UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-34028

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware	51-0063696
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Water Street, Camden, NJ 08102-1658

(Address of principal executive offices) (Zip Code)

(856) 955-4001

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	AWK	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).  ☐ Yes  ☒ No    

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding as of October 25, 2022
Common Stock, par value $0.01 per share	181,827,874

TABLE OF CONTENTS

		Page
Forward-Looking Statements		1
	Part I. Financial Information
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
	Part II. Other Information
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	55
Signatures		56

*    *    *

Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”), unless the context otherwise requires, references to the “Company” and “American Water” mean American Water Works Company, Inc. and all of its subsidiaries, taken together as a whole. References to the “parent company” mean American Water Works Company, Inc., without its subsidiaries.

The Company maintains a website at https://amwater.com, an Investor Relations website at https://ir.amwater.com, and a Diversity and Inclusion website at https://diversityataw.com. Information contained on the Company’s websites, including its Sustainability Report, its Inclusion and Diversity Annual Report, and other reports or documents, shall not be deemed incorporated into, or to be a part of, this report, and any website references included herein are not intended to be made through active hyperlinks.

i

FORWARD-LOOKING STATEMENTS

Statements included in Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words with prospective meanings such as “intend,” “plan,” “estimate,” “believe,” “anticipate,” “expect,” “predict,” “project,” “propose,” “assume,” “forecast,” “likely,” “uncertain,” “outlook,” “future,” “pending,” “goal,” “objective,” “potential,” “continue,” “seek to,” “may,” “can,” “should,” “will” and “could” or the negative of such terms or other variations or similar expressions. Forward-looking statements may relate to, among other things: the Company’s future financial performance, liquidity and cash flows; the timing and amount of rate and revenue adjustments, including through general rate case filings, filings for infrastructure surcharges and other governmental agency authorizations and proceedings, and filings to address regulatory lag; the Company’s growth and portfolio optimization strategies, including the timing and outcome of pending or future acquisition activity; the ability of the Company’s California subsidiary to obtain adequate alternative water supplies in lieu of diversions from the Carmel River; the amount and allocation of projected capital expenditures and related funding requirements; the Company’s ability to repay or refinance debt; the future impacts of increased or increasing financing costs, inflation and interest rates; the Company’s ability to execute its current and long-term business, operational and capital expenditures strategies; the Company’s ability to finance current operations, capital expenditures and growth initiatives by accessing the debt and equity capital markets, including the timing and amount of the Company’s future public equity issuances; the outcome and impact on the Company of governmental and regulatory proceedings and related potential fines, penalties and other sanctions; the ability to meet or exceed the Company’s stated environmental and sustainability goals, including its greenhouse gas emission reduction, water delivery efficiency and water system resiliency goals; the ability to complete, and the timing and efficacy of, the design, development, implementation and improvement of technology and other strategic initiatives; the impacts to the Company of the COVID-19 pandemic; the ability to capitalize on existing or future utility privatization opportunities; trends in the water and wastewater industries in which the Company operates, including macro trends with respect to the Company’s efforts related to customer, technology and work execution; regulatory, legislative, tax policy or legal developments; and impacts that future significant tax legislation may have on the Company and on its business, results of operations, cash flows and liquidity.

Forward-looking statements are predictions based on the Company’s current expectations and assumptions regarding future events. They are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements, and readers are cautioned not to place undue reliance upon them. These forward-looking statements are subject to a number of estimates, assumptions, known and unknown risks, uncertainties and other factors. The Company’s actual results may vary materially from those discussed in the forward-looking statements included herein as a result of the following important factors:

•the decisions of governmental and regulatory bodies, including decisions to raise or lower customer rates and regulatory responses to the COVID-19 pandemic;

•the timeliness and outcome of regulatory commissions’ and other authorities’ actions concerning rates, capital structure, authorized return on equity, capital investment, system acquisitions and dispositions, taxes, permitting, water supply and management, and other decisions;

•changes in customer demand for, and patterns of use of, water, such as may result from conservation efforts, impacts of the COVID-19 pandemic, or otherwise;

•limitations on the availability of the Company’s water supplies or sources of water, or restrictions on its use thereof, resulting from allocation rights, governmental or regulatory requirements and restrictions, drought, overuse or other factors;

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

•changes in laws, governmental regulations and policies, including with respect to the environment, health and safety, data and consumer privacy, security and protection, water quality and water quality accountability, contaminants of emerging concern, public utility and tax regulations and policies, and impacts resulting from U.S., state and local elections and changes in federal, state and local executive administrations;

•the Company’s ability to collect, distribute, use, secure and store consumer data in compliance with current or future governmental laws, regulations and policies with respect to data and consumer privacy, security and protection;

•weather conditions and events, climate variability patterns, and natural disasters, including drought or abnormally high rainfall, prolonged and abnormal ice or freezing conditions, strong winds, coastal and intercoastal flooding, pandemics (including COVID-19) and epidemics, earthquakes, landslides, hurricanes, tornadoes, wildfires, electrical storms, sinkholes and solar flares;

•the outcome of litigation and similar governmental and regulatory proceedings, investigations or actions;

1

•the risks associated with the Company’s aging infrastructure, and its ability to appropriately improve the resiliency of or maintain and replace, current or future infrastructure and systems, including its technology and other assets, and manage the expansion of its businesses;

•exposure or infiltration of the Company’s technology and critical infrastructure systems, including the disclosure of sensitive, personal or confidential information contained therein, through physical or cyber attacks or other means;

•the Company’s ability to obtain permits and other approvals for projects and construction of various water and wastewater facilities;

•changes in the Company’s capital requirements;

•the Company’s ability to control operating expenses and to achieve operating efficiencies;

•the intentional or unintentional actions of a third party, including contamination of the Company’s water supplies or the water provided to its customers;

•the Company’s ability to obtain adequate and cost-effective supplies of pipe, equipment (including personal protective equipment), chemicals, electricity, fuel, water and other raw materials, and to address or mitigate supply chain constraints that may result in delays or shortages in, as well as increased costs of, supplies, products and materials that are critical to or used in the Company’s business operations;

•the Company’s ability to successfully meet its operational growth projections, either individually or in the aggregate, and capitalize on growth opportunities, including, among other things, with respect to:

•acquiring, closing and successfully integrating regulated operations and market-based businesses;

•the Company’s Military Services Group (“MSG”) entering into new military installation contracts, price redeterminations, and other agreements and contracts with the U.S. government; and

•realizing anticipated benefits and synergies from new acquisitions;

•risks and uncertainties following the completion of the sale of the Company’s Homeowner Services Group (“HOS”) and its New York subsidiary, including:

•the Company’s ability to receive any contingent consideration provided for in the HOS sale, as well as amounts due, payable and owing to the Company from time to time under the seller promissory note when due; and

•the ability of the Company to redeploy successfully and timely the net proceeds of these transactions into the Company’s Regulated Businesses (as defined herein);

•risks and uncertainties associated with contracting with the U.S. government, including ongoing compliance with applicable government procurement and security regulations;

•cost overruns relating to improvements in or the expansion of the Company’s operations;

•the Company’s ability to successfully develop and implement new technologies and to protect related intellectual property;

•the Company’s ability to maintain safe work sites;

•the Company’s exposure to liabilities related to environmental laws and similar matters resulting from, among other things, water and wastewater service provided to customers;

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

•access to sufficient debt and/or equity capital on satisfactory terms and when and as needed to support operations and capital expenditures;

•fluctuations in inflation or interest rates, and the Company’s ability to address or mitigate the impacts thereof;

•the ability to comply with affirmative or negative covenants in the current or future indebtedness of the Company or any of its subsidiaries, or the issuance of new or modified credit ratings or outlooks by credit rating agencies with respect to the Company or any of its subsidiaries (or any current or future indebtedness thereof), which could increase financing costs or funding requirements and affect the Company’s or its subsidiaries’ ability to issue, repay or redeem debt, pay dividends or make distributions;

•fluctuations in the value of benefit plan assets and liabilities that could increase the Company’s cost and funding requirements;

•changes in federal or state general, income and other tax laws, including (i) future significant tax legislation, (ii) the availability of, or the Company’s compliance with, the terms of applicable tax credits and tax abatement programs, and (iii) the Company’s ability to utilize its state income tax net operating loss carryforwards;

•migration of customers into or out of the Company’s service territories;

•the use by municipalities of the power of eminent domain or other authority to condemn the systems of one or more of the Company’s utility subsidiaries, or the assertion by private landowners of similar rights against such utility subsidiaries;

•any difficulty or inability to obtain insurance for the Company, its inability to obtain insurance at acceptable rates and on acceptable terms and conditions, or its inability to obtain reimbursement under existing or future insurance programs and coverages for any losses sustained;

•the incurrence of impairment charges related to the Company’s goodwill or other assets;

•labor actions, including work stoppages and strikes;

•the Company’s ability to retain and attract qualified employees;

2

•civil disturbances or unrest, or terrorist threats or acts, or public apprehension about future disturbances, unrest, or terrorist threats or acts; and

•the impact of new, and changes to existing, accounting standards.

These forward-looking statements are qualified by, and should be read together with, the risks and uncertainties set forth above, and the risk factors and other statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”) and in this Form 10-Q, and readers should refer to such risks, uncertainties and risk factors in evaluating such forward-looking statements. Any forward-looking statements the Company makes shall speak only as of the date this Form 10-Q was filed with the U.S. Securities and Exchange Commission (“SEC”). Except as required by the federal securities laws, the Company does not have any obligation, and it specifically disclaims any undertaking or intention, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on the Company’s businesses, either viewed independently or together, or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing factors should not be construed as exhaustive.

3

PART I. FINANCIAL INFORMATION

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)

	September 30, 2022		December 31, 2021
ASSETS
Property, plant and equipment	$	29,062	$	27,413
Accumulated depreciation	(6,426)		(6,329)
Property, plant and equipment, net	22,636		21,084
Current assets:
Cash and cash equivalents	77		116
Restricted funds	27		20
Accounts receivable, net of allowance for uncollectible accounts of $64 and $75, respectively	358		271
Unbilled revenues	273		248
Materials and supplies	93		57
Assets held for sale	—		683
Other	189		159
Total current assets	1,017		1,554
Regulatory and other long-term assets:
Regulatory assets	1,075		1,051
Seller promissory note from the sale of the Homeowner Services Group	720		720
Operating lease right-of-use assets	90		92
Goodwill	1,143		1,139
Postretirement benefit assets	208		193
Other	237		242
Total regulatory and other long-term assets	3,473		3,437
Total assets	$	27,126	$	26,075

The accompanying notes are an integral part of these Consolidated Financial Statements.

4

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)

	September 30, 2022		December 31, 2021
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock ($0.01 par value; 500,000,000 shares authorized; 187,169,722 and 186,880,413 shares issued, respectively)	$	2	$	2
Paid-in-capital	6,813		6,781
Retained earnings	1,359		925
Accumulated other comprehensive loss	(39)		(45)
Treasury stock, at cost (5,342,477 and 5,269,324 shares, respectively)	(377)		(365)
Total common shareholders' equity	7,758		7,298
Long-term debt	10,940		10,341
Redeemable preferred stock at redemption value	3		3
Total long-term debt	10,943		10,344
Total capitalization	18,701		17,642
Current liabilities:
Short-term debt	634		584
Current portion of long-term debt	265		57
Accounts payable	220		235
Accrued liabilities	610		701
Accrued taxes	69		176
Accrued interest	116		88
Liabilities related to assets held for sale	—		83
Other	216		217
Total current liabilities	2,130		2,141
Regulatory and other long-term liabilities:
Advances for construction	306		284
Deferred income taxes and investment tax credits	2,372		2,421
Regulatory liabilities	1,614		1,600
Operating lease liabilities	78		80
Accrued pension expense	250		285
Other	186		180
Total regulatory and other long-term liabilities	4,806		4,850
Contributions in aid of construction	1,489		1,442
Commitments and contingencies (See Note 11)
Total capitalization and liabilities	$	27,126	$	26,075

The accompanying notes are an integral part of these Consolidated Financial Statements.

5

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Operations (Unaudited)

(In millions, except per share data)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Operating revenues	$	1,082	$	1,092	$	2,861	$	2,979
Operating expenses:
Operation and maintenance	416		436		1,156		1,286
Depreciation and amortization	164		161		485		476
General taxes	63		78		208		241
Total operating expenses, net	643		675		1,849		2,003
Operating income	439		417		1,012		976
Other income (expense):
Interest expense	(111)		(101)		(317)		(300)
Interest income	14		—		39		—
Non-operating benefit costs, net	19		20		58		59
Other, net	6		4		38		11
Total other (expense) income	(72)		(77)		(182)		(230)
Income before income taxes	367		340		830		746
Provision for income taxes	70		62		157		128
Net income attributable to common shareholders	$	297	$	278	$	673	$	618
Basic earnings per share:
Net income attributable to common shareholders	$	1.63	$	1.53	$	3.70	$	3.40
Diluted earnings per share:
Net income attributable to common shareholders	$	1.63	$	1.53	$	3.70	$	3.40
Weighted-average common shares outstanding:
Basic	182		182		182		182
Diluted	182		182		182		182

The accompanying notes are an integral part of these Consolidated Financial Statements.

6

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net income attributable to common shareholders	$	297	$	278	$	673	$	618
Other comprehensive income, net of tax:
Defined benefit pension plan actuarial loss, net of tax of $1 and $0 for the three months ended September 30, 2022 and 2021, respectively, and $1 and $1 for the nine months ended September 30, 2022 and 2021, respectively	—		1		2		3
Unrealized gain on cash flow hedges, net of tax of $0 and $0 for the three months ended September 30, 2022 and 2021, respectively, and $1 and $0 for the nine months ended September 30, 2022 and 2021, respectively	1		—		4		1
Net other comprehensive income	1		1		6		4
Comprehensive income attributable to common shareholders	$	298	$	279	$	679	$	622

The accompanying notes are an integral part of these Consolidated Financial Statements.

7

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In millions)

	For the Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	673	$	618
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	485		476
Deferred income taxes and amortization of investment tax credits	13		121
Provision for losses on accounts receivable	17		28
Pension and non-pension postretirement benefits	(37)		(31)
Other non-cash, net	(31)		(34)
Changes in assets and liabilities:
Receivables and unbilled revenues	(129)		(103)
Pension and non-pension postretirement benefit contributions	(40)		(31)
Accounts payable and accrued liabilities	(9)		28
Accrued taxes	(148)		25
Other assets and liabilities, net	(30)		(68)
Net cash provided by operating activities	764		1,029
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(1,597)		(1,205)
Acquisitions, net of cash acquired	(288)		(78)
Net proceeds from sale of assets	608		—
Removal costs from property, plant and equipment retirements, net	(85)		(70)
Net cash used in investing activities	(1,362)		(1,353)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	822		1,113
Repayments of long-term debt	(14)		(370)
Repayments of term loan	—		(500)
Net short-term borrowings (repayments) with maturities less than three months	50		(97)
Advances and contributions in aid of construction, net of refunds of $13 and $17 for the nine months ended September 30, 2022 and 2021, respectively	64		50
Debt issuance costs and make-whole premium on early debt redemption	(7)		(26)
Dividends paid	(348)		(318)
Other, net	(1)		(4)
Net cash provided by (used in) financing activities	566		(152)
Net decrease in cash, cash equivalents and restricted funds	(32)		(476)
Cash, cash equivalents and restricted funds at beginning of period	136		576
Cash, cash equivalents and restricted funds at end of period	$	104	$	100
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period	$	347	$	238

 The accompanying notes are an integral part of these Consolidated Financial Statements.

8

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 Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Par Value								Shares	At Cost
Balance as of December 31, 2021	186.9	$	2	$	6,781	$	925	$	(45)	(5.3)	$	(365)	$	7,298
Net income attributable to common shareholders	—	—		—		158		—		—	—		158
Common stock issuances (a)	0.2	—		15		—		—		—	(12)		3
Net other comprehensive income	—	—		—		—		1		—	—		1
Balance as of March 31, 2022	187.1	$	2	$	6,796	$	1,083	$	(44)	(5.3)	$	(377)	$	7,460
Net income attributable to common shareholders	—	—		—		218		—		—	—		218
Common stock issuances (a)	—	—		8		—		—		—	—		8
Net other comprehensive income	—	—		—		—		4		—	—		4
Dividends ($0.6550 declared per common share)	—	—		—		(120)		—		—	—		(120)
Balance as of June 30, 2022	187.1	$	2	$	6,804	$	1,181	$	(40)	(5.3)	$	(377)	$	7,570
Net income attributable to common shareholders	—	—		—		297		—		—	—		297
Common stock issuances (a)	0.1	—		9		—		—		—	—		9
Net other comprehensive income	—	—		—		—		1		—	—		1
Dividends ($0.6550 declared per common share)	—	—		—		(119)		—		—	—		(119)
Balance as of September 30, 2022	187.2	$	2	$	6,813	$	1,359	$	(39)	(5.3)	$	(377)	$	7,758

(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, 2020	186.5	$	2	$	6,747	$	102	$	(49)	(5.2)	$	(348)	$	6,454
Net income attributable to common shareholders	—	—		—		133		—		—	—		133
Common stock issuances (a)	0.2	—		10		—		—		(0.1)	(15)		(5)
Net other comprehensive income	—	—		—		—		1		—	—		1
Balance as of March 31, 2021	186.7	$	2	$	6,757	$	235	$	(48)	(5.3)	$	(363)	$	6,583
Net income attributable to common shareholders	—	—		—		207		—		—	—		207
Common stock issuances (a)	0.1	—		8		—		—		—	—		8
Net other comprehensive income	—	—		—		—		2		—	—		2
Dividends ($0.6025 declared per common share)	—	—		—		(110)		—		—	—		(110)
Balance as of June 30, 2021	186.8	$	2	$	6,765	$	332	$	(46)	(5.3)	$	(363)	$	6,690
Net income attributable to common shareholders	—	—		—		278		—		—	—		278
Common stock issuances (a)	—	—		7		—		—		—	—		7
Net other comprehensive income	—	—		—		—		1		—	—		1
Dividends ($0.6025 declared per common share)	—	—		—		(110)		—		—	—		(110)
Balance as of September 30, 2021	186.8	$	2	$	6,772	$	500	$	(45)	(5.3)	$	(363)	$	6,866

(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.

9

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. 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 September 30, 2022, 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, 2021 (“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 new accounting standards that were adopted by the Company in 2022:

Standard	Description	Date of Adoption	Application	Effect on the Consolidated Financial Statements
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity	Simplification of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. This will result in fewer embedded conversion features being separately recognized from the host contract. Earnings per share (“EPS”) calculations have been simplified for certain instruments.	January 1, 2022	Either modified retrospective or fully retrospective	The standard did not have a material impact on its Consolidated Financial Statements.
Disclosures by Business Entities about Government Assistance	The amendments in this update require additional disclosures regarding government grants and contributions. These disclosures require information on the following three items about government transactions to be provided: information on the nature of transactions and related accounting policy used to account for transactions, the line items on the balance sheet and income statement affected by these transactions including amounts applicable to each line, and significant terms and conditions of the transactions, including commitments and contingencies.	January 1, 2022	Either prospective or retrospective	The standard did not have a material impact on its Consolidated Financial Statements.

Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of September 30, 2022:

Standard	Description	Date of Adoption	Application	Estimated Effect on the Consolidated Financial Statements
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers	The guidance requires an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, as if it had originated the contracts. The amendments in this update also provide certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination.	January 1, 2023; early adoption permitted	Prospective	The Company is evaluating any impact on its Consolidated Financial Statements, as well as the timing of adoption.
Troubled Debt Restructurings and Vintage Disclosures	The main provisions of this standard eliminate the receivables accounting guidance for troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements when a borrower is experiencing financial difficulty. Entities must apply the loan refinancing and restructuring guidance for receivables to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, the amendments in this update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.	January 1, 2023; early adoption permitted	Prospective, with a modified retrospective option for amendments related to the recognition and measurement of TDRs.	The Company is evaluating any impact on its Consolidated Financial Statements, as well as the timing of adoption.

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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 nine months ended September 30:

	2022		2021
Balance as of January 1	$	(75)	$	(60)
Amounts charged to expense	(17)		(28)
Amounts written off	19		22
Other, net (a)	9		(10)
Balance as of September 30	$	(64)	$	(76)

(a)This portion of the allowance for uncollectible accounts is primarily related to COVID-19 related regulatory asset activity. The 2021 activity also includes the portion of the allowance related to the Company’s New York subsidiary, which was sold on January 1, 2022, and is included in assets held for sale on the Consolidated Balance Sheets as of December 31, 2021. See Note 5—Acquisitions and Divestitures for additional information.

Reclassifications

Certain reclassifications have been made to prior periods in the Consolidated Financial Statements and Notes to conform to the current presentation.

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Note 3: Regulatory Matters

General Rate Cases and Infrastructure Surcharges

Presented in the table below are annualized incremental revenues, excluding reductions for the amortization of excess accumulated deferred income tax (“EADIT”) that are generally offset in income tax expense, assuming a constant water sales volume, resulting from general rate case authorizations and infrastructure surcharge authorizations that became effective in the respective period:

	During the Three Months Ended September 30,				During the Nine Months Ended September 30,
(In millions)	2022		2021		2022		2021
General rate cases by state (a):
New Jersey (effective September 1, 2022)	$	61	$	—	$	61	$	—
Hawaii (effective July 1, 2022)	2		—		2		—
West Virginia (effective February 25, 2022)	—		—		15		—
California (effective January 1, 2022 and January 1, 2021)	—		—		13		22
Pennsylvania (effective January 1, 2022 and January 28, 2021)	—		—		20		70
Missouri (effective May 28, 2021)	—		—		—		22
Total general rate cases	$	63	$	—	$	111	$	114
Infrastructure surcharges by state:
Missouri (effective August 11, 2022 and February 1, 2022)	$	18	$	—	$	30	$	—
Tennessee (effective August 8, 2022 and January 1, 2021)	3		—		3		3
Pennsylvania (effective July 1, 2022, April 1, 2022 and January 1, 2021)	9		—		11		8
Kentucky (effective July 1, 2022 and July 1, 2021)	3		1		3		1
New Jersey (effective June 27, 2022 and June 28, 2021)	—		—		10		14
Indiana (effective March 21, 2022 and March 17, 2021)	—		—		8		8
West Virginia (effective March 1, 2022 and January 1, 2021)	—		—		3		5
Illinois (effective January 1, 2022 and January 1, 2021)	—		—		6		7
Total infrastructure surcharges	$	33	$	1	$	74	$	46

(a)Excludes authorized increase of $7 million for the nine months ended September 30, 2021, for the Company’s New York subsidiary, which was sold on January 1, 2022. See Note 5—Acquisitions and Divestitures for additional information.

Effective October 1, 2022, the Company’s Pennsylvania subsidiary implemented an infrastructure surcharge for annualized incremental revenues of $8 million.

On August 17, 2022, the Company’s New Jersey subsidiary was authorized additional annual revenues of $61 million in its general rate case, effective September 1, 2022, excluding agreed to reductions for EADIT as a result of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) ($46 million including EADIT reductions). The order incorporated updated estimates of production costs, including chemicals, fuel and power costs. Beginning January 1, 2023, the Company’s New Jersey subsidiary will defer as a regulatory asset or liability, as appropriate, the difference between its pension expense and other post-employment benefits expense and those amounts included in base rates. The deferral period for this regulatory asset or liability will be two years or, if earlier, will end at the conclusion of the Company’s New Jersey subsidiary’s next general rate case. The Company’s New Jersey subsidiary also withdrew its request, without prejudice, to recover its existing authorized COVID-19-related regulatory asset in the general rate case and will seek recovery in a separate proceeding within the process established in the New Jersey Board of Public Utilities’ (the “NJBPU”) generic COVID-19-related proceeding.

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On February 24, 2022, the Company’s West Virginia subsidiary (“WVAWC”) was authorized additional annual revenues of $15 million in its general rate case, effective February 25, 2022, excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $2 million and the exclusion for infrastructure surcharges is $10 million. Staff of the Public Service Commission of West Virginia moved for reconsideration of the final order on several grounds. WVAWC filed its response to the Staff's Petition for Reconsideration on March 28, 2022, in support of the authorized revenue requirement. On October 21, 2022, the Public Service Commission of West Virginia denied the motion for reconsideration.

On November 18, 2021, the California Public Utilities Commission (the “CPUC”) unanimously approved a final decision in the test year 2021 general rate case filed by the Company’s California subsidiary, which was retroactive to January 1, 2021. The Company’s California subsidiary received authorization for additional annualized water and wastewater revenues of $22 million, excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $4 million and is offset by a like reduction in income tax expense. On February 16, 2022, the Company’s California subsidiary received approval to increase rates by $13 million in 2022 escalation increases, excluding $4 million of reductions related to the TCJA, which was retroactive to January 1, 2022.

On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the NJBPU that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. On July 29, 2021, the NJBPU issued an order adopting the ALJ’s initial decision without modification. The Company’s New Jersey subsidiary filed a Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. The Company’s New Jersey subsidiary filed its brief in support of the appeal on March 4, 2022. Response and Reply briefs were filed on June 22, 2022, and August 4, 2022, respectively. There is no financial impact to the Company as a result of the NJBPU’s order, since the acquisition adjustments are currently recorded as goodwill on the Consolidated Balance Sheets.

On February 25, 2021, the Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, effective January 28, 2021, excluding agreed to reductions in revenues of $19 million for EADIT as a result of the TCJA. The overall increase, net of TCJA reductions, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step was effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate assumptions method, and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annual reduction to revenue is comprised of both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018, through December 31, 2020, covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.

Pending General Rate Case Filings

On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of $57 million and a total increase in revenue over the 2024 to 2026 period of $99 million. The requested increase excludes proposed reductions for EADIT of $1 million as a result of TCJA.

On July 1, 2022, the Company’s Missouri subsidiary filed a general rate case requesting $116 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA ($105 million including EADIT reductions) and infrastructure surcharges.

On April 29, 2022, the Company’s Pennsylvania subsidiary filed a general rate case requesting $185 million in additional annualized water and wastewater revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges. On October 11, 2022, the Company’s Pennsylvania subsidiary, the Pennsylvania Public Utility Commission’s (the “PaPUC”) Bureau of Investigation and Enforcement, the Pennsylvania Office of Consumer Advocate, and certain other parties to the general rate case jointly filed a petition for settlement with the PaPUC providing for a total annualized revenue increase of $138 million. The petition for settlement provides for an annualized revenue increase of $150 million excluding agreed to reductions for EADIT as a result of the TCJA ($138 million including EADIT reductions). In addition, the petition for settlement incorporates updated estimates of pension and other post-employment benefits expense, as well as increases in chemicals, fuel and power costs. Furthermore, the petition for settlement includes recovery of the COVID-19 deferral balance. An ALJ will review the petition for settlement and render a recommended decision to the PaPUC on whether it should approve the settlement. After its review of the matter, the PaPUC will issue a final order, which the Company expects to occur by January 2023, with new rates to be effective as of January 28, 2023.

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On February 10, 2022, the Company’s Illinois subsidiary filed a general rate case requesting $71 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges. The requested increase was subsequently updated in the Illinois subsidiary’s June 29, 2022, rebuttal filing, with the request adjusted to $85 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA ($83 million including EADIT reductions) and infrastructure surcharges. The request was increased in the rebuttal filing to capture higher production costs and expected higher pension and other post-employment benefit costs. Evidentiary hearings were held on August 10, 2022, and on October 28, 2022, the ALJs issued a proposed order recommending $69 million in additional annualized revenues, excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges ($67 million including EADIT reductions), on a proposed return on equity of 9.78%. The final order is expected in late 2022 or early January 2023, with rates effective in January 2023.

On November 15, 2021, the Company’s Virginia subsidiary filed a general rate case requesting $15 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA. Interim rates were effective on May 1, 2022, and the difference between interim and final approved rates is subject to refund. On September 26, 2022, a settlement agreement, supported by all parties except one, was filed with the Virginia State Corporation Commission for a $12 million annual revenue increase excluding agreed to reductions for EADIT as a result of TCJA ($11 million including EADIT reductions). Public hearings were held on September 27 and 28, 2022. A final decision on this matter is expected in the first quarter of 2023.

The Company’s California subsidiary submitted its application on May 3, 2021, to set its cost of capital for 2022 through 2024. According to the CPUC’s procedural schedule, a decision setting the authorized cost of capital is expected to be issued in the fourth quarter of 2022.

Pending Infrastructure Surcharge Filings

On September 9, 2022, the Company’s Missouri subsidiary filed an infrastructure surcharge proceeding requesting $13 million in additional annualized revenues.

On June 30, 2022, WVAWC filed an infrastructure surcharge proceeding requesting $8 million in additional annualized revenues.

Other Regulatory Matters

In September 2020, the CPUC released a decision under its Low-Income Rate Payer Assistance program rulemaking that required the Company’s California subsidiary to file a proposal to alter its water revenue adjustment mechanism in its next general rate case filing in 2022, which would become effective in January 2024. On October 5, 2020, the Company’s California subsidiary filed an application for rehearing of the decision and following the CPUC’s denial of its rehearing application in September 2021, the Company’s California subsidiary filed a petition for writ of review with the California Supreme Court on October 27, 2021. On May 18, 2022, the California Supreme Court issued a writ of review for the Company’s California subsidiary’s petition and the petitions filed by other entities challenging the decision. Independent of the judicial challenge, California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022, and will become effective on January 1, 2023. In response to the legislation, on October 10, 2022, the Company’s California subsidiary filed a request for the CPUC to consider the continuation of its decoupling mechanism in its pending 2022 general rate case, which would be effective 2024 through 2026.

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 market-based businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities, and utility customers, collectively included within “Market-Based Businesses and Other.”

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Presented in the table below are operating revenues disaggregated for the three months ended September 30, 2022:

	Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	556	$	1	$	557
Commercial	207		1		208
Fire service	36		—		36
Industrial	41		1		42
Public and other	82		—		82
Total water services	922		3		925
Wastewater services:
Residential	45		1		46
Commercial	12		—		12
Industrial	1		—		1
Public and other	7		—		7
Total wastewater services	65		1		66
Miscellaneous utility charges	9		—		9
Alternative revenue programs	—		1		1
Lease contract revenue	—		2		2
Total Regulated Businesses	996		7		1,003
Market-Based Businesses and Other	80		(1)		79
Total operating revenues	$	1,076	$	6	$	1,082

(a)Includes revenues associated with provisional rates, 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.

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Presented in the table below are operating revenues disaggregated for the three months ended September 30, 2021:

	Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	545	$	—	$	545
Commercial	197		—		197
Fire service	38		—		38
Industrial	39		—		39
Public and other	72		—		72
Total water services	891		—		891
Wastewater services:
Residential	38		—		38
Commercial	10		—		10
Industrial	1		—		1
Public and other	4		—		4
Total wastewater services	53		—		53
Miscellaneous utility charges	2		—		2
Alternative revenue programs	—		(