American Water Works Company Inc_NYSE_AWK_2023(10-K).pdf

1、Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K(Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,2023ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXC

2、HANGE ACT OF 1934For the transition period from to Commission file number:001-34028AMERICAN WATER WORKS COMPANY,INC.(Exact name of registrant as specified in its charter)Delaware51-0063696(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)1 Water Street,

3、Camden,NJ 08102-1658(Address of principal executive offices)(Zip Code)(856)955-4001(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading SymbolName of each exchange on which registeredCommon stock,par value$0.01 per sha

4、reAWKNew York Stock ExchangeSecurities registered pursuant to Section 12(g)of the Act:None.Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to

5、 Section 13 or Section 15(d)of the Act.Yes No 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 thepreceding 12 months(or for such shorter period that the registrant was required to file such

6、 reports),and(2)has been subject to such filing requirements for the past90 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 RegulationS-T(232.405 of this chapter)during the preceding 1

7、2 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 emerginggrowth company.See the definitions of“la

8、rge accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth companyIf an emerging growth company,indicate by check mark if

9、 the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements asses

10、sment of the effectiveness of its internal control overfinancial reporting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its auditreport.If securities are registered pursuant to Section 12(b)of the Act,indicate by check

11、 mark whether the financial statements of the registrant included in the filing reflectthe correction of an error to previously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation

12、 received by any ofthe registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No State the aggregate market value of the voting and non-voting common equity

13、held by non-affiliates computed by reference to the price at which the common equitywas last sold,or the average bid and asked price of such common equity,as of the last business day of the registrants most recently completed second fiscal quarter.Common Stock,$0.01 par value$24,527,200,000 as of Ju

14、ne 30,2023(solely for purposes of calculating this aggregate market value,American Water has definedits affiliates to include(i)those persons who were,as of June 30,2023,its executive officers,directors or known beneficial owners of more than 10%of its commonstock,and(ii)such other persons who were

15、deemed,as of June 30,2023,to be controlled by,or under common control with,American Water or any such persons inclause(i)above).2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm1/201Indicate the number of shares outstanding of each of the r

16、egistrants classes of common stock as of the latest practicable date:Common Stock,$0.01 par value pershare194,755,320 shares as of February 6,2024.DOCUMENTS INCORPORATED BY REFERENCEPortions of the American Water Works Company,Inc.definitive proxy statement for the 2024 Annual Meeting of Shareholder

17、s to be filed with the Securities andExchange Commission within 120 days after December 31,2023 are incorporated by reference into Part III of this report.2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm2/201TABLE OF CONTENTS PageForward-L

18、ooking Statements1 Part I Item 1.Business4Item 1A.Risk Factors22Item 1B.Unresolved Staff Comments37Item 1C.Cyber Security37Item 2.Properties39Item 3.Legal Proceedings39Item 4.Mine Safety Disclosures48 Part II Item 5.Market For Registrants Common Equity,Related Stockholder Matters and Issuer Purchase

19、s of EquitySecurities49Item 6.Reserved49Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations50Item 7A.Quantitative and Qualitative Disclosures About Market Risk75Item 8.Financial Statements and Supplementary Data77Item 9.Changes in and Disagreements with Accoun

20、tants on Accounting and Financial Disclosure138Item 9A.Controls and Procedures138Item 9B.Other Information139Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections139 Part III Item 10.Directors,Executive Officers and Corporate Governance140Item 11.Executive Compensation140Item 1

21、2.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters140Item 13.Certain Relationships and Related Transactions and Director Independence140Item 14.Principal Accountant Fees and Services140 Part IV Item 15.Exhibits and Financial Statement Schedules141Item 16

22、.Form 10-K Summary141Exhibit Index141Signatures1462025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm3/201Table of ContentsFORWARD-LOOKING STATEMENTSStatements included in Item 1Business,Item 1ARisk Factors,and Item 7Managements Discussion an

23、d Analysis ofFinancial Condition and Results of Operations,and in other sections of this Annual Report on Form 10-K,or incorporated byreference therein,are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,as amended,Section 21E of the Securities Exchange Act

24、 of 1934,as amended(the“Exchange Act”),and the Private Securities LitigationReform Act of 1995.In some cases,these forward-looking statements can be identified by words with prospective meanings suchas“intend,”“plan,”“estimate,”“believe,”“anticipate,”“expect,”“predict,”“project,”“propose,”“assume,”“

25、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 Companys futur

26、e financial performance,liquidity and cash flows;the timing and amount of rate andrevenue adjustments,including through general rate case filings,filings for infrastructure surcharges and other governmentalagency authorizations and proceedings,and filings to address regulatory lag;the Companys abili

27、ty to execute its current and long-term business,operational,capital expenditures and growth plans and strategies;the timing and outcome of pending or futureacquisition activity,and the ability to achieve organic customer growth;the ability of the Companys California subsidiary to obtainadequate alt

28、ernative water supplies in lieu of diversions from the Carmel River;the amount,allocation and timing of projectedcapital expenditures and related funding requirements;the Companys ability to repay or refinance debt;the future impacts ofincreased or increasing financing costs,inflation and interest r

29、ates;the Companys ability to finance current and projectedoperations,capital expenditure needs and growth initiatives by accessing the debt and equity capital markets and sources of short-term liquidity;the outcome and impact on the Company of governmental and regulatory investigations and proceedin

30、gs and relatedpotential fines,penalties and other sanctions;the ability to meet or exceed the Companys stated environmental and sustainabilitygoals,including its greenhouse gas(“GHG”)emission reduction,water delivery efficiency and water system resiliency goals;theability to complete,and the timing

31、and efficacy of,the design,development,implementation and improvement of technology andother strategic initiatives;the Companys ability to comply with new and changing environmental regulations;the ability tocapitalize on existing or future utility privatization opportunities;trends in the water and

32、 wastewater industries in which theCompany operates,including macro trends with respect to the Companys efforts related to customer,technology and workexecution;regulatory,legislative,tax policy or legal developments;and impacts that future significant tax legislation may have onthe Company and on i

33、ts business,results of operations,cash flows and liquidity.Forward-looking statements are predictions based on the Companys current expectations and assumptions regarding futureevents.They are not guarantees or assurances of any outcomes,financial results,levels of activity,performance or achievemen

34、ts,and readers are cautioned not to place undue reliance upon them.These forward-looking statements are subject to a number ofestimates,assumptions,known and unknown risks,uncertainties and other factors.The Companys actual results may varymaterially from those discussed in the forward-looking state

35、ments included herein as a result of the factors discussed under Item1ARisk Factors,and the following important factors:the decisions of governmental and regulatory bodies,including decisions to raise or lower customer rates;the timeliness and outcome of regulatory commissions and other authorities

36、actions concerning rates,capitalstructure,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 and energy,such as may result from conservationef

37、forts,or otherwise;limitations on the availability of the Companys 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 otherfactors;a loss of one or more large industrial or

38、 commercial customers due to adverse economic conditions,or other factors;present and future proposed changes in laws,governmental regulations and policies,including with respect to theenvironment(such as,for example,potential improvements to existing Federal regulations with respect to lead andcopp

39、er service lines and galvanized steel pipe),health and safety,data and consumer privacy,security and protection,water quality and water quality accountability,contaminants of emerging concern(including without limitation per-and polyfluoroalkyl substances(“PFAS”),public utility and tax regulations a

40、nd policies,and impacts resulting fromU.S.,state and local elections and changes in federal,state and local executive administrations;the Companys ability to collect,distribute,use,secure and store consumer data in compliance with current or futuregovernmental laws,regulations and policies with resp

41、ect to data and consumer privacy,security and protection;weather conditions and events,climate variability patterns,and natural disasters,including drought or abnormallyhigh rainfall,prolonged and abnormal ice or freezing conditions,strong winds,coastal and intercoastal flooding,pandemics(including

42、COVID-19)and epidemics,earthquakes,landslides,hurricanes,tornadoes,wildfires,electricalstorms,sinkholes and solar flares;2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm4/20112025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/dat

43、a/1410636/000141063624000050/awk-20231231.htm5/201Table of Contentsthe outcome of litigation and similar governmental and regulatory proceedings,investigations or actions;the risks associated with the Companys aging infrastructure,and its ability to appropriately improve the resiliency ofor maintain

44、,update,redesign and/or replace,current or future infrastructure and systems,including its technology andother assets,and manage the expansion of its businesses;exposure or infiltration of the Companys technology and critical infrastructure systems,including the disclosure ofsensitive,personal or co

45、nfidential information contained therein,through physical or cyber attacks or other means,and impacts from required or voluntary public and other disclosures related thereto;the Companys ability to obtain permits and other approvals for projects and construction,update,redesign and/orreplacement of

46、various water and wastewater facilities;changes in the Companys capital requirements;the Companys ability to control operating expenses and to achieve operating efficiencies,and the Companys abilityto create,maintain and promote initiatives and programs that support the affordability of the Companys

47、 regulatedutility services;the intentional or unintentional actions of a third party,including contamination of the Companys water supplies orthe water provided to its customers;the Companys ability to obtain and have delivered adequate and cost-effective supplies of pipe,equipment(includingpersonal

48、 protective equipment),chemicals,power and other fuel,water and other raw materials,and to address ormitigate 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 Companys business operati

49、ons;the Companys 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;the Companys Military Servi

50、ces Group(“MSG”)entering into new military installation contracts,priceredeterminations,and other agreements and contracts,with the U.S.government;andrealizing anticipated benefits and synergies from new acquisitions;risks and uncertainties following the completion of the sale of the Companys Homeow

51、ner Services Group(“HOS”),including:the Companys ability to receive amounts due,payable and owing to the Company under the amended securedseller note when due;andthe ability of the Company to redeploy successfully and timely the net proceeds of this transaction into theCompanys Regulated Businesses;

52、risks and uncertainties associated with contracting with the U.S.government,including ongoing compliance withapplicable government procurement and security regulations;cost overruns relating to improvements in or the expansion of the Companys operations;the Companys ability to successfully develop a

53、nd implement new technologies and to protect related intellectualproperty;the Companys ability to maintain safe work sites;the Companys exposure to liabilities related to environmental laws and regulations,including those enacted oradopted and under consideration,and the substances related thereto,i

54、ncluding without limitation lead and galvanizedsteel,PFAS and other contaminants of emerging concern,and similar matters resulting from,among other things,water and wastewater service provided to customers;the ability of energy providers,state governments and other third parties to achieve or fulfil

55、l their GHG emissionreduction goals,including without limitation through stated renewable portfolio standards and carbon transition plans;changes in general economic,political,business and financial market conditions;access to sufficient debt and/or equity capital on satisfactory terms and as needed

56、 to support operations and capitalexpenditures;fluctuations in inflation or interest rates,and the Companys ability to address or mitigate the impacts thereof;22025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm6/2012025/2/13 01:12awk-2023123

57、1https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm7/201Table of Contentsthe ability to comply with affirmative or negative covenants in the current or future indebtedness of the Company orany of its subsidiaries,or the issuance of new or modified credit ratings or ou

58、tlooks by credit rating agencies withrespect to the Company or any of its subsidiaries(or any current or future indebtedness thereof),which could increasefinancing costs or funding requirements and affect the Companys or its subsidiaries ability to issue,repay or redeemdebt,pay dividends or make dis

59、tributions;fluctuations in the value of,or assumptions and estimates related to,its benefit plan assets and liabilities,includingwith respect to its pension and other post-retirement benefit plans,that could increase expenses and plan fundingrequirements;changes in federal or state general,income an

60、d other tax laws,including(i)future significant tax legislation orregulations(including without limitation impacts related to the Corporate Alternative Minimum Tax),and(ii)theavailability of,or the Companys compliance with,the terms of applicable tax credits and tax abatement programs;migration of c

61、ustomers into or out of the Companys service territories and changes in water and energy consumptionresulting therefrom;the use by municipalities of the power of eminent domain or other authority to condemn the systems of one or moreof the Companys utility subsidiaries,including without limitation l

62、itigation and other proceedings with respect to thewater system assets of the Companys California subsidiary(“Cal Am”)located in Monterey,California(the“Monterey system assets”),or the assertion by private landowners of similar rights against such utility subsidiaries;any difficulty or inability to

63、obtain insurance for the Company,its inability to obtain insurance at acceptable rates andon acceptable terms and conditions,or its inability to obtain reimbursement under existing or future insuranceprograms and coverages for any losses sustained;the incurrence of impairment charges,changes in fair

64、 value and other adjustments related to the Companys goodwillor the value of its other assets;labor actions,including work stoppages and strikes;the Companys ability to retain and attract highly qualified and skilled employees and/or diverse talent;civil disturbances or unrest,or terrorist threats o

65、r acts,or public apprehension about future disturbances,unrest,orterrorist threats or acts;andthe 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 forthabove and the risk fact

66、ors included in Item 1ARisk Factors and other statements contained in this Annual Report on Form 10-K,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 t

67、his Annual Report on Form 10-K was filed with the U.S.Securities and Exchange Commission(“SEC”).Except as required by the federal securities laws,the Company does not have anyobligation,and it specifically disclaims any undertaking or intention,to publicly update or revise any forward-looking statem

68、ents,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 anysuch factor on the Companys businesses,ei

69、ther viewed independently or together,or the extent to which any factor,orcombination of factors,may cause results to differ materially from those contained in any forward-looking statement.Theforegoing factors should not be construed as exhaustive.32025/2/13 01:12awk-20231231https:/www.sec.gov/Arch

70、ives/edgar/data/1410636/000141063624000050/awk-20231231.htm8/201Table of ContentsPART IITEM 1.BUSINESSThe CompanyWith a history dating back to 1886,American Water is the largest and most geographically diverse,publicly-traded waterand wastewater utility company in the United States,as measured by bo

71、th operating revenues and population served.A holdingcompany originally incorporated in Delaware in 1936,the Company employs approximately 6,500 professionals who providedrinking water,wastewater and other related services to over 14 million people in 24 states.The Company conducts the majority ofit

72、s business through regulated utilities that provide water and wastewater services,collectively presented as one reportablesegment,referred to as the“Regulated Businesses.”The Company also operates other businesses that provide water andwastewater services to the U.S.government on military installati

73、ons,as well as municipalities.Individually,these other businessesdo not meet the criteria of a reportable segment in accordance with generally accepted accounting principles in the United States(“GAAP”),and are collectively presented throughout this Annual Report on Form 10-K within“Other,”which is

74、consistent withhow management assesses the results of these businesses.Throughout this Annual Report on Form 10-K,unless the context otherwise requires,references to“we,”“us,”“our,”the“Company,”and“American Water”mean American Water Works Company,Inc.and its subsidiaries,taken together as a whole.Re

75、ferences to“parent company”mean American Water Works Company,Inc.,without its subsidiaries.Regulated BusinessesThe Companys primary business involves the ownership of utilities that provide water and wastewater services toresidential,commercial,industrial,public authority,fire service and sale for r

76、esale customers.The Companys utilities operate inapproximately 1,700 communities in 14 states in the United States,with 3.5 million active customers in its water and wastewaternetworks.Services provided by the Companys utilities are subject to regulation by multiple state utility commissions or othe

77、rentities engaged in utility regulation,collectively referred to as public utility commissions(“PUCs”).Federal,state and localgovernments also regulate environmental,health and safety,and water quality and water accountability matters.The Companyreports the results of the services provided by its ut

78、ilities in the Regulated Businesses segment.Operating revenues for theRegulated Businesses were$3,920 million for 2023,$3,505 million for 2022 and$3,384 million for 2021,accounting for 93%,92%and 86%,respectively,of the Companys total operating revenues for the same periods.Presented in the table be

79、low is a geographic summary of the Regulated Businesses operating revenues and the number ofcustomers the Company serves,by type of service,for and as of the year ended December 31,2023:Operating Revenues(in millions)Number of Customers(in thousands)Water(a)WastewaterTotal%of TotalWaterWastewaterTot

80、al%of TotalPennsylvania$810$155$965 24.6%683 98 781 22.4%New Jersey908 57 965 24.6%668 64 732 21.0%Missouri430 20 450 11.5%483 24 507 14.5%Illinois366 61 427 10.9%299 72 371 10.6%California300 4 304 7.8%190 3 193 5.5%TotalTop Five States(b)2,814 297 3,111 79.4%2,323 261 2,584 74.1%Other(c)779 30 809

81、 20.6%865 37 902 25.9%Total RegulatedBusinesses$3,593$327$3,920 100.0%3,188 298 3,486 100.0%(a)Includes other operating revenues consisting primarily of miscellaneous utility charges,fees and rents.(b)The Companys“Top Five States”are determined based upon operating revenues.(c)Includes the Companys

82、utility operations in the following states:Georgia,Hawaii,Indiana,Iowa,Kentucky,Maryland,Tennessee,Virginia and WestVirginia and other revenue attributable collectively to the Regulated Businesses.CustomersThe Companys Regulated Businesses have a large and geographically diverse customer base.A cust

83、omer is defined as aperson,business,municipality or any other entity that purchases the Companys water or wastewater services as of the last businessday of a reporting period.One single customer may purchase the Companys services for use by multiple individuals or businesses.Examples of these custom

84、ers are homes,apartment complexes,businesses and governmental entities.42025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm9/2012025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm10/20

85、1Table of ContentsThe vast majority of the Companys regulated water customers are metered,which allows the Company to measure and billfor its customers water usage,typically on a monthly basis.The Company employs a variety of methods of customer meter readingto monitor consumption.These methods rang

86、e from meters with mechanical registers where consumption is manually recorded bymeter readers,to meters with electronic registers capable of transmitting consumption data to proximity devices or via radiofrequency to mobile or fixed network data collectors.The Companys wastewater customers are bill

87、ed either a flat rate or basedupon their water consumption.Residential customers make up a substantial portion of the Companys customer base in all of the states in which it operates.The Company also serves(i)commercial customers,such as food and beverage providers,commercial property developers and

88、proprietors,and energy suppliers,(ii)fire service customers,where the Company supplies water through its distribution systems topublic fire hydrants for firefighting purposes and to private fire customers for use in fire suppression systems in office buildingsand other facilities,(iii)industrial cus

89、tomers,such as large-scale manufacturers,mining and production operations,(iv)publicauthorities,such as government buildings and other public sector facilities,including schools and universities,and(v)other utilitiesand community water and wastewater systems in the form of bulk contracts for the sup

90、ply of water or the treatment of wastewaterfor their own customers.Presented in the table below is a breakout of the Companys Regulated Businesses operating revenue by class of customer,for the years ended December 31,2023,2022 and 2021:202320222021(In millions)RevenuePercentage ofRevenueRevenuePerc

91、entage ofRevenueRevenuePercentage ofRevenueWater services:Residential$2,143 55%$1,941 55%$1,935 57%Commercial798 20%710 20%676 20%Fire service158 4%147 4%151 5%Industrial167 4%153 4%141 4%Public and other water(a)284 7%267 8%239 7%Wastewater327 8%242 7%208 6%Other(b)43 2%45 2%34 1%Total$3,920 100%$3

92、,505 100%$3,384 100%(a)Includes water revenues from public authorities and other utilities,community water systems under bulk contracts and alternative revenue programs.(b)Includes other operating revenues consisting primarily of miscellaneous utility charges,fees and rents.Presented in the table be

93、low is the number of water and wastewater customers the Companys Regulated Businesses servedby class of customer as of December 31,2023,2022 and 2021,which represents approximately 14 million people served as ofDecember 31,2023:202320222021(In thousands)WaterWastewaterWaterWastewaterWaterWastewaterR

94、esidential2,893 279 2,870 270 2,972 245 Commercial221 18 219 17 225 15 Fire service4 51 52 Industrial52 4 4 Public and other(a)18 1 17 1 16 1 Total(b)3,188 298 3,161 288 3,269 261(a)Includes public authorities and other utilities and community water and wastewater systems under bulk contracts.Bulk c

95、ontracts,which are accounted foras a single customer in the table above,generally result in service to multiple customers.(b)The Company completed the sale of its New York subsidiary on January 1,2022 and the sale of its Michigan subsidiary on February 4,2022.Customer growth in the Companys Regulate

96、d Businesses is primarily from(i)adding new customers to its customer basethrough acquisitions of water and/or wastewater utility systems,(ii)population growth in its authorized service areas,and(iii)saleof water to other water utilities and community water systems.52025/2/13 01:12awk-20231231https:

97、/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm11/201Table of ContentsCapital InvestmentThe Company plans to invest between$34 billion and$38 billion over the next 10 years for capital improvements,includingacquisitions,to its Regulated Businesses water and wastewater in

98、frastructure,largely for pipe replacement and upgrading agingwater and wastewater treatment facilities.The Company has proactively improved its pipe renewal rate from a 250-yearreplacement cycle in 2009 to an approximate 125-year replacement cycle by 2028,which it anticipates will enable the Company

99、 toreplace nearly 2,000 miles of mains and collection pipes between 2024 and 2028.In addition,from 2024 to 2028,the Companyscapital investment in treatment plants,storage tanks and other key,above-ground facilities is expected to increase,further seekingto address infrastructure renewal,resiliency,w

100、ater quality,operational efficiency,technology and innovation,and emergingregulatory compliance needs.The Company continues to invest significantly in resiliency projects to address the impacts of climateand weather variability by hardening its assets.Regulation and Rate MakingThe operations of the

101、Companys Regulated Businesses are generally subject to regulation by PUCs in the states in whichthey operate,with the primary responsibility of the PUCs being the promotion of the overall public interest by balancing theinterest of customers and utility investors.Specific authority might differ from

102、 state to state,but in most states,PUCs review andapprove rates charged to customers,accounting treatments,long-term financing programs and cost of capital,operation andmaintenance(“O&M”)expenses,capital expenditures,taxes,affiliated transactions and relationships,reorganizations,mergers andacquisit

103、ions,and dispositions,along with imposing certain penalties or granting certain incentives.Regulatory policies vary fromstate to state and can change over time.These policies will affect the timing,as well as the extent,of recovery of expenses and therealized return on invested capital.Periodic chan

104、ges in customer rates generally occur through the filing of a rate case by the utility with the PUC.The timingof rate case filings is typically determined by either periodic requirements in the regulatory jurisdiction or by the utilitys need toincrease its revenue requirement to recover capital inve

105、stment costs,changes in operating revenues,operating costs or other marketconditions.The Company attempts to minimize“regulatory lag,”which is the time between the occurrence of an event that triggersa change in the utilitys revenue requirement and the recognition in rates of that change.The Company

106、s Regulated Businesses support regulatory practices at the PUCs and state legislatures that mitigate theadverse impact of regulatory lag.Presented in the table below are examples of approved regulatory practices:Regulatory PracticesDescriptionStates AllowedInfrastructure replacementsurcharge mechani

107、smsAllows rates to change periodically,outside a general rate case proceeding,to reflect recovery of capitalinvestments made to replace infrastructure necessary to sustain safe and reliable services for the Companyscustomers.These mechanisms typically involve periodic filings and reviews to ensure t

108、ransparency.IA,IL,IN,KY,MO,NJ,PA,TN,VA,WVFuture test yearA“test year”is a period used for setting rates,and a future test year describes the first 12 months that newrates are proposed to be effective.The use of a future test year allows current or projected revenues,expenses and capital investments

109、to be collected on a more timely basis.CA,HI,IA,IL,IN,KY,PA,TN,VAHybrid test yearA historical test year sets rates using data from a 12-month period that ends prior to a general rate casefiling.A hybrid test year allows an update to historical data for“known and measurable”changes that occursubseque

110、nt to the historical test year.MD,MO,NJ,WVUtility plant recoverymechanismsAllows recovery of the full return on utility plant costs during the construction period,instead ofcapitalizing an allowance for funds used during construction(“AFUDC”).In addition,some states allowthe utility to seek pre-appr

111、oval of certain capital projects and associated costs.In this pre-approval process,the PUC may assess the prudency of such projects.CA,IL,KY,PA,TN,VAExpense mechanismsAllows changes in certain operating expenses,which may fluctuate based on conditions beyond the utilityscontrol,to be recovered outsi

112、de of a general rate case proceeding or deferred until the next general rate caseproceeding.CA,HI,IL,IN,MD,MO,NJ,PA,TN,VARevenue stabilitymechanismsAdjusts rates periodically to ensure that a utility recovers the revenues authorized in its general rate case,regardless of sales volume,including recog

113、nition of declining sales resulting from reduced consumption,while providing an incentive for customers to use water more efficiently.CA,ILConsolidated tariffsUse of a unified rate structure for water systems owned and operated by a single utility,which may or maynot be physically interconnected.The

114、 consolidated tariff pricing structure may be used fully or partially in astate,and is generally used to moderate the price impact of periodic fluctuations in local costs,whilelowering administrative costs for customers.Pennsylvania and West Virginia also permit a blending ofwater and wastewater rev

115、enue requirements.CA,IA,IL,IN,KY,MD,MO,NJ,PA,VA,WVDeferred accountingA regulators willingness to defer recognition of financial impacts when setting rates for utilities.AllThe Company pursues enhancements to these regulatory practices to facilitate efficient recovery of its costs and capitalinvestme

116、nts and to continue to provide safe,clean,reliable and affordable services to its customers.The ability to seek regulatorytreatment using the regulatory practices described above does not guarantee that the PUCs will accept the Companys proposal inthe context of a particular rate case,and these regu

117、latory practices may reduce,but not eliminate,regulatory lag associated withtraditional rate making processes.It is also the Companys strategy to expand the use of these mechanisms in areas where they maynot currently apply and enhance certain mechanisms where they already exist.2025/2/13 01:12awk-2

118、0231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm12/20162025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm13/201Table of ContentsAcquisitions and Strategic GrowthThe U.S.water and wastewater industries

119、 include investor-owned systems as well as municipal systems that are owned andoperated by local governments or governmental subdivisions.According to the most recent study by the U.S.EnvironmentalProtection Agency(“EPA”),as of 2017,approximately 84%of the water market is served by municipal systems

120、 and approximately98%of the countrys wastewater systems are government owned.The EPA also estimates,as of 2017,that there are over 50,000community water systems and over 15,000 community wastewater systems in the United States,with approximately 80%of thecommunity water systems serving a population

121、of 3,000 or less.A fundamental aspect of the Companys growth strategy is to pursue acquisitions of water and/or wastewater systems ingeographic proximity to areas where the Company operates its Regulated Businesses,see Item 7Managements Discussion andAnalysis of Financial Condition and Results of Op

122、erations for additional information.The proximity of acquisition opportunities tothe Companys regulated footprint allows it to integrate and manage the acquired systems and operations primarily using theCompanys existing management(although the Company typically retains the majority,if not all,of th

123、e employees of the acquiredsystems)and to achieve operational efficiencies and prioritize capital investment needs.The Companys current customer mix of91%water and 9%wastewater also presents strategic opportunities for wastewater growth and consolidation,allowing theCompany to add wastewater custome

124、rs where it already serves water customers.The Company intends to continue to expand itsregulated footprint geographically by acquiring water and wastewater systems in its existing markets and,if appropriate,pursuingacquisition opportunities in certain domestic markets where the Company does not cur

125、rently operate its Regulated Businesses.Before entering new regulated markets,the Company will evaluate the business and regulatory climates to ensure that it will havethe opportunity to achieve an appropriate rate of return on its investment while maintaining its high standards for providing safe,r

126、eliable and affordable services to its customers.The Company will also evaluate whether there is a line of sight to grow tosufficient scale in a new regulated market so that it can attain efficiencies and promote customer affordability after entering a newdomestic market.Increasingly stringent envir

127、onmental,health and safety,cybersecurity and water quality and water accountability regulations,the amount of infrastructure in need of significant capital investment,financial challenges and industry legislation are severalelements,among others,that may drive more municipalities to consider selling

128、 their water and wastewater assets.Sale of New York American Water Company,Inc.On January 1,2022,the Company completed the previously disclosed sale of its regulated utility operations in New York toLiberty Utilities(Eastern Water Holdings)Corp.(“Liberty”),an indirect,wholly owned subsidiary of Algo

129、nquin Power&UtilitiesCorp.Liberty purchased from the Company all of the capital stock of the Companys New York subsidiary for a purchase price of$608 million in cash.The Companys regulated New York operations represented approximately 127,000 customers in the State ofNew York.Industry LegislationIn

130、2020 and 2021,the United States Congress passed,and the President signed into law,legislation with water andwastewater provisions including the Infrastructure Investment and Jobs Act(the“IIJA”),the Consolidated Appropriations Act of2021 and the American Rescue Plan of 2021.The legislation provided f

131、unding for a variety of initiatives to support water andwastewater infrastructure,lead service line replacement,treatment of PFAS and other contaminants of emerging concern,and low-income water assistance(“LIHWAP”).LIHWAP expired in 2023.The Companys regulated subsidiaries in New Jersey,Indiana,and

132、Missouri have versions of water quality or safetyaccountability acts which require operational or safety and security standards for water and wastewater utilities serving a certainnumber of customers.In New Jersey,the law imposes requirements in areas such as asset management,water quality reporting

133、,remediation of notices of violation,hydrant and valve maintenance and cybersecurity.In Indiana,the law requires water andwastewater utilities to conduct rate analyses,develop capital asset management plans and conduct cybersecurity and water lossaudits.In Missouri,the act requires water and wastewa

134、ter utilities to create cybersecurity,valve inspection and hydrant inspectionprograms.The Companys regulated subsidiaries in California,Illinois,Indiana,Iowa,Kentucky,Maryland,Missouri,New Jersey,Pennsylvania,Tennessee,Virginia and West Virginia have access to utility valuation legislation and regul

135、ation for private sectorinvestment in public sector water and wastewater systems.The Company supports full optionality for municipalities,includingstate legislation that enables the consolidation of the largely fragmented water and wastewater industries through third-party fairmarket valuations of p

136、urchased property.Fair market value assessment of water and wastewater systems is an alternative to thetraditional depreciated original cost method of valuation,which allows the Company to offer municipalities a purchase price fortheir system assets that is reflective of the assets fair market value

137、,while providing the Company with increased opportunity torecover the purchase price over the life of the purchased system assets,subject to PUC approval.In 2021,the Tennessee Public2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm14/201Uti

138、lity Commission implemented acquisition valuation rules that include a methodology to value water and wastewater assetsbased upon the new replacement cost of the assets less the depreciation,in addition to other valuation methodology options.72025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/ed

139、gar/data/1410636/000141063624000050/awk-20231231.htm15/201Table of ContentsConsolidated tariffs use a unified rate structure for systems owned and operated by a single utility,which may or may not bephysically interconnected.Consolidated tariff pricing moderates the impact of periodic fluctuations i

140、n local costs and promotes amore universal water infrastructure investment in a jurisdiction.As a result,consolidated tariffs can make it easier to incorporatenew systems into an existing utility,support economies of scale for even the smallest of systems and prioritize capital needs acrossthe juris

141、diction.Overall,the Company believes that consolidated tariffs bring cost-effective,high-quality services to a largernumber of customers.Eleven of the Companys regulated jurisdictions currently have some form of consolidated tariff pricing,including California,Illinois,Indiana,Iowa,Kentucky,Maryland

142、,Missouri,New Jersey,Pennsylvania,Virginia and West Virginia.CompetitionThe Companys Regulated Businesses generally do not face direct competition in their existing markets because(i)theCompany operates in those markets pursuant to franchises,charters,certificates of public convenience and necessity

143、 or similarauthorizations(collectively,“CPCNs”)issued by state PUCs or other authorities,and(ii)the high cost of constructing a new waterand wastewater system in an existing market creates a significant barrier to market entry.However,the Companys RegulatedBusinesses do face increasing competition f

144、rom governmental agencies,other investor-owned utilities,large industrial customerswith the ability to provide their own water supply/treatment process and strategic buyers that are entering new markets and/ormaking strategic acquisitions.When pursuing acquisitions,the Companys largest investor-owne

145、d competitors,based on acomparison of operating revenues and population served,include Essential Utilities,Inc.,American States Water Company andCalifornia Water Service Group.From time to time,the Company also faces competition from infrastructure funds,multi-utilitycompanies and others,such as Alg

146、onquin Power and Utilities Corp.,Eversource Energy,SouthWest Water Company and CorixInfrastructure,Inc.Condemnation and Eminent DomainAll or portions of the Regulated Businesses utility assets could be acquired by state,municipal or other government entitiesthrough one or more of the following metho

147、ds:(i)eminent domain(also known as condemnation);(ii)the right of purchase givenor reserved by a municipality or political subdivision when the original CPCN was granted;and(iii)the right of purchase given orreserved under the law of the state in which the utility subsidiary was incorporated or from

148、 which it received its CPCN.Theacquisition consideration related to such a proceeding initiated by a local government may be determined consistent with applicableeminent domain law,or may be negotiated or fixed by appraisers as prescribed by the law of the state or the jurisdiction of theparticular

149、CPCN.As such,the Regulated Businesses are periodically subject to condemnation proceedings in the ordinary course of business.For example,the Monterey water service system assets(the“Monterey system assets”)of the Companys California subsidiary(“Cal Am”)are the subject of a potential condemnation ac

150、tion by the Monterey Peninsula Water Management District(the“MPWMD”)stemming from a November 2018 public ballot initiative.For more information on this matter,see Item 3LegalProceedingsProposed Acquisition of Monterey System Assets Potential Condemnation.Furthermore,the law in certain jurisdictions

151、in which the Regulated Businesses operate provides for eminent domain rightsallowing private property owners to file a lawsuit to seek just compensation against a public utility,if a public utilitysinfrastructure has been determined to be a substantial cause of damage to that property.In these actio

152、ns,the plaintiff would nothave to prove that the public utility acted negligently.In California,for example,lawsuits have been filed in connection with large-scale natural events such as wildfires.Some of these lawsuits have included allegations that infrastructure of certain utilitiestriggered the

153、natural event that resulted in damage to the property.In some cases,the PUC has allowed certain costs or lossesincurred by the utility to be recovered from customers in rates,but in other cases such recovery in rates has been disallowed.Also,the utility may have obtained insurance that could respond

154、 to some or all of such losses,although the utility would be at risk forany losses not ultimately subject to rate or insurance recovery or losses that exceed the limits of such insurance.Water Supply and Wastewater ServicesThe Companys Regulated Businesses generally own the physical assets used to s

155、tore,pump,treat and deliver water to itscustomers and collect,treat,transport and recycle wastewater.Typically,the Company does not own the water,which is held inpublic trust and is allocated to the Company through contracts,permits and allocation rights granted by federal and state or multi-state a

156、gencies or through the ownership of water rights pursuant to local law.The Company is dependent on defined sources ofwater supply and obtains its water supply from surface water sources such as reservoirs,lakes,rivers and streams;fromgroundwater sources,such as wells and aquifers;and water purchased

157、 from third-party water suppliers.The level of watertreatment the Company applies varies significantly depending upon the quality of the water source and customer stipulations.Surface water sources typically require significant treatment,while groundwater sources often require chemical treatment onl

158、y.82025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm16/2012025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm17/201Table of ContentsPresented in the table below are the percentages o

159、f water supply by source type for the Companys Top Five Statesindividually and the Regulated Businesses collectively for the year ended December 31,2023:Surface WaterGround WaterPurchased WaterNew Jersey74%20%6%Pennsylvania91%7%2%Missouri84%15%1%Illinois55%35%10%California%67%33%Regulated Businesses

160、71%22%7%The Companys ability to meet the existing and future water demands of its customers depends on an adequate water supply.Drought,governmental restrictions,overuse of sources of water,the protection of threatened species or habitats,contamination orother factors may limit the availability of g

161、round and surface water.The Company employs a variety of measures in an effort toobtain adequate sources of water supply,both in the short-term and over the long-term.The geographic diversity of the Companysservice areas may mitigate some of the economic effects on the water supply associated with w

162、eather extremes the Company mightencounter in any particular service territory.For example,in any given summer,some areas may experience drier than averageweather,which may reduce the amount of source water available,while other areas the Company serves may experience wetterthan average weather.The

163、Company evaluates quality,quantity,growth needs and alternate sources of water supply as well as transmission anddistribution capacity to provide water service to its customers.Water supply is seasonal in nature and weather conditions can have apronounced effect on supply.In order to ensure that the

164、 Company has adequate water supply,it uses long-term planning processesand maintains contingency plans to minimize the potential impact on service caused by climate variability and a wide range ofweather fluctuations.The Company reviews current climate science and global models related to temperatur

165、e,precipitation and sealevel rise on an ongoing basis.Where actionable forecasts are available,the Company will use this information in itscomprehensive planning studies and asset management plans.These studies and plans,which are used by the Company to developits asset management and system reliabi

166、lity strategies,assess the climate risk and resiliency of the Companys water andwastewater systems over short-,medium-and long-term time horizons,and include evaluations of the availability of water suppliesand system capacity against a number of different factors,projections and estimates.In connec

167、tion with supply planning for most surface or groundwater sources,the Company employs models to determinesafe yields under different rainfall and drought conditions.Surface and ground water levels are routinely monitored so that supplycapacity deficits may,to the extent possible,be predicted and mit

168、igated through demand management and additional supplydevelopment.In California,where the state has recently experienced a multi-year drought,the Company utilizes multiple watersupply options including numerous ground water wells in multiple aquifers as well as various long-term purchase water agree

169、mentswith regional water suppliers to optimize supplies while assuring resiliency during dry years.An example of the Companys use oflong-term planning to ensure that it has adequate water supply is its involvement in the Monterey Peninsula Water Supply Project(the“Water Supply Project”)in California

170、.The Water Supply Project includes the construction of a desalination plant,to be ownedby Cal Am,and the construction of wells that would supply water to the desalination plant.In addition,the Water Supply Projectalso includes Cal Ams purchase of water from a groundwater replenishment project(the“GW

171、R Project”)between Monterey OneWater(formerly known as the Monterey Regional Water Pollution Control Agency)and the MPWMD.The Water Supply Project isintended,among other things,to fulfill obligations of Cal Am to eliminate unauthorized diversions from the Carmel River asrequired under orders of the

172、California State Water Resources Control Board(the“SWRCB”).For more information,see Item 3Legal ProceedingsAlternative Water Supply in Lieu of Carmel River Diversions and Note 16Commitments and ContingenciesContingenciesAlternative Water Supply in Lieu of Carmel River Diversions,in the Notes to the

173、Consolidated FinancialStatements.Wastewater services involve the collection of wastewater from customers premises through sewer lines.The wastewater isthen transported through a sewer network to a treatment facility,where it is treated to meet required regulatory standards forwastewater before being

174、 returned to the environment.The solid waste by-product of the treatment process is disposed of orrecycled in accordance with applicable standards and regulations.92025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm18/201Table of ContentsSeas

175、onalityCustomer demand for the Companys water service is affected by weather and tends to vary with temperature and amountand frequency of rainfall.Customer demand is generally greater during the warmer months,primarily due to increased water usagefor irrigation systems and other outdoor water use.A

176、s such,the Company typically expects its operating revenues to be the highestin the third quarter of each year.Weather that is warmer and/or drier than average generally increases operating revenues,whereas,weather that is cooler and/or wetter than average generally suppresses customer water demand

177、and can reduce water operatingrevenues.Two of the Companys jurisdictions,California and Illinois,have adopted revenue stability mechanisms which permit theCompany to collect state PUC-authorized revenue for a given period that is not tied to the volume of water sold during that period,thereby lessen

178、ing the impact of weather variability.See Regulation and Rate Making for additional information regardingrevenue stability mechanisms.AffordabilityThe Company supports the United Nations declaration of access to clean water and sanitation as a human right,regardlessof economic status.As a water util

179、ity,the Companys water must be safe,efficient,reliable,accessible and affordable.Throughincreased efficiency,conservation and low-income support programs,on average across the enterprise,the Company consistentlyachieves water costs that are significantly below the EPAs suggested guidance of 2%of hou

180、sehold income.Succeeding in wateraffordability positively affects the health and safety of the Companys customers and contributes to the economic prosperity of thecommunities in which it operates.The Companys approach to water access and affordability consists of two key strategies.The first is to s

181、upply water that issafe,reliable and meets the needs of its customers.The second is to provide affordable water services to customers while protectingits customers right to clean water,regardless of economic status or geographic location.The Company also focuses on addressingwater affordability by m

182、aximizing both supply-side and demand-side efficiency.Average residential water bills for the Companyscustomers are approximately$55 to$65 per month,and the expected average annual rate increases across the Companys footprintover the next five years is 5%to 6%.The Company continues to advocate for f

183、ederal and state customer affordability support andmonitors the number of customers enrolled in its assistance programs to make sure that it is effectively responding to customerneeds.OtherOther primarily includes the MSG business,which enters into long-term contracts with the U.S.government to prov

184、idewater and wastewater services on military installations.The Contract Services Group(“CSG”),also included in Other,has threecontracts with municipal customers to operate and manage water and wastewater facilities and provide other related services.Otheralso includes corporate costs that are not al

185、located to the Companys Regulated Businesses,interest income related to the securedseller promissory note from the sale of HOS,income from assets not associated with the Regulated Businesses,eliminations ofinter-segment transactions and fair value adjustments related to acquisitions that have not be

186、en allocated to the RegulatedBusinesses segment.The businesses included within Other are not subject to regulation by state PUCs and the services providedgenerally do not require significant capital investment.Operating revenues for Other were$314 million for 2023,$287 million for2022 and$546 millio

187、n for 2021,accounting for 7%,8%and 14%,respectively,of the Companys total operating revenues for thesame periods.Military Services GroupMSG operates on 18 military installations under 50-year contracts with the U.S.government as part of its UtilitiesPrivatization Program.The scope of these contracts

188、 generally includes the operation and maintenance of the installations waterand wastewater systems and a capital program focused on asset replacement and,in certain instances,systems expansion.Thereplacement of assets assumed when a contract is awarded to MSG is completed either through a discrete s

189、et of projects executedin the first five years of the contract or through the long-term recapitalization program performed over the life of the contract.Traditionally,both of these programs are funded from the contract fee.At times,new assets are required to support the installationsmission,and the

190、construction of these assets is funded by the U.S.government as separate modifications or amendments to thecontract.The capital for these assets historically has not been funded through the Companys debt or equity issuances;rather,theCompany has used limited working capital for short-term needs unde

191、r these contracts.The U.S.Army has a requirement that abidder must offer financing in its proposal for these new capital projects under existing contracts,but the U.S.Armysimplementation of this requirement on existing contracts has limited the need for such financing.However,recent U.S.Army andNavy

192、 Utilities Privatization solicitations have included requirements for the successful bidder to finance discrete initial capitalprojects over either a five-or ten-year period after project completion.Four of MSGs current contracts require such capital projectfinancing,which the Company is currently a

193、ddressing through internal sources of liquidity.102025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm19/2012025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm20/201Table of ContentsThe

194、 contract price for four of MSGs contracts with the U.S.government is subject to redetermination two years aftercommencement of operations,and every three years thereafter.Price redetermination is a contract mechanism to periodically adjustthe service fee in the next period,to reflect changes in con

195、tract obligations and anticipated market conditions.The remaining 14contracts with the U.S.government are subject to annual price adjustments under a mechanism called“Economic PriceAdjustment.”All 18 contracts could be terminated,in whole or in part,prior to the end of the 50-year term for convenien

196、ce of theU.S.government,or as a result of default or non-performance by the MSG subsidiary performing the contract.In either event,pursuant to termination provisions applicable to all of these contracts,MSG would be entitled to recover allowable costs that it mayhave incurred under the contract,plus

197、 the contract profit margin on incurred costs.MSGs backlog of revenue associated with itscontracts with the U.S.government is approximately$7.1 billion,with an average remaining contract term of 39 years.Sale of Homeowner Services GroupOn December 9,2021(the“Closing Date”),the Company sold all of th

198、e equity interests of the HOS subsidiaries for totalconsideration of approximately$1.275 billion.Prior to the Closing Date,the Company provided various warranty protectionprograms and other home services primarily to residential and smaller commercial customers through its HOS operations.See Item7Ma

199、nagements Discussion and Analysis of Financial Condition and Results of Operations and Note 5Acquisitions andDivestitures in the Notes to Consolidated Financial Statements for additional information.CompetitionMSG faces competition from a number of service providers,including American States Water C

200、ompany and VeoliaEnvironnement S.A.Environmental,Health and Safety,Water Quality and Other RegulationThe Companys water and wastewater operations,including the services provided by its Regulated Businesses,MSG andCSG,are subject to extensive federal,state and local laws and regulations governing the

201、 protection of the environment,health andsafety,the provision of water and wastewater services,particularly with respect to the quality of water the Company delivers to itscustomers,and the manner in which it collects,treats,discharges,recycles and disposes of wastewater.In the United States,thesere

202、gulations are developed under federal legislation including the Safe Drinking Water Act,the Reduction of Lead in DrinkingWater Act and the Clean Water Act,and under a variety of applicable state laws.Environmental,health and safety,and waterquality regulations are complex and may vary from state to

203、state in those instances where a state has adopted a standard that ismore stringent than the federal standard.The Company is also subject to various federal,state,and local laws and regulationsgoverning the storage of hazardous materials,the management and disposal of hazardous and solid wastes,disc

204、harges to air andwater,the cleanup of contaminated sites,dam safety and other matters relating to the protection of the environment and health andsafety.PUCs also set conditions and standards for the water and wastewater services the Company delivers.The Company maintains an environmental program th

205、at includes responsible business practices focused on compliance withenvironmental laws and regulations and the effective use of natural resources,recognizing that drinking water standards havegenerally,over time,increased in number and become increasingly more stringent.As newer or stricter standar

206、ds are introduced,the Companys capital and operating costs needed to comply with them will likely increase.The Company incurs substantial costsassociated with compliance with the environmental,health and safety,and water quality standards to which its operations aresubject and the Company invests in

207、 technology solutions for enhanced detection and monitoring of water quality issues.TheCompany estimates that it will make capital expenditures of approximately$900 million over the next five years,and$200 millionin 2024,to address water quality issues;most of which are focused on compliance with en

208、vironmental laws and regulations.TheCompany believes that its operations are materially in compliance with,and in many cases surpass,minimum standards required byapplicable environmental laws and regulations.112025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/0001410636240000

209、50/awk-20231231.htm21/201Table of ContentsThe Companys operations also involve the use,storage and disposal of hazardous substances and wastes.For example,theCompanys water and wastewater treatment facilities store and use gaseous chlorine as well as other chemicals that generate wastesthat require

210、proper handling and disposal under applicable environmental requirements.The Company also could incur remedialcosts in connection with any contamination relating to its operations or facilities or its off-site disposal of waste.TheComprehensive Environmental Response,Compensation,and Liability Act o

211、f 1980(“CERCLA”),authorizes the EPA,andcomparable state laws authorize state environmental authorities,to issue orders and bring enforcement actions to compelresponsible parties to investigate and take remedial actions at any site that is determined to present an actual or potential threat tohuman h

212、ealth or the environment because of an actual or threatened release of one or more hazardous substances.Parties thatgenerated or transported hazardous substances to such sites,as well as current and former owners and operators of such sites,maybe deemed liable,without regard to fault,under CERCLA or

213、 comparable state laws.Although the Company is not aware of anymaterial cleanup or decontamination obligations,the discovery of contamination or the imposition of such obligations in the futurecould result in additional costs to the Company.The Companys facilities and operations are also subject to

214、requirements under theU.S.Occupational Safety and Health Act and inspections thereunder.Safe Drinking Water ActThe Safe Drinking Water Act and related regulations establish national quality standards for drinking water.The EPA hasissued rules governing the levels of numerous,naturally occurring and

215、manufactured chemical and microbial contaminants andradionuclides allowable in drinking water,and continues to propose new rules.These rules also prescribe testing requirements fordetecting regulated contaminants,the treatment systems that may be used for removing those contaminants,and otherrequire

216、ments.To date,the EPA has set standards for over 90 contaminants and water quality indicators for drinking water,and thereis a process in place to make a regulatory determination on at least five additional compounds every five years.The process of developing new drinking water standards is long and

217、 complex,but the Company actively participates withthe EPA and other water industry groups by sharing research and water quality operational knowledge.See Item 1BusinessResearch and DevelopmentContaminants of Emerging Concern for additional information.The Company is within the EPAs time frame for c

218、ompliance with standards and rules developed under the regulation of theSafe Drinking Water Act,which includes sample collection,data analysis,and,in some instances engineering planning andimplementation of treatment enhancements.Further,the EPA is actively considering development of a new regulatio

219、n forperchlorate and updates to the current microbial and disinfection byproduct regulations.The Company does not anticipate that anysuch regulations,if enacted,will require implementation in 2024.Although it is difficult to project the ultimate costs of complying with the above or other pending or

220、future requirements,theCompany expects current cost requirements under the Safe Drinking Water Act and other similar laws to be recoverable throughthe regulatory process and therefore compliance costs are not expected to have a material impact on its operations or financialcondition.In addition,capi

221、tal expenditures and operating costs to comply with environmental mandates have been traditionallyrecognized by PUCs as appropriate for inclusion in establishing rates.As a result,the Company expects to recover the operatingand capital costs resulting from these pending or future requirements.Lead a

222、nd Copper Rule and Reduction of Lead in Drinking Water ActIn 1991,the EPA published the Lead and Copper Rule(“LCR”)to control lead and copper in drinking water and,since thattime,has issued minor revisions in 2000,2004 and 2007,enhancing monitoring,reporting and public education requirements.In2011,

223、Congress enacted the Reduction of Lead in Drinking Water Act regarding the use and introduction into commerce of leadpipes,plumbing fittings for fixtures,solder and flux.While these advances have made an impact in reducing lead exposure indrinking water,legacy lead plumbing materials,primarily in bu

224、ilding plumbing,still remain in many communities.The failure ofcertain water systems in the United States to comply with the requirements of the LCR has received recent media attention andscrutiny,and in certain cases,has led to a number of investigations and the imposition of significant penalties

225、and sanctions againstthe operators of those systems and others.As part of its ongoing water main replacement and service line renewal projects,and inaccordance with applicable state regulations and anticipation of updated federal regulation,the Company has been replacing leadservice lines(“LSLs”)for

226、 many years in accordance with current scientific guidance.Also,the Company utilizes appropriatecorrosion control techniques as necessary to comply with current water quality regulatory requirements.122025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20

227、231231.htm22/201Table of ContentsOn December 21,2021,the EPA announced next steps to strengthen the regulatory framework on lead in drinking water,including implementing the Lead and Copper Rule Revisions(“LCRR”)and indicated an intent to finalize the Lead and CopperRule Improvements(“LCRI”)which we

228、re proposed on December 6,2023,prior to October 16,2024,the initial compliance date inthe LCRR.The Company is executing an implementation strategy to comply with the initial LCRR requirement to complete a leadservice line inventory.Capital expenditures and operating costs associated with the LCRI wi

229、ll be determined once the EPA finalizesthe rule,but as previously noted,costs associated with compliance with federal water quality regulations have been traditionallyrecognized by PUCs as appropriate for inclusion in establishing rates.The Company has provided both oral and written commentsto the E

230、PA on the proposed LCRI.The Company believes that,if the LCRI rulemaking were to be implemented,the totalinvestment cost to identify and replace lead and galvanized steel service lines in the United States by 2037 would be significant andhas been underestimated by the EPA in the LCRI rulemaking.Fina

231、lly,the Company supports a delay of the compliance date forthose portions of the LCRR proposed to be extended by the LCRI,some of which are currently scheduled to take effect on October16,2024,to allow all water service providers to prepare adequately for any changes that may be implemented through

232、the proposedLCRI rulemaking while continuing to comply with the existing requirements.The IIJA was signed into law in November 2021 and provides for up to$15 billion for lead service line replacement throughdrinking water state revolving funds.The Company will evaluate its service territories and ap

233、ply for funding for those areas thatmeet applicable requirements.With regard to future acquisitions,the Company will work with those communities as part of theacquisition process to set LSL removal goals appropriate for those systems.The prioritization of LSL removal is dependent onseveral factors,i

234、ncluding the Companys planned water main and service line renewal projects,adjacent projects by municipalitiesor other utilities,LCR compliance monitoring results,and cooperation with its customers with respect to replacing the customer-owned portion of the LSL as necessary.In certain cases,these an

235、d other factors may result in a shorter or longer time frame forreplacement.Because replacing the external LSL in its entirety is advised by several water industry organizations including theU.S.National Drinking Water Advisory Council,the Lead Service Line Replacement Collaborative,and the American

236、 Water WorksAssociation,the Companys preferred approach is to replace the entire external LSL if lead is found on either the Company orcustomer portion of the service line;full LSL replacement is also consistent with the LCRR and proposed LCRI.The Lead ServiceLine Replacement Collaborative is a dive

237、rse group of public health,water utility,environmental,labor,consumer and housingorganizations from across the country working together to encourage communities to accelerate the full replacement of LSLsthrough collaborative efforts at the local level.National Primary Drinking Water RegulationsOn Ma

238、rch 14,2023,the EPA announced the proposed National Primary Drinking Water Regulations(“NPDWR”)for sixPFAS including perfluorooctanoic acid(“PFOA”),perfluorooctane sulfonic acid(“PFOS”),perfluorononanoic acid(“PFNA”),hexafluoropropylene oxide dimer acid(“HFPO-DA”,commonly known as“GenX Chemicals”),p

239、erfluorohexane sulfonic acid(“PFHxS”),and perfluorobutane sulfonic acid(“PFBS”).The proposed regulations would establish legally enforceable levels forPFAS in drinking water.The EPA anticipates issuing a final rule in 2024 and utilities will be provided a three-year window tocomply with the new regu

240、lations once finalized,although the Safe Drinking Water Act allows utilities to request an additional twoyears if capital improvements are required.The Company performed an initial review of the NPDWR to assess the four parts per trillion requirements for PFOA andPFOS and the application of the Haza

241、rd Index approach for PFNA,PFBS,PFHxS,and GenX Chemicals.On May 24,2023,theCompany submitted comments to the EPA outlining its position on key issues to address the proposed regulations,including itsprojected costs associated with PFAS treatment at the proposed limits and the potential impact to cus

242、tomers bills.The Companyestimates an investment of approximately$1 billion of capital expenditures to install additional treatment facilities over a three tofive-year period in order to comply with the proposed regulations.Additionally,the Company estimates annual operating expensesup to approximate

243、ly$50 million related to testing and treatment in todays dollars.These are preliminary estimates based on theproposed rule.The actual expenses may differ from these preliminary estimates and will be dependent upon multiple factors,including the final rule and effective date,as well as the completion

244、 of a system-by-system engineering analysis.The Company supports sound policies and compliance with the NPDWR by all water utilities,while protecting customersand communities from the costly burden of monitoring and mitigating PFAS contamination in water systems.The Companycontinues to advocate for

245、policies that hold polluters accountable and is participating in the multi-district litigation and otherlawsuits filed against certain PFAS manufacturers seeking damages and reimbursement of costs incurred and continuing to beincurred to address contamination of public water supply systems by PFAS.F

246、or more information on the PFAS multi-districtlitigation,see Item 3Legal ProceedingsPFAS Multi-District Litigation.132025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm23/201Table of ContentsClean Water ActThe Clean Water Act regulates discha

247、rges from drinking water and wastewater treatment facilities into lakes,rivers,streamsand groundwater.In addition to requirements applicable to the Companys wastewater collection systems,its operations requiredischarge permits under the National Pollutant Discharge Elimination System(“NPDES”)permit

248、program established under theClean Water Act,which must be renewed every five years.Pursuant to the NPDES permit program,the EPA and implementingstates set maximum discharge limits for wastewater effluents and overflows from wastewater collection systems.Discharges thatexceed the limits specified un

249、der NPDES permits can lead to the imposition of fines and penalties,and persistent non-compliancecould lead to significant fines and penalties and other compliance costs.In addition,the difficulty of obtaining and complying withNPDES permits,and renewing expiring permits,may impose time and cost bur

250、dens on the Companys operations.From time totime,discharge violations occur at the Companys facilities,some of which result in fines.The Company does not expect any suchviolations or fines to have a material impact on its results of operations or financial condition.The EPA has identified wastewater

251、discharge permitting and permits for the application of biosolids,or sewage sludge,containing PFAS as areas of focus in its PFASStrategic Roadmap.Individual states may also take action in these areas.As indicated previously,capital expenditures andoperating costs to comply with environmental mandate

252、s have been traditionally recognized by PUCs as appropriate for inclusion inestablishing rates.As a result,the Company expects to recover the operating and capital costs resulting from any new requirementsin these areas.Research and DevelopmentThe Companys Research and Development ProgramThe Company

253、 maintains an industry-leading research and development(“R&D”)program that is designed to enhance itsservices,support its compliance activities,improve service quality and operational effectiveness,and provide environmentalleadership.For more than three decades from its inception,American Waters R&D

254、 program has evolved into an industry-leadingeffort and has achieved numerous advancements in the science of drinking water,wastewater,and desalination.Through laboratoryand industry resources and the teams expertise,efforts are focused on contaminants of emerging concern,including but not limitedto

255、 PFAS,Legionella,cyanotoxin-forming algal blooms,a variety of pathogens(for example,COVID-19,Cryptosporidium,Giardia,enteric viruses,and various bacteria),microbial indicators and disinfection byproducts.The Companys R&D personnelare located at the Companys corporate headquarters and at two laborato

256、ry testing facilities in New Jersey and Illinois,the latterhousing its quality control and testing laboratory,which supports the Companys R&D activities through testing and analysis.The Company continues to leverage its expertise and collaborates with the EPA and state agencies to help establish eff

257、ectiveenvironmental,health and safety,and water quality standards and regulations.This relationship includes sharing of the Companysresearch,such as its treatment and distribution system optimization research and its national water quality monitoring data.TheCompanys engagement with the EPA provides

258、 it with early insight into emerging regulatory issues and initiatives,therebyallowing the Company to anticipate and to accommodate its future compliance requirements.The Company also frequentlyengages with the Centers for Disease Control and Prevention,other state environmental agencies,and nationa

259、l and internationalwater research foundations.The Company believes that continued R&D activities are critical for providing safe,reliable andaffordable services,as well as maintaining its leadership position in the industry,which provides the Company with a competitiveadvantage as it seeks business

260、and operational growth.Contaminants of Emerging ConcernContaminants of emerging concern include numerous chemicals such as PFAS,pharmaceuticals,personal care products,pesticides,herbicides,antibiotic resistant bacteria(ARB),antibiotic resistant genes(ARG),endocrine disrupting compounds,microplastics

261、 and industrial chemicals,as well as certain naturally occurring microbes,such as bacteria,viruses and parasites,which have been detected in drinking water supplies,for which the risk to the publics health is not fully understood and/or has notbeen assessed.Technological advances have only recently

262、made it possible to detect many of these contaminants at trace levels.The ability to detect contaminants,even at trace levels,has invited discussion about these contaminants among regulators andgovernment agencies,which in turn shapes the publics perception of drinking water quality.The Chemicals Ab

263、stract Service Registry contains over 204 million registered chemicals,with an estimated 1,400 species ofdisease-causing microbes that can affect humans.The Company is continually investigating new substances and contaminants,employing a team of scientists,engineers and public health professionals t

264、o identify threats to its water supply,to act on emergingregulations and new health advisories,and to evaluate the benefits of alternative or advanced treatment technologies.The Companyutilizes water quality testing equipment and implements new and emerging technologies to help detect potential wate

265、r supplycontamination issues.Examples of the Companys efforts include:monitoring impacts of environmental pathogen loads and removal through wastewater systems;characterizing factors that contribute to the formation of potentially carcinogenic disinfection by-products to definebest practices for the

266、ir mitigation;2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm24/201142025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm25/201Table of Contentsadvancing the science on holistic man

267、agement strategies to improve distribution system water quality further;using its research findings to communicate information to its customers regarding potential actions to limitoccurrences of Legionella in their buildings;in this regard,the Centers for Disease Control and Prevention statisticsind

268、icate that water-associated disease from Legionella is on the rise,with exposure typically associated withcustomer-owned plumbing systems in large buildings;defining a framework to support management or possible future regulation of opportunistic pathogens;developing expanded monitoring methods for

269、short-chain and fluorinated replacement PFAS;systematically investigating PFAS removal from a variety of water matrices using established and emerging treatmenttechnologies;leading a PFAS risk communication strategy for the water sector;using innovative technologies(e.g.,satellite imagery)for early

270、detection and response to algal blooms to managepublic health impacts and prevent taste and odor events before cyanotoxins get into the water treatment plant;monitoring of taste and odor issues that impact customer satisfaction using expanded analytical methods to detectcompounds,and evaluating and

271、recommending treatment practices;implementing water source assessment tools,including sensors and data analytics,to evaluate and track chemicalstorage and aid in the identification of source water contamination events;developing methodology and advanced measurement techniques for contaminants of eme

272、rging concern to investigatetransport,occurrence and treatment;andimplementing activated carbon,biofiltration and ion exchange treatment to seek to control contaminants of emergingconcern.Service Company and SecurityAmerican Water Works Service Company,Inc.(“Service Company”)is a wholly owned subsid

273、iary of the Company thatprovides support and operational services to the Company and its affiliates.These services are predominantly provided to theCompanys Regulated Businesses under contracts that have been approved by PUCs,where necessary,and are also provided to theMSG and CSG businesses as requ

274、ested or may otherwise be necessary.Services provided by Service Company may includeaccounting and finance,administration,business development,communications,compliance,education and training,engineering,environmental,health and safety,human resources,information systems,internal audit,investor rela

275、tions,legal and governance,operations,procurement,R&D,rates and regulatory support,security,risk management and insurance,treasury,and water quality.Service Company also provides customer support to the Companys Regulated Businesses,which includes call handling,billing,amajor accounts program and ot

276、her related services.Services are provided by Service Company at cost,enabling the Companysoperating subsidiaries to fulfill their responsibilities in a cost-effective manner,while providing them access to in-depth,functionalexpertise.The Companys security team,through Service Company,provides overs

277、ight and policy guidance on physical,cyber andinformation security,as well as business continuity,throughout the Companys operations.The security team is responsible fordesigning,implementing,monitoring and supporting effective physical and technical security controls for the Companys physicalassets

278、,business systems and operational technologies.Risk assessments are conducted periodically to evaluate the effectiveness ofexisting security controls and serve as the basis for additional safeguards,security controls and measures.For additionalinformation concerning this team and the Companys cybers

279、ecurity program,see Item 1CCybersecurity.Environmental,Social Responsibility and GovernanceThe Company considers environmental,social responsibility and governance(“ESG”)principles fundamental to itscorporate strategy and values.Integration of these principles into the Companys daily operations emph

280、asizes its belief that“how”a company operates is just as important as“what”a company does.Delivering safe,clean,reliable and affordable water services tocustomers and treating wastewater has been fundamental to the Companys business for decades.The Company has an opportunityto make a positive,sustai

281、nable impact in thousands of communities by serving them with diverse and skilled employees andmaintaining the governance and diligence to meet or exceed service expectations.152025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm26/201Table of

282、 ContentsDemonstrated ESG LeadershipThe Companys values and actions have achieved prestigious recognition by firms devoted to recognizing companies thatdemonstrate ESG leadership.Among others,American Water(i)was recognized on the 2023 Bloomberg Gender-Equality Index forthe fifth consecutive year,(i

283、i)was ranked 18th on Barrons 100 Most Sustainable U.S.Companies 2023 List,(iii)was named oneof Americas Most JUST companies by JUST Capital and CNBC for its continued commitment to employees,customers,communities and shareholders,(iv)earned the U.S.Department of Homeland Securitys SAFETY Act designa

284、tion and the EPAsWaterSense Excellence Award,and(v)was honored as a 2023 VETS Indexes 3-Star Employer and earned the 2024 MilitaryFriendly Gold Employer designation for the Companys efforts in hiring and supporting U.S.military veterans.ESG OversightManagement and Other Supporting RolesAmerican Wate

285、r has developed a cross-functional approach for developing and implementing its ESG strategy,principlesand reporting.The function involves the direct involvement and participation by many of its business units,including withoutlimitation,its executive leadership team,as well as environmental,health

286、and safety,human resources,legal,finance,accountingand investor relations teams(which includes the Companys ESG reporting function).Board of Directors OversightThe Board of Directors oversees the Companys strategy and performance related to sustainability through four standingcommittees:The Safety,E

287、nvironmental,Technology and Operations Committee has oversight and responsibility with respect to,among other things:water quality and emerging contaminants;operational matters and functions;environmental andclimate-related matters;and physical security and cybersecurity.The Audit,Finance and Risk C

288、ommittee has oversight and responsibility of,among other things:the Companys riskassessment and enterprise risk management;the Companys financial statements and accounting;the independentauditor;internal audit and controls;and ethics and compliance matters.The Executive Development and Compensation

289、Committee oversees,among other things:the Companys humancapital management and ID&E programs;culture and related engagement with employees;and executivedevelopment,succession and compensation.The Nominating/Corporate Governance Committee has oversight and responsibility with respect to,among otherth

290、ings:corporate governance;Board and committee membership,leadership and composition;director nominationsand succession;and director education.Alignment with Annual Performance PlanThe Companys Annual Performance Plan(“APP”),which provides annual,performance-based cash compensation toCompany employee

291、s based upon the achievement of stated business goals,is aligned with its commitment to ESGprinciples.Performance measures and other mandatory training requirements related to the 2023 APP included thefollowing:Environmental:Drinking Water Quality and Program Compliance;Social:Customer Satisfaction,

292、Employee Safety and Employee Diversity;andGovernance:The Company requires annual completion of Code of Ethics training for an employee to beeligible to receive an APP payout.Reporting,Disclosures and TransparencyIn 2023,the Company issued its seventh Sustainability Report as well as its ESG Data Sum

293、mary,which coveredperformance and management of key metrics within the 2022 calendar year.American Water will begin publishing itsSustainability Report annually in 2024.In addition,the Company issued its third annual Inclusion,Diversity&Equity(“ID&E”)Report,which describes theCompanys inclusion and

294、diversity strategies,practices,policies and programs.During 2023,the Company alsocontinued to update key ID&E metrics quarterly on its DiversityatAW.com website.As part of its continued commitment to transparency,the Company provided the following new disclosures:Independent assurance of Scope 1 and

295、 Scope 2 greenhouse gas emissions for 2020,2021 and 2022,inaccordance with the International Standard for Assurance Engagements ISAE 3000(Revised);2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm27/201162025/2/13 01:12awk-20231231https:/ww

296、w.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm28/201Table of ContentsEEO-1 data for 2022,marking the third consecutive reporting year that the Company has shared thisinformation broadly;A comparison of the Companys employee racial/ethnic diversity and residential customer

297、diversity;andA director skills and diversity matrix.The Company also discloses on its website its Political Contribution Policy,and,on an annual basis,information relatedto political contributions,certain payments to tax-exempt organizations and trade associations(including Section 501(c)(4)organiza

298、tions),and lobbying expenditures.Human Capital ResourcesOverviewAmerican Water is committed to supporting a high performing workforce,and the Company seeks to attract and retainemployees who share the Companys purpose and values and represent the communities the Company serves.The Companydemonstrate

299、s this commitment to its employees through its employee value proposition,called weCARE,which forms a centralpart of the Companys human capital resources mission and includes a focus on deeper connections,personal growth,sharedpurpose,flexibility and well-being.The Company believes that investing ti

300、me,energy and resources in its workforce helps togenerate new ideas,continuously improve operations,and provide high-quality,reliable service for the customers and communitiesserved.Employee Health and SafetySafety has always been a core value at American Water and is a critical component of its bus

301、iness strategy.The Companysultimate goal is to achieve zero incidents,injuries and fatalities for the Companys employees and contractors,all of whom deserveto return home from work in the same,or better,condition than when they arrived.The Companys commitment to employee healthand safety includes,in

302、 addition to physical safety,both emotional safety and overall wellbeing.To support the Companys commitment to safety,the Companys employees completed approximately 157,000 hours ofemployee safety training,including physical security and cybersecurity training,during 2023.To support and enhance theC

303、ompanys safety culture,the Company also collaborates on local,regional,and national levels with its labor union partners.Employees are empowered to demonstrate safety leadership by utilizing a number of safety practices embedded in the Companysculture,such as the use of(i)daily and pre-meeting safet

304、y messages,(ii)“Stop Work Authority”(the power to stop workingimmediately and mitigate a hazard whenever an employee believes a task is unsafe),and(iii)a peer-to-peer program in whichemployees observe and coach each other to encourage safe work.For 2023,the Company had an ORIR injury rate of 0.86,wh

305、ichreflects a 4%increase in injuries compared to 2022,taking into account a 1%increase in labor hours compared to 2022.Also,thenumber of Days Away Restricted or Transferred(“DART”)injuries increased by 43.5%compared to 2022,primarily due to anincrease in strain,sprain and tear injuries,which the Com

306、pany has focused on addressing through safety action plans tailored tothese types of injuries.For 2023,the Company had 54 injuries and its DART rate was 0.52(33 injuries),compared to an ORIR of0.85(52 injuries)and a DART rate of 0.37(23 injuries)in 2022.The Company continued its focus in 2023,to pro

307、mote leading indicator safety activities,including pre-job safety briefingsand near-miss reporting,and by supporting the achievement of internal Certified Safe Worker designations.Near-miss reports,where employees report potential hazards or incidents in a safe and secure manner,increased by 32%in 2

308、023 over 2022,and 98%of near-miss incident corrective actions were completed,with nearly 97%completed within 30 days.The Company utilizes near-miss reporting and timely corrective actions as key measurements of employee engagement and safety performance.This commitment to safety also includes buildi

309、ng a culture of well-being where all employees can feel emotionally safe andlive a healthy lifestyle.Through well-being education,the Company is able to encourage employees to take preventative actionsand increase participation in annual well-care exams and cancer screenings.In 2023,the Company intr

310、oduced an enhancedwellness program platform to increase overall engagement and to leverage the use of mobile technologies.As a result,34%ofenrolled employees reached the highest participation level in the wellness program(compared to 19%in 2022).In addition,themobile-ready platform presented an oppo

311、rtunity to engage more front-line employees in a user-friendly way.Inclusion,Diversity and EquityThe Company believes that employees are at their best when they can bring their full selves to work every day.This belief isthe central component of the Companys“Beautifully Different”philosophy,which re

312、cognizes,embraces and celebrates theuniqueness of its employees.The Company also believes that having employees with different ideas,viewpoints,experiences andbackgrounds improves its ability to serve a diverse customer base.To this end,the Company is committed to seeking andpromoting diversity amon

313、g its workforce,executive and senior management leadership teams,to align the diversity of theCompanys workforce with the diversity of the communities in which it serves.2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm29/201172025/2/13 01:

314、12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm30/201Table of ContentsAs part of its APP,the Company has included diversity goals intended to increase the representation of women in,and theethnic and racial diversity of,the Companys workforce.The goal

315、s measure the percentage of females and racial/ethnic diversityamong the Companys workforce based on voluntary self-identification.The Company maintains its DiversityatAW.com website to provide transparency and communicate progress on theCompanys initiatives.This website currently includes,among oth

316、er information,American Waters overall strategic approach toID&E,the Companys ID&E report,its EEO-1 data,key employee diversity metrics(which are updated quarterly),and adiscussion of the Companys pay equity study and internal labor market analysis.During 2023,the Company continued to focus on creat

317、ing a culture that respects and supports inclusion,diversity andequity.At all levels,the Company strives to understand,respect,value and provide equal opportunity to each employee,and tofoster an environment where employees differences are embraced and celebrated.The Company holds as an essential co

318、ncept theright of employees to proudly share their ideas and unique perspectives in an environment built on mutual respect,equity andinclusion.The Company is committed to diversity among its workforce,including its executive and senior management leadershipteams,by reflecting the diversity of the co

319、mmunities in which the Company serves.The Company expects all leaders to lead withinclusion,diversity and equity.During 2023,85.0%of the Companys hiring candidate pools were diverse.Additionally,for 2023,approximately 48.2%ofthe Companys internal employee transfers and promotions were filled with a

320、diverse individual,reflecting the Companyscommitment to employee development and career growth as well as the Companys focus on workforce inclusion,diversity andequity.For purposes of these metrics,diversity refers to gender,race,ethnicity,disability,veteran/military spouse status,andLGBTQ+status,al

321、l based on voluntary,self-identified employee information.The Company maintains active partnerships with groups such as Hiring our Heroes,Military Spouse EmploymentPartnership,American Corporate Partners,CEO Action for Diversity and Inclusion,Disability:IN,Paradigm for Parity,and Outand Equal,to fur

322、ther enhance its ability to recruit and retain diverse employees.Among its recognitions,the Company was honoredas a 2023 VETS Indexes 3-Star Employer and earned the 2024 Military Friendly Gold Employer designation for the Companysefforts in hiring and supporting U.S.military veterans.American Water

323、was also recognized as the first utility to receive theFriendly Forces 5 STAR Reservist Friendly Employer award,the highest employer rating for Guard service personnel andreservists.The Company was also a top scorer in the 2023 Disability Equality Index for the fifth consecutive year and was recogni

324、zedby 50/50 Women on Boards for a gender-balanced board of directors,Fortunes Modern Board 25 Ranking,as well as aChampion of Board Diversity with distinction by the Forum of Executive Women.The Company was also named a 2023 Best ofthe Decade honoree by Minority Business News USA and Womens Enterpri

325、se USA,and the Company was included in the 2023Impact Shares NAACP Minority Empowerment ETF.In keeping with the Companys values,the Company has a stated“zero-tolerance”approach against discrimination,harassment or retaliation by or toward any employee,vendor,customer or other personin its workplace.

326、All employees are required to complete anti-harassment,workplace respect and dignity,unconscious bias andinclusion and diversity training.In addition,annual Code of Ethics training is provided to all employees,which includesinstructions on using the Companys anonymous hotline for reporting potential

327、 Code of Ethics violations.The Companys five Employee Business Resource Groups(“EBRGs”),which represent diverse employee demographics(Women,African American/Black,LGBTQ+,and Disabilities/Caregivers,with Military added in 2023),strive to create measurableand long-lasting positive impacts on employees

328、 careers,as well as the Companys culture and communities in which it serves.EBRG members participate in events and awareness activities throughout the year,which highlight the importance of building aninclusive and equitable culture.For example,employees may participate in monthly meetings with a fo

329、cus on various relatedtopics,including career development,psychological safety,cultural awareness or business objectives.EBRG members also havethe opportunity to impact the communities in which the Company serves through service projects,including the annual JuneteenthUnity Walk that supported the N

330、ational Alliance on Mental Illness,an organization that provides advocacy,education,and supportfor,and public awareness of,mental illness,and projects supported by a partnership with Girl Scout troops to promoteenvironmental stewardship and the importance of careers in science,technology,engineering

331、 and mathematics,among others.Total RewardsIn order to attract,retain and motivate a skilled,high-performing and diverse workforce,American Water provides acomprehensive and highly competitive Total Rewards program,including base pay,APP,long-term performance plancompensation for certain leadership

332、positions,and a wide range of benefits consisting of,among others:medical,prescription,dental,vision,life and disability insurance coverage,a retirement savings plan,an employee stock purchase plan,educationalassistance,paid time off through holidays and vacation and sick time.The Companys Total Rew

333、ards offerings also include a healthand wellness program and a menu of additional voluntary benefits.2025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm31/201182025/2/13 01:12awk-20231231https:/www.sec.gov/Archives/edgar/data/1410636/000141063624000050/awk-20231231.htm32/201Table of ContentsAll the Companys employees,including those who are