also includes corporate costs that are not allocated to the Company’s Regulated Businesses, interest income related to the secured seller promissory note from the sale of HOS, income from assets not associated with the Regulated Businesses, eliminations of inter-segment transactions and fair value adjustments related to acquisitions that have not been allocated to the Regulated Businesses segment. This presentation is consistent with how management assesses the results of these businesses.

Regulated Businesses Segment

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

			For the Three Months Ended September 30,												For the Nine Months Ended September 30,
(In millions)			2024						2023						2024						2023
Operating revenues			$	1,219					$	1,095					$	3,204					$	2,960
Operation and maintenance			402						368						1,109						1,043
Depreciation and amortization			196						174						569						515
General taxes			79						72						232						213
Other			—						—						(1)						(1)
Other expenses			(84)						(66)						(247)						(204)
Provision for income taxes			102						84						233						203
Net income attributable to common shareholders			$	356					$	331					$	815					$	783

Operating Revenues

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

			For the Three Months Ended September 30,												For the Nine Months Ended September 30,
(In millions)			2024						2023						2024						2023
Water services:
Residential			$	679					$	607					$	1,763					$	1,622
Commercial			255						231						659						600
Fire service			41						40						123						118
Industrial			50						50						138						126
Public and other			81						72						212						220
Total water services			1,106						1,000						2,895						2,686
Wastewater services:
Residential			62						58						181						169
Commercial			20						16						52						46
Industrial			4						2						9						6
Public and other			11						8						28						21
Total wastewater services			97						84						270						242
Other (a)			16						11						39						32
Total operating revenues			$	1,219					$	1,095					$	3,204					$	2,960

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

			For the Three Months Ended September 30,												For the Nine Months Ended September 30,
(Gallons in millions)			2024						2023						2024						2023
Billed water services volumes:
Residential			51,137						49,452						123,752						123,527
Commercial			24,389						23,481						60,971						59,029
Industrial			10,261						10,559						28,308						28,014
Fire service, public and other			16,263						15,760						41,077						41,042
Total billed water services volumes			102,050						99,252						254,108						251,612

For the three and nine months ended September 30, 2024, operating revenues increased $124 million and $244 million, respectively, primarily due to increases of $83 million and $183 million, respectively, from authorized rate increases, including infrastructure surcharges, principally to recover infrastructure investment in various states. In addition, operating revenues increased $11 million and $29 million for the three and nine months ended September 30, 2024, respectively, from water and wastewater acquisitions, as well as organic growth in existing systems. Also, operating revenues were $7 million and $17 million higher for the three and nine months ended September 30, 2024, respectively, as a result of reduced amortization of EADIT, primarily in the Company’s Missouri subsidiary. For the three and nine months ended September 30, 2024, operating revenues increased $20 million from strong demand. For the nine months ended September 30, 2024, these increases were partially offset by a $8 million estimated net decrease due to warm, dry weather in 2023.

Operation and Maintenance

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

			For the Three Months Ended September 30,												For the Nine Months Ended September 30,
(In millions)			2024						2023						2024						2023
Employee-related costs			$	134					$	127					$	405					$	386
Production costs			133						125						344						324
Operating supplies and services			72						59						196						173
Maintenance materials and supplies			25						22						66						65
Customer billing and accounting			20						19						48						48
Other			18						16						50						47
Total operation and maintenance expense			$	402					$	368					$	1,109					$	1,043

For the three and nine months ended September 30, 2024, operation and maintenance expense increased $34 million and $66 million, respectively, due to increased production costs primarily from higher purchased water cost and usage, increased employee related costs to support growth and increases in other operating expenses.

Depreciation and Amortization

For the three and nine months ended September 30, 2024, depreciation and amortization increased $22 million and $54 million, respectively, primarily due to additional utility plant placed in service from capital infrastructure investments.

General Taxes

For the three and nine months ended September 30, 2024, general taxes increased $7 million and $19 million, respectively, primarily due to incremental property taxes and New Jersey Gross Receipts Tax.

Other Expenses

For the three and nine months ended September 30, 2024, other expenses increased $18 million and $43 million, respectively, primarily due to higher interest expense from the issuance of incremental long-term debt and a decrease in allowance for funds used during construction in the current periods. These increases were partially offset by decreases in interest expense as a result of lower average commercial paper borrowings and from the repayment of American Water Capital Corp.’s (“AWCC”) 3.850% Senior Notes in March 2024.

Provision for Income Taxes

For the three and nine months ended September 30, 2024, the Regulated Businesses’ provision for income taxes increased $18 million and $30 million, respectively. The Regulated Businesses’ effective income tax rate was 22.3% and 20.2% for the three months ended September 30, 2024 and 2023, respectively, and 22.2% and 20.6% for the nine months ended September 30, 2024 and 2023, respectively. The increase was primarily due to the decrease in the amortization of EADIT pursuant to regulatory orders.

Other

Presented in the table below is information for Other:

			For the Three Months Ended September 30,												For the Nine Months Ended September 30,
(In millions)			2024						2023						2024						2023
Operating revenues			$	104					$	72					$	279					$	242
Operation and maintenance			94						68						230						205
Depreciation and amortization			4						3						12						8
General taxes			5						4						14						14
Interest expense			(25)						(25)						(81)						(73)
Interest income			16						16						57						38
Other income			3						4						9						12
Provision for income taxes			1						—						11						2
Net loss attributable to common shareholders			$	(6)					$	(8)					$	(3)					$	(10)

Operating Revenues

For the three and nine months ended September 30, 2024, operating revenues increased $32 million and $37 million, respectively, primarily due to timing of capital projects in MSG and the Contract Services Group businesses.

Operation and Maintenance

For the three and nine months ended September 30, 2024, operation and maintenance expense increased $26 million and $25 million, respectively, primarily due to costs associated with the increased capital projects in MSG.

Interest Income

For the nine months ended September 30, 2024, interest income increased $19 million, primarily due to the increased interest rate and higher principal balance on the amended secured seller promissory note from the sale of HOS. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.

Legislative Updates

During 2024, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of October 30, 2024:

• New Jersey passed Assembly Bill 4791, establishing the “Resiliency and Environmental System Investment Charge Program,” which creates a regulatory mechanism that enables water and wastewater utilities to recover the costs of investment in certain non-revenue producing utility system components that enhance water and wastewater system resiliency, environmental compliance such as existing and proposed requirements for PFAS, safety, and public health. Legislation was signed by the Governor and became effective on January 12, 2024.

• Indiana passed Senate Bill 5, which provides access to a property by a water utility to replace lead service lines when a landowner does not enroll in the offered lead service line replacement program, does not personally replace the customer owned portion of the lead service line following notice and a 45-day waiting period, or is non-responsive to attempted communication after the 45-day waiting period. Legislation was signed by the Governor and became effective on March 11, 2024.

• Iowa passed House File 207, which modifies property tax assessments to exempt property owned or operated by a public or private utility and is directly and primarily used for furnishing sanitary sewage or storm water drainage disposal by a piped collection system to the public for compensation. Legislation was signed by the Governor and became effective on May 2, 2024.

• West Virginia passed House Bill 5617, which adopts standards and authorizes the Public Service Commission to promulgate rules, and also allows for rate recovery, on maintenance, flushing, flow testing and marking of fire hydrants owned by water utilities. Legislation was signed by the Governor and became effective on June 4, 2024.

• Iowa passed House File 2101, which increases the threshold amount required for approval by the Iowa Utilities Commission for water and wastewater utility acquisition filings from $0.5 million to $3 million. Legislation was signed by the Governor and became effective on July 1, 2024.

• Indiana passed Senate Bill 247, which establishes a 30-day filing with the IURC by a utility for an acquisition of a utility with an appraised value and purchase price of less than $3 million. Legislation was signed by the Governor became effective on July 1, 2024.

During 2024, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of October 30, 2024:

• California passed Senate Bill 219, which amends the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, to allow the California Air Resources Board until July 1, 2025, to issue implementing regulations, including reporting requirements for Scope 3 emissions. Legislation was signed by the Governor on September 27, 2024, and will become effective January 1, 2025.

Condemnation and Eminent Domain

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

As such, the Regulated Businesses are periodically subject to condemnation proceedings in the ordinary course of business. For example, the Monterey water service system assets (the “Monterey system assets”) of the Company’s California subsidiary (“Cal Am”) are the subject of a potential condemnation action by the Monterey Peninsula Water Management District (the “MPWMD”) stemming from a November 2018 public ballot initiative. For more information on this matter, see Part II, Item 1—Legal Proceedings—Proposed Acquisition of Monterey System Assets — MPWMD Condemnation Action and Note 11—Commitments and Contingencies in the Notes to Consolidated Financial Statements.

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

Tax Matters

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. The IRA contains a 15% Corporate Alternative Minimum Tax (“CAMT”) provision on applicable corporations effective January 1, 2023. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1.0 billion. An applicable corporation must make several adjustments to net income when determining AFSI. A corporation paying CAMT is eligible for a future tax credit, which can be utilized when regular tax exceeds CAMT. Based on current guidance, the Company is an applicable corporation subject to CAMT beginning in 2024 and expects to owe CAMT in excess of the regular tax liability. On September 12, 2024, the Internal Revenue Service (“IRS”) and the U.S. Treasury issued Notice 2024-66, allowing corporate taxpayers to exclude amounts attributable to the CAMT liability, without penalty, from estimated tax payments with respect to a taxable year that begins during 2024. The Company will include the CAMT liability in its 2024 extension payment due April 15, 2025. The Company will continue to assess the impacts of the IRA as the U.S. Treasury and the IRS provide further guidance.

Liquidity and Capital Resources

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

Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets, future issuances of equity, and, if and to the extent necessary, borrowings under AWCC’s revolving credit facility.

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

On February 23, 2024, AWCC completed a $1.4 billion debt offering, which included the sale of $700 million aggregate principal amount of its 5.150% senior notes due 2034 and $700 million aggregate principal amount of its 5.450% senior notes due 2054. At the closing of this offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of approximately $1,381 million. AWCC used the net proceeds of the offering (1) to lend funds to American Water and the Regulated Businesses; (2) to repay at maturity AWCC’s 3.850% Senior Notes due 2024; (3) to repay AWCC’s commercial paper obligations; and (4) for general corporate purposes.

AWCC’s revolving credit facility provides $2.75 billion in aggregate total commitments from a diversified group of financial institutions. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support, and to provide a sub limit for the issuance of up to $150 million in letters of credit. The maximum aggregate principal amount of short-term borrowings authorized for issuance under AWCC’s commercial paper program is $2.6 billion. On October 28, 2024, the termination date of the credit agreement with respect to AWCC’s revolving credit facility was extended, as permitted by the terms of the credit agreement, from October 2028 to October 2029. Subject to satisfying certain conditions, the credit agreement permits AWCC to increase the maximum commitment by up to an aggregate of $500 million. As of September 30, 2024, and December 31, 2023, there were no borrowings under the revolving credit facility. As of September 30, 2024, and December 31, 2023, there were $75 million of outstanding letters of credit under the revolving credit facility.

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

			As of September 30, 2024
(In millions)			Commercial Paper Limit						Letters of Credit						Total (a)
Total availability			$	2,600					$	150					$	2,750
Outstanding debt			(215)						(75)						(290)
Remaining availability as of September 30, 2024			$	2,385					$	75					$	2,460

(a)Total remaining availability of $2.5 billion as of September 30, 2024, was accessible through revolver draws.

			As of December 31, 2023
(In millions)			Commercial Paper Limit						Letters of Credit						Total (a)
Total availability			$	2,600					$	150					$	2,750
Outstanding debt			(180)						(75)						(255)
Remaining availability as of December 31, 2023			$	2,420					$	75					$	2,495

(a)Total remaining availability of $2.5 billion as of December 31, 2023, was accessible through revolver draws.

Presented in the table below is the Company’s total available liquidity:

(In millions)			Cash and Cash Equivalents						Availability on Revolving Credit Facility						Total Available Liquidity
Available liquidity as of September 30, 2024			$	127					$	2,460					$	2,587
Available liquidity as of December 31, 2023			$	330					$	2,495					$	2,825

The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.90% and 5.51% at September 30, 2024, and December 31, 2023, respectively.

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

During the third quarter of 2024, the Company entered into seven treasury lock agreements, with a term of 10 years or 30 years, with notional amounts totaling $330 million. These treasury lock agreements have an average fixed interest rate of 4.02%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss.

The Company had entered into 15 treasury lock agreements through February 2024, with notional amounts totaling $825 million. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. In February 2024, the Company terminated the treasury lock agreements realizing a pre-tax net gain of $14 million, to be amortized through Interest expense over a 10-year period or 30-year period, in accordance with the tenor of the notes issued on February 23, 2024.

No ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2024 or 2023.

Cash Flows from Operating Activities

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

			For the Nine Months Ended September 30,
(In millions)			2024						2023
Net income			$	812					$	773
Add (less):
Depreciation and amortization			581						523
Deferred income taxes and amortization of investment tax credits			84						129
Other non-cash activities (a)			28						(13)
Changes in assets and liabilities (b)			(66)						(31)
Pension contributions			(33)						(34)
Net cash provided by operating activities			$	1,406					$	1,347

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

(b)Changes in assets and liabilities include changes to receivables and unbilled revenues, income tax receivable, accounts payable, accrued liabilities, accrued taxes and other assets and liabilities, net.

For the nine months ended September 30, 2024, cash provided by operating activities increased $59 million, due to an increase in net income and other non-cash activities, offset by changes in deferred income taxes and an increase in other long-term assets.

Cash Flows from Investing Activities

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

			For the Nine Months Ended September 30,
(In millions)			2024						2023
Capital expenditures			$	(1,962)					$	(1,779)
Acquisitions, net of cash acquired			(119)						(36)
Removal costs from property, plant and equipment retirements, net			(112)						(113)
Purchases of available-for-sale fixed-income securities			(113)						—
Proceeds from sales and maturities of available-for-sale fixed-income securities			147						—
Net cash used in investing activities			$	(2,159)					$	(1,928)

For the nine months ended September 30, 2024, cash used in investing activities increased $231 million, primarily due to increased payments for capital expenditures and acquisitions.

Cash Flows from Financing Activities

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

			For the Nine Months Ended September 30,
(In millions)			2024						2023
Proceeds from long-term debt, net of discount			$	1,416					$	1,246
Repayments of long-term debt			(474)						(263)
Net proceeds from common stock financing			—						1,688
Net short-term borrowings (repayments) with maturities less than three months			35						(1,175)
Debt issuance costs			(13)						(15)
Dividends paid			(436)						(395)
Other financing activities, net (a)			38						39
Net cash provided by financing activities			$	566					$	1,125

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

For the nine months ended September 30, 2024, cash provided by financing activities decreased $559 million, primarily due to the repayment of long-term debt in the current period and the proceeds from the common stock financing in March 2023. These decreases were partially offset by a higher issuance of long-term debt and lower repayments of short-term commercial paper borrowings compared to the prior period.

Debt Covenants

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

Covenants in certain long-term notes and the revolving credit facility require the Company to maintain a ratio of consolidated debt to consolidated capitalization (as defined in the relevant documents) of not more than 0.70 to 1.00. On September 30, 2024, the Company’s ratio was 0.56 to 1.00 and therefore the Company was in compliance with the covenants.

Security Ratings

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of October 30, 2024, as issued by Moody’s Ratings on January 29, 2024, and S&P Global Ratings on March 4, 2024:

Securities						Moody’s Ratings						S&P Global Ratings
Rating outlook						Stable						Stable
Senior unsecured debt						Baa1						A
Commercial paper						P-2						A-1

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating. Security ratings are highly dependent upon the ability to generate cash flows in an amount sufficient to service debt and meet investment plans. The Company can provide no assurances that its ability to generate cash flows is sufficient to maintain its existing ratings. The Company does not have any material borrowings that are subject to default or prepayment as a result of the downgrading of these security ratings, although such a downgrading could increase fees and interest charges under its credit facility.

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

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

Dividends

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

Application of Critical Accounting Policies and Estimates

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

Recent Accounting Standards

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