filings.toolsItem 1. CONSOLIDATED FINANCIAL STATEMENTS
150K characters. Original on sec.gov · Markdown
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
| June 30, 2025 | December 31, 2024 | ||||||||||
| ASSETS | |||||||||||
| Property, plant and equipment | $ | 36,137 | $ | 35,059 | |||||||
| Accumulated depreciation | (7,205) | (7,021) | |||||||||
| Property, plant and equipment, net | 28,932 | 28,038 | |||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | 94 | 96 | |||||||||
| Restricted funds | 17 | 29 | |||||||||
| Accounts receivable, net of allowance for uncollectible accounts of $56 and $53, respectively | 424 | 416 | |||||||||
| Income tax receivable | 25 | 25 | |||||||||
| Unbilled revenues | 434 | 315 | |||||||||
| Materials and supplies | 109 | 103 | |||||||||
| Other | 296 | 231 | |||||||||
| Total current assets | 1,399 | 1,215 | |||||||||
| Regulatory and other long-term assets: | |||||||||||
| Regulatory assets | 1,178 | 1,150 | |||||||||
| Secured seller promissory note from the sale of the Homeowner Services Group | 795 | 795 | |||||||||
| Operating lease right-of-use assets | 89 | 89 | |||||||||
| Goodwill | 1,151 | 1,144 | |||||||||
| Other | 369 | 399 | |||||||||
| Total regulatory and other long-term assets | 3,582 | 3,577 | |||||||||
| Total assets | $ | 33,913 | $ | 32,830 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
| June 30, 2025 | December 31, 2024 | ||||||||||
| CAPITALIZATION AND LIABILITIES | |||||||||||
| Capitalization: | |||||||||||
| Common stock ($0.01 par value; 500,000,000 shares authorized; 200,551,058 and 200,371,701 shares issued, respectively) | $ | 2 | $ | 2 | |||||||
| Paid-in-capital | 8,621 | 8,598 | |||||||||
| Retained earnings | 2,445 | 2,112 | |||||||||
| Accumulated other comprehensive income | 5 | 12 | |||||||||
| Treasury stock, at cost (5,452,694 and 5,451,216 shares, respectively) | (391) | (392) | |||||||||
| Total common shareholders' equity | 10,682 | 10,332 | |||||||||
| Long-term debt | 12,278 | 12,518 | |||||||||
| Redeemable preferred stock at redemption value | 3 | 3 | |||||||||
| Total long-term debt | 12,281 | 12,521 | |||||||||
| Total capitalization | 22,963 | 22,853 | |||||||||
| Current liabilities: | |||||||||||
| Short-term debt | 1,589 | 879 | |||||||||
| Current portion of long-term debt | 1,119 | 637 | |||||||||
| Accounts payable | 306 | 346 | |||||||||
| Accrued liabilities | 569 | 791 | |||||||||
| Accrued taxes | 107 | 156 | |||||||||
| Accrued interest | 119 | 111 | |||||||||
| Other | 182 | 230 | |||||||||
| Total current liabilities | 3,991 | 3,150 | |||||||||
| Regulatory and other long-term liabilities: | |||||||||||
| Advances for construction | 410 | 383 | |||||||||
| Deferred income taxes and investment tax credits | 2,990 | 2,881 | |||||||||
| Regulatory liabilities | 1,420 | 1,416 | |||||||||
| Operating lease liabilities | 77 | 76 | |||||||||
| Accrued pension expense | 207 | 217 | |||||||||
| Other | 255 | 277 | |||||||||
| Total regulatory and other long-term liabilities | 5,359 | 5,250 | |||||||||
| Contributions in aid of construction | 1,600 | 1,577 | |||||||||
| Commitments and contingencies (See Note 11) | |||||||||||
| Total capitalization and liabilities | $ | 33,913 | $ | 32,830 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)
| Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Operating revenues | $ | 1,276 | $ | 1,149 | $ | 2,418 | $ | 2,160 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Operation and maintenance | 480 | 427 | 948 | 843 | |||||||||||||||||||
| Depreciation and amortization | 221 | 193 | 437 | 381 | |||||||||||||||||||
| General taxes | 86 | 81 | 173 | 162 | |||||||||||||||||||
| Other | — | (1) | — | (1) | |||||||||||||||||||
| Total operating expenses, net | 787 | 700 | 1,558 | 1,385 | |||||||||||||||||||
| Operating income | 489 | 449 | 860 | 775 | |||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||
| Interest expense | (151) | (131) | (295) | (255) | |||||||||||||||||||
| Interest income | 22 | 25 | 44 | 49 | |||||||||||||||||||
| Non-operating benefit costs, net | 4 | 7 | 8 | 16 | |||||||||||||||||||
| Other, net | 12 | 11 | 29 | 18 | |||||||||||||||||||
| Total other (expense) income | (113) | (88) | (214) | (172) | |||||||||||||||||||
| Income before income taxes | 376 | 361 | 646 | 603 | |||||||||||||||||||
| Provision for income taxes | 87 | 84 | 152 | 141 | |||||||||||||||||||
| Net income attributable to common shareholders | $ | 289 | $ | 277 | $ | 494 | $ | 462 | |||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Net income attributable to common shareholders | $ | 1.48 | $ | 1.42 | $ | 2.53 | $ | 2.37 | |||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Net income attributable to common shareholders | $ | 1.48 | $ | 1.42 | $ | 2.53 | $ | 2.37 | |||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||
| Basic | 195 | 195 | 195 | 195 | |||||||||||||||||||
| Diluted | 195 | 195 | 195 | 195 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income attributable to common shareholders | $ | 289 | $ | 277 | $ | 494 | $ | 462 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Defined benefit pension plan actuarial loss, net of tax of $0 for the three months ended June 30, 2025 and 2024, respectively and $0 for the six months ended June 30, 2025 and 2024, respectively | 1 | 1 | 1 | 1 | |||||||||||||||||||
| Unrealized gain (loss) on cash flow hedges, net of tax of $1 and $0 for the three months ended June 30, 2025 and 2024, respectively and $(2) and $3 for the six months ended June 30, 2025 and 2024, respectively | 3 | — | (5) | 19 | |||||||||||||||||||
| Unrealized loss on available-for-sale fixed-income securities, net of tax of $0 for the three months ended June 30, 2025 and 2024, and $(1) and $1 for the six months ended June 30, 2025 and 2024, respectively | (1) | — | (3) | (1) | |||||||||||||||||||
| Net other comprehensive income (loss) | 3 | 1 | (7) | 19 | |||||||||||||||||||
| Comprehensive income attributable to common shareholders | $ | 292 | $ | 278 | $ | 487 | $ | 481 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
| For the Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 494 | $ | 462 | |||||||
| Adjustments to reconcile to net cash flows provided by operating activities: | |||||||||||
| Depreciation and amortization | 437 | 381 | |||||||||
| Deferred income taxes and amortization of investment tax credits | 51 | 37 | |||||||||
| Provision for losses on accounts receivable | 19 | 8 | |||||||||
| Pension and non-pension postretirement benefits | (2) | (1) | |||||||||
| Other non-cash, net | (36) | (27) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables and unbilled revenues | (146) | (96) | |||||||||
| Income tax receivable | — | 69 | |||||||||
| Pension contributions | (22) | (22) | |||||||||
| Accounts payable and accrued liabilities | (59) | (79) | |||||||||
| Accrued taxes | (42) | 45 | |||||||||
| Other assets and liabilities, net | (62) | (50) | |||||||||
| Net cash provided by operating activities | 632 | 727 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | (1,281) | (1,279) | |||||||||
| Acquisitions, net of cash acquired | (13) | (119) | |||||||||
| Removal costs from property, plant and equipment retirements, net | (71) | (73) | |||||||||
| Purchases of available-for-sale fixed-income securities | (35) | — | |||||||||
| Proceeds from sales and maturities of available-for-sale fixed-income securities | 60 | — | |||||||||
| Net cash used in investing activities | (1,340) | (1,471) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from long-term debt, net of discount | 876 | 1,403 | |||||||||
| Repayments of long-term debt | (606) | (466) | |||||||||
| Net short-term borrowings (repayments) with original maturities less than three months | 710 | (179) | |||||||||
| Advances and contributions in aid of construction, net of refunds of $16 and $16 for the six months ended June 30, 2025 and 2024, respectively | 35 | 18 | |||||||||
| Debt issuance costs | (7) | (13) | |||||||||
| Dividends paid | (311) | (287) | |||||||||
| Other, net | 6 | 2 | |||||||||
| Net cash provided by financing activities | 703 | 478 | |||||||||
| Net decrease in cash, cash equivalents and restricted funds | (5) | (266) | |||||||||
| Cash, cash equivalents and restricted funds at beginning of period | 140 | 364 | |||||||||
| Cash, cash equivalents and restricted funds at end of period | $ | 135 | $ | 98 | |||||||
| Non-cash investing activity: | |||||||||||
| Capital expenditures acquired on account but unpaid as of the end of period | $ | 299 | $ | 375 | |||||||
| Acquisition financed by treasury stock | $ | 7 | $ | — | |||||||
| Non-cash financing activity: | |||||||||||
| Settlements of long-term debt | $ | 27 | $ | — |
The accompanying notes are an integral part of these Consolidated Financial Statements.
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(In millions)
| Common Stock | Paid-in-Capital | Retained Earnings | Accumulated Other Comprehensive Income | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | At Cost | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | 200.4 | $ | 2 | $ | 8,598 | $ | 2,112 | $ | 12 | (5.5) | $ | (392) | $ | 10,332 | |||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | 205 | — | — | — | 205 | |||||||||||||||||||||||||||||||||||||||
| Common stock issuances (a) | 0.1 | — | 13 | — | — | — | (6) | 7 | |||||||||||||||||||||||||||||||||||||||
| Net other comprehensive loss | — | — | — | — | (10) | — | — | (10) | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | 200.5 | $ | 2 | $ | 8,611 | $ | 2,317 | $ | 2 | (5.5) | $ | (398) | $ | 10,534 | |||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | 289 | — | — | — | 289 | |||||||||||||||||||||||||||||||||||||||
| Common stock issuances (a) | — | — | 10 | — | — | — | — | 10 | |||||||||||||||||||||||||||||||||||||||
| Acquisitions via treasury stock | — | — | — | — | — | — | 7 | 7 | |||||||||||||||||||||||||||||||||||||||
| Net other comprehensive income | — | — | — | — | 3 | — | — | 3 | |||||||||||||||||||||||||||||||||||||||
| Dividends ($0.8275 declared per common share) | — | — | — | (161) | — | — | — | (161) | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | 200.5 | $ | 2 | $ | 8,621 | $ | 2,445 | $ | 5 | (5.5) | $ | (391) | $ | 10,682 | |||||||||||||||||||||||||||||||||
(a)Includes stock-based compensation, employee stock purchase plan and dividend reinvestment and direct stock purchase plan activity.
| Common Stock | Paid-in-Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | At Cost | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 200.1 | $ | 2 | $ | 8,550 | $ | 1,659 | $ | (26) | (5.5) | $ | (388) | $ | 9,797 | |||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | 185 | — | — | — | 185 | |||||||||||||||||||||||||||||||||||||||
| Common stock issuances (a) | 0.2 | — | 11 | — | — | — | (4) | 7 | |||||||||||||||||||||||||||||||||||||||
| Net other comprehensive income | — | — | — | — | 18 | — | — | 18 | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | 200.3 | $ | 2 | $ | 8,561 | $ | 1,844 | $ | (8) | (5.5) | $ | (392) | $ | 10,007 | |||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | 277 | — | — | — | 277 | |||||||||||||||||||||||||||||||||||||||
| Common stock issuances (a) | — | — | 17 | — | — | — | — | 17 | |||||||||||||||||||||||||||||||||||||||
| Net other comprehensive income | — | — | — | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||||||||||||
| Dividends ($0.7650 declared per common share) | — | — | — | (150) | — | — | — | (150) | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | 200.3 | $ | 2 | $ | 8,578 | $ | 1,971 | $ | (7) | (5.5) | $ | (392) | $ | 10,152 | |||||||||||||||||||||||||||||||||
(a)Includes stock-based compensation, employee stock purchase plan and dividend reinvestment and direct stock purchase plan activity.
The accompanying notes are an integral part of these Consolidated Financial Statements.
American Water Works Company, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
(Unless otherwise noted, in millions, except per share data)
Note 1: Basis of Presentation
The unaudited Consolidated Financial Statements included in this report include the accounts of American Water Works Company, Inc. and all of its subsidiaries (the “Company” or “American Water”), in which a controlling interest is maintained after the elimination of intercompany balances and transactions. References to “parent company” mean American Water Works Company, Inc., without its subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting, and the rules and regulations for reporting on Quarterly Reports on Form 10-Q (“Form 10-Q”). Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. In the opinion of management, all adjustments necessary for a fair statement of the financial position as of June 30, 2025, and the results of operations and cash flows for all periods presented, have been made. All adjustments are of a normal, recurring nature, except as otherwise disclosed.
The unaudited Consolidated Financial Statements and Notes included in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (“Form 10-K”), which provides a more complete discussion of the Company’s accounting policies, financial position, operating results and other matters. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year, primarily due to the seasonality of the Company’s operations.
Note 2: Significant Accounting Policies
New Accounting Standards
Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of June 30, 2025:
| Standard | Description | Date of Adoption | Application | Effect on the Consolidated Financial Statements | ||||||||||||||||||||||
| Income Taxes | The guidance in this standard requires disclosure of a tax rate reconciliation table, in both percentages and reporting currency amounts, which includes additional categories of information about federal, state, and foreign income taxes and provides further details about reconciling items in certain categories that meet a quantitative threshold. The guidance also requires an annual disclosure of income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes paid, and further disaggregated by jurisdiction based on a quantitative threshold. The standard includes other disclosure requirements and eliminates certain existing disclosure requirements. | Annual periods beginning after December 15, 2024 | Prospective, with retrospective application also permitted. | The Company is evaluating the impact on its Consolidated Financial Statements. | ||||||||||||||||||||||
| Income Statement Disaggregation | The guidance in this standard enhances disclosures related to income statement expenses to further disaggregate expenses in the footnotes to the financial statements. The standard requires disaggregation of any relevant expense caption presented on the face of the income statement that contains the following expense categories: purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion. Further, the standard requires disclosure of the total amount and the entity’s definition of selling expenses. | Annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027 | Prospective, with retrospective application also permitted. | The Company is evaluating the impact on its Consolidated Financial Statements and the timing of adoption. | ||||||||||||||||||||||
| Induced Conversions of Convertible Debt Instruments | The guidance in this standard clarifies the requirements for determining whether to account for certain settlements of convertible debt instruments as induced conversions or extinguishments. The guidance requires an entity to account for a settlement as an induced conversion if the inducement offer includes the issuance of all of the consideration issuable under the conversion privileges provided in the terms of the existing convertible debt instrument. | Annual periods beginning after December 15, 2025 and interim reporting period within those annual reporting periods | Prospective, with retrospective application also permitted. | The Company is evaluating the impact on its Consolidated Financial Statements and the timing of adoption. |
Property, Plant and Equipment
The New Jersey Economic Development Authority (“NJEDA”) determined that the Company was qualified to receive $161 million in tax credits in connection with its capital investment in its corporate headquarters in Camden, New Jersey. The Company was qualified to receive the tax credits over a 10-year period commencing in 2019.
In the first quarter of 2024, the NJEDA issued the utilization certificate for the 2021 tax credits to the Company in the amount of $16 million. The Company sold the tax credits to an external party for $15 million. As of June 30, 2025, the Company had current assets of $15 million included in Other and $75 million of long-term assets included in Other on the Consolidated Balance Sheets for the 2023 through 2028 tax credits. As of December 31, 2024, the Company had no current assets and $90 million of long-term assets included in Other on the Consolidated Balance Sheets for the 2023 through 2028 tax credits. The Company has made the necessary annual filings for the years ended December 31, 2024 and 2023. The submitted filings are under review by the NJEDA and it is expected that the Company will receive final NJEDA approval and monetize the 2023 tax credits in 2025 and the 2024 tax credits in 2026.
Cash, Cash Equivalents and Restricted Funds
Presented in the table below is a reconciliation of the cash and cash equivalents and restricted funds amounts as presented on the Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended June 30:
| 2025 | 2024 | ||||||||||
| Cash and cash equivalents | $ | 94 | $ | 48 | |||||||
| Restricted funds | 17 | 50 | |||||||||
| Restricted funds included in other long-term assets | 24 | — | |||||||||
| Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows | $ | 135 | $ | 98 |
Allowance for Uncollectible Accounts
Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowance for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding.
Presented in the table below are the changes in the allowance for uncollectible accounts for the six months ended June 30:
| 2025 | 2024 | ||||||||||
| Balance as of January 1 | $ | (53) | $ | (51) | |||||||
| Amounts charged to expense | (19) | (8) | |||||||||
| Amounts written off | 16 | 11 | |||||||||
| Balance as of June 30 | $ | (56) | $ | (48) |
Reclassifications
Certain reclassifications have been made to prior periods in the Consolidated Financial Statements and Notes to conform to the current presentation.
Note 3: 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 are 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.
| Effective Date | Amount | ||||||||||
| General rate cases by state: | |||||||||||
| Hawaii | August 2025 (a) | $ | 1 | ||||||||
| Iowa | August 1, 2025 (b) | 13 | |||||||||
| Missouri | May 28, 2025 | 63 | |||||||||
| Indiana, Step Increase | May 14, 2025 | 17 | |||||||||
| Virginia | February 24, 2025 (c) | 15 | |||||||||
| Tennessee | January 21, 2025 | 1 | |||||||||
| Illinois | January 1, 2025 | 105 | |||||||||
| California, Step Increase | January 1, 2025 | 17 | |||||||||
| Total general rate case authorizations | $ | 232 |
(a)New rates are expected to be effective in early August 2025, upon filing the revised tariff sheets and rate schedules.
(b)Interim rates of $5 million were effective May 11, 2024. The Iowa Utilities Commission issued its final order on May 21, 2025.
(c)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 July 24, 2025, the Hawaii Public Utilities Commission issued a final order adopting the settlement agreement filed by the Company’s Hawaii subsidiary on April 25, 2025, with respect to its general rate case filed on August 2, 2024. The final order approves 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%. New rates are expected to be effective in early August 2025, upon filing the revised tariff sheets and rate schedules.
On May 21, 2025, the Iowa Utilities Commission issued a final order approving the adjustment of base rates requested in a general rate case originally filed on May 1, 2024, by the Company’s Iowa subsidiary. The general rate case order approved a $13 million annualized increase in water and wastewater system revenues, excluding infrastructure surcharges of $1 million, based on an authorized return on equity of 9.60%, authorized rate base of $262 million, and a capital structure with a common equity component of 52.57% and a long-term debt component of 47.43%. The requested annualized revenue increase was driven primarily by over $157 million of capital investments made and expected to be made by the Iowa subsidiary through March 2026. Interim rates of $5 million were effective May 11, 2024, with the remaining increase in annualized water and wastewater system revenues of $8 million effective on August 1, 2025.
On May 14, 2025, the Company’s Indiana subsidiary’s third step increase of $17 million in annualized water and wastewater system revenues became effective. The Indiana subsidiary filed the general rate case on March 31, 2023, and on February 14, 2024, the Indiana Utility Regulatory Commission issued an order that approved a $65 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges. The annualized revenue increase included three step increases, with $25 million of the increase included in rates in February 2024, $23 million in May 2024, and $17 million in May 2025.
On May 7, 2025, the Missouri Public Service Commission (the “MoPSC”) issued an order approving without modification the stipulation and agreement (the “Stipulation”) with respect to a general rate case filed on July 1, 2024, by the Company’s Missouri subsidiary. The Stipulation was entered into on March 17, 2025, with parties including the staff of the MoPSC and the Office of the Public Counsel. The general rate case order approves a $63 million annualized increase in water and wastewater revenues, excluding $63 million in infrastructure surcharges. The requested annualized revenue increase was driven primarily by $1.1 billion of capital investments completed by the Missouri subsidiary from January 2023 through May 2025. For purposes of the general rate case, the Missouri subsidiary’s view of its rate base is $3.2 billion, and its view as to its return on equity and common equity ratio (each of which has been determined based on the order but was not disclosed therein) is 9.75% and 50.00%, respectively.
On February 24, 2025, the Virginia State Corporation Commission 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 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 completed and planned by the Tennessee subsidiary through December 2025.
On January 14, 2025, the California Public Utilities Commission (the “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 increase was effective January 1, 2025, and is driven primarily by approximately $557 million in capital investments completed and planned 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, and on May 23, 2025, the CPUC issued its decision denying the application for rehearing.
Pending General Rate Case Filings
On July 1, 2025, the Company’s California subsidiary filed an application with the CPUC to set new water and wastewater rates in each of its service areas for 2027 through 2029. The application is seeking an increase of $63 million compared to authorized 2025 revenue, and a total increase in revenue over the 2027 to 2029 period of $111 million. The requested annualized incremental revenue is driven primarily by approximately $750 million of capital investments completed and planned by the California subsidiary through 2025 to 2028. If approved by the CPUC, the new rates would take effect on January 1, 2027. The application also requests approval of a Fixed Cost Recovery Account, which is intended to be a full decoupling mechanism that would allow the Company’s California subsidiary to recover authorized fixed costs, regardless of sales volume, while also providing incentives, via progressive conservation-oriented rate design, for customers to use water more efficiently. Independent of the pending rate case, California Senate Bill 473, which requires the CPUC to ensure variances between forecasted and actual sales do not result in material overcollections or undercollections by water corporations, has passed out of the California Senate and is currently awaiting action in the California Assembly Appropriations Committee.
On May 16, 2025, the Company’s Kentucky subsidiary filed a general rate case requesting approximately $27 million in annualized incremental revenues, excluding infrastructure surcharges of $10 million, which is based on a proposed return on equity of 10.75% and a proposed capital structure with a common equity component of 52.26% and a debt component of 47.74%. The requested annualized incremental revenue is being driven primarily by approximately $212 million of capital investments completed and planned by the Kentucky subsidiary from February 2025 through December 2026. As provided by statutory authority, the Kentucky subsidiary anticipates that it will put into effect proposed rates on an interim basis seven months after the filing of this case, or December 16, 2025, and the difference between the interim and final approved rates will be subject to refund. The request is subject to approval by the Kentucky Public Service Commission, and the general rate case is expected to be completed by the end of the first quarter of 2026.
On May 5, 2025, the Company’s West Virginia subsidiary filed a general rate case requesting approximately $48 million in aggregate annualized incremental revenues, excluding infrastructure surcharges of $13 million, which would include two step increases, with $33 million to be included in rates in March 2026, and $15 million to be included in rates in March 2027. The request is based on a proposed return on equity of 10.75% and a capital structure with an equity component of 50.80% and 50.97%, respectively, for each of the two steps. The requested annualized incremental revenue is driven primarily by more than $300 million of capital investments completed and planned by the West Virginia subsidiary from March 2024 through February 2027. The request is subject to approval by the Public Service Commission of West Virginia, and the general rate case is expected to be completed by the end of February 2026.
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:
| Effective Date | Amount | ||||||||||
| Infrastructure surcharges by state: | |||||||||||
| New Jersey | May 30, 2025 | $ | 15 | ||||||||
| Missouri | February 7, 2025 | 17 | |||||||||
| Kentucky | January 1, 2025 | 2 | |||||||||
| West Virginia | January 1, 2025 | 4 | |||||||||
| Total infrastructure surcharge authorizations | $ | 38 |
Pending Infrastructure Surcharge Filings
On June 30, 2025, the Company’s West Virginia subsidiary filed an infrastructure surcharge proceeding requesting $3 million in additional annualized revenues.
Other Regulatory Matters
The Pennsylvania Public Utility Commission (the “PaPUC”), as part of its July 22, 2024, approval of the general rate case filed by the Company’s Pennsylvania subsidiary on November 8, 2023, 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. The PaPUC is expected to conclude the investigation in the third quarter of 2025.
Note 4: Revenue Recognition
Disaggregated Revenues
The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” The Company also operates other businesses 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.”
Presented in the table below are operating revenues disaggregated for the three months ended June 30, 2025:
| Revenues from Contracts with Customers | Other Revenues Not from Contracts with Customers (a) | Total Operating Revenues | |||||||||||||||
| Regulated Businesses: | |||||||||||||||||
| Water services: | |||||||||||||||||
| Residential | $ | 637 | $ | — | $ | 637 | |||||||||||
| Commercial | 243 | — | 243 | ||||||||||||||
| Fire service | 48 | — | 48 | ||||||||||||||
| Industrial | 46 | — | 46 | ||||||||||||||
| Public and other | 78 | — | 78 | ||||||||||||||
| Total water services | 1,052 | — | 1,052 | ||||||||||||||
| Wastewater services: | |||||||||||||||||
| Residential | 71 | — | 71 | ||||||||||||||
| Commercial | 21 | — | 21 | ||||||||||||||
| Industrial | 5 | — | 5 | ||||||||||||||
| Public and other | 10 | — | 10 | ||||||||||||||
| Total wastewater services | 107 | — | 107 | ||||||||||||||
| Miscellaneous utility charges | 14 | — | 14 | ||||||||||||||
| Alternative revenue programs | — | 4 | 4 | ||||||||||||||
| Lease contract revenue | — | 1 | 1 | ||||||||||||||
| Total Regulated Businesses | 1,173 | 5 | 1,178 | ||||||||||||||
| Other | 99 | (1) | 98 | ||||||||||||||
| Total operating revenues | $ | 1,272 | $ | 4 | $ | 1,276 |
(a)Includes revenues associated with alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of Accounting Standards Codification Topic 606, Revenue From Contracts With Customers (“ASC 606”), and accounted for under other existing GAAP.
Presented in the table below are operating revenues disaggregated for the three months ended June 30, 2024:
| Revenues from Contracts with Customers | Other Revenues Not from Contracts with Customers (a) | Total Operating Revenues | |||||||||||||||
| Regulated Businesses: | |||||||||||||||||
| Water services: | |||||||||||||||||
| Residential | $ | 579 | $ | 1 | $ | 580 | |||||||||||
| Commercial | 216 | 1 | 217 | ||||||||||||||
| Fire service | 41 | — | 41 | ||||||||||||||
| Industrial | 46 | — | 46 | ||||||||||||||
| Public and other | 68 | — | 68 | ||||||||||||||
| Total water services | 950 | 2 | 952 | ||||||||||||||
| Wastewater services: | |||||||||||||||||
| Residential | 60 | — | 60 | ||||||||||||||
| Commercial | 16 | — | 16 | ||||||||||||||
| Industrial | 3 | — | 3 | ||||||||||||||
| Public and other | 9 | — | 9 | ||||||||||||||
| Total wastewater services | 88 | — | 88 | ||||||||||||||
| Miscellaneous utility charges | 10 | — | 10 | ||||||||||||||
| Alternative revenue programs | — | 5 | 5 | ||||||||||||||
| Lease contract revenue | — | 2 | 2 | ||||||||||||||
| Total Regulated Businesses | 1,048 | 9 | 1,057 | ||||||||||||||
| Other | 92 | — | 92 | ||||||||||||||
| Total operating revenues | $ | 1,140 | $ | 9 | $ | 1,149 |
(a)Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of ASC 606, and accounted for under other existing GAAP.
Presented in the table below are operating revenues disaggregated for the six months ended June 30, 2025:
| Revenues from Contracts with Customers | Other Revenues Not from Contracts with Customers (a) | Total Operating Revenues | |||||||||||||||
| Regulated Businesses: | |||||||||||||||||
| Water services: | |||||||||||||||||
| Residential | $ | 1,197 | $ | — | $ | 1,197 | |||||||||||
| Commercial | 455 | — | 455 | ||||||||||||||
| Fire service | 93 | — | 93 | ||||||||||||||
| Industrial | 91 | — | 91 | ||||||||||||||
| Public and other | 145 | — | 145 | ||||||||||||||
| Total water services | 1,981 | — | 1,981 | ||||||||||||||
| Wastewater services: | |||||||||||||||||
| Residential | 139 | — | 139 | ||||||||||||||
| Commercial | 39 | — | 39 | ||||||||||||||
| Industrial | 10 | — | 10 | ||||||||||||||
| Public and other | 20 | — | 20 | ||||||||||||||
| Total wastewater services | 208 | — | 208 | ||||||||||||||
| Miscellaneous utility charges | 25 | — | 25 | ||||||||||||||
| Alternative revenue programs | — | 10 | 10 | ||||||||||||||
| Lease contract revenue | — | 3 | 3 | ||||||||||||||
| Total Regulated Businesses | 2,214 | 13 | 2,227 | ||||||||||||||
| Other | 192 | (1) | 191 | ||||||||||||||
| Total operating revenues | $ | 2,406 | $ | 12 | $ | 2,418 |
(a)Includes revenues associated with alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of ASC 606, and accounted for under other existing GAAP.
Presented in the table below are operating revenues disaggregated for the six months ended June 30, 2024:
| Revenues from Contracts with Customers | Other Revenues Not from Contracts with Customers (a) | Total Operating Revenues | |||||||||||||||
| Regulated Businesses: | |||||||||||||||||
| Water services: | |||||||||||||||||
| Residential | $ | 1,083 | $ | 1 | $ | 1,084 | |||||||||||
| Commercial | 403 | 1 | 404 | ||||||||||||||
| Fire service | 82 | — | 82 | ||||||||||||||
| Industrial | 88 | — | 88 | ||||||||||||||
| Public and other | 124 | — | 124 | ||||||||||||||
| Total water services | 1,780 | 2 | 1,782 | ||||||||||||||
| Wastewater services: | |||||||||||||||||
| Residential | 119 | — | 119 | ||||||||||||||
| Commercial | 32 | — | 32 | ||||||||||||||
| Industrial | 5 | — | 5 | ||||||||||||||
| Public and other | 17 | — | 17 | ||||||||||||||
| Total wastewater services | 173 | — | 173 | ||||||||||||||
| Miscellaneous utility charges | 19 | — | 19 | ||||||||||||||
| Alternative revenue programs | — | 7 | 7 | ||||||||||||||
| Lease contract revenue | — | 4 | 4 | ||||||||||||||
| Total Regulated Businesses | 1,972 | 13 | 1,985 | ||||||||||||||
| Other | 175 | — | 175 | ||||||||||||||
| Total operating revenues | $ | 2,147 | $ | 13 | $ | 2,160 |
(a)Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of ASC 606, and accounted for under other existing GAAP.
Contract Balances
Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings, and cash collections. In the Company’s Military Services Group (“MSG”), certain contracts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Contract assets are recorded when billing occurs subsequent to revenue recognition and are reclassified to accounts receivable when billed and the right to consideration becomes unconditional. Contract liabilities are recorded when the Company receives advances from customers prior to satisfying contractual performance obligations, particularly for construction contracts, and are recognized as revenue when the associated performance obligations are satisfied.
Contract assets of $149 million and $84 million are included in unbilled revenues on the Consolidated Balance Sheets as of June 30, 2025, and December 31, 2024, respectively. Also, contract assets of $5 million and $39 million are included in other long-term assets on the Consolidated Balance Sheets as of June 30, 2025, and December 31, 2024, respectively. Contract liabilities of $25 million and $40 million are included in other current liabilities on the Consolidated Balance Sheets as of June 30, 2025, and December 31, 2024, respectively. Also, contract liabilities of $24 million and $14 million are included in other long-term liabilities on the Consolidated Balance Sheets as of June 30, 2025, and December 31, 2024, respectively. Revenues recognized for the six months ended June 30, 2025 and 2024, from amounts included in contract liabilities were $46 million and $49 million, respectively.
Remaining Performance Obligations
Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future from contracts that are in progress. The Company enters into agreements for the provision of services to water and wastewater facilities for the U.S. military, municipalities and other customers. As of June 30, 2025, the Company’s operation and maintenance (“O&M”) and capital improvement contracts have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and 2073 and have RPOs of $7.4 billion as of June 30, 2025, as measured by estimated remaining contract revenue. Such contracts are subject to customary termination provisions held by the U.S. government, prior to the agreed-upon contract expiration. Contracts with municipalities and commercial customers expire between 2026 and 2038 and have RPOs of $560 million as of June 30, 2025, as measured by estimated remaining contract revenue.
Note 5: Acquisitions and Divestitures
Regulated Businesses
Closed Acquisitions
During the six months ended June 30, 2025, the Company closed on seven acquisitions of various regulated water and wastewater systems for a total aggregate purchase price of $18 million, which added approximately 7,600 water and wastewater customers. This includes the Company’s acquisition of the Audubon Water Company effective May 28, 2025, for a total consideration of $7 million, in the form of 48,702 shares of parent company common stock. Assets acquired from the seven acquisitions, principally utility plant, totaled $17 million and liabilities assumed totaled $6 million. The Company recorded goodwill of $7 million associated with three of its acquisitions, which is reported in the Company’s Regulated Businesses segment. Four of these acquisitions were accounted for as a business combination and the purchase price allocation will be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date.
The pro forma impact of the Company’s business combinations was not material to the Consolidated Statements of Operations for the periods ended June 30, 2025 and 2024.
Secured Seller Promissory Note from the Sale of Homeowner Services Group
On December 9, 2021 (the “Closing Date”), the Company sold all of the equity interests in subsidiaries that comprised the Homeowner Services Group (“HOS”) to a wholly owned subsidiary (the “Buyer”) of funds advised by Apax Partners LLP, a global private equity advisory firm, for total consideration of approximately $1.275 billion. The outstanding consideration as of June 30, 2025, is a secured seller note payable in cash and issued by the Buyer in the principal amount of $795 million, with an interest rate of 10.00% per year. The Company recognized $20 million of interest income during each of the three months ended June 30, 2025 and 2024, and $40 million and $37 million of interest income during the six months ended June 30, 2025 and 2024, respectively, from the secured seller note. The final maturity date of the secured seller note is December 9, 2026.
The secured seller note may not be repaid at the Buyer’s election (except in certain limited circumstances) before the fourth anniversary of the Closing Date. If the Buyer seeks to repay the secured seller note in breach of this non-call provision, an event of default will occur under the secured seller note and the Company may, among other actions, demand repayment in full together with a premium of 105.5% of the outstanding principal amount of the loan and a customary “make-whole” payment.
Note 6: Shareholders’ Equity
Accumulated Other Comprehensive Loss
Presented in the table below are the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended June 30, 2025 and 2024, respectively:
| Defined Benefit Pension Plans | Gain (Loss) on Cash Flow Hedges | Gain (Loss) on Fixed-Income Securities | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||
| Employee Benefit Plan Funded Status | Amortization of Prior Service Cost | Amortization of Actuarial Loss | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | (95) | $ | 1 | $ | 74 | $ | 22 | $ | — | $ | 2 | |||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | — | — | — | 3 | (1) | 2 | |||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | — | — | 1 | 3 | (1) | 3 | |||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | $ | (95) | $ | 1 | $ | 75 | $ | 25 | $ | (1) | $ | 5 | |||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | (96) | $ | 1 | $ | 74 | $ | 10 | $ | 3 | $ | (8) | |||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | — | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | (96) | $ | 1 | $ | 75 | $ | 10 | $ | 3 | $ | (7) |
Presented in the table below are the changes in accumulated other comprehensive income (loss) by component, net of tax, for the six months ended June 30, 2025 and 2024, respectively:
| Defined Benefit Pension Plans | Gain (Loss) on Cash Flow Hedges | Gain (Loss) on Fixed-Income Securities | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||
| Employee Benefit Plan Funded Status | Amortization of Prior Service Cost | Amortization of Actuarial Loss | |||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | (95) | $ | 1 | $ | 74 | $ | 30 | $ | 2 | $ | 12 | |||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | — | — | — | (5) | 1 | (4) | |||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | — | 1 | — | (4) | (3) | |||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | — | — | 1 | (5) | (3) | (7) | |||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | $ | (95) | $ | 1 | $ | 75 | $ | 25 | $ | (1) | $ | 5 | |||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | (96) | $ | 1 | $ | 74 | $ | (9) | $ | 4 | $ | (26) | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | — | — | 19 | (1) | 18 | |||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | — | — | 1 | 19 | (1) | 19 | |||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | (96) | $ | 1 | $ | 75 | $ | 10 | $ | 3 | $ | (7) |
The Company does not reclassify the amortization of defined benefit pension cost components from accumulated other comprehensive income (loss) directly to net income in its entirety, as a portion of these costs have been deferred as a regulatory asset. These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost.
The amortization of the gain (loss) on cash flow hedges is reclassified to net income during the period incurred and is included in Interest expense in the accompanying Consolidated Statements of Operations.
An unrealized gain (loss) on available-for-sale fixed-income securities is reclassified to net income upon sale of the securities as a realized gain or loss and is included in Other, net in the accompanying Consolidated Statements of Operations.
Dividends
On June 3, 2025, the Company paid a quarterly cash dividend of $0.8275 per share to shareholders of record as of May 13, 2025.
On July 30, 2025, the Company’s Board of Directors declared a quarterly cash dividend payment of $0.8275 per share, payable on September 3, 2025, to shareholders of record as of August 12, 2025. Future dividends, when and as declared at the discretion of the Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other factors. See Note 9—Shareholders’ Equity in the Notes to Consolidated Financial Statements in the Company’s Form 10-K for additional information regarding the payment of dividends on the Company’s common stock.
Note 7: Long-Term Debt
On February 27, 2025, American Water Capital Corp. (“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.
In addition to the notes issued by AWCC as described above, during the six months ended June 30, 2025, the Company’s regulated subsidiaries issued in the aggregate $79 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.00% to 3.71%, a weighted average interest rate of 2.47%, and maturity dates ranging from 2025 through 2054. The private activity bonds and government funded debt issued by the Company’s regulated subsidiaries during the six months ended June 30, 2025, were collateralized. During the six months ended June 30, 2025, AWCC and the Company’s regulated subsidiaries made sinking fund payments for, repaid at maturity, or settled $633 million in aggregate principal amount of outstanding long-term debt, with annual interest rates ranging from 0.00% to 8.58%, a weighted average interest rate of 2.97%, and maturity dates ranging from 2025 to 2061.
As of June 30, 2025, the Company had five treasury lock agreements, with a term of 30 years and an aggregate notional amount of $180 million, to reduce interest rate exposure on expected future debt issuances. These treasury lock agreements terminate in December 2025 and March 2026 and have an average fixed interest rate of 4.73%. In July 2025, the Company entered into four treasury lock agreements, with a term of 30 years and an aggregate notional amount of $170 million, to reduce interest rate exposure on expected future debt issuances. These treasury lock agreements terminate in September 2025 and have an average fixed interest rate of 4.93%. 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 May 2025, the Company terminated two treasury lock agreements designated as cash flow hedges, with a term of 30 years and an aggregate notional amount totaling $100 million, realizing a pre-tax net gain of $12 million recorded in accumulated other comprehensive income. The gain will reduce interest rate exposure on any future debt issuance in 2025 and will be amortized through Interest expense over a 30-year period, in accordance with the tenor of the notes.
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 and six months ended June 30, 2025 or 2024.
On June 29, 2023, AWCC issued $1,035 million aggregate principal amount of 3.625% Exchangeable Senior Notes due 2026 (the “Notes”). AWCC received net proceeds of approximately $1,022 million, after deduction of underwriting discounts and commissions but before deduction of offering expenses payable by AWCC. The Notes will mature on June 15, 2026 (the “Maturity Date”), unless earlier exchanged or repurchased. As of June 30, 2025, the Notes were included in Current portion of long-term debt on the Consolidated Balance Sheets.
The Notes are exchangeable at an initial exchange rate of 5.8213 shares of parent company's common stock per $1,000 principal amount of Notes (equivalent to an initial exchange price of approximately $171.78 per share of common stock). The initial exchange rate of the Notes is subject to adjustment as provided in the indenture pursuant to which the Notes were issued (the “Note Indenture”). Prior to the close of business on the business day immediately preceding March 15, 2026, the Notes are exchangeable at the option of the noteholders only upon the satisfaction of specified conditions and during certain periods described in the Note Indenture. On or after March 15, 2026, until the close of business on the business day immediately preceding the Maturity Date, the Notes will be exchangeable at the option of the noteholders at any time regardless of these conditions or periods. Upon any exchange of the Notes, AWCC will (i) pay cash up to the aggregate principal amount of the Notes and (ii) pay or deliver (or cause to be delivered), as the case may be, cash, shares of parent company's common stock, or a combination of cash and shares of such common stock, at AWCC's election, in respect of the remainder, if any, of AWCC’s exchange obligation in excess of the aggregate principal amount of the Notes being exchanged.
AWCC may not redeem the Notes prior to the Maturity Date, and no sinking fund is provided for the Notes. Subject to certain conditions, holders of the Notes will have the right to require AWCC to repurchase all or a portion of their Notes upon the occurrence of a fundamental change, as defined in the Note Indenture, at a repurchase price of 100% of their principal amount plus any accrued and unpaid interest.
Note 8: Short-Term Debt
Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, issuances of commercial paper and equity and, if and to the extent necessary, borrowings under the AWCC revolving credit facility. AWCC maintains an unsecured revolving credit facility which provides $2.75 billion in aggregate total commitments from a diversified group of financial institutions. The termination date of the credit agreement with respect to AWCC’s revolving credit facility is October 26, 2029. 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. Subject to satisfying certain conditions, the credit agreement permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million.
Short-term debt consists of commercial paper borrowings totaling $1,591 million and $880 million as of June 30, 2025, and December 31, 2024, respectively, or net of discount $1,589 million and $879 million as of June 30, 2025, and December 31, 2024, respectively. The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.59% and 4.65% at June 30, 2025, and December 31, 2024, respectively. At June 30, 2025, and December 31, 2024, AWCC had no outstanding borrowings under the revolving credit facility and there were no commercial paper borrowings outstanding with maturities greater than three months.
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 June 30, 2025 | |||||||||||||||||
| Commercial Paper Limit | Letters of Credit | Total (a) | |||||||||||||||
| Total availability | $ | 2,600 | $ | 150 | $ | 2,750 | |||||||||||
| Outstanding debt | (1,591) | (84) | (1,675) | ||||||||||||||
| Remaining availability as of June 30, 2025 | $ | 1,009 | $ | 66 | $ | 1,075 |
(a)Total remaining availability of $1.1 billion as of June 30, 2025, was accessible through revolver draws.
| As of December 31, 2024 | |||||||||||||||||
| 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 as of June 30, 2025, and December 31, 2024, respectively:
| Cash and Cash Equivalents | Availability on Revolving Credit Facility | Total Available Liquidity | |||||||||||||||
| Available liquidity as of June 30, 2025 | $ | 94 | $ | 1,075 | $ | 1,169 | |||||||||||
| Available liquidity as of December 31, 2024 | $ | 96 | $ | 1,788 | $ | 1,884 |
Note 9: Income Taxes
The Company’s effective income tax rate was 23.1% and 23.3% for the three months ended June 30, 2025 and 2024, respectively, and 23.5% and 23.4% for the six months ended June 30, 2025 and 2024, respectively.
On July 4, 2025, the One Big Beautiful Bill Act (the “OBBB”) was signed into law. The OBBB includes several corporate tax-related provisions. Key changes include the permanent extension of certain provisions from the Tax Cuts and Jobs Act of 2017, such as 100% bonus depreciation and Section 163(j) interest limitation exception for regulated utilities, as well as the immediate expensing of domestic research and development costs, and the introduction of a new charitable contribution floor for corporations. The Company does not expect the OBBB will materially impact the Company’s Consolidated Financial Statements. The Company will continue to monitor the implementation and any related guidance.
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 carried forward indefinitely and utilized when regular tax exceeds CAMT. Based on current guidance, the Company is an applicable corporation subject to CAMT beginning in 2024. The Company included the CAMT liability in its 2024 extension payment on April 15, 2025. As of June 30, 2025, the Company has a CAMT credit carryforward of $151 million.
On June 2, 2025, the Internal Revenue Service (“IRS”) and the U.S. Treasury issued Notice 2025-27, 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 after December 31, 2024, and before January 1, 2026. The Company plans to include the CAMT liability in its 2025 extension payment on April 15, 2026. The Company will continue to assess the impacts of the IRA as the U.S. Treasury and the IRS provide further guidance.
Note 10: Pension and Other Postretirement Benefits
Presented in the table below are the components of net periodic benefit costs:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Components of net periodic pension benefit cost: | |||||||||||||||||||||||
| Service cost | $ | 4 | $ | 4 | $ | 7 | $ | 9 | |||||||||||||||
| Interest cost | 22 | 21 | 43 | 42 | |||||||||||||||||||
| Expected return on plan assets | (23) | (23) | (45) | (47) | |||||||||||||||||||
| Amortization of prior service credit | (1) | (1) | (2) | (2) | |||||||||||||||||||
| Amortization of actuarial loss | 6 | 6 | 11 | 12 | |||||||||||||||||||
| Net periodic pension benefit cost | $ | 8 | $ | 7 | $ | 14 | $ | 14 | |||||||||||||||
| Components of net periodic other postretirement benefit credit: | |||||||||||||||||||||||
| Service cost | $ | — | $ | — | $ | — | $ | 1 | |||||||||||||||
| Interest cost | 3 | 3 | 6 | 6 | |||||||||||||||||||
| Expected return on plan assets | (3) | (3) | (6) | (6) | |||||||||||||||||||
| Amortization of prior service credit | (8) | (8) | (16) | (16) | |||||||||||||||||||
| Net periodic other postretirement benefit credit | $ | (8) | $ | (8) | $ | (16) | $ | (15) |
The Company contributed $11 million and $22 million for the funding of its defined benefit pension plans for the three and six months ended June 30, 2025, respectively, and contributed $11 million and $22 million for the funding of its defined benefit pension plans for the three and six months ended June 30, 2024, respectively. The Company expects to make additional pension contributions to the plan trusts of $22 million during the remainder of 2025.
Note 11: Commitments and Contingencies
Contingencies
The Company is routinely involved in legal actions incident to the normal conduct of its business. As of June 30, 2025, the Company has accrued approximately $19 million of probable loss contingencies and has estimated that the maximum amount of loss associated with reasonably possible loss contingencies arising out of such legal actions, which can be reasonably estimated, is $4 million. For certain legal actions, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such legal actions, other than as described in this Note 11—Commitments and Contingencies, will not have a material adverse effect on the Company.
Dunbar, West Virginia Class Action Litigation Proposed Settlement
On the evening of June 23, 2015, a 36-inch pre-stressed concrete transmission water main, installed in the early 1970s, failed. The water main is part of the West Relay pumping station located in the City of Dunbar, West Virginia and owned by the Company’s West Virginia subsidiary (“WVAWC”). The failure of the main caused water outages and low pressure for up to approximately 25,000 WVAWC customers. In the early morning hours of June 25, 2015, crews completed a repair, but that same day, the repair developed a leak. On June 26, 2015, a second repair was completed, and service was restored that day to approximately 80% of the impacted customers, and to the remaining approximately 20% by the next morning. The second repair showed signs of leaking, but the water main was usable until June 29, 2015, to allow tanks to refill. The system was reconfigured to maintain service to all but approximately 3,000 customers while a final repair was being completed safely on June 30, 2015. Water service was fully restored by July 1, 2015, to all customers affected by this event.
On June 2, 2017, a complaint captioned Jeffries, et al. v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of residents and business owners who lost water service or pressure as a result of the Dunbar main break. The complaint alleges breach of contract by WVAWC for failure to supply water, violation of West Virginia law regarding the sufficiency of WVAWC’s facilities and negligence by WVAWC in the design, maintenance and operation of the water system. The Jeffries plaintiffs seek unspecified alleged damages on behalf of the class for lost profits, annoyance and inconvenience, and loss of use, as well as punitive damages for willful, reckless and wanton behavior in not addressing the risk of pipe failure and a large outage.
In February 2020, the Jeffries plaintiffs filed a motion seeking class certification on the issues of breach of contract and negligence, and to determine the applicability of punitive damages and a multiplier for those damages if imposed. In July 2020, the Circuit Court entered an order granting the Jeffries plaintiffs’ motion for certification of a class regarding certain liability issues but denying certification of a class to determine a punitive damages multiplier. Trial in this matter had been scheduled for January 2025.
On January 17, 2025, before trial commenced, the parties notified the Circuit Court that an agreement in principle to settle this litigation was reached among the parties. On May 2, 2025, the parties jointly filed with the Circuit Court a proposed class action settlement agreement (the “Dunbar Settlement”) with respect to claims by the Jeffries plaintiffs, and, on May 5, 2025, the Circuit Court issued an order granting preliminary approval of the Dunbar Settlement. Under the terms of the Dunbar Settlement, WVAWC has not admitted, and will not admit, any fault or liability for any of the allegations made by the Jeffries plaintiffs. The proposed maximum pre-tax amount of the Dunbar Settlement is approximately $18 million, of which the Company currently estimates that approximately $5 million would be contributed by the Company and WVAWC, and the remainder would be contributed by certain of the Company’s general liability insurance carriers. The actual total amount to be paid to claimants through the Dunbar Settlement will depend upon the claims submitted and approved through the claims process that is now underway, which includes, among other things: notice that has been provided to the class; obtaining, reviewing and processing properly submitted claims from potential claimants; and handling any requests to opt out from or object to the Dunbar Settlement. Following the completion of the claims process, the Circuit Court will hold a hearing regarding its final approval of the Dunbar Settlement, which is currently scheduled for September 11, 2025.
No contribution by the Company or WVAWC for claims associated with the Dunbar Settlement will be funded unless and until, and to the extent required by, a settlement agreement that receives final approval from the Circuit Court. The final amount of the Company’s and WVAWC’s contributions to the Dunbar Settlement remains subject to uncertainty and will depend in part on the amount of claims ultimately submitted and approved through the above-referenced claims process; however, the Company does not currently anticipate that its maximum liability will exceed $5 million. As a result, the Company previously recorded a charge to earnings, net of expected insurance receivables, of $5.0 million ($3.9 million after-tax), which has been maintained as of June 30, 2025. The Company intends to fund its and WVAWC’s contributions to the Dunbar Settlement through existing sources of liquidity.
Chattanooga, Tennessee Class Action Litigation
On September 12, 2019, the Company’s Tennessee subsidiary (“TAWC”), experienced a leak in a 36-inch water transmission main, which caused service fluctuations or interruptions to TAWC customers and the issuance of a boil water notice. TAWC repaired the main by early morning on September 14, 2019, and restored full water service by the afternoon of September 15, 2019, with the boil water notice lifted for all customers on September 16, 2019.
On September 17, 2019, a complaint captioned Bruce, et al. v. American Water Works Company, Inc., et al. was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and American Water Works Service Company, Inc. (“Service Company” and, together with TAWC and the Company, collectively, the “Tennessee-American Water Defendants”), on behalf of a proposed class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga incident (the “Tennessee Plaintiffs”). The complaint alleged breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil. In the complaint as originally filed, the Tennessee Plaintiffs were seeking an award of unspecified alleged damages for wage losses, business and economic losses, out-of-pocket expenses, loss of use and enjoyment of property and annoyance and inconvenience, as well as punitive damages, attorneys’ fees and pre- and post-judgment interest.
In September 2020, the court dismissed all of the Tennessee Plaintiffs’ claims in their complaint, except for the breach of contract claims against TAWC, which remain pending. In October 2020, TAWC answered the complaint, and the parties have been engaging in discovery. In January 2023, after hearing oral argument, the court issued an oral ruling denying the Tennessee Plaintiffs’ motion for class certification. In February 2023, the Tennessee Plaintiffs sought reconsideration of the ruling by the court, and any final ruling is appealable to the Tennessee Court of Appeals, as allowed under Tennessee law. In September 2023, the court upheld its prior ruling but gave the Tennessee Plaintiffs the option to file an amended class definition. In October 2023, the Tennessee Plaintiffs filed an amended class definition seeking certification of a business customer-only class. On June 14, 2024, the court issued its written order denying the Tennessee Plaintiffs’ amended class and incorporating its denial of certification of the original residential class. On June 21, 2024, the Tennessee Plaintiffs appealed both of the court’s orders denying class certification. This appeal remains pending.
The Company and TAWC believe that TAWC has valid, meritorious defenses to the claims raised in this class action complaint. TAWC will continue to vigorously defend itself against these allegations. Given the current stage of this proceeding, the Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of loss related to this proceeding.
Mountaineer Gas Company Main Break
During the afternoon of November 10, 2023, WVAWC was informed that an 8-inch ductile iron water main owned by WVAWC, located on the West Side of Charleston, West Virginia and originally installed in approximately 1989, experienced a leak. In the early morning hours of November 11, 2023, WVAWC crews successfully completed a repair to the water main. A precautionary boil water advisory was issued the same day to approximately 300 WVAWC customers and ultimately lifted on November 12, 2023.
On November 10, 2023, a break was reported in a low-pressure natural gas main located near the affected WVAWC water main, and an inflow of water into the natural gas main and associated delivery pipelines occurred. The natural gas main and pipelines are owned by Mountaineer Gas Company, a regulated natural gas distribution company serving over 220,000 customers in West Virginia (“Mountaineer Gas”). The resulting inflow of water into the natural gas main and related pipelines resulted in a loss of natural gas service to approximately 1,500 Mountaineer Gas customers, as well as water entering customer service lines and certain natural gas appliances owned or used by some of the affected Mountaineer Gas customers. Mountaineer Gas reported that restoration of natural gas service to all affected gas mains occurred on November 24, 2023. The timing, order and causation of both the WVAWC water main break and Mountaineer Gas’s main break are currently unknown and under investigation.
To date, a total of four pending lawsuits have been filed against Mountaineer Gas and WVAWC purportedly on behalf of customers in Charleston, West Virginia related to these incidents. On November 14, 2023, a complaint captioned Ruffin et al. v. Mountaineer Gas Company and West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of Mountaineer Gas residential and business customers and other households and businesses supplied with natural gas in Kanawha County, which lost natural gas service on November 10, 2023, as a result of these events. The complaint alleges, among other things, breach of contract by Mountaineer Gas, trespass by WVAWC, nuisance by WVAWC, violation of statutory obligations by Mountaineer Gas and WVAWC, and negligence by Mountaineer Gas and WVAWC. The complaint seeks class-wide damages against Mountaineer Gas and WVAWC for loss of use of natural gas, annoyance, inconvenience and lost profits, as well as punitive damages.
On November 15, 2023, a complaint captioned Toliver et al. v. West Virginia-American Water Company and Mountaineer Gas Company was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of all natural persons or entities who are citizens of the State of West Virginia and who are customers of WVAWC and/or Mountaineer Gas in the affected areas. The complaint alleges against Mountaineer Gas and WVAWC, among other things, negligence, nuisance, trespass and strict liability, as well as breach of contract against Mountaineer Gas. The complaint seeks class-wide damages against Mountaineer Gas and WVAWC for property damage, loss of use and enjoyment of property, annoyance and inconvenience and business losses, as well as punitive damages.
On November 16, 2023, a complaint captioned Dodson et al. v. West Virginia American Water and Mountaineer Gas Company was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of all West Virginia citizens living between Pennsylvania Avenue south of Washington Street, and Iowa Street, who are customers of Mountaineer Gas. The complaint alleges against Mountaineer Gas and WVAWC, among other things, negligence, nuisance, trespass, statutory code violations and unfair or deceptive business practices. The complaint seeks class-wide damages against Mountaineer Gas and WVAWC for property loss and damage, loss of use and enjoyment of property, mental and emotional distress, and aggravation and inconvenience, as well as punitive damages.
On January 4, 2024, a fourth complaint, captioned Thomas v. West Virginia-American Water Company and Mountaineer Gas Company, was filed in West Virginia Circuit Court in Kanawha County asserting similar allegations as those included in the Ruffin, Toliver and Dodson lawsuits, with the addition of counts alleging unjust enrichment and violations of the West Virginia Human Rights Act and the West Virginia Consumer Credit and Protection Act.
On November 17, 2023, the Ruffin plaintiff filed a motion to consolidate the class action lawsuits before a single judge in Kanawha County Circuit Court. On June 14, 2024, the judge in the Ruffin case partially granted the motion by transferring all of the four class action lawsuits to her court but deferring as premature consolidation of the cases.
On December 5, 2023, a complaint captioned Mountaineer Gas Company v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County seeking damages under theories of trespass, negligence and implied indemnity. The damages being sought related to the incident include, among other things, repair and response costs incurred by Mountaineer Gas and attorneys’ fees and expenses incurred by Mountaineer Gas. On December 14, 2023, Mountaineer Gas filed a motion with the Supreme Court of West Virginia to transfer this case to the West Virginia Business Court. On December 29, 2023, WVAWC filed a joinder in the motion to transfer the case. WVAWC has also filed a partial motion to dismiss this lawsuit. On March 6, 2024, the motion to transfer this complaint to the West Virginia Business Court was granted and trial and resolution judges were assigned. Mountaineer Gas voluntarily dismissed its implied indemnity count against WVAWC, rendering moot WVAWC’s partial motion to dismiss, and on May 31, 2024, WVAWC answered the complaint. The West Virginia Business Court has set a trial date for this matter, which, upon motion of the parties, has been reset to March 16, 2026, to allow for the completion of discovery.
On December 20, 2023, Mountaineer Gas filed answers to each of the first three class action lawsuits, which included cross-claims against WVAWC alleging that Mountaineer Gas is without fault for the claims and damages alleged in the lawsuits and WVAWC should be required to indemnify Mountaineer Gas for any damages and for attorneys’ fees and expenses incurred by Mountaineer Gas in the lawsuits. WVAWC has filed a partial motion to dismiss certain claims in the Ruffin, Toliver, Dodson and Thomas lawsuits and a motion to dismiss the cross-claims asserted against WVAWC therein by Mountaineer Gas. Mountaineer Gas subsequently voluntarily dismissed its cross-claims. On January 30, 2024, a motion was filed with the West Virginia Supreme Court on behalf of the Toliver plaintiff to refer the four class action complaints and the Mountaineer Gas complaint to the West Virginia Mass Litigation Panel. On February 7, 2024, WVAWC filed a motion joining in that referral request. On February 19, 2024, Mountaineer Gas filed a motion opposing the referral of the four class action complaints and the Mountaineer Gas complaint to the West Virginia Mass Litigation Panel. On May 31, 2024, the West Virginia Supreme Court denied the motion seeking referral. The Kanawha County Circuit Court has set a trial date of February 2, 2026, for the class action complaints.
On December 6, 2023, WVAWC initiated a process whereby Mountaineer Gas customers could file claims with WVAWC and seek payment from WVAWC of up to $2,000 in damages per affected household for the inconvenience arising from a loss of use of their appliances and documented out-of-pocket expenses as a result of the natural gas outage. In light of the diminishing number of new claims that had been filed, the claims process was concluded on March 8, 2024. As of December 31, 2024, a total of 594 Mountaineer Gas customers completed this claims process, and each of those customers has been paid by WVAWC an average of approximately $1,500. In return, these customers were required to execute a partial release of liability in favor of WVAWC.
On November 16, 2023, the Public Service Commission of West Virginia (the “WVPSC”) issued an order initiating a general investigation into both the water main break and natural gas outages occurring in this incident to determine the cause or causes thereof, as well as breaks and outages generally throughout the systems of WVAWC and Mountaineer Gas and the utility practices of both utilities. Following a series of disagreements among the parties regarding the scope of discovery, the WVPSC closed the general investigation into both utilities and ordered a separate general investigation for each utility. The WVPSC focused the two general investigations away from the cause of the events and instead on the maintenance practices of each utility during and after the main breaks. On January 29, 2024, the Consumer Advocate Division of the WVPSC filed a motion to intervene in the WVAWC general investigation.
On April 24, 2024, the staff issued a final joint memorandum in the Mountaineer Gas general investigation stating its view that Mountaineer Gas responded appropriately, reasonably and according to Mountaineer Gas’s written procedures. The staff is making no recommendations for improvements to Mountaineer Gas and is recommending that the Mountaineer Gas general investigation be closed. On July 24, 2024, the staff issued a final joint memorandum in the WVAWC general investigation finding no indication of systematic failure by WVAWC and concluding WVAWC’s maintenance and operating procedures were adequate to ensure safe and reliable service, subject to the implementation by WVAWC of three recommended operational improvements. Both general investigations remain pending.
The Company and WVAWC believe that the causes of action and other claims asserted against WVAWC in the class action complaints and the lawsuit filed by Mountaineer Gas are without merit and that WVAWC has valid, meritorious defenses to such claims. WVAWC continues to defend itself vigorously in these litigation proceedings. Given the current stage of these proceedings and the general investigation, the Company and WVAWC are currently unable to predict the outcome of any of the proceedings described above, and the Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of loss related to this proceeding.
Alternative Water Supply in Lieu of Carmel River Diversions
Compliance with Orders to Reduce Carmel River Diversions—Monterey Peninsula Water Supply Project
Under a 2009 order (the “2009 Order”) of the State Water Resources Control Board (the “SWRCB”), the Company’s California subsidiary (“Cal Am”) is required to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule. In 2016, the SWRCB issued an order (the “2016 Order,” and, together with the 2009 Order, the “Orders”) approving a deadline of December 31, 2021, for Cal Am’s compliance with these prior orders.
Cal Am is currently involved in developing the Monterey Peninsula Water Supply Project (the “Water Supply Project”), which includes the construction of a desalination plant, to be owned by Cal Am, and the construction of wells that would supply water to the desalination plant. In addition, the Water Supply Project also includes Cal Am’s purchase of water from a groundwater replenishment project (the “GWR Project”) between Monterey One Water and the Monterey Peninsula Water Management District (the “MPWMD”), as well as an expanded aquifer storage and recovery program. The Water Supply Project is intended, among other things, to fulfill Cal Am’s obligations under the Orders.
Cal Am’s ability to move forward on the Water Supply Project is and has been subject to administrative review by the CPUC and other government agencies, obtaining necessary permits, and intervention from other parties. In 2016, the CPUC unanimously approved a final decision to authorize Cal Am to enter into a water purchase agreement for the GWR Project and to construct a pipeline and pump station facilities and recover up to $50 million in associated incurred costs, plus an allowance for funds used during construction (“AFUDC”), subject to meeting certain criteria.
In 2018, the CPUC unanimously approved another final decision finding that the Water Supply Project meets the CPUC’s requirements for a certificate of public convenience and necessity and an additional procedural phase was not necessary to consider alternative projects. The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual financing costs. The 2018 final decision specifies the procedures for recovery of all of Cal Am’s prudently incurred costs associated with the Water Supply Project upon its completion, subject to the frameworks included in the final decision related to cost caps, operation and maintenance costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project costs will be reviewed by the CPUC when Cal Am seeks cost recovery for the Water Supply Project. Cal Am is also required to implement mitigation measures to avoid, minimize or offset significant environmental impacts from the construction and operation of the Water Supply Project and comply with a mitigation monitoring and reporting program, a reimbursement agreement for CPUC costs associated with that program, and reporting requirements on plant operations following placement of the Water Supply Project in service. Cal Am has incurred $300 million in aggregate costs as of June 30, 2025, related to the Water Supply Project, which includes $97 million in AFUDC.
In September 2021, Cal Am, Monterey One Water and the MPWMD reached an agreement on Cal Am’s purchase of additional water from an expansion to the GWR Project. On December 5, 2022, the CPUC issued a final decision that authorized Cal Am to enter into the amended water purchase agreement, and specifically to increase pumping capacity and reliability of groundwater extraction from the Seaside Groundwater Basin. The final decision sets the cost cap for the proposed facilities at approximately $62 million. Cal Am may seek recovery of amounts above the cost cap in a subsequent rate filing or general rate case. Additionally, the final decision authorizes AFUDC at Cal Am’s actual weighted average cost of debt for most of the facilities. On December 30, 2022, Cal Am filed with the CPUC an application for rehearing of the CPUC’s December 5, 2022, final decision, and on March 30, 2023, the CPUC issued a decision denying Cal Am’s application for rehearing, but adopting its proposed AFUDC for already incurred and future costs. The decision also provided Cal Am the opportunity to serve supplemental testimony to increase its cost cap for certain of the Water Supply Project’s extraction wells. On May 21, 2025, the CPUC issued a decision authorizing an increase to the cost cap of $11 million for the specified extraction wells.
The amended water purchase agreement and a memorandum of understanding to negotiate certain milestones related to the expansion of the GWR Project have been signed by the relevant parties. Further hearings were scheduled in a Phase 2 to this CPUC proceeding to focus on updated supply and demand estimates for the Water Supply Project, and Phase 2 testimony was completed in September 2022. On October 23, 2023, a status conference was held to determine procedural steps to conclude the proceeding. Further evidentiary hearings were held in March 2024. On May 9, 2025, the CPUC issued a proposed decision in Phase 2, finding that without the Water Supply Project, projected demand will outstrip supply by approximately 2,500 acre-feet per year. On June 18, 2025, the CPUC issued a decision extending the Phase 2 statutory deadline to October 31, 2025. This Phase 2 matter remains pending.
While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the Orders, as well as relevant final decisions of the CPUC related thereto, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $123 million in previously approved aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its September 2016 decision, its December 2022 decision (as amended by its March 2023 rehearing decision), and its May 2025 decision.
Coastal Development Permit Application
In 2018, Cal Am submitted a coastal development permit application (the “Marina Application”) to the City of Marina (the “City”) for those project components of the Water Supply Project located within the City’s coastal zone. Members of the City’s Planning Commission, as well as City councilpersons, publicly expressed opposition to the Water Supply Project. In May 2019, the City issued a notice of final local action based upon the denial by the Planning Commission of the Marina Application. Thereafter, Cal Am appealed this decision to the Coastal Commission, as permitted under the City’s code and the California Coastal Act. At the same time, Cal Am submitted an application (the “Original Jurisdiction Application”) to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction. After Coastal Commission staff issued reports recommending denial of the Original Jurisdiction Application, noting potential impacts on environmentally sensitive habitat areas and wetlands and possible disproportionate impacts to communities of concern, in September 2020, Cal Am withdrew the Original Jurisdiction Application in order to address the staff’s environmental justice concerns. In November 2020, Cal Am refiled the Original Jurisdiction Application.
In October 2022, Cal Am announced a phasing plan for the proposed desalination plant component of the Water Supply Project. The desalination plant and slant wells originally approved by the CPUC would produce up to 6.4 million gallons of desalinated water per day. Under the phased approach, the facilities would initially be constructed to produce up to 4.8 million gallons per day of desalinated water, enough to meet anticipated demand through about 2030, and would limit the number of slant wells initially constructed. As demand increases in the future, desalination facilities would be expanded to meet the additional demand. The phased approach seeks to meet near-term demand by allowing for additional supply as it becomes needed, while also providing an opportunity for regional future public participation and was developed by Cal Am based on feedback received from the community.
In November 2022, the Coastal Commission approved the Marina Application and the Original Jurisdiction Application with respect to the phased development of the proposed desalination plant, subject to compliance with a number of conditions, all of which Cal Am expects to satisfy. In December 2022, the City, Marina Coast Water District (“MCWD”), MCWD’s groundwater sustainability agency, and the MPWMD jointly filed a petition for writ of mandate in Monterey County Superior Court against the Coastal Commission, alleging that the Coastal Commission violated the California Coastal Act and the California Environmental Quality Act in issuing a coastal development permit to Cal Am for construction of slant wells for the Water Supply Project. Cal Am is named as a real party in interest. On April 24, 2024, the court granted defendants’ motion for judgment on the pleadings and dismissed one of MCWD’s causes of action in the petition. A trial commenced on December 9, 2024, and further proceedings continued in January 2025. On May 12, 2025, the court entered its final decision denying the petition in full.
Following the issuance of the coastal development permit, Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining the remaining required permits for the Water Supply Project. However, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. For the year ended December 31, 2024, Cal Am has complied with the diversion limitations contained in the 2016 Order. Continued compliance with the diversion limitations in 2025 and future years may be impacted by a number of factors, including without limitation potential recurrence of drought conditions in California and the exhaustion of water supply reserves, and will require successful development of alternate water supply sources sufficient to meet customer demand. The Orders remain in effect until Cal Am certifies to the SWRCB, and the SWRCB concurs, that Cal Am has obtained a permanent supply of water to substitute for past unauthorized Carmel River diversions. While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the Orders may result in material additional costs and obligations to Cal Am, including fines and penalties against Cal Am in the event of noncompliance with the Orders.
Cal Am’s Action for Damages Following Termination of Regional Desalination Project (“RDP”)
In 2010, the CPUC had approved the RDP, which was a precursor to the current Water Supply Project and called for the construction of a desalination facility in the City of Marina. The RDP was to be implemented through a Water Purchase Agreement and ancillary agreements (collectively, the “Agreements”) among MCWD, Cal Am and the Monterey County Water Resources Agency (“MCWRA”). In 2011, due to a conflict of interest concerning a former member of MCWRA’s Board of Directors, MCWRA stated that the Agreements were void, and, as a result, Cal Am terminated the Agreements. In ensuing litigation filed by Cal Am in 2012 to resolve the termination of the RDP, the court in 2015 entered a final judgment agreeing with Cal Am’s position that four of the five Agreements are void, and one, the credit line agreement, is not void. As a result of this litigation, Cal Am was permitted to institute further proceedings, discussed below, to determine the amount of damages that may be awarded to Cal Am as a result of the failure of the RDP.
In 2015, Cal Am and MCWRA filed a complaint in San Francisco County Superior Court against MCWD and RMC Water and Environment, a private engineering consulting firm (“RMC”), seeking to recover compensatory, consequential and incidental damages associated with the failure of the RDP, as well as punitive and treble damages, statutory penalties and attorneys’ fees. In 2019, MCWD was granted a motion for summary judgment related to the tort claims in the complaint. A settlement as to the non-tort claims was finalized and entered into in March 2020. As part of this settlement, Cal Am’s and MCWRA’s right to appeal the dismissal of their tort claims against MCWD were expressly reserved, and, in July 2020, Cal Am filed its appeal. In December 2022, the trial court’s decision was reversed on appeal with instructions to vacate its prior orders granting MCWD’s motions for summary judgment and to enter new orders denying the motions. In February 2023, MCWD filed a petition for review of the appellate decision with the California Supreme Court, which was denied in March 2023. On June 27, 2024, MCWD filed a motion for judgment on the pleadings. Following a hearing, on December 5, 2024, the court granted MCWD’s motion without leave to amend, dismissing all of Cal Am’s remaining tort claims. Final judgment was entered on January 7, 2025. On February 27, 2025, Cal Am and MCWRA each filed a Notice of Appeal of the trial court’s decision. This matter remains pending.
Proposed Acquisition of Monterey System Assets — Potential Condemnation
Local Agency Formation Commission Litigation
The water system assets of Cal Am located in Monterey, California (the “Monterey system assets”) are the subject of a condemnation action by the MPWMD stemming from a November 2018 public ballot initiative. In 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (i) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (ii) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (iii) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. In 2020, the MPWMD certified a final environmental impact report, analyzing the environmental impacts of the MPWMD’s project to (i) acquire the Monterey system assets through the power of eminent domain, if necessary, and (ii) expand its geographic boundaries to include all parts of this system.
In February 2021, the MPWMD filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries. In June 2021, LAFCO’s commissioners voted to require a third-party independent financial study as to the feasibility of an acquisition by the MPWMD of the Monterey system assets. In December 2021, LAFCO’s commissioners denied the MPWMD’s application to become a retail water provider, determining that the MPWMD does not have the authority to proceed with a condemnation of the Monterey system assets. In April 2022, the MPWMD filed a lawsuit against LAFCO challenging its decision to deny the MPWMD’s application seeking approval to become a retail water provider. In June 2022, the court granted, with conditions, a motion by Cal Am to intervene in the MPWMD’s lawsuit against LAFCO. In December 2022, the court sustained in part, and denied in part, demurrers that had been filed by LAFCO seeking to dismiss the MPWMD’s lawsuit.
In December 2023, the Monterey County Superior Court issued a writ of mandate directing LAFCO to vacate and set aside its original denial of the MPWMD’s application to serve as a retail water provider (in conjunction with its effort to acquire the Monterey system assets) and, if requested, to re-hear the application in compliance with all applicable law. The court held that LAFCO incorrectly applied two statutory standards and noted a lack of sufficient evidence to support certain of LAFCO’s factual findings. As a result, the LAFCO denial has been nullified and LAFCO will be required to hold another hearing on the MPWMD’s application upon request. On February 8, 2024, and February 9, 2024, respectively, Cal Am and LAFCO each filed a notice of appeal with the California Court of Appeal regarding the Monterey County Superior Court’s decision to issue the writ of mandate. The MPWMD filed a notice of cross-appeal on February 15, 2024. Cal Am is evaluating potential additional actions to seek to uphold LAFCO’s denial of the MPWMD’s application, including filing other challenges and/or making suitable presentations at a subsequent LAFCO rehearing.
MPWMD Condemnation Action
Separate from the proceedings related to the MPWMD’s application with LAFCO, by letter dated October 3, 2022, the MPWMD notified Cal Am of a decision to appraise the Monterey system assets and requested access to a number of Cal Am’s properties and documents to assist the MPWMD with such an appraisal. Cal Am responded by letter on October 24, 2022, denying the request for access, stating that the MPWMD does not have the right to appraise Cal Am’s system without LAFCO approval to become a retail water provider. In April 2023, Cal Am rejected an offer by the MPWMD to purchase the Monterey system assets for $448.8 million. Over the written and oral objections of Cal Am, at a hearing held in October 2023, the MPWMD adopted a resolution of necessity to authorize it to file an eminent domain lawsuit with respect to the Monterey system assets.
In December 2023, the MPWMD filed a lawsuit against Cal Am in Monterey County Superior Court seeking to condemn the Monterey system assets. On February 26, 2024, Cal Am filed a motion requesting the Monterey County Superior Court dismiss the MPWMD’s lawsuit. Cal Am’s motion asserted that the MPWMD lacks legal authorization from both the California legislature and LAFCO to become a retail water provider and the lawsuit improperly seeks to effect a taking of property outside the boundaries of the MPWMD’s territory. Hearings on the motion were held on May 3, 2024, and August 23, 2024. On November 14, 2024, the court issued a final ruling denying Cal Am’s motion to dismiss. Cal Am filed its answer to the complaint on December 13, 2024. This matter remains pending.
While the Company cannot currently predict the outcome of the MPWMD’s eminent domain lawsuit, the Company believes that, given existing legal authorities and its other defenses, Cal Am should be able to defend itself successfully against this lawsuit.
PFAS Multi-District Litigation
Several of the Company’s utility subsidiaries are parties to a multi-district litigation (the “MDL”) lawsuit, which commenced on December 7, 2018, in the U.S. District Court for the District of South Carolina, against manufacturers of certain per- and polyfluoroalkyl substances (collectively, “PFAS”) for damages, contribution and reimbursement of costs incurred and continuing to be incurred to address the presence of such PFAS in public water supply systems owned and operated by these utility subsidiaries and throughout their service areas. Settlements with several defendants in the MDL have received final approval by the MDL court. During the third quarter of 2024 and the first quarter of 2025, the Company timely submitted to the MDL court its Phase One claim forms under settlement agreements with defendants 3M Company, The Chemours Company, Corteva, Inc., DuPont de Nemours, Inc., Tyco Fire Products LP and BASF Corporation.
As of June 30, 2025, the Company received an initial settlement payment from defendant 3M Company of $34 million, net of legal fees and administrative costs. As of June 30, 2025, these funds were held in a law firm escrow account and are awaiting distribution to the Company’s utility subsidiaries that are parties to the MDL. The funds have been recorded on the Company’s Consolidated Balance Sheet within other current assets, as of June 30, 2025. A corresponding amount was recorded as a regulatory liability as the Company intends to seek regulatory approval from its respective public utility commissions to apply the net proceeds for the benefit of customers. The Company anticipates receiving, during the remainder of 2025, additional settlement payments from the defendants named above.
Note 12: Earnings per Common Share
Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted earnings per share (“EPS”) calculations:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to common shareholders | $ | 289 | $ | 277 | $ | 494 | $ | 462 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average common shares outstanding—Basic | 195 | 195 | 195 | 195 | |||||||||||||||||||
| Effect of dilutive common stock equivalents | — | — | — | — | |||||||||||||||||||
| Weighted-average common shares outstanding—Diluted | 195 | 195 | 195 | 195 |
The effect of dilutive common stock equivalents is related to outstanding restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding RSUs and PSUs granted under the Company’s 2017 Omnibus Equity Compensation Plan, as well as estimated shares to be purchased under the Company’s 2017 Nonqualified Employee Stock Purchase Plan. Less than one million share-based awards were excluded from the computation of diluted EPS for the three and six months ended June 30, 2025 and 2024, because their effect would have been anti-dilutive under the treasury stock method.
The if-converted method is applied to the Notes issued in June 2023 for computing diluted EPS. For both periods presented, there was no dilution resulting from the Notes. See Note 7—Long-Term Debt for additional information relating to the Notes.
Note 13: Fair Value of Financial Information
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Current assets and current liabilities—The carrying amounts reported on the Consolidated Balance Sheets for current assets and current liabilities, including revolving credit debt, due to the short-term maturities and variable interest rates, approximate their fair values.
Secured seller promissory note from the sale of the Homeowner Services Group—The carrying amount reported on the Consolidated Balance Sheets for the secured seller promissory note, included as part of the consideration from the sale of HOS, is $795 million as of June 30, 2025, and December 31, 2024. This amount represents the principal amount owed under the secured seller promissory note, for which the Company expects to receive full payment. The accounting fair value measurement of the secured seller promissory note approximated $797 million and $793 million as of June 30, 2025, and December 31, 2024, respectively. The accounting fair value measurement is an estimate that is reflective of changes in benchmark interest rates. The secured seller promissory note is classified as Level 3 within the fair value hierarchy.
Preferred stock with mandatory redemption requirements and long-term debt—The fair values of preferred stock with mandatory redemption requirements and long-term debt are categorized within the fair value hierarchy based on the inputs that are used to value each instrument. The fair value of long-term debt classified as Level 1 is calculated using quoted prices in active markets. Level 2 instruments are valued using observable inputs and Level 3 instruments are valued using observable and unobservable inputs.
Presented in the tables below are the carrying amounts, including fair value adjustments previously recognized in acquisition purchase accounting, and the fair values of the Company’s financial instruments:
| As of June 30, 2025 | |||||||||||||||||||||||||||||
| Carrying Amount | At Fair Value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| Preferred stock with mandatory redemption requirements | $ | 3 | $ | — | $ | — | $ | 3 | $ | 3 | |||||||||||||||||||
| Long-term debt | 13,397 | 10,686 | 1,057 | 609 | 12,352 | ||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||
| Carrying Amount | At Fair Value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| Preferred stock with mandatory redemption requirements | $ | 3 | $ | — | $ | — | $ | 3 | $ | 3 | |||||||||||||||||||
| Long-term debt | 13,155 | 10,165 | 1,050 | 658 | 11,873 |
Recurring Fair Value Measurements
Presented in the tables below are assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy:
| As of June 30, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Restricted funds | $ | 41 | $ | — | $ | — | $ | 41 | |||||||||||||||
| Rabbi trust investments | 28 | — | — | 28 | |||||||||||||||||||
| Deposits | 52 | — | — | 52 | |||||||||||||||||||
| Other investments: | |||||||||||||||||||||||
| Money market and other | 25 | — | — | 25 | |||||||||||||||||||
| Fixed-income securities | 65 | 6 | — | 71 | |||||||||||||||||||
| Mark-to-market derivative asset | — | 4 | — | 4 | |||||||||||||||||||
| Total assets | 211 | 10 | — | 221 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation obligations | 34 | — | — | 34 | |||||||||||||||||||
| Mark-to-market derivative liability | — | 1 | — | 1 | |||||||||||||||||||
| Total liabilities | 34 | 1 | — | 35 | |||||||||||||||||||
| Total assets | $ | 177 | $ | 9 | $ | — | $ | 186 |
| As of December 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Restricted funds | $ | 44 | $ | — | $ | — | $ | 44 | |||||||||||||||
| Rabbi trust investments | 29 | — | — | 29 | |||||||||||||||||||
| Deposits | 6 | — | — | 6 | |||||||||||||||||||
| Other investments: | |||||||||||||||||||||||
| Money market and other | 21 | — | — | 21 | |||||||||||||||||||
| Fixed-income securities | 88 | 6 | — | 94 | |||||||||||||||||||
| Mark-to-market derivative asset | — | 24 | — | 24 | |||||||||||||||||||
| Total assets | 188 | 30 | — | 218 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation obligations | 34 | — | — | 34 | |||||||||||||||||||
| Total liabilities | 34 | — | — | 34 | |||||||||||||||||||
| Total assets | $ | 154 | $ | 30 | $ | — | $ | 184 |
Restricted funds—The Company’s restricted funds primarily represent proceeds received from financings for the construction and capital improvement of facilities and from customers for future services under operation, maintenance and repair projects. Long-term restricted funds of $24 million and $15 million were included in other long-term assets on the Consolidated Balance Sheets as of June 30, 2025, and December 31, 2024, respectively.
Rabbi trust investments—The Company’s rabbi trust investments consist of equity and index funds from which supplemental executive retirement plan benefits and deferred compensation obligations can be paid. The Company includes these assets in other long-term assets on the Consolidated Balance Sheets.
Deposits—Deposits include escrow funds, including the initial settlement payment from the MDL, and certain other deposits held in trust. The Company includes cash deposits in other current assets on the Consolidated Balance Sheets.
Deferred compensation obligations—The Company’s deferred compensation plans allow participants to defer certain cash compensation into notional investment accounts. The Company includes such plans in other long-term liabilities on the Consolidated Balance Sheets. The value of the Company’s deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The notional investments are comprised primarily of mutual funds, which are based on quoted prices for identical assets in active markets.
Mark-to-market derivative assets and liabilities—The Company employs derivative financial instruments in the form of treasury lock agreements, classified as cash flow hedges, in order to fix the interest cost on existing or forecasted debt. The Company uses a calculation of future cash inflows and estimated future outflows, which are discounted, to determine the current fair value. Additional inputs to the present value calculation include the contract terms, counterparty credit risk, interest rates and market volatility. The Company includes mark-to-market derivative assets in other current assets and mark-to-market derivative liabilities in other current liabilities on the Consolidated Balance Sheets.
Other investments—The Company maintains a Voluntary Employees’ Beneficiary Association trust for purposes of paying active union employee medical benefits (“Active VEBA”). The investments in the Active VEBA trust primarily consist of money market funds and available-for-sale fixed-income securities.
The money market and other investments have original maturities of three months or less when purchased. The fair value measurement of the money market and other investments is based on quoted prices for identical assets in active markets and therefore included in the recurring fair value measurements hierarchy as Level 1.
The available-for-sale fixed-income securities are primarily investments in U.S. Treasury securities and government bonds. The majority of U.S. Treasury securities and government bonds have been categorized as Level 1 because they trade in highly-liquid and transparent markets. Certain U.S. Treasury securities are based on prices that reflect observable market information, such as actual trade information of similar securities, and are therefore categorized as Level 2, because the valuations are calculated using models which utilize actively traded market data that the Company can corroborate.
The Company includes other investments measured and recorded at fair value on the Consolidated Balance Sheets of $81 million and $71 million in other current assets, as of June 30, 2025, and December 31, 2024, respectively, and $15 million and $44 million in other long-term assets, as of June 30, 2025, and December 31, 2024, respectively. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income until realized.
The following tables summarize the unrealized positions for available-for-sale fixed-income securities:
| As of June 30, 2025 | |||||||||||||||||||||||
| Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Available-for-sale fixed-income securities | $ | 72 | $ | — | $ | 1 | $ | 71 |
| As of December 31, 2024 | |||||||||||||||||||||||
| Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Available-for-sale fixed-income securities | $ | 94 | $ | 2 | $ | 2 | $ | 94 |
The fair value of the Company’s available-for-sale fixed-income securities, summarized by contractual maturities, as of June 30, 2025, is as follows:
| Amount | |||||
| Other investments - Available-for-sale fixed-income securities | |||||
| Less than one year | $ | 34 | |||
| 1 year - 5 years | 25 | ||||
| 5 years - 10 years | 5 | ||||
| Greater than 10 years | 7 | ||||
| Total | $ | 71 |
Note 14: Leases
The Company has operating and finance leases involving real property, including facilities, utility assets, vehicles, and equipment. Certain operating leases have renewal options ranging from one year to 60 years. The exercise of lease renewal options is at the Company’s sole discretion. Renewal options that the Company was reasonably certain to exercise are included in the Company’s right-of-use (“ROU”) assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 40 years, five years, and five years, respectively.
The Company participates in a number of arrangements with various public entities (“Partners”) in West Virginia. Under these arrangements, the Company transferred a portion of its utility plant to the Partners in exchange for an equal principal amount of Industrial Development Bonds (“IDBs”) issued by the Partners under the Industrial Development and Commercial Development Bond Act. The Company leased back the utility plant under agreements for a period of 30 to 40 years. The Company has recorded these agreements as finance leases in property, plant and equipment, as ownership of the assets will revert back to the Company at the end of the lease term. The carrying value of the finance lease assets was $143 million as of June 30, 2025, and December 31, 2024, respectively. The Company determined that the finance lease obligations and the investments in IDBs meet the conditions for offsetting, and as such, are reported net on the Consolidated Balance Sheets and are excluded from the lease disclosure presented below.
The Company also enters into O&M agreements with the Partners. The Company pays an annual fee for use of the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $2 million in 2025, $4 million each year in 2026 through 2029, and $37 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.
Rental expenses under operating leases were $3 million for each of the three months ended June 30, 2025 and 2024, and $6 million for each of the six months ended June 30, 2025 and 2024.
For the three and six months ended June 30, 2025, cash paid for amounts in lease liabilities, which includes operating cash flows from operating leases, was $3 million and $6 million, respectively. For the six months ended June 30, 2025, there were ROU assets obtained in exchange for new operating lease liabilities of $7 million.
As of June 30, 2025, the weighted-average remaining lease term of the operating leases was 18 years, and the weighted-average discount rate of the operating leases was 5%.
The future maturities of lease liabilities as of June 30, 2025, were $6 million in 2025, $11 million in 2026, $11 million in 2027, $9 million in 2028, $7 million in 2029, and $89 million thereafter. As of June 30, 2025, imputed interest was $48 million.
Note 15: Segment Information
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 businesses primarily through one reportable segment, the Regulated Businesses segment. The Regulated Businesses segment also includes inter-segment revenues, costs and interest which are eliminated to reconcile to the Consolidated Statements of Operations.
The Company also operates other businesses, primarily MSG, that do not meet the criteria of a reportable segment in accordance with GAAP and are collectively presented throughout this Form 10-Q within “Other,” which is consistent with how management assesses the results of these businesses. Other also includes corporate costs that are not allocated to the Company’s 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. The adjustments related to the acquisitions are reported in Other as they are excluded from segment performance measures evaluated by management.
The Company’s chief operating decision maker is the President and Chief Executive Officer. The chief operating decision maker uses segment net income or loss to evaluate profit generated from segment assets when making decisions about allocating resources. The chief operating decision maker also uses segment net income to monitor budget versus actual results to assess the performance of the segment.
Presented in the tables below is summarized segment information:
| As of or for the Three Months Ended June 30, 2025 | |||||||||||||||||
| Regulated Businesses | Other | Consolidated | |||||||||||||||
| Operating revenues | $ | 1,178 | $ | 98 | $ | 1,276 | |||||||||||
| Less: | |||||||||||||||||
| Operation and maintenance (a) | 406 | 74 | 480 | ||||||||||||||
| Other segment items (b) | 68 | 2 | 70 | ||||||||||||||
| Depreciation and amortization | 217 | 4 | 221 | ||||||||||||||
| Interest expense | 116 | 35 | 151 | ||||||||||||||
| Interest income | (1) | (21) | (22) | ||||||||||||||
| Provision for income taxes | 84 | 3 | 87 | ||||||||||||||
| Net income attributable to common shareholders | $ | 288 | $ | 1 | $ | 289 | |||||||||||
| Total assets | $ | 31,005 | $ | 2,908 | $ | 33,913 | |||||||||||
| Cash paid for capital expenditures | $ | 733 | $ | — | $ | 733 |
(a)Significant segment expense.
(b)Other segment items included in segment net income includes General taxes, Other operating expenses, Non-operating benefit costs, net, and Other income (expense), net, primarily Allowance for other funds used during construction.
| As of or for the Three Months Ended June 30, 2024 | |||||||||||||||||
| Regulated Businesses | Other | Consolidated | |||||||||||||||
| Operating revenues | $ | 1,057 | $ | 92 | $ | 1,149 | |||||||||||
| Less: | |||||||||||||||||
| Operation and maintenance (a) | 356 | 71 | 427 | ||||||||||||||
| Other segment items (b) | 63 | (1) | 62 | ||||||||||||||
| Depreciation and amortization | 189 | 4 | 193 | ||||||||||||||
| Interest expense | 102 | 29 | 131 | ||||||||||||||
| Interest income | (5) | (20) | (25) | ||||||||||||||
| Provision for income taxes | 78 | 6 | 84 | ||||||||||||||
| Net income attributable to common shareholders | $ | 274 | $ | 3 | $ | 277 | |||||||||||
| Total assets | $ | 28,843 | $ | 2,372 | $ | 31,215 | |||||||||||
| Cash paid for capital expenditures | $ | 668 | $ | 2 | $ | 670 |
(a)Significant segment expense.
(b)Other segment items included in segment net income includes General taxes, Other operating expenses, Non-operating benefit costs, net, and Other income (expense), net, primarily Allowance for other funds used during construction.
| As of or for the Six Months Ended June 30, 2025 | |||||||||||||||||
| Regulated Businesses | Other | Consolidated | |||||||||||||||
| Operating revenues | $ | 2,227 | $ | 191 | $ | 2,418 | |||||||||||
| Less: | |||||||||||||||||
| Operation and maintenance (a) | 801 | 147 | 948 | ||||||||||||||
| Other segment items (b) | 135 | 1 | 136 | ||||||||||||||
| Depreciation and amortization | 430 | 7 | 437 | ||||||||||||||
| Interest expense | 230 | 65 | 295 | ||||||||||||||
| Interest income | (2) | (42) | (44) | ||||||||||||||
| Provision for income taxes | 144 | 8 | 152 | ||||||||||||||
| Net income attributable to common shareholders | $ | 489 | $ | 5 | $ | 494 | |||||||||||
| Total assets | $ | 31,005 | $ | 2,908 | $ | 33,913 | |||||||||||
| Cash paid for capital expenditures | $ | 1,278 | $ | 3 | $ | 1,281 |
(a)Significant segment expense.
(b)Other segment items included in segment net income includes General taxes, Other operating expenses, Non-operating benefit costs, net, and Other income (expense), net, primarily Allowance for other funds used during construction.
| As of or for the Six Months Ended June 30, 2024 | |||||||||||||||||
| Regulated Businesses | Other | Consolidated | |||||||||||||||
| Operating revenues | $ | 1,985 | $ | 175 | $ | 2,160 | |||||||||||
| Less: | |||||||||||||||||
| Operation and maintenance (a) | 707 | 136 | 843 | ||||||||||||||
| Other segment items (b) | 124 | 3 | 127 | ||||||||||||||
| Depreciation and amortization | 373 | 8 | 381 | ||||||||||||||
| Interest expense | 199 | 56 | 255 | ||||||||||||||
| Interest income | (8) | (41) | (49) | ||||||||||||||
| Provision for income taxes | 131 | 10 | 141 | ||||||||||||||
| Net income attributable to common shareholders | $ | 459 | $ | 3 | $ | 462 | |||||||||||
| Total assets | $ | 28,843 | $ | 2,372 | $ | 31,215 | |||||||||||
| Cash paid for capital expenditures | $ | 1,271 | $ | 8 | $ | 1,279 |
(a)Significant segment expense.
(b)Other segment items included in segment net income includes General taxes, Other operating expenses, Non-operating benefit costs, net, and Other income (expense), net, primarily Allowance for other funds used during construction.
Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS