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, 2024. 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 months ended March 31, 2025, diluted earnings per share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were $1.05, an increase of $0.10, as compared to the same period in the prior year. The increase was primarily driven by the implementation of new rates in the Regulated Businesses from the recovery of capital and acquisition investments. Results also reflect increased operating costs and higher depreciation and financing costs to support the current capital investment plan. Results for the three months ended March 31, 2025 and 2024, include incremental interest income of $0.03 and $0.02 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 plans to invest approximately $3.3 billion in these growth strategies in 2025. During the first three months of 2025, the Company invested $518 million, in the Regulated Businesses, as discussed below.

• $515 million capital investment in the Regulated Businesses for infrastructure improvements and replacements; and

• $3 million to fund an acquisition in the Regulated Businesses, which added approximately 300 customers.

• Approximately 4,000 new customers were added through organic growth in existing systems.

As of March 31, 2025, the Company had entered into 18 agreements with a total aggregate purchase price of $123 million for pending acquisitions in the Regulated Businesses, to add approximately 29,000 additional customers. In April 2025, the Company completed two acquisitions of regulated water systems for a total aggregate purchase price of $6 million, which added approximately 1,850 water customers and entered into two agreements with a total aggregate purchase price of $45 million for pending acquisitions in the Regulated Businesses, to add approximately 10,200 additional customers.

Other Matters

Cybersecurity Incident Update

Prior to filing a consolidated complaint, the plaintiffs in the putative consolidated class action lawsuit against parent company related to the Company’s October 2024 cybersecurity incident, captioned Johnsen et al. v. American Water Works Company, Inc., agreed to voluntarily dismiss the consolidated lawsuit without prejudice. On March 21, 2025, the parties filed a stipulation to that effect. An order of voluntary dismissal was entered by the U.S. District Court for the District of New Jersey on March 24, 2025, which concludes this lawsuit against parent company. See Part II, Item 1—Legal Proceedings—Cybersecurity Incident Consolidated Class Action Lawsuit.

Regulatory Matters

General Rate Cases

The table below summarizes the annualized incremental revenues, assuming a constant sales volume and customer count, resulting from general rate case authorizations that became effective during 2025. The amounts include reductions for the amortization of the excess accumulated deferred income taxes (“EADIT”) that are generally offset in income tax expense.

(In millions)			Effective Date						Amount
General rate cases by state:
Virginia			February 24, 2025 (a)						$	15
Tennessee			January 21, 2025						1
California, Step Increase			January 1, 2025						17
Illinois			January 1, 2025						105
Total general rate case authorizations									$	138

(a)Interim rates were effective May 1, 2024, and the difference between interim and final approved rates were subject to refund. The Virginia State Corporation Commission issued its final order on February 24, 2025.

On February 24, 2025, the Virginia State Corporation Commission (the “VSCC”) issued an order approving the September 19, 2024, joint “black box” settlement of the general rate case filed by the Company’s Virginia subsidiary. The general rate case order approves the stipulated $15 million annualized increase in water and wastewater revenues. Interim water and wastewater rates became effective May 1, 2024, with the difference between interim and final approved rates subject to refund. The requested annualized revenue increase was driven primarily by more than $110 million of incremental capital investments made and to be made between May 2023 and April 2025. For purposes of the general rate case, the Virginia subsidiary’s view of its rate base is $369 million. The general rate case order also approved, 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), a return on equity of 9.70% and a capital structure consisting of an equity component of 45.67% and a debt and other component of 54.33%, which also represents the Virginia subsidiary’s view of its return on equity and capital structure in this general rate case.

On January 21, 2025, the Tennessee Public Utility Commission (the “TPUC”) approved a motion authorizing an adjustment of water base rates requested in a rate case filed on May 1, 2024, by the Company’s Tennessee subsidiary. The TPUC approved an increase of $1 million in annualized revenues, excluding previously recovered infrastructure surcharges of $18 million, based on an authorized return on equity of 9.70%, authorized rate base of approximately $300 million, a common equity ratio of 44.19% and a debt ratio of 55.81%. This adjustment took effect on January 21, 2025, and is driven primarily by approximately $173 million in capital investments made and to be made by the Tennessee subsidiary through December 2025.

On January 14, 2025, the California Public Utilities Commission (“CPUC”) granted the Company’s California subsidiary’s request for a one-year extension of its cost of capital filing to May 1, 2026, to set its authorized cost of capital beginning January 1, 2027, and maintain its current authorized cost of capital through 2026.

On December 5, 2024, the Illinois Commerce Commission issued a final order approving the adjustment of base rates requested in a rate case originally filed on January 25, 2024, by the Company’s Illinois subsidiary. The general rate case order approved an increase of $105 million in annualized water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $5 million, based on an authorized return on equity of 9.84%, authorized rate base of $2.2 billion, and a capital structure with an equity component of 49.00% and a debt component of 51.00%. The general rate case order denied the second step increase of $16 million. The increase was effective January 1, 2025, and is driven primarily by approximately $557 million in capital investments made and to be made by the Illinois subsidiary from January 2024 through December 2025.

On December 5, 2024, the CPUC approved a final decision adopting the terms of a partial settlement agreement filed on November 17, 2023, in the Company’s California subsidiary’s general rate case originally filed on July 1, 2022. Incorporating the then currently effective return on equity of 10.20%, the decision provides incremental annualized water and wastewater revenues of $21 million in the 2024 test year, and an estimated $16 million in the 2025 escalation year and $16 million in the 2026 attrition year. The 2024 rates were implemented retroactively to January 1, 2024. In addition, the CPUC denied the California subsidiary’s proposed Water Resources Sustainability Plan decoupling mechanism but approved continuation of its currently effective Annual Consumption Adjustment Mechanism. On December 12, 2024, the California subsidiary filed an application for rehearing of the CPUC’s denial of the proposed Water Resources Sustainability Plan decoupling mechanism.

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. On April 25, 2025, the Hawaii subsidiary filed with the Hawaii Public Utilities Commission (the “HPUC”) a partial settlement, reached with the Division of Consumer Advocacy, in its general rate case. The partial settlement agrees to an annualized increase of approximately $1 million in wastewater revenue, which is based on a return on equity of 9.75% and a capital structure with an equity component of 52.11% and a debt component of 47.89%. The settlement remains subject to HPUC review and approval and the Hawaii subsidiary expects a decision mid-year in 2025.

On July 1, 2024, the Company’s Missouri subsidiary filed a general rate case requesting approximately $148 million in annualized incremental revenues. The original request was 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%, and was 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 (the “MoPSC”) 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 that date. On September 6, 2024, the Missouri subsidiary filed supplemental testimony to revise the request to approximately $123 million in annualized incremental revenues (excluding infrastructure surcharges) and to 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. In February 2025, the Missouri subsidiary filed an additional request for recovery of defined infrastructure investments, which adjusted the infrastructure surcharges to $63 million, and, in turn, decreased the amount of incremental annualized revenue (excluding such infrastructure surcharges) to approximately $107 million. On March 17, 2025, the Missouri subsidiary entered into a stipulation and agreement (the “Stipulation”) with, among other parties, the staff of the MoPSC and the Office of the Public Counsel, as to an annualized increase of approximately $63 million in water and wastewater revenues, excluding $63 million in infrastructure surcharges. The Stipulation is subject to review and approval by the MoPSC, which is anticipated in the second quarter of 2025, and, if approved, new rates are expected to be effective by May 31, 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 expects resolution of this proceeding by the end of May 2025.

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 2025:

(In millions)			Effective Date						Amount
Infrastructure surcharges by state:
Missouri			February 7, 2025						$	17
Kentucky			January 1, 2025						2
West Virginia			January 1, 2025						4
Total infrastructure surcharge authorizations									$	23

Pending Infrastructure Surcharge Filings

On April 15, 2025, the Company’s New Jersey subsidiary filed an infrastructure surcharge proceeding requesting $15 million in additional annualized revenues.

Consolidated Results of Operations

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

									For the Three Months Ended March 31,
(In millions)															2025						2024
Operating revenues															$	1,142					$	1,011
Operating expenses:
Operation and maintenance															468						416
Depreciation and amortization															216						188
General taxes															87						81
Total operating expenses, net															771						685
Operating income															371						326
Other (expense) income:
Interest expense															(144)						(124)
Interest income															22						24
Non-operating benefit costs, net															4						9
Other, net															17						7
Total other (expense) income															(101)						(84)
Income before income taxes															270						242
Provision for income taxes															65						57
Net income attributable to common shareholders															$	205					$	185

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 the chief operating decision maker 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 March 31,
(In millions)															2025						2024
Operating revenues															$	1,049					$	928
Operation and maintenance															395						351
Depreciation and amortization															213						184
General taxes															81						76
Other income (expense)															(99)						(79)
Provision for income taxes															60						53
Net income attributable to common shareholders															$	201					$	185

Operating Revenues

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

									For the Three Months Ended March 31,
(In millions)															2025						2024
Water services:
Residential															$	560					$	504
Commercial															212						187
Fire service															45						41
Industrial															45						42
Public and other															73						58
Total water services															935						832
Wastewater services:
Residential															68						59
Commercial															18						16
Industrial															5						2
Public and other															10						8
Total wastewater services															101						85
Other (a)															13						11
Total operating revenues															$	1,049					$	928

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

									For the Three Months Ended March 31,
(Gallons in millions)															2025						2024
Billed water services volumes:
Residential															34,691						34,414
Commercial															17,197						17,291
Industrial															8,654						8,337
Fire service, public and other															12,392						11,116
Total billed water services volumes															72,934						71,158

For the three months ended March 31, 2025, operating revenues increased $121 million, primarily due to a $97 million increase from authorized rate increases, including infrastructure surcharges, principally to recover infrastructure investment in various states and a $14 million increase from water and wastewater acquisitions, as well as organic growth in existing systems. In addition, operating revenues were higher for the three months ended March 31, 2025, in the Company’s California subsidiary, primarily due to an increase in customer demand and change to its revenue stability mechanism from full to partial revenue recovery, resulting from the general rate case decision approved by the CPUC in December 2024.

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 March 31,
(In millions)															2025						2024
Employee-related costs															$	149					$	135
Production costs															106						102
Operating supplies and services															72						63
Maintenance materials and supplies															29						22
Customer billing and accounting															20						14
Other															19						15
Total operation and maintenance expense															$	395					$	351

For the three months ended March 31, 2025, operation and maintenance expense increased $44 million, due to increases from employee-related costs to support growth and acquisitions completed in 2024. In addition, operation and maintenance expense was higher due to increased production costs primarily from higher power and fuel costs, customer billing and accounting from an increase in customer uncollectible expense and increases in other operating expenses.

Depreciation and Amortization

For the three months ended March 31, 2025, depreciation and amortization increased $29 million, primarily due to additional utility plant placed in service from capital infrastructure investments and higher depreciation rates from recent rate case orders.

General Taxes

For the three months ended March 31, 2025, general taxes increased $5 million, primarily due to incremental property and capital stock taxes.

Other Expenses

For the three months ended March 31, 2025, other expenses increased $20 million, primarily due to higher interest expense from the issuance of incremental long-term debt.

Provision for Income Taxes

For the three months ended March 31, 2025, the Regulated Businesses’ provision for income taxes increased $7 million. The Regulated Businesses’ effective income tax rate was 23.0% and 22.3% for the three months ended March 31, 2025 and 2024, 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 March 31,
(In millions)															2025						2024
Operating revenues															$	93					$	83
Operation and maintenance															73						65
Depreciation and amortization															3						4
General taxes															6						5
Interest expense															(30)						(27)
Interest income															21						21
Other income															7						1
Provision for income taxes															5						4
Net income attributable to common shareholders															$	4					$	—

Operating Revenues

For the three months ended March 31, 2025, operating revenues increased $10 million, from an increase in capital projects in MSG and the Contract Services Group (“CSG”).

Operation and Maintenance

For the three months ended March 31, 2025, operation and maintenance expense increased $8 million, primarily due to costs associated with MSG and CSG projects.

Legislative Updates

During 2025, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of April 30, 2025:

• 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 became effective January 1, 2025.

During 2025, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of April 30, 2025:

• Virginia passed Senate Bill 850, which would permit a water or wastewater utility to petition the VSCC for the approval of an eligible infrastructure replacement and enhancement plan and accompanying recovery mechanism that allows for recovery of eligible infrastructure costs outside of a base rate case. Legislation was signed by the Governor on March 24, 2025, and will become effective on July 1, 2025.

• Indiana passed Senate Bill 426, which changes the timing of recovery to allow for deferred depreciation from in-service date and post in-service carrying costs and authorizes the Indiana Utility Regulatory Commission to approve mechanisms to allow utilities to invest in and earn on acquired utility assets. The language also provides critical protections from lawsuits when utilities are meeting applicable water quality standards. Legislation was signed by the Governor on April 3, 2025, and will become effective on July 1, 2025.

• Missouri passed Senate Bill 4, which provides that beginning July 1, 2026, water, sewer, and gas utilities may request the use of a future test year in a general rate case. This statute provides that at the end of the future test year, utilities must reconcile rate base and certain expenses, including annualized depreciation expense, income tax expense, payroll expense, employee benefits except for pensions and other post-retirement benefits, and rate case expenses, within 45 days to the MoPSC. Legislation was signed by the Governor on April 9, 2025, and will become effective on August 28, 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 system assets of Cal Am are the subject of a condemnation lawsuit filed by the Monterey Peninsula Water Management District (the “MPWMD”) stemming from a November 2018 public ballot initiative. For more information on this matter, see 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.

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, issuances of commercial paper and equity and, if and to the extent necessary, borrowings under American Water Capital Corp.’s (“AWCC”) 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, see Note 5—Acquisitions and Divestitures—Secured Seller Promissory Note from the Sale of Homeowner Services Group, in the Notes to Consolidated Financial Statements for additional information. 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 27, 2025, AWCC completed the sale of $800 million aggregate principal amount of its 5.250% Senior Notes due 2035. At the closing of this offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of approximately $792 million. AWCC used the net proceeds of the offering (i) to lend funds to American Water and the Regulated Businesses; (ii) to repay at maturity AWCC’s 3.400% Senior Notes due 2025; (iii) to repay commercial paper obligations of AWCC; and (iv) 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. Subject to satisfying certain conditions, the credit agreement permits AWCC to increase the maximum commitment by up to an aggregate of $500 million.

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

			As of March 31, 2025
(In millions)			Commercial Paper Limit						Letters of Credit						Total (a)
Total availability			$	2,600					$	150					$	2,750
Outstanding debt			(1,000)						(84)						(1,084)
Remaining availability as of March 31, 2025			$	1,600					$	66					$	1,666

(a)Total remaining availability of $1.7 billion as of March 31, 2025, was accessible through revolver draws.

			As of December 31, 2024
(In millions)			Commercial Paper Limit						Letters of Credit						Total (a)
Total availability			$	2,600					$	150					$	2,750
Outstanding debt			(880)						(82)						(962)
Remaining availability as of December 31, 2024			$	1,720					$	68					$	1,788

(a)Total remaining availability of $1.8 billion as of December 31, 2024, 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 March 31, 2025			$	114					$	1,666					$	1,780
Available liquidity as of December 31, 2024			$	96					$	1,788					$	1,884

The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.63% and 4.65% at March 31, 2025, and December 31, 2024, 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.

As of March 31, 2025, the Company had three treasury lock agreements, with a term of 30 years and an aggregate notional amount totaling $130 million, to reduce interest rate exposure on any future debt issuances in 2025. These treasury lock agreements terminate in June 2025 and December 2025 and have an average fixed interest rate of 4.12%. The Company designated these treasury lock agreements as cash flow hedges, measured at fair value with the gain or loss recorded in accumulated other comprehensive income.

In February 2025, the Company terminated 10 treasury lock agreements designated as cash flow hedges, with a term of 10 years and an aggregate notional amount totaling $500 million, realizing a pre-tax net gain of $3 million recorded in accumulated other comprehensive income. The gain will be amortized through Interest expense over a 10-year period, in accordance with the tenor of the notes issued on February 27, 2025.

No ineffectiveness was recognized on hedging instruments for the three months ended March 31, 2025 or 2024.

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 Three Months Ended March 31,
(In millions)			2025						2024
Net income			$	205					$	185
Add (less):
Depreciation and amortization			216						188
Deferred income taxes and amortization of investment tax credits			16						8
Other non-cash activities (a)			(13)						9
Changes in assets and liabilities (b)			(82)						3
Pension contributions			(11)						(11)
Net cash provided by operating activities			$	331					$	382

(a)Includes provision for losses on accounts receivable, pension and non-pension postretirement benefits and other non-cash, net.

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

For the three months ended March 31, 2025, cash flows provided by operating activities decreased $51 million, due to normal business operations, primarily relating to decreases in accounts payable and accrued liabilities, partially offset by an increase in net income.

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 Three Months Ended March 31,
(In millions)			2025						2024
Capital expenditures			$	(548)					$	(609)
Acquisitions, net of cash acquired			(3)						(86)
Removal costs from property, plant and equipment retirements, net			(29)						(38)
Purchases of available-for-sale fixed-income securities			(27)						—
Proceeds from sales and maturities of available-for-sale fixed-income securities			39						—
Net cash used in investing activities			$	(568)					$	(733)

For the three months ended March 31, 2025, cash flows used in investing activities decreased $165 million, primarily due to lower capital expenditures and fewer acquisitions in the current period. The Company plans to invest approximately $3.3 billion on growth through capital investment in infrastructure and acquisitions in the Regulated Businesses in 2025.

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 Three Months Ended March 31,
(In millions)			2025						2024
Proceeds from long-term debt, net of discount			$	810					$	1,391
Repayments of long-term debt			(531)						(449)
Net short-term borrowings (repayments) with original maturities less than three months			120						(179)
Debt issuance costs			(5)						(14)
Dividends paid			(149)						(138)
Other financing activities, net (a)			9						2
Net cash provided by financing activities			$	254					$	613

(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 three months ended March 31, 2025, cash flows provided by financing activities decreased $359 million, primarily due to lower proceeds from the issuance of long-term debt and higher repayments of long-term debt. These decreases were partially offset by higher short-term commercial paper borrowings in the current period, compared to repayments of commercial paper in 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 March 31, 2025, the Company’s ratio was 0.58 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 April 30, 2025, as issued by Moody’s Ratings on January 23, 2025, and S&P Global Ratings on April 4, 2025:

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.