S-1/A

As filed with the Securities and Exchange Commission on April 15, 2008.

Registration No. 333-145725

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 7 to

Form S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware	4941	51-0063696
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

1025 Laurel Oak Road

Voorhees, NJ 08043

(856) 346-8200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Donald L. Correll

President and Chief Executive Officer

American Water Works Company, Inc.

1025 Laurel Oak Road

Voorhees, NJ 08043

(856) 346-8200

(Name and address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

William V. Fogg, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 (212) 474-1000 George W. Patrick, Esq. Senior Vice President, General Counsel and Secretary American Water Works Company, Inc. 1025 Laurel Oak Road Voorhees, NJ 08043 (856) 346-8200 Robert E. Buckholz, Jr., Esq. Sullivan & Cromwell LLP 125 Broad Street New York, NY 10004 (212) 558-4000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered(1)	Proposed Maximum Offering Price per Share	Proposed Maximum Aggregate Offering Price(2)(3)	Amount of Registration Fee
Common Stock, par value $0.01 per share	73,600,000	$26.00	$1,913,600,000	$75,204.48(4)

(1) Includes 9,600,000 shares issuable pursuant to the underwriters’ option to purchase additional shares.

(2) Includes shares to be sold upon exercise of the underwriters’ option to purchase additional shares. See “Underwriting.”

(3) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(o) of Regulation C under the Securities Act of 1933, as amended.

(4) Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

EXPLANATORY NOTE

This Amendment No. 7 to the Registration Statement on Form S-1 of American Water Works Company, Inc. is being filed for the purpose of filing an exhibit.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the expenses (other than underwriting compensation expected to be incurred) in connection with this offering. All of such amounts (except the SEC registration fee and FINRA filing fee) are estimated. All of such amounts are being paid by the Company, with the exception of legal fees and expenses, which are being paid by RWE.

SEC registration fee	$75,204.48
Listing fee	250,000.00
FINRA filing fee	75,500.00
Printing and engraving costs	810,000.00
Legal fees and expenses	4,000,000.00
Accounting fees and expenses	1,333,750.00
Transfer Agent and Registrar fees and expenses	5,000.00
Miscellaneous	300,000.00
Total	$6,849,454.48

Item 14. Indemnification of Directors and Officers.

Section 145(a) of the Delaware General Corporation Law, or the DGCL, provides in relevant part that a corporation may indemnify any officer or director who was, is or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another entity, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

Section 145(b) of the DGCL provides in relevant part that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Our bylaws generally provide that we will indemnify our directors and officers to the fullest extent permitted by law.

The registrant also obtained officers’ and directors’ liability insurance which insures against liabilities that officers and directors of the registrant may, in such capacities, incur. Section 145(g) of the DGCL provides that a

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corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under that section.

Section 10(c) of the underwriting agreement, to be filed as Exhibit 1.1, provides that the underwriters named therein will indemnify us and hold us harmless and each of our directors, officers or controlling persons from and against certain liabilities, including liabilities under the Securities Act. Section 10(e) of the Underwriting Agreement also provides that such underwriters will contribute to certain liabilities of such persons under the Securities Act.

Item 15. Recent Sales of Unregistered Securities.

In the three years preceding the filing of this registration statement, the Registrant has not issued any securities that were not registered under the Securities Act.

Item 16. Exhibits and Financial Statement Schedules.

 (a) Exhibits

Exhibit Number	Description
1.1	Underwriting Agreement.******
1.2	Letter from Merrill Lynch, Pierce, Fenner & Smith Incorporated to American Water Works Company, Inc. regarding the American Water Works Company, Inc. Reserved Share Program.*******
2.1	Agreement and Plan of Merger, dated as of September 16, 2001, among RWE Aktiengesellschaft, Thames Water Aqua Holdings GmbH, Apollo Acquisition Company and American Water Works Company, Inc.*****
2.2	Separation Agreement, by and among RWE Aktiengesellschaft and American Water Works Company, Inc.*****
3.1	Restated Certificate of Incorporation of American Water Works Company, Inc.*****
3.2	Amended and Restated Bylaws of American Water Works Company, Inc.******
4.1	Specimen Common Stock Certificate.*******
4.2	Note Purchase Agreement, as amended, dated as of December 21, 2006, by and between American Water Capital Corp. and the Purchasers named therein for purchase of $101,000,000 5.39% Series A Senior Notes due 2013, $37,500,000 5.52% Series B Senior Notes due 2016, $329,500,000 5.62% Series C Senior Notes due 2018 and $432,000,000 5.77% Series D Senior Notes due 2021.***
4.3	Note Purchase Agreement, as amended, dated as of March 29, 2007, by and between American Water Capital Corp. and the Purchasers named therein for purchase of $100,000,000 5.62% Series E Senior Notes due 2019 and $100,000,000 5.77% Series F Senior Notes due 2022.***
4.4	Indenture, dated as of October 22, 2007 between American Water Capital Corp. and Wells Fargo Bank, National Association. Incorporated herein by reference to Exhibit 4.4 to American Water Capital Corp. and American Water Works Company, Inc.’s Registration Statement on Form S-4, filed on December 21, 2007.****
4.5	Exchange and Registration Rights Agreement, dated as of October 22, 2007, between American Water Capital Corp., American Water Works Company, Inc. and Citigroup Global Markets Inc, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several purchasers. Incorporated herein by reference to Exhibit 4.5 to American Water Capital Corp. and American Water Works Company, Inc.’s Registration Statement on Form S-4, filed on December 21, 2007.****

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Exhibit Number	Description
5.1	Opinion of Cravath, Swaine & Moore LLP.*****
9.1	Registration Rights Agreement by and among American Water Works Company, Inc., RWE Aktiengesellschaft and RWE Aqua Holdings GmbH.*****
10.1	Credit Agreement, dated as of September 15, 2006, among American Water Capital Corp., the Lenders identified therein and JPMorgan Chase Bank, N.A.***
10.3	Support Agreement, as subsequently amended, dated June 22, 2000, by and between American Water Works Company, Inc. and American Water Capital Corp.***
10.4	Employment Agreement between Donald L. Correll and American Water Works Company, Inc., dated February 15, 2008.*****
10.5	Employment Agreement between Ellen C. Wolf and American Water Works Company, Inc., dated February 15, 2008.*****
10.6	Separation Agreement between Dietrich Firnhaber and RWE Aktiengesellschaft, dated                      June 18, 2007.*****
10.7	RWE Long-Term Incentive Beat Plan 2005, dated as of April 20, 2005.***
10.8	Amended and Restated American Water Works Company, Inc. Executive Retirement Plan, dated as of March 1, 2007.***
10.9	Amended and Restated American Water Works Company, Inc. Deferred Compensation Plan, dated as of January 1, 2001.***
10.10	RWE Executive Deferred Compensation Plan (A).*****
10.11	RWE Executive Deferred Compensation Plan (B).*****
10.12	Settlement Agreement by and between California American Water Company and the U.S. Department of Commerce, National Oceanic and Atmospheric Administration, dated as of June 29, 2006.*****
10.13	2004 Thames Water/RWE Long-Term Incentive Plan, dated as of January 1, 2004.***
10.14	RWE Long-Term Incentive Plan 2002 (LTIP), dated as of 2002.***
10.15	American Water Works Company, Inc. Nonqualified Employee Stock Purchase Plan.*******
10.16	Form of Executive Completion Bonus in connection with the RWE Divestiture, dated as of March 20, 2006.***
10.17	Form of Retention Agreement in connection with the RWE Divestiture, dated as of March 20, 2006.***
10.18	American Water Works Company, Inc. Executive Severance Policy, dated as of June 14, 2006.***
10.19	Secondment Contract between RWE Solutions AG and Dietrich Firnhaber, dated as of January 1, 2003.***
10.20	2007 American Water Senior Management Annual Incentive Plan.***
10.21	2006 American Water Senior Management Annual Incentive Plan.***
10.22	American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan.*******

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Exhibit Number	Description
10.23	Nonqualified Savings and Deferred Compensation Plan for Employees of American Water Works Company, Inc. and its Designated Subsidiaries.******
10.24	Nonqualified Deferred Compensation Plan for Non-Employee Directors of American Water Works Company, Inc.******
10.25	2008 American Water Senior Management Annual Incentive Plan.
21.1	Subsidiaries of American Water Works Company, Inc.****
23.1	Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.********
23.2	Consent of Cravath, Swaine & Moore LLP (included in the opinion filed as Exhibit 5.1).*****
24.1	Power of Attorney.**

** Previously filed on August 27, 2007.

*** Previously filed on October 11, 2007.

**** Previously filed on January 29, 2008.

***** Previously filed on March 6, 2008.

****** Previously filed on March 26, 2008.

******* Previously filed on March 31, 2008.

********Previously filed on April 1, 2008.

(b) Financial Statement Schedules.

The financial statement schedules are omitted because they are inapplicable or the requested information is shown in the consolidated statements of American Water or related notes thereto.

Item 17. Undertakings.

The undersigned registrant hereby undertakes as follows:

(1) The undersigned will provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(2) For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it is declared effective.

(3) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Voorhees, state of New Jersey, on April 15, 2008.

AMERICAN WATER WORKS COMPANY, INC.
By:	/s/    Donald L. Correll
Name:	Donald L. Correll
Title:	President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the 15th day of April, 2008.

Signature	Title
/s/    Donald L. Correll	Donald L. Correll President, Chief Executive Officer and Director (Principal Executive Officer)
*	Ellen C. Wolf Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
*	George MacKenzie (Director)
*	Martha Clark Goss (Director)
*	Andreas G. Zetzsche (Director)
*	Dr. Rolf Pohlig (Director)
*	Dr. Manfred Döss (Director)
*	William J. Marrazzo (Director)

*By:	/s/    Donald L. Correll
	Donald L. Correll as Attorney-in-Fact

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EXHIBIT INDEX

Exhibit Number	Description
1.1	Underwriting Agreement.******
1.2	Letter from Merrill Lynch, Pierce, Fenner & Smith Incorporated to American Water Works Company, Inc. regarding the American Water Works Company, Inc. Reserved Share Program.*******
2.1	Agreement and Plan of Merger, dated as of September 16, 2001, among RWE Aktiengesellschaft, Thames Water Aqua Holdings GmbH, Apollo Acquisition Company and American Water Works Company, Inc.*****
2.2	Separation Agreement by and among RWE Aktiengesellschaft and American Water Works Company, Inc.*****
3.1	Restated Certificate of Incorporation of American Water Works Company, Inc.*****
3.2	Amended and Restated Bylaws of American Water Works Company, Inc.******
4.1	Specimen Common Stock Certificate.*******
4.2	Note Purchase Agreement, as amended, dated as of December 21, 2006, by and between American Water Capital Corp. and the Purchasers named therein for purchase of $101,000,000 5.39% Series A Senior Notes due 2013, $37,500,000 5.52% Series B Senior Notes due 2016, $329,500,000 5.62% Series C Senior Notes due 2018 and $432,000,000 5.77% Series D Senior Notes due 2021.***
4.3	Note Purchase Agreement, as amended, dated as of March 29, 2007, by and between American Water Capital Corp. and the Purchasers named therein for purchase of $100,000,000 5.62% Series E Senior Notes due 2019 and $100,000,000 5.77% Series F Senior Notes due 2022.***
4.4	Indenture, dated as of October 22, 2007 between American Water Capital Corp. and Wells Fargo Bank, National Association. Incorporated herein by reference to Exhibit 4.4 to American Water Capital Corp. and American Water Works Company, Inc.’s Registration Statement on Form S-4, filed on December 21, 2007.****
4.5	Exchange and Registration Rights Agreement, dated as of October 22, 2007, between American Water Capital Corp., American Water Works Company, Inc. and Citigroup Global Markets Inc, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several purchasers. Incorporated herein by reference to Exhibit 4.5 to American Water Capital Corp. and American Water Works Company, Inc.’s Registration Statement on Form S-4, filed on December 21, 2007.****
5.1	Opinion of Cravath, Swaine & Moore LLP.*****
9.1	Registration Rights Agreement by and among American Water Works Company, Inc., RWE Aktiengesellschaft and RWE Aqua Holdings GmbH.*****
10.1	Credit Agreement, dated as of September 15, 2006, among American Water Capital Corp., the Lenders identified therein and JPMorgan Chase Bank, N.A.***
10.3	Support Agreement, as subsequently amended, dated June 22, 2000, by and between American Water Works Company, Inc. and American Water Capital Corp.***
10.4	Employment Agreement between Donald L. Correll and American Water Works Company, Inc., dated February 15, 2008.*****
10.5	Employment Agreement between Ellen C. Wolf and American Water Works Company, Inc., dated February 15, 2008.*****
10.6	Separation Agreement between Dietrich Firnhaber and RWE Aktiengesellschaft, dated June 18, 2007.*****

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Exhibit Number	Description
10.7	RWE Long-Term Incentive Beat Plan 2005, dated as of April 20, 2005.***
10.8	Amended and Restated American Water Works Company, Inc. Executive Retirement Plan, dated as of March 1, 2007.***
10.9	Amended and Restated American Water Works Company, Inc. Deferred Compensation Plan, dated as of January 1, 2001.***
10.10	RWE Executive Deferred Compensation Plan (A).*****
10.11	RWE Executive Deferred Compensation Plan (B).*****
10.12	Settlement Agreement by and between California American Water Company and the U.S. Department of Commerce, National Oceanic and Atmospheric Administration, dated as of June 29, 2006.*****
10.13	2004 Thames Water/RWE Long-Term Incentive Plan, dated as of January 1, 2004.***
10.14	RWE Long Term Incentive Plan 2002 (LTIP), dated as of 2002.***
10.15	American Water Works Company, Inc. Nonqualified Employee Stock Purchase Plan.*******
10.16	Form of Executive Completion Bonus in connection with the RWE Divestiture, dated as of March 20, 2006.***
10.17	Form of Retention Agreement in connection with the RWE Divestiture, dated as of March 20, 2006.***
10.18	American Water Works Company, Inc. Executive Severance Policy, dated as of June 14, 2006.***
10.19	Secondment Contract between RWE Solutions AG and Dietrich Firnhaber, dated as of January 1, 2003.***
10.20	2007 American Water Senior Management Annual Incentive Plan.***
10.21	2006 American Water Senior Management Annual Incentive Plan.***
10.22	American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan.*******
10.23	Nonqualified Savings and Deferred Compensation Plan for Employees of American Water Works Company, Inc. and its Designated Subsidiaries.******
10.24	Nonqualified Deferred Compensation Plan for Non-Employee Directors of American Water Works Company, Inc.******
10.25	2008 American Water Senior Management Annual Incentive Plan.
21.1	Subsidiaries of American Water Works Company, Inc.****
23.1	Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.********
23.2	Consent of Cravath, Swaine & Moore LLP (included in the opinion filed as Exhibit 5.1).*****
24.1	Power of Attorney.**

**   Previously filed on August 27, 2007.

***   Previously filed on October 11, 2007.

****   Previously filed on January 29, 2008.

*****   Previously filed on March 6, 2008.

******   Previously filed on March 26, 2008.

*******   Previously filed on March 31, 2008.

******** Previously filed on April 1, 2008.

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EX-10.25

Exhibit 10.25

The 2008 Annual Incentive Plan

REWARDING ACHIEVEMENT

Senior Management Incentive Plan

The 2008 American Water Annual Incentive Plan

The 2008 American Water Annual Incentive Plan (AIP) recognizes the opportunity and the accountability we share for achieving our goals. Your accomplishments have helped to build American Water’s success to this point, and the AIP will reward you for the contribution you make to the achievement of our 2008 goals.

Who Is Eligible for the 2008 AIP

All full-time employees in Management Levels ML1 – ML4 in American Water are eligible to participate in the 2008 AIP.

Eligible employees who join American Water on or before September 30^th of a plan year (January 1 – December 31) are also eligible to participate in the plan on a prorated basis.

Target levels for assignees seconded from Germany are aligned with incentive opportunities for German based employees to maintain the “home country terms and conditions” approach adopted for assignees.

Individuals who do not meet their individual performance expectations will not be eligible to receive an incentive award. The American Water Board, or its designee for these purposes, reserves the right to determine whether incentives are payable to any individual or group of individuals. The Board may withhold all incentive payments in certain circumstances.

Your Award Opportunity

Your award opportunity is based on your role. Your manager will confirm your award opportunity to you in writing. Any award you earn is based on your salary as of December 31, 2008.

If you are promoted during the plan year to a position with a higher target level, your bonus plan will be prorated to reflect participation at each award level. Similarly, if you are reclassified to a position with a lower AIP award level, your bonus plan will be prorated to reflect your participation at each award level.

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What the Plan Measures

The AIP is designed to reward participants for the performance results they and the Company attain during the plan year. There are three performance components: ‘Financial’ (Corporate, Divisional/Regional and State), ‘Operational’ and ‘Individual’.

• The Financial component is based on Operating Income. The performance level will be determined at the Corporate and Divisional/Regional/State levels. For 2008, more than 85% of the Operating Income target for the entire Company must be achieved before any payment will be made on the Corporate financial component of the Plan (although a payment could be made on the Divisional/Regional and State financial component if the Divisional/Regional/State operating income exceeds 85% of target). In addition, more than 75% of the Corporate Operating Income target must be achieved before any payment will be made on any component of the Plan for the entire Company (including Divisional/Regional/State financial, operational and individual components).

Operating Income – is defined as earnings before interest, taxes and other non-operating expenses. (This definition applies to Corporate, Divisional, Regional and State Operating Income.)

See Attachment A for the 2008 Target Level Achievement Schedule.

• The Operational component is based on the following:

Environmental Compliance (NOV)

Environmental Compliance is measured by “Notice of Violation” (NOV) count defined as the number of times an official notice is issued by a primacy agency for failure to comply with a federal, state, or local environmental statute or regulation that is covered under the scope of the American Water Environmental Management Policy.

Safety Performance

Safety performance will be measured on an OSHA Total Recordable Incident Rate (ORIR) which is defined as the rate of total injuries requiring treatment beyond first aid per 200,000 hours worked. ORIR focuses on total injury reduction which by extension improves Lost Work Day Case Rate (LWCR) and correlates more closely to workers compensation claims and costs. LWCR will remain a personal performance goal for the Operations and Operational Risk Management functions.

Customer Satisfaction

Customer Satisfaction is based on the results of the annual Customer Satisfaction Survey (CSS) conducted in the fourth quarter each year through randomly selected customer contacts in each State. This survey will ask our customers “Overall, how satisfied have you been with (Company Name) in general during the past twelve months?” This has a five-point response scale (Extremely Satisfied, Very Satisfied, Somewhat Satisfied, Somewhat Dissatisfied, Very Dissatisfied).

3

Service Quality

Service Quality is based on the annual results of the Service Quality Surveys (SQS) conducted throughout the year with customers having had recent contact with an AW Customer Service (CSR) or Field Service (FSR) Representative. This survey will ask the customer, “Overall, how satisfied were you with the outcome of your service contact?” having a five point response scale (Extremely Satisfied, Very Satisfied, Somewhat Satisfied, Somewhat Dissatisfied, Very Dissatisfied), is used to measure performance by evaluating the response percentage total for the top two categories (extremely or very satisfied).

Service Level

• Percentage of calls answered in the Customer Service Center within a certain timeframe.

Quality Measures (Shared Services Center - SSC):

• SSC Error Rate - Number of Financial Statements errors (Annual).

• Reconciliations - Calendar Year Average of accounts beyond policy.

• Timeliness of Processes - Annual percentage of processes conducted according to schedule -Tax Filings, Financial Statements available for consolidation, External Audit information submissions, days to image and process invoices, and Orcom rate changes.

Compliance (Shared Services Center - SSC):

• External Audit Findings - Number of unrecorded differences and topside entries.

• Internal Audit Findings - Number of instances of deviations from policy/procedures during SOX testing.

• External Filing Requirements - Annual Reports and Commission Reports completed by established deadlines for SSC.

• The Individual component includes Performance Targets as agreed by you and your manager within the companywide standard performance management process.

Your AIP letter will provide you with your Company component targets.

How Your Award Is Weighted

Your award opportunity is based on two, three or four performance components (see pages 3 and 4), depending on your role. However, you could earn part of your award based on individual, operational and divisional/regional/state financial components if Corporate Operating Income is more than 75%. If Corporate Operating Income is 75% or less, no award will be paid on any component.

4

The portion of your award opportunity you can earn for each component is reflected in weightings assigned to each, based on your role in the organization, as the following charts show. The award has a target and a maximum opportunity.

BUSINESS CENTER – 2008

Management Level			Corporate Financial		Individual (1)		Target Opportunity		Management Positions
	ML1
Financial 70%		Individual 30%	56	%	24	%	80	%	CEO
	ML2
Financial 50%		Individual 50%	25	%	25	%	50	%	COO, CFO
	ML3
Financial 40%		Individual 60%	16	%	24	%	40	%	Senior Management
	ML4
Financial 40%		Individual 60%	10	%	15	%	25	%	Vice President Directors

(1) This component is defined as Target Agreement or Performance Targets.

SHARED SERVICES CENTER / CUSTOMER SERVICE CENTER – 2008

Management Level			Corporate Financial (40%)		Individual (1) (30%)		Operational (2) (30%)		Target Opportunity		Management Position
	ML4
Financial		Individual/ Operational	10	%	7.5	%	7.5	%	25	%	Vice President Director
40%		60%

(1) This component is defined as Target Agreement or Performance Targets.

(2) This component is defined by Customer Service Center as: 34% Customer Satisfaction; 33% Service Quality; 33% Service Level.

5

Divisional/Regional/State – 2008

Management Level			Corporate Financial (40%)		Divisional/ Regional/ State Financial (20%)		Individual (1) (20%)		Operational (2) (20%)		Target Opportunity
	ML3
Financial		Individual/ Operational/ Divisional/ Regional/ State Financial	16	%	8	%	8	%	8	%	40	%	Divisional/ Regional/ State Presidents
40%		60%
	ML4
Financial		Individual/ Operational/ Divisional/ Regional/ State Financial	10	%	5	%	5	%	5	%	25	%	State Presidents, Directors
40%		60%

(1) This component is defined as Target Agreement or Performance Targets.

(2) 50% of the Operational component is allocated to Customer Satisfaction/Customer Service Quality.

6

How the Weightings Come Together

Here is an example of how the performance components and their weightings come together. As you can see, the measures within each component are also weighted.

EXAMPLE

7

Operational

Divisional/Regional/State Operational components are performance measures tied to the American Water objectives. Each component percentage is as follows: Service Quality (25%); Environmental Compliance (NOVs) (25%); Safety Performance (25%); Customer Satisfaction (25%); and Shared Services and Customer Service operational components are described in Attachments B & C.

Operational components are evaluated on a range from 0 to 120%.

Performance You Can Impact

We believe it is essential that you are accountable for, measured on and rewarded for performance that you can directly impact or influence.

You and your manager have agreed on your individual performance targets. These targets should relate back to the performance scorecard for your business unit, division/region/state and should directly reflect your role.

Individual Performance

Individual performance will be assessed using American Water’s Performance Management and Development Review (PDR) process. The first section of the PDR form contains a scorecard in which your individual Performance Targets will be documented. You and your supervisor will jointly identify and agree to your individual Performance Targets and relative weightings to be achieved during the year.

In overview, the PDR requires each individual to have five Performance Targets. The Performance Targets should be specific and measurable and aligned with the Company performance targets. Each target needs to be evaluated on a range of 0 to 120% according to its importance relative to other targets. In this way excelling at your highest priority target, which has the heaviest weighting, will drive a bigger award. At least one of the targets should be linked to a personal development objective. At the beginning of 2009, a structured performance review will be conducted to determine how well you performed against your targets in 2008. It will be the Performance Scorecard Summary Rating for these 5 Performance Targets and NOT the “overall” performance rating that will be used for AIP award purposes (see below).

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Performance Category

Each participant in the AIP plan should have 5 performance targets. An assessment should be made of performance against each target. Once evaluated, each individual performance target rating will be added and averaged to determine an overall rating.

Example #1

Performance Target Rating (PT)	AIP Performance Rating	Percentage Amount		Weighting			Subtotal
PT#1 (Meets Expectations)	Target fully achieved	100	x	20	%	=	20
PT#2 (Meets Expectations)	Target largely achieved	85	x	20	%	=	17
PT#3 (Does Not Meet Expectations)	Target not achieved	0	x	20	%	=	0
PT #4 (Progressing)	Target partially achieved	60	x	20	%	=	12
PT #5 (Exceeds Expectations)	Target exceeds expectations	120	x	20	%	=	24

Take each performance target percentage amount and multiply it by its assigned weight. Add the subtotal numbers = 73 (Individual Weighting Factor) 73% would be used as the INDIVIDUAL weighting factor in the AIP plan.

Example #2

Performance Target Rating (PT)	AIP Performance Rating	Percentage Amount		Weighting			Subtotal
PT#1 (Exceeds Expectations)	Target exceeds expectations	120	x	10	%	=	12
PT#2 (Meets Expectations)	Target largely achieved	90	x	20	%	=	18
PT#3 (Does Not Meet Expectations)	Target not achieved	0	x	10	%	=	0
PT #4 (Progressing)	Target partially achieved	55	x	20	%	=	11
PT #5 (Meets Expectations)	Target fully achieved	100	x	40	%	=	40

81 would be the subtotal and 81% would be used as the INDIVIDUAL weighting factor in the AIP plan.

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2008 Target Rating Scale

Rating	Scale
Exceeds Expectations	101 – 120	%
Meets Expectations
- Target Fully Achieved	100	%
- Target Largely Achieved	75 – 99	%
Progressing
- Target Partially Achieved	25 – 74	%
Does Not Meet Expectations	0	%
- Not Achieved
Too Soon to Rate	0	%

Performance ratings can range from 0% - 120%. The degree of percentage given will be based on the supervisor’s assessment of performance on the performance target. The maximum payment you can receive under the Individual component is 120%. This would only be awarded if an individual exceeded all 5 performance targets. This should be used only in cases of exceptional and outstanding performance against a target. If an individual received a “too soon to rate” or “does not meet expectations” on their performance scorecard they would not be eligible for an AIP award.

How Your Payout Is Determined

At the end of the year, the amount for each component is based on performance against each goal within the component and its relative weighting. Here is a simplified way to think of it.

(See example on page 11.)

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2008 AIP Payout Example

ML4 EXAMPLE:

Target Opportunity is 25% with 40% Corporate Operating Income 20% Divisional/Regional/State Operating Income, 20% Operational and 20% Individual Components

Financial Performance

Corporate Operating Income

Achievement against financial target = 103.000% x 10.000% (Target) =10.300%

Divisional/Regional/State Operating Income

Achievement against financial target = 100.000% x 5.000% (Target) =5.000%

Operational Performance

Achievement against operational targets = 96.50% x 5.000% (Target) =4.825%

Individual Performance

Achievement against 5 Performance targets = 97.50% x 5.000% (Target) = 4.875%

Total AIP payable is 10.300%(Corporate Operating Income) + 5.000% (Divisional/Regional/State Operating Income) + 4.825% (Operational) + 4.875% (Individual) is 25.00% of annual base salary of $150,000 or $37,500

Salary	x	AIP Target	equals	Target Payout	Maximum Payout
$150,000		25%		$37,500	$51,750
Operating Income (40%)				Financial/ Operational/ Individual (60%)
Corporate Operating Income =10%		Divisional/Regional/State Operating Income =5%		Operational Results =5%	Individual Performance Targets =5%
Target		Target		Target	Target
$15,000		$7,500		$7,500	$7,500
Actual		Actual		Actual	Actual
$15,450		$7,500		$7,238	$7,313
Maximum = 150%		Maximum = 150%		Maximum= 120%	Maximum= 120%
$22,500		$11,250		$9,000	$9,000

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Target Bonuses

You will have received a letter which states your target bonus opportunity. Target bonus is defined as the bonus paid at 100% for both financial and individual awards. This means business plan is achieved for the financial and operational element, and the employee has met his/her objectives for the individual element.

The maximum bonus you can receive is 150% of your Financial element (both Corporate and Divisional/Regional/State), 120% of Operational and 120% of your Individual element.

Adjustments for Uncontrollable Events

The financial data included in the appendices has been prepared on the basis of the business plans agreed in 2008, using the assumptions set at that time. As in previous years, the actual results used for assessment may be amended to reflect the impact of events that are not considered to be within the control of local management. Any such amendments will require the explicit approval of the Chief Executive Officer and the Chief Financial Officer, and if material, the Board, whose decision will be final. The following items are those most likely to be considered for amendment:

• Weather conditions having a material impact on the financial results

• The impact of movements in foreign exchange rates

• Disposal/acquisition of businesses not anticipated in the business plan, but subsequently mandated by the Board of Directors

• Goodwill impairments

• Costs related to the public offering

Award Payments

To be eligible to receive an AIP award, you must be actively employed on the date the payment is made. However, in case of disability, retirement, layoff or death during the plan year, a prorated award based on participation in the plan may be payable. Employees who resign or are terminated for cause at any time prior to payment are not eligible.

Awards are usually determined and paid in cash as soon as possible after the release of financial results. Awards are paid by March 15^th of the following year. Awards are subject to all federal, state and local income tax withholdings.

If you become eligible to join the AIP during a plan year, any payout for that year will be prorated to reflect your participation in the plan.

The American Water Board, or its designee for these purposes, reserves the right to determine whether incentives are payable to any individual or group of individuals. The Board may withhold all incentive payments in certain circumstances, such as failing to reach minimum financial goals. Individuals who do not meet their individual performance expectations will not be eligible to receive an incentive award.

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Rewarding Achievement

Our AIP goals are challenging, but with your focus and contribution and effective teamwork, they can be achieved. Remember, your individual results do matter; our overall performance is the collective results of all our employees.

It is important that you clearly understand your goals, how we are performing against the goals, and how the AIP works so you know how you personally affect our performance. Be sure to talk to your manager or your local HR representative if you have questions.

This brochure describes the 2008 American Water Annual Incentive Plan. The American Water Board or its Designee, whose decisions will be final and binding, will determine interpretations of the Plan. The Company reserves the right to amend, modify, or discontinue the Plan during the plan year or at any time in the future. Participation in the Plan does not convey any commitment to ongoing employment. If there are any differences between the information contained here and the Plan Document, the Plan Documents will govern.

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