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What changed in American Water Works's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of American Water Works's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+580 added−517 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-15)

Top changes in American Water Works's 2023 10-K

580 paragraphs added · 517 removed · 373 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

121 edited+60 added−63 removed102 unchanged
Biggest changeThe following chart depicts the allocation of the Company’s Regulated Businesses’ operating revenue of $3,505 million by type, including a breakout of the total water services revenues by class of customer, for the year ended December 31, 2022: (a) Includes water revenues from public authorities and other utilities and community water systems under bulk contracts.
Biggest changePresented in the table below is a breakout of the Company’s Regulated Businesses’ operating revenue by class of customer, for the years ended December 31, 2023, 2022 and 2021: 2023 2022 2021 (In millions) Revenue Percentage of Revenue Revenue Percentage of Revenue Revenue Percentage of Revenue Water services: Residential $ 2,143 55 % $ 1,941 55 % $ 1,935 57 % Commercial 798 20 % 710 20 % 676 20 % Fire service 158 4 % 147 4 % 151 5 % Industrial 167 4 % 153 4 % 141 4 % Public and other water (a) 284 7 % 267 8 % 239 7 % Wastewater 327 8 % 242 7 % 208 6 % Other (b) 43 2 % 45 2 % 34 1 % Total $ 3,920 100 % $ 3,505 100 % $ 3,384 100 % (a) Includes water revenues from public authorities and other utilities, community water systems under bulk contracts and alternative revenue programs.
Through laboratory and industry resources and the team’s expertise, efforts are focused on contaminants of emerging concern, including but not limited to COVID-19, PFAS, Legionella, cyanotoxin-forming algal blooms, a variety of pathogens (for example, Cryptosporidium, Giardia, enteric viruses, and various bacteria), microbial indicators and disinfection byproducts.
Through laboratory and industry resources and the team’s expertise, efforts are focused on contaminants of emerging concern, including but not limited to 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 Company continues to leverage its expertise and collaborates with the EPA and state agencies to help establish effective environmental, health and safety, and water quality standards and regulations. This relationship includes the sharing of the Company’s research, such as its treatment and distribution system optimization research and its national water quality monitoring data.
The Company continues to leverage its expertise and collaborates with the EPA and state agencies to help establish effective environmental, health and safety, and water quality standards and regulations. This relationship includes sharing of the Company’s research, such as its treatment and distribution system optimization research and its national water quality monitoring data.
The Company offers employees programs covering each of the five components of weCARE. The Company is committed to improving the employee experience by listening to employees through focus group discussions and employee surveys, among other tools.
The Company offers employee programs covering each of the five components of weCARE. The Company is committed to improving the employee experience by listening to employees through focus group discussions and employee surveys, among other tools.
Readers may obtain a copy of the Company’s Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q or its Current Reports on Form 8-K, or any amendments to them, that are filed with or furnished to the SEC, free of charge, from the Investor Relations section of the Company’s website, https://ir.amwater.com, as soon as reasonably practicable after the Company files or furnishes the information to the SEC.
Readers may obtain a copy of the Company’s Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q or its Current Reports on Form 8-K, or any amendments to them, that are filed with or furnished to the SEC, free of charge, from the Company’s Investor Relations website, https://ir.amwater.com, as soon as reasonably practicable after the Company files or furnishes the information to the SEC.
Services provided by Service Company may include accounting and finance, administration, business development, communications, compliance, education and training, engineering, health and safety, human resources, information systems, internal audit, investor relations, legal and governance, operations, procurement, R&D, rates and regulatory support, security, risk management and insurance, treasury, and water quality.
Services provided by Service Company may include accounting and finance, administration, business development, communications, compliance, education and training, engineering, environmental, health and safety, human resources, information systems, internal audit, investor relations, legal and governance, operations, procurement, R&D, rates and regulatory support, security, risk management and insurance, treasury, and water quality.
The Company holds as an essential concept the right of employees to proudly share their ideas and unique perspectives in an environment built on mutual respect, equity and inclusion. The Company is committed to diversity among its workforce, executive and senior management leadership teams, by reflecting the diversity of the communities in which the Company serves.
The Company holds as an essential concept the right of employees to proudly share their ideas and unique perspectives in an environment built on mutual respect, equity and inclusion. The Company is committed to diversity among its workforce, including its executive and senior management leadership teams, by reflecting the diversity of the communities in which the Company serves.
However, the Company’s Regulated Businesses do face competition from governmental agencies, other investor-owned utilities, large industrial customers with the ability to provide their own water supply/treatment process and strategic buyers that are entering new markets and/or making strategic acquisitions.
However, the Company’s Regulated Businesses do face increasing competition from governmental agencies, other investor-owned utilities, large industrial customers with the ability to provide their own water supply/treatment process and strategic buyers that are entering new markets and/or making strategic acquisitions.
Information contained on the Company’s website, including its Sustainability Report, its Inclusion, Diversity & Equity Annual Report, and other reports or documents, including the information and data on the Company’s diversity website https://Diversityataw.com , shall not be deemed incorporated into, or to be a part of, this report, and any website references included herein are not intended to be made through active hyperlinks.
Information contained on the Company’s website and its Investor Relations website, including its Sustainability Report, its Inclusion, Diversity & Equity Annual Report, and other reports or documents, and the information and data on the Company’s diversity website, https://Diversityataw.com , shall not be deemed incorporated into, or to be a part of, this report, and any website references included herein are not intended to be made through active hyperlinks.
Additionally, the Company continues to invest significantly in resiliency projects to address the impacts of climate and weather variability by hardening its assets.
The Company continues to invest significantly in resiliency projects to address the impacts of climate and weather variability by hardening its assets.
The Company maintains active memberships with groups such as Hiring our Heroes, Military Spouse Employment Partnership, American Corporate Partners, CEO Action for Diversity and Inclusion, Disability: IN, Paradigm for Parity, and Out and Equal, to further enhance its ability to recruit and retain diverse employees.
The Company maintains active partnerships with groups such as Hiring our Heroes, Military Spouse Employment Partnership, American Corporate Partners, CEO Action for Diversity and Inclusion, Disability: IN, Paradigm for Parity, and Out and Equal, to further enhance its ability to recruit and retain diverse employees.
Griffith served as the Chief Executive Officer of HighWave Energy, a renewable fuels start-up company, and from 1995 to 2008, he served in various capacities of increasing responsibility with Merrill Lynch & Co. Melanie M. Kennedy 49 Executive Vice President, Chief Human Resources Officer. Ms.
Griffith served as the Chief Executive Officer of HighWave Energy, a renewable fuels start-up company, and from 1995 to 2008, he served in various capacities of increasing responsibility with Merrill Lynch & Co. Melanie M. Kennedy 50 Executive Vice President, Chief Human Resources Officer. Ms.
Kennedy served as the Company's Vice President, Human Resources, and from August 2012 to August 2014, she served as Director, Human Resources in the Company’s Northeast Division. Ms. Kennedy initially joined the Company in 2007, and before that time, she practiced law for nine years. Cheryl Norton 58 Executive Vice President and Chief Operating Officer. Ms.
Kennedy served as the Company's Vice President, Human Resources, and from August 2012 to August 2014, she served as Director, Human Resources in the Company’s Northeast Division. Ms. Kennedy initially joined the Company in 2007, and before that time, she practiced law for nine years. Cheryl Norton 59 Executive Vice President and Chief Operating Officer. Ms.
National Drinking Water Advisory Council, the Lead Service Line Replacement Collaborative, and the American Water Works Association, the Company’s preferred approach is to replace the entire external LSL if lead is found on either the Company or customer portion of the service line; full LSL replacement is also consistent with the LCRR.
National Drinking Water Advisory Council, the Lead Service Line Replacement Collaborative, and the American Water Works Association, the Company’s preferred approach is to replace the entire external LSL if lead is found on either the Company or customer portion of the service line; full LSL replacement is also consistent with the LCRR and proposed LCRI.
Board Oversight The Executive Development and Compensation Committee (ED&CC) of the Board of Directors establishes and reviews the Company’s overall compensation philosophy and oversees the compensation and benefits plans and programs for its executive officers. The ED&CC oversees the process of planning for executive officer succession. It also provides oversight of the Company’s inclusion, diversity and equity programs and initiatives.
Board Oversight The Executive Development and Compensation Committee (“ED&CC”) of the Board of Directors establishes and reviews the Company’s overall compensation philosophy and oversees the compensation and benefits plans and programs for its executive officers. The ED&CC oversees the process of planning for executive officer succession. It also provides oversight of the Company’s inclusion, diversity and equity programs and initiatives.
It is also the Company’s strategy to expand the use of these mechanisms in areas where they may not currently apply and enhance certain mechanisms where they already exist. Acquisitions and Strategic Growth The U.S. water and wastewater industries include investor-owned systems as well as municipal systems that are owned and operated by local governments or governmental subdivisions.
It is also the Company’s strategy to expand the use of these mechanisms in areas where they may not currently apply and enhance certain mechanisms where they already exist. 6 Table of Contents Acquisitions and Strategic Growth The U.S. water and wastewater industries include investor-owned systems as well as municipal systems that are owned and operated by local governments or governmental subdivisions.
The Company does not expect any such violations or fines to have a material impact on its results of operations or financial condition. The EPA has identified leveraging wastewater discharge permitting and application of biosolids, or sewage sludge, containing PFAS as areas of focus in its PFAS Strategic Roadmap. Individual states may also take action in these areas.
The Company does not expect any such violations or fines to have a material impact on its results of operations or financial condition. The EPA has identified wastewater discharge permitting and permits for the application of biosolids, or sewage sludge, containing PFAS as areas of focus in its PFAS Strategic Roadmap. Individual states may also take action in these areas.
Increasingly stringent environmental, 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 several elements, among others, that may drive more municipalities to consider selling their water and wastewater assets. 7 Table of Contents Sale of New York American Water Company, Inc.
Increasingly stringent environmental, 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 several elements, among others, that may drive more municipalities to consider selling their water and wastewater assets. Sale of New York American Water Company, Inc.
For example, the Company’s water and wastewater treatment facilities store and use chlorine and other chemicals that generate wastes that require proper handling and disposal under applicable environmental requirements. The Company also could incur remedial costs in connection with any contamination relating to its operations or facilities or its off-site disposal of waste.
For example, the Company’s water and wastewater treatment facilities store and use gaseous chlorine as well as other chemicals that generate wastes that require proper handling and disposal under applicable environmental requirements. The Company also could incur remedial costs in connection with any contamination relating to its operations or facilities or its off-site disposal of waste.
Individually, these market-based businesses do 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 consistent with how management assesses the results of these businesses.
Individually, these other businesses do 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 consistent with how management assesses the results of these businesses.
The capital for these assets historically has not been funded through the Company’s debt or equity issuances; rather, the Company has used limited working capital for short-term needs under these contracts. In April 2018, the U.S. Army instituted a requirement that a bidder must offer financing in its proposal for these new capital projects under existing contracts, but the U.S.
The capital for these assets historically has not been funded through the Company’s debt or equity issuances; rather, the Company has used limited working capital for short-term needs under these contracts. The U.S. Army has a requirement that a bidder must offer financing in its proposal for these new capital projects under existing contracts, but the U.S.
The Company attempts to minimize “regulatory lag,” which is the time between the occurrence of an event that triggers a change in the utility’s revenue requirement and the recognition in rates of that change. 6 Table of Contents The Company’s Regulated Businesses support regulatory practices at the PUCs and state legislatures that mitigate the adverse impact of regulatory lag.
The Company attempts to minimize “regulatory lag,” which is the time between the occurrence of an event that triggers a change in the utility’s revenue requirement and the recognition in rates of that change. The Company’s Regulated Businesses support regulatory practices at the PUCs and state legislatures that mitigate the adverse impact of regulatory lag.
Norton has over 30 years of employment with the Company serving in various roles, including operational leadership, environmental stewardship, laboratory management and research. She has been serving as the Company’s Executive Vice President and Chief Operating Officer since March 2021 and served as its Senior Vice President, Chief Environmental Officer from March 2020 to March 2021.
Norton has 35 years of employment with the Company serving in various roles, including operational leadership, environmental stewardship, laboratory management and research. She has been serving as the Company’s Executive Vice President and Chief Operating Officer since March 2021 and served as its Senior Vice President, Chief Environmental Officer from March 2020 to March 2021.
Four of MSG’s current contracts require such capital project financing, which the Company is currently addressing through internal sources of liquidity. The contract price for four of MSG’s contracts with the U.S. government is subject to redetermination two years after commencement of operations, and every three years thereafter.
Four of MSG’s current contracts require such capital project financing, which the Company is currently addressing through internal sources of liquidity. 10 Table of Contents The contract price for four of MSG’s contracts with the U.S. government is subject to redetermination two years after commencement of operations, and every three years thereafter.
The Chemicals Abstract Service Registry contains over 203 million registered chemicals, with an estimated 1,400 species of disease-causing microbes that can affect humans.
The Chemicals Abstract Service Registry contains over 204 million registered chemicals, with an estimated 1,400 species of disease-causing microbes that can affect humans.
The Company believes that its operations are materially in compliance with, and in many cases surpass, minimum standards required by applicable environmental laws and regulations. The Company’s operations also involve the use, storage and disposal of hazardous substances and wastes.
The Company believes that its operations are materially in compliance with, and in many cases surpass, minimum standards required by applicable environmental laws and regulations. 11 Table of Contents The Company’s operations also involve the use, storage and disposal of hazardous substances and wastes.
Regulated Businesses The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers. The Company’s utilities operate in approximately 1,600 communities in 14 states in the United States, with 3.4 million active customers in its water and wastewater networks.
Regulated Businesses The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers. The Company’s utilities operate in approximately 1,700 communities in 14 states in the United States, with 3.5 million active customers in its water and wastewater networks.
In California, where the state has been experiencing a multi-year drought, the Company utilizes multiple water supply options including numerous ground water wells in multiple aquifers as well as various long-term purchase water agreements with regional water suppliers to optimize supplies while assuring resiliency during dry years.
In California, where the state has recently experienced a multi-year drought, the Company utilizes multiple water supply options including numerous ground water wells in multiple aquifers as well as various long-term purchase water agreements with regional water suppliers to optimize supplies while assuring resiliency during dry years.
The Water Supply Project is intended, among other things, to fulfill obligations of the California subsidiary to eliminate unauthorized diversions from the Carmel River as required under orders of the California State Water Resources Control Board (the “SWRCB”).
The Water Supply Project is intended, among other things, to fulfill obligations of Cal Am to eliminate unauthorized diversions from the Carmel River as required under orders of the California State Water Resources Control Board (the “SWRCB”).
According to the U.S. Environmental Protection Agency (“EPA”), as of 2017, approximately 84% of the water market is served by municipal systems and approximately 98% of the country’s wastewater systems are government owned.
According to the most recent study by the U.S. Environmental Protection Agency (“EPA”), as of 2017, approximately 84% of the water market is served by municipal systems and approximately 98% of the country’s wastewater systems are government owned.
In addition, from 2023 to 2027, the Company’s capital investment in treatment plants, storage tanks and other key, above-ground facilities is expected to increase, further seeking to address infrastructure renewal, resiliency, water quality, operational efficiency, technology and innovation, and emerging regulatory compliance needs.
In addition, from 2024 to 2028, the Company’s capital investment in treatment plants, storage tanks and other key, above-ground facilities is expected to increase, further seeking to address infrastructure renewal, resiliency, water quality, operational efficiency, technology and innovation, and emerging regulatory compliance needs.
The businesses included within Other are not subject to regulation by state PUCs and the services provided generally do not require significant capital investment. Operating revenues for Other were $287 million for 2022, $546 million for 2021 and $522 million for 2020, accounting for 8%, 14% and 14%, respectively, of the Company’s total operating revenues for the same periods.
The businesses included within Other are not subject to regulation by state PUCs and the services provided generally do not require significant capital investment. Operating revenues for Other were $314 million for 2023, $287 million for 2022 and $546 million for 2021, accounting for 7%, 8% and 14%, respectively, of the Company’s total operating revenues for the same periods.
Examples of the Company’s 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 define best practices for their mitigation; 15 Table of Contents • advancing the science on holistic management strategies to improve distribution system water quality further; • using its research findings to communicate information to its customers regarding potential actions to limit occurrences of Legionella in their buildings; in this regard, the Centers for Disease Control and Prevention statistics indicate that water-associated disease from Legionella is on the rise, with exposure typically associated with customer-owned plumbing systems in large buildings; • defining a framework to support management or possible future regulation of opportunistic pathogens; • developing expanded monitoring methods for short-chain and fluorinated replacement PFAS and piloting treatment techniques; • systematically investigating PFAS removal by treatment processes in a wide range of water matrices; • leading a PFAS risk communication strategy for the water sector; • using innovative technologies to detect and manage algal blooms to help prevent taste and odor events and cyanotoxins before they get to the water treatment plant; • monitoring of taste and odor issues that impact customer satisfaction using expanded analytical methods to detect compounds, and evaluating and recommending treatment practices; • implementing water source assessment tools, including sensors and data analytics, to evaluate and track chemical storage and aid in the identification of source water contamination events; • developing methodology and advanced measurement techniques for contaminants of emerging concern to investigate transport, occurrence and treatment; and • implementing activated carbon, biofiltration and ion exchange treatment to seek to control contaminants of emerging concern.
Examples of the Company’s 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 define best practices for their mitigation; 14 Table of Contents • advancing the science on holistic management strategies to improve distribution system water quality further; • using its research findings to communicate information to its customers regarding potential actions to limit occurrences of Legionella in their buildings; in this regard, the Centers for Disease Control and Prevention statistics indicate that water-associated disease from Legionella is on the rise, with exposure typically associated with customer-owned plumbing systems in large buildings; • defining a framework to support management or possible future regulation of opportunistic pathogens; • developing expanded monitoring methods for short-chain and fluorinated replacement PFAS; • systematically investigating PFAS removal from a variety of water matrices using established and emerging treatment technologies; • leading a PFAS risk communication strategy for the water sector; • using innovative technologies (e.g., satellite imagery) for early detection and response to algal blooms to manage public 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 detect compounds, and evaluating and recommending treatment practices; • implementing water source assessment tools, including sensors and data analytics, to evaluate and track chemical storage and aid in the identification of source water contamination events; • developing methodology and advanced measurement techniques for contaminants of emerging concern to investigate transport, occurrence and treatment; and • implementing activated carbon, biofiltration and ion exchange treatment to seek to control contaminants of emerging concern.
Near miss reports, where employees report potential hazards or incidents in a safe and secure manner, increased by 20% in 2022 over 2021, and 97% of near miss incident corrective actions were completed, with nearly 90% completed within 30 days. The Company utilizes near miss reporting and timely corrective actions as key measurements of employee engagement and safety performance.
Near-miss reports, where employees report potential hazards or incidents in a safe and secure manner, increased by 32% in 2023 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.
The Company will also evaluate whether there is a line of sight to grow to sufficient scale in a new regulated market so that it can attain efficiencies after entering a new domestic market.
The Company will also evaluate whether there is a line of sight to grow to sufficient scale in a new regulated market so that it can attain efficiencies and promote customer affordability after entering a new domestic market.
In addition, the Water Supply Project also includes the California subsidiary’s purchase of water from a groundwater replenishment project (the “GWR Project”) between Monterey One Water (formerly known as the Monterey Regional Water Pollution Control Agency) and the MPWMD.
In addition, the Water Supply Project also includes Cal Am’s purchase of water from a groundwater replenishment project (the “GWR Project”) between Monterey One Water (formerly known as the Monterey Regional Water Pollution Control Agency) and the MPWMD.
For 2022, the Company’s employee turnover rate, which the Company defines as the ratio of the number of separated employees to the 12-month average headcount during 2022, was 12.3%, down from 13.1% in 2021. American Water seeks to reduce regrettable employee turnover by assessing the effectiveness of weCARE and through its efforts to foster the Company’s employee experience.
For 2023, the Company’s employee turnover rate, which the Company defines as the ratio of the number of separated employees to the 12-month average headcount during 2023, was 11.5%, down from 12.3% in 2022. American Water seeks to reduce regrettable employee turnover by assessing the effectiveness of weCARE and through its efforts to foster the Company’s employee experience.
The Company reports the results of the services provided by its utilities in the Regulated Businesses segment. Operating revenues for the Regulated Businesses were $3,505 million for 2022, $3,384 million for 2021 and $3,255 million for 2020, accounting for 92%, 86% and 86%, respectively, of the Company’s total operating revenues for the same periods.
The Company reports the results of the services provided by its utilities in the Regulated Businesses segment. Operating revenues for the Regulated 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 Company’s total operating revenues for the same periods.
The Company’s security team provides oversight and policy guidance on physical, cyber and information security, as well as business continuity, throughout its operations. It is responsible for designing, implementing, monitoring and supporting effective physical and technical security controls for the Company’s physical assets, business systems and operational technologies.
The Company’s security team, through Service Company, provides oversight and policy guidance on physical, cyber and information security, as well as business continuity, throughout the Company’s operations. The security team is responsible for designing, implementing, monitoring and supporting effective physical and technical security controls for the Company’s physical assets, business systems and operational technologies.
The Company’s current customer mix of 92% water and 8% wastewater also presents strategic opportunities for wastewater growth and consolidation, allowing the Company to add wastewater customers where it already serves water customers.
The Company’s current customer mix of 91% water and 9% wastewater also presents strategic opportunities for wastewater growth and consolidation, allowing the Company to add wastewater customers where it already serves water customers.
The Company conducts the majority of its business through regulated utilities that provide water and wastewater services, collectively presented as the “Regulated Businesses.” The Company also operates other market-based businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities.
The Company conducts the majority of its business through regulated utilities that provide water and wastewater services, collectively presented as one reportable segment, referred to as the “Regulated Businesses.” The Company also operates other businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities.
The Company recognizes its website as a key channel of distribution to reach public investors and as a means of disclosing information to comply with SEC Regulation FD.
The Company recognizes its websites as key channels of distribution to reach public investors and as a means of disclosing information to comply with SEC Regulation FD.
Two of the Company’s jurisdictions, California and Illinois, have adopted revenue stability mechanisms which permit the Company to collect state PUC-authorized revenue for a given period that is not tied to the volume of water sold during that period, thereby lessening the impact of weather variability.
Two of the Company’s jurisdictions, California and Illinois, have adopted revenue stability mechanisms which permit the Company to collect state PUC-authorized revenue for a given period that is not tied to the volume of water sold during that period, thereby lessening the impact of weather variability. See —Regulation and Rate Making for additional information regarding revenue stability mechanisms.
The American Water corporate governance guidelines and the charters for each of the standing committees of the Board of Directors, together with the American Water Code of Ethics and additional information regarding the Company’s corporate governance, are available on its Investor Relations website, https://ir.amwater.com, and will be made available, without charge, in print to any shareholder who requests such documents from its Investor Relations Department, American Water Works Company, Inc., 1 Water Street, Camden, NJ, 08102. 24 Table of Contents
The Corporate Governance Guidelines and the charters for each of the standing committees of the Board of Directors, together with the American Water Code of Ethics and additional information regarding the Company’s corporate governance, are available on the Company’s Investor Relations website , and will be made available, without charge, in print to any shareholder who requests such documents from the Company’s Investor Relations Department in writing by mail at American Water Works Company, Inc., 1 Water Street, Camden, NJ, 08102. 21 Table of Contents
(b) The Company’s “Top Five States” are determined based upon operating revenues. (c) Includes the Company’s utility operations in the following states: Georgia, Hawaii, Indiana, Iowa, Kentucky, Maryland, Tennessee, Virginia and West Virginia and other revenue attributable collectively to the Regulated Businesses.
(b) The Company’s “Top Five States” are determined based upon operating revenues. (c) Includes the Company’s utility operations in the following states: Georgia, Hawaii, Indiana, Iowa, Kentucky, Maryland, Tennessee, Virginia and West Virginia and other revenue attributable collectively to the Regulated Businesses. Customers The Company’s Regulated Businesses have a large and geographically diverse customer base.
On January 1, 2022, the Company completed the sale of its New York subsidiary to Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), an indirect, wholly owned subsidiary of Algonquin Power & Utilities Corp.
On January 1, 2022, the Company completed the previously disclosed sale of its regulated utility operations in New York to Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), an indirect, wholly owned subsidiary of Algonquin Power & Utilities Corp.
From December 7, 2021 until January 31, 2022, Ms. Hardwick also served as Interim Chief Executive Officer. Prior to joining the Company, Ms. Hardwick served as the Executive Vice President and Chief Financial Officer of Vectren Corporation, which was sold to CenterPoint Energy, Inc., an electric and natural gas utility, on February 1, 2019. Ms.
Hardwick also served as Interim Chief Executive Officer. Prior to joining the Company, Ms. Hardwick served as the Executive Vice President and Chief Financial Officer of Vectren Corporation, which was sold to CenterPoint Energy, Inc., an electric and natural gas utility, on February 1, 2019. Ms.
Susan Hardwick 60 President and Chief Executive Officer. Ms. Hardwick has served as President and Chief Executive Officer of the Company since February 2, 2022. She joined the Company in June 2019 as the Company's Executive Vice President—Finance and served as the Company's Chief Financial Officer from July 2019 until May 16, 2022.
Hardwick has served as President and Chief Executive Officer of the Company since February 2, 2022. She joined the Company in June 2019 as the Company's Executive Vice President—Finance and served as the Company's Chief Financial Officer from July 2019 until May 16, 2022. From December 7, 2021 until January 31, 2022, Ms.
Other also includes CSG, corporate costs that are not allocated to the Company’s Regulated Businesses, interest income related to the seller promissory note and income from the revenue share agreement from the sale of HOS, eliminations of inter-segment transactions and fair value adjustments related to acquisitions that have not been allocated to the Regulated Businesses segment.
Other also includes corporate costs that are not allocated to the Company’s Regulated Businesses, interest income related to the secured seller promissory note from the sale of HOS, income from assets not associated with the Regulated Businesses, eliminations of inter-segment transactions and fair value adjustments related to acquisitions that have not been allocated to the Regulated Businesses segment.
Additionally, for 2022, approximately 46.4% of the Company’s internal employee transfers and promotions were filled with a diverse individual, reflecting the Company’s commitment to employee development and career growth as well as the Company’s focus on diversity, inclusion and equity.
Additionally, for 2023, approximately 48.2% of the Company’s internal employee transfers and promotions were filled with a diverse individual, reflecting the Company’s commitment to employee development and career growth as well as the Company’s focus on workforce inclusion, diversity and equity.
Inclusion, Diversity and Equity During 2022, the Company continued to focus on creating a culture through its promotion of inclusion, diversity and equity. At all levels, the Company strives to understand, respect, value and provide equal opportunity to each employee, and to foster an environment where employees’ differences are embraced and celebrated.
During 2023, the Company continued to focus on creating a culture that respects and supports inclusion, diversity and equity. At all levels, the Company strives to understand, respect, value and provide equal opportunity to each employee, and to foster an environment where employees’ differences are embraced and celebrated.
The Company’s 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 regulation for private sector investment in public sector water and wastewater systems.
In Missouri, the act requires water and wastewater utilities to create cybersecurity, valve inspection and hydrant inspection programs. The Company’s 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 regulation for private sector investment in public sector water and wastewater systems.
Capital expenditures and operating costs associated with the LCRI will be determined once the EPA finalizes the rule, but as previously noted, costs associated with compliance with federal water quality regulations have been traditionally recognized by PUCs as appropriate for inclusion in establishing rates.
Capital expenditures and operating costs associated with the LCRI will be determined once the EPA finalizes the rule, but as previously noted, costs associated with compliance with federal water quality regulations have been traditionally recognized by PUCs as appropriate for inclusion in establishing rates. The Company has provided both oral and written comments to the EPA on the proposed LCRI.
The Water Supply Project includes the construction of a desalination plant, to be owned by the Company’s California subsidiary, and the construction of wells that would supply water to the desalination plant.
The Water Supply Project includes the construction of a desalination plant, to be owned by Cal Am, and the construction of wells that would supply water to the desalination plant.
The Company has proactively improved its pipe renewal rate from a 250-year replacement cycle in 2009 to an expected 110-year replacement cycle by 2027, which it anticipates will enable the Company to replace nearly 2,100 miles of mains and collection pipes between 2023 and 2027.
The Company has proactively improved its pipe renewal rate from a 250-year replacement cycle in 2009 to an approximate 125-year replacement cycle by 2028, which it anticipates will enable the Company to replace nearly 2,000 miles of mains and collection pipes between 2024 and 2028.
Hardwick has served on the Board of Directors of New Jersey Resources Corporation, a diversified energy services company, where she is currently serving a three-year term expiring in 2024, and since January 1, 2021, she has served as a member of its Audit Committee. James H. Gallegos 62 Executive Vice President and General Counsel. Mr.
Hardwick has served on the Board of Directors of New Jersey Resources Corporation, a diversified energy services company, where she is currently serving a three-year term expiring in 2024, and since January 1, 2021, she has served as a member of its Audit Committee. Ms.
A customer is defined as a person, business, municipality or any other entity that purchases the Company’s water or wastewater services as of the last business day of a reporting period. One single customer may purchase the Company’s services for use by multiple individuals or businesses. Examples of these customers are homes, apartment complexes, businesses and governmental entities.
A customer is defined as a person, business, municipality or any other entity that purchases the Company’s water or wastewater services as of the last business day of a reporting period. One single customer may purchase the Company’s services for use by multiple individuals or businesses.
Competition MSG faces competition from a number of service providers, including American States Water Company and Veolia Environnement S.A. 12 Table of Contents Environmental, Health and Safety, Water Quality and Other Regulation The Company’s water and wastewater operations, including the services provided by its Regulated Businesses, MSG and CSG, are subject to extensive federal, state and local laws and regulations governing the protection of the environment, health and safety, the provision of water and wastewater services, particularly with respect to the quality of water the Company delivers to its customers, and the manner in which it collects, treats, discharges, recycles and disposes of wastewater.
Environmental, Health and Safety, Water Quality and Other Regulation The Company’s water and wastewater operations, including the services provided by its Regulated Businesses, MSG and CSG, are subject to extensive federal, state and local laws and regulations governing the protection of the environment, health and safety, the provision of water and wastewater services, particularly with respect to the quality of water the Company delivers to its customers, and the manner in which it collects, treats, discharges, recycles and disposes of wastewater.
See —Research and Development—Contaminants of Emerging Concern for additional information. 13 Table of Contents The Company is within the EPA’s time frame for compliance with standards and rules developed under the regulation of the Safe Drinking Water Act, which includes sample collection, data analysis, and, in some instances engineering planning and implementation of treatment enhancements.
The Company is within the EPA’s time frame for compliance with standards and rules developed under the regulation of the Safe Drinking Water Act, which includes sample collection, data analysis, and, in some instances engineering planning and implementation of treatment enhancements.
Gallegos joined the Company on April 1, 2022 as its Executive Vice President and General Counsel. Prior to joining the Company, since February 2020, Mr. Gallegos served as the Executive Vice President, General Counsel and Corporate Secretary of Alliant Energy Corporation, a regulated, investor-owned public utility holding company, and its two utility subsidiaries (collectively, “Alliant Energy”).
Gallegos served as the Executive Vice President, General Counsel and Corporate Secretary of Alliant Energy Corporation, a regulated, investor-owned public utility holding company, and its two utility subsidiaries (collectively, “Alliant Energy”). From February 2015 to February 2020, Mr. Gallegos served as Senior Vice President, General Counsel and Corporate Secretary of Alliant Energy. Prior to that, Mr.
The vast majority of the Company’s regulated water customers are metered, which allows the Company to measure and bill for its customers’ water usage, typically on a monthly basis. The Company employs a variety of methods of customer meter reading to monitor consumption.
Examples of these customers are homes, apartment complexes, businesses and governmental entities. 4 Table of Contents The vast majority of the Company’s regulated water customers are metered, which allows the Company to measure and bill for its customers’ water usage, typically on a monthly basis. The Company employs a variety of methods of customer meter reading to monitor consumption.
Each executive officer is elected annually by the Board of Directors and serves until their respective successor has been elected and qualified or their earlier death, resignation or removal. 23 Table of Contents Available Information The Company is subject to the reporting requirements of the Exchange Act.
Norton also serves as a member of the Board of Directors of the Water Research Foundation. Each executive officer is elected annually by the Board of Directors and serves until their respective successor has been elected and qualified or their earlier death, resignation or removal. Available Information The Company is subject to the reporting requirements of the Exchange Act.
The Company also has four contracts with municipal customers to operate and manage water and wastewater facilities and provide other related services through its Contract Services Group (“CSG”).
The Contract Services Group (“CSG”), also included in Other, has three contracts with municipal customers to operate and manage water and wastewater facilities and provide other related services.
In addition to required role-based training, managers assist employees to identify professional development opportunities, utilizing a framework of on-the-job learning, social learning, and formal learning, to help them reach their full potential and grow their careers. Developing talent to provide a pathway to executive leadership is a critical priority for the Company.
In addition to required role-based training, managers assist employees to identify professional development opportunities, utilizing a framework of on-the-job learning, social learning and formal learning, to help them attempt to reach their full potential and grow their careers.
Griffith joined the Company on May 16, 2022 as its Executive Vice President and Chief Financial Officer. Prior to joining the Company, since 2014, Mr. Griffith served as Managing Director, Mergers and Acquisitions, for Bank of America Securities’ Global Regulated Utilities and Renewable Energy practice. Prior to joining Bank of America Securities, from 2008 to 2014, Mr.
Prior to joining the Company, since 2014, Mr. Griffith served as Managing Director, Mergers and Acquisitions, for Bank of America Securities’ Global Regulated Utilities and Renewable Energy practice. Prior to joining Bank of America Securities, from 2008 to 2014, Mr.
The process of developing new drinking water standards is long and complex, but the Company actively participates with the EPA and other water industry groups by sharing research and water quality operational knowledge.
The process of developing new drinking water standards is long and complex, but the Company actively participates with the EPA and other water industry groups by sharing research and water quality operational knowledge. See Item 1—Business—Research and Development—Contaminants of Emerging Concern for additional information.
To that end, the Company captures employee feedback, which helps the Company understand how employees are feeling and permits appropriate refinement of the Company’s employee programs, benefits and support. In early 2022, the Company introduced a new development role of Culture Champion.
To that end, the Company captures employee feedback, which helps the Company understand how employees are feeling and permits appropriate refinement of the Company’s employee programs, benefits and support.
The Lead Service Line Replacement Collaborative is a diverse group of public health, water utility, environmental, labor, consumer and housing organizations from across the country working together to encourage communities to accelerate the full replacement of LSLs through collaborative efforts at the local level. 14 Table of Contents Clean Water Act The Clean Water Act regulates discharges from drinking water and wastewater treatment facilities into lakes, rivers, streams and groundwater.
The Lead Service Line Replacement Collaborative is a diverse group of public health, water utility, environmental, labor, consumer and housing organizations from across the country working together to encourage communities to accelerate the full replacement of LSLs through collaborative efforts at the local level.
Eleven of the Company’s regulated jurisdictions currently have some form of consolidated tariff pricing, including California, Illinois, Indiana, Iowa, Kentucky, Maryland, Missouri, New Jersey, Pennsylvania, Virginia and West Virginia. 8 Table of Contents Competition The Company’s Regulated Businesses generally do not face direct competition in their existing markets because (i) the Company operates in those markets pursuant to franchises, charters, certificates of public convenience and necessity or similar authorizations (collectively, “CPCNs”) issued by state PUCs or other authorities, and (ii) the high cost of constructing a new water and wastewater system in an existing market creates a significant barrier to market entry.
Competition The Company’s Regulated Businesses generally do not face direct competition in their existing markets because (i) the Company operates in those markets pursuant to franchises, charters, certificates of public convenience and necessity or similar authorizations (collectively, “CPCNs”) issued by state PUCs or other authorities, and (ii) the high cost of constructing a new water and wastewater system in an existing market creates a significant barrier to market entry.
Talent reviews were conducted for a select group of employees, including employees who are being assessed for senior leadership or other critical roles. 21 Table of Contents Employee Experience The Company has established its weCARE employee value proposition that focuses on employee experience as an influencer of an employee’s opinions and emotional response about the Company as an employer. weCARE is composed of five elements: deeper connections; personal growth; shared purpose; flexibility; and well-being. weCARE represents the Company’s commitment to value its employees and build a safe, healthy and inclusive culture where every employee knows their value and is appreciated for their talents and commitment to supporting the Company’s success.
Employee Experience The Company has established its weCARE employee value proposition that focuses on employee experience as an influencer of an employee’s opinions and emotional response about the Company as an employer. weCARE is composed of five elements: deeper connections; personal growth; shared purpose; flexibility; and well-being. weCARE represents the Company’s commitment to valuing its employees and building a safe, healthy and inclusive culture where employees know their value and are appreciated for their talents and commitment to supporting the Company’s success.
(b) Includes other operating revenues consisting primarily of miscellaneous utility charges, fees and rents. 5 Table of Contents Presented in the table below is the number of water and wastewater customers the Company served by class as of December 31, 2022, 2021 and 2020, which represents approximately 14 million people served as of December 31, 2022: 2022 2021 2020 (In thousands) Water Wastewater Water Wastewater Water Wastewater Residential 2,870 270 2,972 245 2,948 236 Commercial 219 17 225 15 225 15 Fire service 51 — 52 — 50 — Industrial 4 — 4 — 4 — Public and other (a) 17 1 16 1 17 1 Total (b) 3,161 288 3,269 261 3,244 252 (a) Includes public authorities and other utilities and community water and wastewater systems under bulk contracts.
Presented in the table below is the number of water and wastewater customers the Company’s Regulated Businesses’ served by class of customer as of December 31, 2023, 2022 and 2021, which represents approximately 14 million people served as of December 31, 2023: 2023 2022 2021 (In thousands) Water Wastewater Water Wastewater Water Wastewater Residential 2,893 279 2,870 270 2,972 245 Commercial 221 18 219 17 225 15 Fire service 4 — 51 — 52 — Industrial 52 — 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.
The Company is awaiting further guidance on eligibility, the application process and the distribution of these funds. With regard to future acquisitions, the Company will work with those communities as part of the acquisition process to set LSL removal goals appropriate for those systems.
With regard to future acquisitions, the Company will work with those communities as part of the acquisition process to set LSL removal goals appropriate for those systems.
The Company’s four Employee Business Resource Groups (“EBRGs”), which represent diverse employee demographics (Women, African American/Black, LGBTQ+ and Disabilities/Caregivers), strive to create measurable and long-lasting positive impacts on employees’ careers, as well as the Company’s culture and communities in which it serves. EBRG members participate in community events throughout the year, which highlight the importance of supporting community partnerships.
The Company’s 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 measurable and long-lasting positive impacts on employees’ careers, as well as the Company’s culture and communities in which it serves.
All employees are required to complete anti-harassment, workplace respect and dignity, unconscious bias and inclusion and diversity training. In addition, annual Code of Ethics training is provided to all employees, which includes instructions on using the Company’s anonymous hotline for reporting potential Code of Ethics violations.
In addition, annual Code of Ethics training is provided to all employees, which includes instructions on using the Company’s anonymous hotline for reporting potential Code of Ethics violations.
This agreement covers approximately 3,000 of the Company’s union-represented employees and their families and provides them with healthcare and other benefits. The Company also collaborates with union leadership on topics such as safety, customer, technology and employee benefits in forums such as the Joint Healthcare Committee, National Labor Management Committee and the annual Labor Management Conference.
The Company also collaborates with union leadership on topics such as safety, customer, technology and employee benefits in forums such as the Joint Healthcare Committee, National Labor Management Committee and the annual Labor Management Conference.
This web site currently includes, among other information, the Company’s ID&E report, its EEO-1 data for 2021, key employee diversity metrics (which are updated quarterly), and a discussion of the Company’s pay equity study and internal labor market analysis. During 2022, 83.1% of the Company’s hiring candidate pools were diverse.
This website currently includes, among other information, American Water’s overall strategic approach to ID&E, the Company’s ID&E report, its EEO-1 data, key employee diversity metrics (which are updated quarterly), and a discussion of the Company’s pay equity study and internal labor market analysis.
As of December 31, 2022, approximately 47% of the Company’s workforce was represented by unions, which include 75 collective bargaining agreements with 14 different unions. In 2022, the Company entered into three new collective bargaining agreements that cover approximately 215 employees, and renegotiated all 21 collective bargaining agreements that were set to expire during the year.
As of December 31, 2023, approximately 47% of the Company’s workforce was represented under 73 collective bargaining agreements with 14 different unions. In 2023, the Company renegotiated 21 collective bargaining agreements that were set to expire during the year.
Presented in the chart below are the Company’s sources of water supply as of December 31, 2022: Presented in the table below are the percentages of water supply by source type for the Company’s Top Five States for the year ended December 31, 2022: Surface Water Ground Water Purchased Water New Jersey 74% 22% 4% Pennsylvania 91% 7% 2% Missouri 78% 21% 1% Illinois 54% 35% 11% California — 68% 32% 10 Table of Contents The Company’s ability to meet the existing and future water demands of its customers depends on an adequate water supply.
Surface water sources typically require significant treatment, while groundwater sources often require chemical treatment only. 8 Table of Contents Presented in the table below are the percentages of water supply by source type for the Company’s Top Five States individually and the Regulated Businesses collectively for the year ended December 31, 2023: Surface Water Ground Water Purchased Water New Jersey 74% 20% 6% Pennsylvania 91% 7% 2% Missouri 84% 15% 1% Illinois 55% 35% 10% California —% 67% 33% Regulated Businesses 71% 22% 7% The Company’s ability to meet the existing and future water demands of its customers depends on an adequate water supply.
The level of water treatment 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 only.
The level of water treatment the Company applies varies significantly depending upon the quality of the water source and customer stipulations.
The wastewater is then transported through a sewer network to a treatment facility, where it is treated to meet required regulatory standards for wastewater before being returned to the environment. The solid waste by-product of the treatment process is disposed of or recycled in accordance with applicable standards and regulations.
The wastewater is then transported through a sewer network to a treatment facility, where it is treated to meet required regulatory standards for wastewater before being returned to the environment.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWhile the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the Orders may result in material 26 Table of Contents additional costs or obligations, including fines and penalties against Cal Am in the event of noncompliance with the Orders, which could have a material adverse effect upon us and our business, results of operations and cash flows.
Biggest changeWhile the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the Orders may result in material additional costs or obligations, including fines and penalties against Cal Am in the event of noncompliance with the Orders, which could have a material adverse effect upon us and our business, results of operations and cash flows. 23 Table of Contents Service disruptions caused by severe weather conditions, climate variability patterns or natural or other disasters may disrupt our operations or reduce the demand for our water services, which could adversely affect our financial condition, results of operations, cash flows and liquidity.
If the procedures we implement are ineffective or are not followed by our employees or others, or we fail to implement procedures, our employees, contractors and others may experience illness, or minor, serious or fatal injuries. Unsafe work sites have the potential to increase employee turnover, expose us to litigation and raise our operating costs.
If the procedures we implement are ineffective or are not followed by our employees, contractors or others, or we fail to implement procedures, our employees, contractors and others may experience illness, or minor, serious or fatal injuries. Unsafe work sites have the potential to increase employee turnover, expose us to litigation and raise our operating costs.
Moreover, a PUC may not approve a rate request in an amount that is sufficient to: • cover our cost of operations, including: purchased water; chemicals; and fuel, power and other commodities used in our operations; • cover our operational labor and labor-related expenses, including without limitation costs and expenses associated with our pension and other post-employment benefits; • enable us to recover our investment; and • provide us with an opportunity to earn an appropriate rate of return on our investment.
Moreover, a PUC may not approve a rate request in an amount that is sufficient to: • recover our cost of operations, including: purchased water; chemicals; and fuel, power and other commodities used in our operations; • recover our operational labor and labor-related expenses, including without limitation costs and expenses associated with our pension and other post-employment benefits; • enable us to recover our investment; and • provide us with an opportunity to earn an appropriate rate of return on our investment.
We may also incur liabilities if, under environmental laws and regulations, we are required to investigate and clean up environmental contamination, including potential releases of hazardous chemicals, such as chlorine, which we use to treat water, or at off-site locations where we have disposed of residual waste or caused an adverse environmental impact.
We may also incur liabilities if, under environmental laws and regulations, we are required to investigate and clean up environmental contamination, including potential releases of hazardous chemicals, such as gaseous chlorine, which we use to treat water, or at off-site locations where we have disposed of residual waste or caused an adverse environmental impact.
For example, we have made and plan to continue to make significant investments in developing, deploying, integrating and maintaining customer-facing technologies, applications to support field service and customer service operations, water source sensor and evaluation technologies, meter data management and analytics, and intelligent automation technologies.
For example, we have made and plan to continue to make significant investments in developing, deploying, integrating, enhancing and maintaining customer-facing technologies, applications to support field service and customer service operations, water source sensor and evaluation technologies, meter data management and analytics, and intelligent automation technologies.
Similar to other organizations, the Company may have challenges implementing its human capital management and employee succession plans to attract and retain such talent based on a number of factors including, among others, market conditions, retirements and geography.
Similar to other organizations, the Company may have challenges implementing its human capital management, recruitment and employee succession plans to attract and retain such talent based on a number of factors including, among others, market conditions, retirements and geography.
Other examples of such regulatory practices include expense mechanisms that allow us to increase rates for certain cost increases that are beyond our control, such as purchased water costs, property or other taxes, or power, conservation, chemical or other expenditures.
Other examples of such regulatory practices include expense mechanisms that allow us to increase rates for certain cost increases that are beyond our control, such as purchased water costs, property or other taxes, or costs for power or other fuel, conservation, chemical or other expenditures.
Our continued success is dependent upon our ability to attract, hire and retain highly qualified, skilled and/or diverse talent. The success of our business is dependent upon our ability to attract, hire and retain highly qualified, skilled and/or diverse talent, including engineers, licensed operators, water quality and management professionals who have the desired experience and expertise.
Our continued success is dependent upon our ability to attract, hire and retain highly qualified, skilled and/or diverse talent. The success of our business is dependent upon our ability to attract, hire and retain highly qualified, skilled and/or diverse talent, including engineers, licensed operators, water quality, regulatory and management professionals who have the desired experience and expertise.
In addition, 10 o f our state PUCs permit rates to be adjusted outside of the general rate case application process through surcharges that address certain capital investments, such as replacement of aging infrastructure.
In addition, 10 o f our state PUCs permit rates to be adjusted outside of the general rate case process through surcharges that address certain capital investments, such as replacement of aging infrastructure.
Many climate variability predictions present several potential challenges to water and wastewater utilities, including us, such as: • increased frequency and duration of droughts; • increased precipitation and flooding; • increased frequency and severity of storms and other weather events; • challenges associated with changes in temperature or increases in ocean levels; • potential degradation of water quality; • decreases in available water supply and changes in water usage patterns; • increases in disruptions in service; • increased costs to repair damaged facilities; or • increased costs to reduce risks associated with the increasing frequency and severity of natural events, including to improve the resiliency and reliability of our water and wastewater treatment and conveyance facilities and systems.
Many climate variability predictions present several potential challenges to water and wastewater utilities, including us, such as: • increased frequency and duration of droughts; • increased precipitation and flooding; • increased frequency and severity of storms and other weather events; • challenges associated with changes in temperature or increases in ocean levels; • potential degradation of water quality; • decreases in available water supply and changes in water usage patterns; • increases in the number, length and severity of disruptions in service; • increased costs to repair damaged facilities; or • increased costs to reduce risks associated with the increasing frequency and severity of natural events, including to improve the resiliency and reliability of our water and wastewater treatment and conveyance facilities and systems.
Our indebtedness could have important consequences, including: • limiting our ability to obtain additional financing to fund future working capital requirements or capital expenditures; • exposing us to interest rate risk with respect to the portion of our indebtedness that bears interest at variable rates; • limiting our ability to pay dividends on our common stock or make payments in connection with our other obligations; • impairing our access to the capital markets for debt and equity; • requiring that an increasing portion of our cash flows from operations be dedicated to the payment of the principal and interest on our debt, thereby reducing funds available for future operations, dividends on our common stock or capital expenditures; • limiting our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; and • placing us at a competitive disadvantage compared to those of our competitors that have less debt.
Our indebtedness could have important consequences, including: • limiting our ability to obtain additional financing to fund future working capital requirements or capital expenditures; 32 Table of Contents • exposing us to interest rate risk with respect to the portion of our indebtedness that bears interest at variable rates; • limiting our ability to pay dividends on our common stock or make payments in connection with our other obligations; • impairing our access to the capital markets for debt and equity; • requiring that an increasing portion of our cash flows from operations be dedicated to the payment of the principal and interest on our debt, thereby reducing funds available for future operations, dividends on our common stock or capital expenditures; • limiting our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; and • placing us at a competitive disadvantage compared to those of our competitors that have less debt.
These mechanisms enable us to adjust rates in less time after costs have been incurred than would be the case under a general rate case application process without the mechanisms.
These mechanisms enable us to adjust rates in less time after costs have been incurred than would be the case under a general rate case process without the mechanisms.
Given the nature of our business which, in part, involves providing water service for human consumption, any potential non-compliance with, or violation of, environmental, water quality and health and safety laws or regulations would likely pose a more 25 Table of Contents significant risk to us than to a company not similarly involved in the water and wastewater industry.
Given the nature of our business which, in part, involves 22 Table of Contents providing water service for human consumption, any potential non-compliance with, or violation of, environmental, water quality and health and safety laws or regulations would likely pose a more significant risk to us than to a company not similarly involved in the water and wastewater industry.
We are subject to an increasing number of complex and continually evolving data and consumer privacy, security and protection laws and regulations administered by various federal, state and local governments, including, for example, the California Consumer Privacy Act of 2018, together with its amendments and implementing regulations, the Virginia Consumer Data Protection Act and the Cyber Incident Reporting for Critical Infrastructure Act of 2022.
We are subject to an increasing number of complex and continually evolving data and consumer privacy, security and protection laws and regulations administered by various federal, state and local governments, including, for example, the California Privacy Rights Act, together with its amendments and implementing regulations, the Virginia Consumer Data Protection Act and the Cyber Incident Reporting for Critical Infrastructure Act of 2022.
Intentional misconduct by employees or contractors could result in substantial liability, higher costs, increased regulatory scrutiny and significant reputational harm, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. 39 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Intentional misconduct by employees or contractors could result in substantial liability, higher costs, increased regulatory scrutiny and significant reputational harm, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. 36 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
For example, two of our states have approved revenue stability mechanisms that adjust rates periodically to ensure that a utility’s revenue will be sufficient to cover its costs regardless of sales volume, including recognition of declining sales resulting from reduced consumption, while providing an incentive for customers to use water more efficiently.
For example, two of our states have approved revenue stability mechanisms that adjust rates periodically to ensure that a utility’s revenue will be sufficient to cover its costs regardless of sales volume, including recognition of declining sales resulting from reduced usage, while providing an incentive for customers to use water more efficiently.
During 2022, we utilized existing sources of liquidity, such as our current cash balances, cash flows from operations and borrowings under our commercial paper program, to meet our short-term liquidity requirements. We believe that existing sources of liquidity will be sufficient to meet our cash requirements for the foreseeable future.
During 2023, we utilized existing sources of liquidity, such as our current cash balances, cash flows from operations and borrowings under our commercial paper program, to meet our short-term liquidity requirements. We believe that existing sources of liquidity will be sufficient to meet our cash requirements for the foreseeable future.
As of December 31, 2022, our aggregate long-term and short-term debt balance (including preferred stock with mandatory redemption requirements) was $12.4 billion, and our working capital (defined as current assets less current liabilities) was in a deficit position.
As of December 31, 2023, our aggregate long-term and short-term debt balance (including preferred stock with mandatory redemption requirements) was $12.4 billion, and our working capital (defined as current assets less current liabilities) was in a deficit position.
The properties of our Regulated Businesses segment include 73 dams, the majority of which are earthen dams. The failure of any of these dams could result in personal injury and property damage, including without limitation downstream property damage, for which we may be liable.
The properties of our Regulated Businesses segment include 74 dams, the majority of which are earthen dams. The failure of any of these dams could result in personal injury and property damage, including without limitation downstream property damage, for which we may be liable.
Even if we are able to comply with this or other covenants, the limitations on our operational and financial flexibility could harm our business by, among other things, limiting our ability to incur indebtedness or reduce equity in connection with financings or other corporate opportunities that we may believe would be in our best interests or the interests of our shareholders to complete.
Even if we are able to comply with this or other covenants, the limitations on our operational and financial flexibility could harm our business by, among other things, limiting our ability to incur 33 Table of Contents indebtedness or reduce equity in connection with financings or other corporate opportunities that we may believe would be in our best interests or the interests of our shareholders to complete.
Furthermore, in setting rate s, nine of our state PUCs allow us to use future test years, which extend beyond the date a rate request is filed to allow for current or projected revenues, expenses and investments to be reflected in rates on a more timely basis.
Furthermore, in setting rate s, nine of our state PUCs allow us to use future test years, which extend beyond the date a general rate case is filed to allow for current or projected revenues, expenses and investments to be reflected in rates on a more timely basis.
Each of these outcomes could adversely affect our business, financial condition, results of operations and cash flows. 29 Table of Contents Aging infrastructure may lead to service disruptions, property damage and increased capital expenditures and O&M expenses and other costs, all of which could negatively impact our financial results.
Each of these outcomes could adversely affect our business, financial condition, results of operations and cash flows. Aging infrastructure may lead to service disruptions, property damage and increased capital expenditures and O&M expenses and other costs, all of which could negatively impact our financial results.
The presence of these commitments may adversely affect our financial condition and make it more difficult for us to secure financing on attractive terms. MSG’s operations are subject to various risks associated with doing business with the U.S. government.
The presence of these commitments may adversely affect our financial condition and make it more difficult for us to secure financing on attractive terms. 35 Table of Contents MSG’s operations are subject to various risks associated with doing business with the U.S. government.
New laws or regulations, new interpretations of existing laws or regulations, changes in agency policy, including those made in response to shifts in public opinion, or conditions imposed during the regulatory hearing process could have the following consequences, among others: • making it more difficult for us to increase our rates and, as a consequence, to recover our costs or earn our expected rates of return; • changing the determination of the costs, or the amount of costs, that would be considered recoverable in rate cases and other regulatory proceedings; • restricting our ability to terminate our services to customers who owe us money for services previously provided or limiting our bill collection efforts; • requiring us to provide water or wastewater services at reduced rates to certain customers; • limiting or restricting our ability to acquire water or wastewater systems, purchase or dispose of assets, or issue long-term debt or equity, or making it less cost-effective for us to do so; • negatively impacting, among other things: (i) tax rates or positions or the deductibility of expenses under federal or state tax laws, (ii) the availability or amount of, or our ability to comply with the terms and conditions of, tax credits or tax 28 Table of Contents abatement benefit, (iii) the amount of taxes owed, (iv) the timing of tax effects on rates or (v) the ability to utilize our net operating loss carryforwards; • changing regulations that affect the benefits we expected to receive when we began offering services in a particular area; • increasing the associated costs of, or difficulty complying with, environmental, health, safety, consumer privacy, water quality, and water quality accountability laws and regulations to which our operations are subject; • changing or placing additional limitations on change in control requirements relating to any concentration of ownership of our common stock; • making it easier for governmental entities to convert our assets to public ownership via condemnation, eminent domain or other similar process, or for governmental agencies or private plaintiffs to assess liability against us for damages under these or similar processes; • increasing the costs or difficulty of complying with proposed changes to federal contractor affirmative action audits; • placing limitations, prohibitions or other requirements with respect to the sharing of information and participation in transactions by or between a regulated subsidiary and us or our other affiliates, including Service Company and any of our other subsidiaries; • restricting or prohibiting our extraction of water from rivers, streams, reservoirs or aquifers; and • revoking or altering the terms of a CPCN issued to us by a state PUC or other governmental authority.
New laws or regulations, new interpretations of existing laws or regulations, changes in agency policy, including those made in response to shifts in public opinion, or conditions imposed during the regulatory hearing process could have the following consequences, among others: • making it more difficult for us to increase our rates and, as a consequence, to recover our costs or earn our expected rates of return; • changing the determination of the costs, or the amount of costs, that would be considered recoverable in rate cases and other regulatory proceedings; • restricting our ability to terminate our services to customers who owe us money for services previously provided or limiting our bill collection efforts; • requiring us to provide water or wastewater services at reduced rates to certain customers; • limiting or restricting our ability to acquire water or wastewater systems, purchase or dispose of assets, or issue long-term debt or equity, or making it less cost-effective for us to do so; • negatively impacting, among other things: (i) tax rates or positions or the deductibility of expenses under federal or state tax laws, (ii) the availability or amount of, or our ability to comply with the terms and conditions of, tax credits or tax 25 Table of Contents abatement benefit, (iii) the amount of taxes owed or paid, including as a result of the Corporate Alternative Minimum Tax provisions, (iv) the timing of tax effects on rates or (v) the ability to utilize our net operating loss carryforwards; • increasing the associated costs of, and/or of difficulty complying with, environmental, health, safety, consumer privacy, water quality, and water quality accountability laws and regulations to which our operations are subject; • changing or placing additional limitations on change in control requirements relating to any concentration of ownership of our common stock; • making it easier for governmental entities to convert our assets to public ownership via condemnation, eminent domain or other similar process, or for governmental agencies or private plaintiffs to assess liability against us for damages under these or similar processes; • increasing the costs and/or difficulty of complying with proposed changes to federal contractor affirmative action audits; • placing limitations, prohibitions or other requirements with respect to the sharing of information and participation in transactions by or between a regulated subsidiary and us or our other affiliates, including Service Company and any of our other subsidiaries; • restricting or prohibiting our extraction of water from rivers, streams, reservoirs or aquifers; and • revoking or altering the terms of a CPCN issued to us by a state PUC or other governmental authority.
Future acquisitions by us could result in, among other things: 31 Table of Contents • unanticipated capital expenditures; • unanticipated acquisition-related expenses; • incurrence or assumption of debt, contingent liabilities and environmental liabilities and obligations, including liabilities that were unknown or undisclosed at the time of acquisition; • failure to recover acquisition adjustments or premiums due to unfavorable decisions by PUCs and other governmental authorities; • failure to maintain effective internal control over financial reporting; • recording goodwill and other intangible assets at values that ultimately may be subject to impairment charges; • fluctuations in quarterly and/or annual results; • failure to realize anticipated benefits and synergies, such as cost savings and revenue enhancements; and • difficulties in integrating or assimilating acquired systems’ operations, personnel, benefits, services and systems and water quality, cybersecurity and infrastructure protection measures.
Future acquisitions by us could result in, among other things: • unanticipated capital expenditures; • unanticipated acquisition-related expenses; • incurrence or assumption of debt, contingent liabilities and environmental liabilities and obligations, including liabilities that were unknown or undisclosed at the time of acquisition; 28 Table of Contents • failure to recover acquisition adjustments or premiums due to unfavorable decisions by PUCs and other governmental authorities; • failure to maintain effective internal control over financial reporting; • recording goodwill and other intangible assets at values that ultimately may be subject to impairment charges; • fluctuations in quarterly and/or annual results; • failure to realize anticipated or perceived benefits and synergies, such as desired return on equity or profitability, cost savings and revenue enhancements; and • difficulties in integrating or assimilating acquired systems’ operations, personnel, benefits, services and systems and water quality, cybersecurity and infrastructure protection measures.
Adverse publicity and negative consumer sentiment arising out of our operations may render legislatures and other governing bodies, state PUCs and other regulatory authorities, and government officials less likely to view us in a favorable light, and may cause us to be susceptible to less favorable legislative, regulatory and economic outcomes, as well as increased regulatory or other oversight and more stringent regulatory or economic requirements.
Adverse publicity and negative consumer sentiment arising out of our operations may render legislatures and other governing bodies, state PUCs and other regulatory authorities, and government officials less likely to view us in a favorable light, and may cause us to be susceptible to less 27 Table of Contents favorable legislative, regulatory and economic outcomes, as well as increased regulatory investigations or other oversight and more stringent regulatory or economic requirements.
An important element of our growth strategy is the acquisition and optimization of water and wastewater systems in order to broaden our current, and move into new, service areas.
An important element of our growth strategy is the acquisition and optimization of water and wastewater systems to broaden our current, and move into new, service areas.
Our ability to serve our customers and operate our business in compliance with regulatory requirements is dependent upon purchasing or securing necessary goods and services from our suppliers and vendors. These items include but are not limited to contracted services, chemicals, pipe, valves, hydrants, fittings, equipment (including personal protective equipment), water, and power and other fuel.
Our ability to serve our customers and operate our business in compliance with regulatory requirements is dependent upon purchasing or securing necessary goods and services from our suppliers and vendors. These items include but are not limited to 31 Table of Contents contracted services, chemicals, pipe, valves, hydrants, fittings, equipment (including personal protective equipment), water, and power and other fuel.
Although some or all potential expenditures and costs associated with the impact of climate variability and related laws and regulations on our Regulated Businesses could be recovered through rates, infrastructure replacement surcharges or other regulatory mechanisms, there can be no assurance that state PUCs would authorize rate increases to enable us to recover such expenditures and costs, in whole or in part. 27 Table of Contents The current regulatory rate setting process may result in a significant delay, also known as “regulatory lag,” from the time that we invest in infrastructure improvements, incur increased operating expenses as a result of inflation or other factors, incur increased cost of capital, including as a result of increasing short- and long-term rates, or experience declining water usage, to the time at which we can seek to address these events in rate case applications; our inability to mitigate or minimize regulatory lag could adversely affect our business.
Although some or all potential expenditures and costs associated with the impact of climate variability and related laws and regulations on our Regulated Businesses could be recovered through rates, infrastructure replacement surcharges or other regulatory mechanisms, there can be no assurance that state PUCs would authorize rate increases to enable us to recover such expenditures and costs, in whole or in part. 24 Table of Contents The current regulatory rate setting process may result in a significant delay, also known as “regulatory lag,” from the time that we invest in infrastructure improvements, incur increased operating expenses as a result of inflation or other factors, incur increased cost of capital, including as a result of increasing short- and long-term interest rates, or experience declining water usage, to the time at which we can seek to address these events in general rate cases; our inability to mitigate or minimize regulatory lag or the impacts thereof could adversely affect our business.
In addition, billings permitted by state PUCs typically are, to a considerable extent, based on the volume of water usage in addition to a minimum base rate.
In addition, billings permitted by state PUCs typically are, to a considerable extent, based on the volume of water used in addition to a minimum base rate.
Furthermore, laws and regulations have been enacted or proposed that seek to reduce or limit greenhouse gas emissions and require or would require additional reporting and monitoring, and these regulations may become more pervasive or stringent in light of changing governmental agendas and priorities, although the exact nature and timing of these changes is uncertain.
Furthermore, both Federal and state laws and regulations have been enacted or proposed that seek to reduce or limit greenhouse gas emissions and require or would require additional reporting, monitoring and disclosure, and these regulations may become more pervasive or stringent in light of changing governmental agendas and priorities, although the exact nature and timing of these changes is uncertain.
We invest significant amounts of capital to add, replace and maintain property, plant and equipment, and to improve aging infrastructure. In 2022, we invested $2.3 billion in net Company-funded capital improvements. The level of capital expenditures necessary to maintain the integrity of our systems will continue into the future and, we believe, will increase.
We invest significant amounts of capital to add, replace and maintain property, plant and equipment, and to improve aging infrastructure. In 2023, we invested $2.6 billion in net Company-funded capital improvements. The level of capital expenditures necessary to maintain the integrity of our systems will continue into the future and, we believe, will increase.
We have risks associated with aging infrastructure, including water and sewer mains, pumping stations and water and wastewater treatment facilities. Additionally, we may have limited information regarding buried and newly acquired assets, which could challenge our ability to conduct efficient asset management and maintenance practices.
We have risks associated with aging infrastructure, including water and sewer mains, pumping stations and water and wastewater treatment facilities. Additionally, we may have limited information regarding buried and newly acquired assets, which 26 Table of Contents could challenge our ability to conduct efficient asset management and maintenance practices.
Any of the foregoing consequences could have a material adverse effect on our business, financial 33 Table of Contents condition, results of operations, cash flows and liquidity. We may sustain losses that exceed or are excluded from our insurance coverage or for which we are self-insured.
Any of the foregoing consequences could have a material adverse effect on our business, reputation, financial condition, results of operations, cash flows and liquidity. We may sustain losses that exceed or are excluded from our insurance coverage or for which we are self-insured.
If we deliver water or wastewater services to our customers that do not comply with regulatory standards, or otherwise violate environmental laws, regulations or permits, or other health and safety and water quality regulations, we could incur substantial fines, penalties or other sanctions or costs, as well as damage to our reputation.
If the water or wastewater services we provide to our customers do not comply with regulatory standards, or otherwise violate environmental laws, regulations or permits, or other health and safety and water quality regulations, we could incur substantial fines, penalties or other sanctions or costs, as well as damage to our reputation.
Our assets as of December 31, 2022 included $1.1 billion of goodwill and $347 million of total assets measured and recorded at fair value on a recurring basis. The goodwill is primarily associated with the acquisition of American Water by an affiliate of our previous owner in 2003.
Our assets as of December 31, 2023, included $1.1 billion of goodwill and $236 million of total assets measured and recorded at fair value on a recurring basis. The goodwill is primarily associated with the acquisition of American Water by an affiliate of our previous owner in 2003.
In any of these cases, our business, financial condition, results of operations, cash flows and liquidity may be adversely affected. Even if the rates approved are sufficient, we face the risk that we will not achieve the rates of return on our invested capital to the extent permitted by state PUCs.
In any of these cases, our business, financial condition, results of operations, cash flows and liquidity may be adversely affected. Even if the rates approved are sufficient, we face the risk that we will not achieve the rates of return on equity permitted by state PUCs.
Although we maintain functional employee groups whose primary purpose is to implement effective environmental health and safety work procedures and practices throughout our organization, including construction sites and operating facilities, the failure to comply with these regulations or procedures could subject us to liability.
We are also subject to various environmental, transportation and occupational health and safety regulations. Although we maintain functional employee groups whose primary purpose is to implement effective environmental health and safety work procedures and practices throughout our organization, including construction sites and operating facilities, the failure to comply with these regulations or procedures could subject us to liability.
In addition, we believe these contaminants may form the basis for additional or increased federal or state regulatory initiatives and requirements in the future, which could significantly increase the cost of our operations.
In addition, we believe these contaminants will continue to form the basis for additional or increased federal or state regulatory initiatives and requirements in the future, which could significantly increase the cost of our operations.
A failure or inability of any of these subsidiaries to pay such dividends or repay intercompany obligations could have a material adverse impact on our liquidity and parent company’s ability to pay dividends on its common stock and meet its other obligations. 37 Table of Contents We have a significant amount of goodwill and intangible and other assets, and we may be required to record impairments or changes in fair value to these assets, which may negatively affect our financial condition and results of operations.
A failure or inability of any of these subsidiaries to pay such dividends or repay intercompany obligations could have a material adverse impact on our liquidity and parent company’s ability to pay dividends on its common stock and meet its other obligations. 34 Table of Contents We have a significant amount of goodwill and other assets measured and recorded at fair value on a recurring basis, and we may be required to record impairments or changes in fair value to these assets, which may negatively affect our financial condition and results of operations.
We maintain insurance coverage, some of which may be self-insured, as part of our overall legal and risk management strategy to minimize potential liabilities arising from our Regulated Businesses, as well as the operations of MSG and CSG. Our insurance programs have varying coverage limits, exclusions and maximums, and insurance companies may seek to deny claims we might make.
We maintain insurance coverage, some of which may be self-insured, as part of our overall legal and risk management strategy to minimize potential liabilities arising from our operations. Our insurance programs have varying coverage limits, exclusions and maximums, and insurance companies may seek to deny claims we might make.
Examples of sources of contaminants include, but are not limited to, newly created chemical compounds (including, for example, manufactured nanomaterials); human and veterinary products; perfluorinated and polyfluorinated compounds; bacteria, microbes, viruses (including COVID-19), amoebae and other pathogens; and residual by-products of disinfection.
Examples of sources of contaminants include, but are not limited to, newly created chemical compounds (including, for example, manufactured nanomaterials); human and veterinary products; PFAS; bacteria, microbes, viruses, amoebae and other pathogens; and residual by-products of disinfection.
Assets that have aged beyond their expected useful lives may experience a higher rate of failure. Failure of aging infrastructure could result in increased capital expenditures and O&M expenses and other costs, and negatively impact our future O&M efficiency ratio. In addition, failure of aging infrastructure may result in property damage, and in safety, environmental and public health impacts.
Assets that have aged beyond their expected useful lives may experience a higher rate of failure. Failure of aging infrastructure could result in increased capital expenditures and O&M expenses and other costs. In addition, failure of aging infrastructure may result in property damage, and in safety, environmental and public health impacts.
Work stoppages and other labor relations matters could adversely affect our results of operations and the ability to serve our customers. 35 Table of Contents As of December 31, 2022, approximately 47% of our workforce was represented by unions, and we had 75 collective bargaining agreements in place with 14 different unions representing our unionized employees.
Work stoppages and other labor relations matters could adversely affect our results of operations and the ability to serve our customers. As of December 31, 2023, approximately 47% of our workforce was represented by unions, and we had 73 collective bargaining agreements in place with 14 different unions representing our unionized employees.
Certain of our wastewater systems have commercial and industrial customers that are subject to specific limitations on the type, character and strength of the wastewater they are permitted to discharge into our systems.
Some of our wastewater systems have commercial and industrial customers that are subject to specific limitations on the type, character and concentration of the wastewater they are permitted to discharge into our systems.
These collective bargaining agreements, 18 of which will expire during 2023, are subject to periodic renewal and renegotiation. We may not be able to successfully renew or renegotiate these labor contracts, or enter into new agreements, on terms that are acceptable to us.
These collective bargaining agreements, 21 of which are scheduled to expire during 2024, are subject to periodic renewal and renegotiation. We may not be able to successfully renew or renegotiate these labor contracts, or enter into new agreements, on terms that are acceptable to us.
There is typically a delay, known as “regulatory lag,” between the time our Regulated Businesses make a capital investment or incur an operating expense increase and the time when those costs are reflected in rates.
There is typically a delay, known as “regulatory lag,” between the time our Regulated Businesses make a capital investment or incur an operating expense increase, including as a result of inflation or other factors, and the time when those costs are reflected in rates.
If we are not able to obtain sufficient financing, we may be unable to maintain our existing property, plant and equipment, fund our capital investment strategies or expand our rate base to enable us to meet our growth targets.
If we are not able to obtain sufficient financing through current or future sources of liquidity, we may be unable to maintain our existing property, plant and equipment, fund our capital investment strategies or expand our rate base to enable us to meet our growth targets.
Any failure or perceived failure by us to comply with current or future federal, state, or local data or consumer privacy or security laws, regulations, policies, guidance, industry standards, or legal obligations, or any incident resulting in unauthorized access to, or the acquisition, release, or transfer of, personally identifiable information or other data relating to our customers, employees and others, may result in private or governmental enforcement actions, litigation or other claims against us, fines and penalties, or adverse perception or publicity about us and our businesses, which could have a material adverse effect on our reputation and business and could result in us incurring substantial costs.
Any failure or perceived failure by us to comply with current or future federal, state, or local data or consumer privacy or security laws, regulations, policies, guidance, industry standards, or legal obligations, or any incident resulting in unauthorized access to, or the acquisition, release, or transfer of, personally identifiable information or other data relating to our customers, employees and others, may result in private or governmental enforcement actions, litigation or other claims against us, fines and penalties, or adverse perception or publicity about us and our businesses.
These types of events, either impacting our facilities or the industry in general, could also cause us to incur additional security and insurance related costs. In addition, in the ordinary course of business, we collect and retain sensitive information, including personally identifiable information, about our customers and employees.
These types of events, and their resulting impacts, either to our facilities or assets, those of third parties, or the industry in general, could also cause us to incur additional security and insurance related costs. In addition, in the ordinary course of business, we collect and retain sensitive information, including personally identifiable information, about our customers and employees.
If, despite our security measures, a significant physical attack or cyber breach occurred, our operations could be disrupted, property damaged, and customer and other confidential information lost or stolen; we could experience substantial loss of revenues, response costs and other financial loss; we could suffer a loss of management time, attention and resources from our regular business operations; we may be subject to increased regulatory requirements; and we may experience litigation and damage to our reputation, any of which could have a negative impact on our business, results of operations and cash flows.
We cannot guarantee that such protections will be completely successful to prevent or mitigate a cyber attack. 29 Table of Contents If, despite our security measures, a significant physical attack or cyber breach occurred, our operations could be disrupted, property damaged, and customer and other confidential information lost or stolen; we could experience substantial loss of revenues, response costs and other financial loss; we could suffer a loss or redirection of management time, attention and resources from our regular business operations; we may be subject to increased regulatory requirements; and we may experience litigation and damage to our reputation, any of which could have a negative impact on our business, results of operations and cash flows.
The negotiation and execution of potential acquisitions as well as the integration of acquired systems or businesses with our existing operations could require us to incur significant costs, cause diversion of our management’s time and resources and have a material adverse impact on our results of operations.
The negotiation and execution of potential acquisitions as well as the integration of acquired systems or businesses with our existing operations could require us to incur significant costs and cause diversion of our management’s time and resources.
Unfavorable regulatory and economic outcomes may include the enactment of more stringent laws and regulations governing our operations and less favorable economic terms in our agreements related to MSG, a s well as fines, penalties or other sanctions or requirements.
Unfavorable regulatory and economic outcomes may include negative investigative conclusions and/or findings, the enactment of more stringent laws and regulations governing our operations and less favorable economic terms in our long-term contracts related to MSG, a s well as fines, penalties or other sanctions or requirements.
Further, competition for acquisition opportunities from other regulated utilities, governmental entities and other strategic and financial buyers may hinder our ability to expand our business. As consolidation activity increases in the water and wastewater industries and competition for acquisitions continues to increase, the prices for suitable acquisition candidates may increase and limit our ability to expand through acquisitions.
As consolidation activity increases in the water and wastewater industries and competition from other regulated utilities, governmental entities and other strategic and financial buyers continues to increase, the prices for suitable acquisition candidates may increase and our ability to expand through acquisitions may otherwise be limited.
The revolving credit facility currently expires in accordance with its terms in October 2027. Historically, we have regularly used our commercial paper program rather than the revolving credit facility as a principal source of short-term borrowing due to the generally more attractive rates we generally could obtain in the commercial paper market.
Historically, we have regularly used our commercial paper program rather than the revolving credit facility as a principal source of short-term borrowing due to the generally more attractive rates we generally could obtain in the commercial paper market.
In addition, the contract price for each of these military contracts is typically subject to either an annual economic price adjustment, or a price redetermination two years after commencement 38 Table of Contents of operations and every three years thereafter. Annual economic price adjustment is an inflation index-based contract price increase mechanism.
In addition, the contract price for each of these military contracts is typically subject to either an annual economic price adjustment, or a price redetermination two years after commencement of operations and every three years thereafter.
These include, among other things, storms, freezing conditions, high wind conditions, hurricanes, tornadoes, earthquakes, landslides, drought, wildfires, coastal and intercoastal floods or high water conditions, including those in or near designated flood plains, pandemics (including COVID-19) and epidemics, severe electrical storms, sinkholes and solar flares.
These include, among other things, storms, freezing conditions, high wind conditions, hurricanes, tornadoes, earthquakes, landslides, drought, wildfires, coastal and intercoastal floods or high water conditions, including those in or near designated flood plains, pandemics and epidemics, severe electrical storms, sinkholes, solar flares and chemical spills or other contamination causing temporary unavailability of our source water supplies.
In addition to cash from operations, during 2022, we relied primarily on a revolving credit facility, which was increased from $2.25 billion to $2.75 billion in October 2022, a commercial paper program, which was increased from $2.10 billion to $2.60 billion in October 2022, and the debt capital markets, to satisfy our liquidity needs.
In addition to cash from operations, during 2023, we relied on a $2.75 billion revolving credit facility, a $2.60 billion commercial paper program, and the debt and equity capital markets, to satisfy our liquidity needs.
As of December 31, 2022, there were no outstanding borrowings under the revolving credit facility, $1,177 million of commercial paper outstanding and $78 million in outstanding letters of credit.
As of December 31, 2023, there were no outstanding borrowings under the revolving credit facility, $180 million of commercial paper outstanding and $75 million in outstanding letters of credit.
Government restrictions on water use may also result in decreased use of water services, even if our water supplies are sufficient to serve our customers, which may adversely affect our financial condition, results of operations and cash flows.
Government restrictions on water use may also result in decreased use of water services, even if our water supplies are sufficient to serve our customers, which may adversely affect our financial condition, results of operations and cash flows. Seasonal and other drought conditions that may impact our water services are possible across all of our service areas.
Moreover, additional borrowings may be required to repay or refinance outstanding indebtedness. Debt maturities and sinking fund payments in 2023, 2024 and 2025 will be $281 million, $476 million and $598 million, respectively.
Moreover, additional borrowings may be required to repay or refinance outstanding indebtedness. Debt maturities and sinking fund payments in 2024, 2025 and 2026 will be $475 million, $619 million and $1,478 million, respectively.
Although in the past we have been generally able to obtain insurance coverage related to our business, there can be no assurance that we can secure all necessary or appropriate insurance in the future, or that such insurance can be economically secured. For example, catastrophic events can result in decreased coverage limits, more limited coverage, increased premium costs or deductibles.
Although in the past we have been generally able to obtain insurance coverage related to our business, there can be no assurance that we can secure all necessary or appropriate insurance in the future, or that such insurance can be economically secured.
This could occur if certain conditions exist, including, but not limited to, (i) water usage is less than the level anticipated in establishing rates, (ii) customers increase their conservation efforts, (iii) we experience unusual or emergent situations, events or conditions (including with respect to the COVID-19 pandemic), or (iv) our investments or expenses prove to be higher than the levels estimated in establishing rates.
This could occur if certain conditions exist, including, but not limited to, (i) water usage is less than the level anticipated in establishing rates, (ii) customers increase their conservation efforts, (iii) we experience unusual or emergent situations, events or conditions, (iv) we experience a significant increase in customers without recovery of the operating and other costs associated with serving them, or a decrease in customers that causes a decrease in operating revenue, or (v) our investments or expenses prove to be higher than the levels estimated in establishing rates.
In addition, our operations can involve the delivery, handling, storage, use and disposal of hazardous chemicals, which, if improperly delivered, handled, stored, used or disposed of, could result in serious injury, death, environmental damage or property damage, and could subject us to penalties or other liabilities. We are also subject to various environmental, transportation and occupational health and safety regulations.
In addition, our operations can involve the delivery, handling, storage, use and disposal of hazardous chemicals, which, if improperly delivered, handled, stored, used or disposed of, or if the location and identification of these chemicals are not reported accurately or timely, serious injury, death, environmental damage or property damage could result, and we could be subjected to fines, penalties or other liabilities.
In addition, if our business does not generate sufficient cash flows from operations, or if we are unable to incur indebtedness sufficient to enable us to fund our liquidity needs, we may be unable to plan for or respond to changes in our business, which could cause our financial condition, operating results and prospects to be affected materially and adversely. 36 Table of Contents Our inability to access the debt or equity capital or financial markets or other events could affect our ability to meet our long-term commitments or liquidity needs at reasonable cost, which could adversely affect our financial condition and results of operations.
In addition, if our business does not generate sufficient cash flows from operations, or if we are unable to incur indebtedness sufficient to enable us to fund our liquidity needs, we may be unable to plan for or respond to changes in our business, which could cause our financial condition, operating results and prospects to be affected materially and adversely.
These laws and regulations and their enforcement, have become more stringent over time, and new or stricter requirements could increase our costs.
These laws and regulations and their enforcement, have become more stringent over time, and new or stricter requirements, such as the anticipated EPA drinking water regulations for PFAS, the LCRR and the proposed LCRI, could increase our costs.
Our water and wastewater systems may be vulnerable to disability or failures as a result of physical or cyber attacks, acts of 32 Table of Contents war or terrorism, vandalism or other causes.
Our water and wastewater systems may be vulnerable to disability or failures as a result of physical or cyber attacks, acts of war or terrorism, vandalism or other causes. Our operational and technology systems throughout our businesses may be vulnerable to unauthorized external or internal access, due to hacking, viruses, acts of violence, war or terrorism, and other causes.
While we have instituted safeguards to protect our operational and technology systems, those safeguards may not always be effective due to the evolving nature of cyber attacks and cyber vulnerabilities. We cannot guarantee that such protections will be completely successful in the event of a cyber attack.
While we have instituted what we believe are reasonable and appropriate safeguards to protect our operational and technology systems, those safeguards may not always be effective due to the evolving nature of cyber attacks and cyber vulnerabilities.
Thus, we may experience regulatory lag between the time our revenues are affected by declining usage and the time we are able to adjust the rate per gallon of usage to address declining usage. Our inability to mitigate or reduce regulatory lag could have an adverse effect on our financial condition, results of operations, cash flows and liquidity.
Thus, we may experience regulatory lag between the time our revenues are affected by declining usage and the time we are able to adjust the rate per gallon of usage to address declining usage.
We rely on technology to facilitate the management of our business as well as our customer and supplier relationships, and a failure or disruption of implemented technology could materially and adversely affect our business.
For example, catastrophic events can result in decreased coverage limits, more limited coverage, increased premium costs or deductibles. 30 Table of Contents We rely on technology to facilitate the management of our business as well as our customer and supplier relationships, and a failure or disruption of implemented technology could materially and adversely affect our business.
Price redetermination is a contract mechanism to periodically adjust the service fee in the next period to reflect changes in contract obligations and market conditions. Any early contract termination or unfavorable annual economic price adjustment or price redetermination could adversely affect our financial condition, results of operations and cash flows.
Any early contract termination or unfavorable annual economic price adjustment or price redetermination could adversely affect our financial condition, results of operations and cash flows.
Our operational and technology systems throughout our businesses may be vulnerable to unauthorized external or internal access, due to hacking, viruses, acts of violence, war or terrorism, and other causes. Unauthorized access to confidential information located or stored on these systems could negatively and materially impact our reputation, customers, employees, suppliers and other third parties.
Unauthorized access to confidential information located or stored on these systems could negatively and materially impact our reputation, customers, employees, suppliers and other third parties.
In order to meet our capital expenditure needs, we intend to issue a combination of short-term and long-term debt securities and/or additional equity shares of common stock. Disruptions in the debt or equity capital markets or changes in our credit ratings or other events could limit our ability to access capital on terms favorable to us or at all.
Disruptions in the debt or equity capital markets or changes in our credit ratings or other events could limit our ability to access capital on terms favorable to us or at all.
Our water and wastewater operations are subject to extensive federal, state and local laws and regulations. These requirements include, among others, CERCLA, the Clean Water Act, the Safe Drinking Water Act, the LCRR and other federal and state requirements. For example, state PUCs and environmental regulators set conditions and standards for the water and wastewater services we deliver.
Our water and wastewater operations are subject to extensive federal, state and local laws and regulations. These requirements include, among others, CERCLA, the Clean Water Act, the Safe Drinking Water Act, the LCR (as amended), and each of their implementing rules and regulations, as well as other federal and state requirements.
A municipality, other government subdivision or a citizen group may seek to acquire our assets through eminent domain or such other process, either directly or indirectly as a result of a citizen petition.
A municipality, other government subdivision or a citizen group may seek to acquire our assets through eminent domain or such other process, either directly or indirectly as a result of a citizen petition. For example, on December 15, 2023, the MPWMD filed eminent domain litigation against Cal Am in Monterey County Superior Court with respect to the Monterey system assets.
See Item 3—Legal Proceedings—Alternative Water Supply in Lieu of Carmel River Diversions, which includes additional information regarding this matter. We are also required to augment our Monterey County sources of water supply to comply with the requirements of the Endangered Species Act.
See Item 3—Legal Proceedings—Alternative Water Supply in Lieu of Carmel River Diversions, which includes additional information regarding this matter.
In addition, insurance coverage may not cover all or a portion of these losses, and are subject to deductibles and other limitations.
In addition, insurance coverage may not cover all or a portion of these losses, and are subject to deductibles and other limitations. Pending or future claims against us could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Pending or future claims against us could have a material adverse impact on our business, financial condition, results of operations and cash flows. 30 Table of Contents We are subject to adverse publicity and reputational risks, which make us vulnerable to negative customer perception and could lead to increased regulatory oversight or sanctions.
We are subject to adverse publicity and reputational risks, which make us vulnerable to negative customer perception and could lead to increased regulatory oversight or sanctions.
Such internal controls and policies have been and continue to be closely monitored by our management and Board of Directors to ensure continued compliance with these laws, rules and regulations. Management is also responsible for establishing and maintaining internal control over financial reporting and is required to assess annually the effectiveness of these controls.
Management is also responsible for establishing and maintaining internal control over financial reporting and disclosure controls and procedures and is required to assess annually the effectiveness of these controls.
Responses may range from voluntary to mandatory water use restrictions, rationing restrictions, water conservation regulations, and requirements to minimize water system leaks.
Governmental restrictions imposed in response to a drought may apply to all systems within a region independent of the supply adequacy of any individual system. Responses may range from voluntary to mandatory water use restrictions, rationing restrictions, water conservation regulations, and requirements to minimize water system leaks.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed5 unchanged
Biggest changeThe properties of the Company’s Regulated Businesses consist mainly of approximately: • 80 surface water treatment plants; • 490 groundwater treatment plants; • 175 wastewater treatment plants; • 53,500 miles of transmission, distribution and collection mains and pipes; • 1,100 groundwater wells; • 1,700 water and wastewater pumping stations; • 1,100 treated water storage facilities; and • 73 dams.
Biggest changeThe properties of the Company’s Regulated Businesses consist mainly of approximately: • 80 surface water treatment plants; • 540 groundwater treatment plants; • 175 wastewater treatment plants; • 53,700 miles of transmission, distribution and collection mains and pipes; • 1,200 groundwater wells; • 1,700 water and wastewater pumping stations; • 1,100 treated water storage facilities; and • 74 dams.
The properties within Other consist mainly of office furniture and IT equipment. Approximately 51% of all properties that the Company owns are located in New Jersey and Pennsylvania. The Company maintains property insurance against loss or damage to its properties by fire or other perils, subject to certain exceptions.
The properties within Other consist mainly of office furniture and IT equipment. Approximately 50% of all properties that the Company owns are located in New Jersey and Pennsylvania. The Company maintains property insurance against loss or damage to its properties by fire or other perils, subject to certain exceptions.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

37 edited+62 added−13 removed74 unchanged
Biggest changeIn accordance with the SEC’s disclosure rules, the Company has elected to disclose environmental proceedings involving the Company and a governmental authority if the amount of potential monetary sanctions, exclusive of interest and costs, that the Company reasonably believes will result from such proceeding is $1 million or more .
Biggest changeIn accordance with the SEC’s disclosure rules, the Company has elected to disclose environmental proceedings involving the Company and a governmental authority if the amount of potential monetary sanctions, exclusive of interest and costs, that the Company reasonably believes will result from such proceeding is $1 million or more . 39 Table of Contents Alternative Water Supply in Lieu of Carmel River Diversions Compliance with SWRCB Orders to Reduce Carmel River Diversions Under the 2009 Order, Cal Am is required, among other things, to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule.
The withdrawal of the Original Jurisdiction Application did not impact Cal Am’s appeal of the City’s denial of the Marina Application, which remains pending before the Coastal Commission. In November 2020, Cal Am refiled the Original Jurisdiction Application. On October 5, 2022, Cal Am announced a phasing plan for the proposed desalination plant component of the Water Supply Project.
The withdrawal of the Original Jurisdiction Application did not impact Cal Am’s appeal of the City’s denial of the Marina Application, which remains pending before the Coastal Commission. In November 2020, Cal Am refiled the Original Jurisdiction Application. In October 2022, Cal Am announced a phasing plan for the proposed desalination plant component of the Water Supply Project.
However, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. For the year ended December 31, 2022, Cal Am has complied with the diversion limitations contained in the 2016 Order.
However, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. For the year ended December 31, 2023, Cal Am has complied with the diversion limitations contained in the 2016 Order.
Because Cal Am may use the test slant well as one of the slant wells for the Water Supply Project, Cal Am sought and obtained from the Coastal Commission permit amendments to allow the test slant well to remain in place and be maintained until February 28, 2024.
Because Cal Am may use the test slant well as one of the slant wells for the Water Supply Project, Cal Am sought and obtained from the Coastal Commission permit amendments to allow the test slant well to remain in place and be maintained until February 28, 2025.
The lawsuit, as amended, alleges a claim for breach of contract against CEMEX and seeks declaratory relief to void the permanent easement and prohibiting extraction of water by Cal Am’s slant wells at the CEMEX 43 Table of Contents site in excess of 500 acre-feet per year and the export of such water outside the groundwater basin.
The lawsuit, as amended, alleges a claim for breach of contract against CEMEX and seeks declaratory relief to void the permanent easement and prohibiting extraction of water by Cal Am’s slant wells at the CEMEX site in excess of 500 acre-feet per year and the export of such water outside the groundwater basin.
Monterey County filed a notice of appeal as to the same issue in May 2021. In June 2021, MCWD filed cross-appeals on its claims that had been denied by the court. These appeals remain pending.
Monterey County filed a notice of appeal as to the same issue in May 2021. In June 2021, MCWD filed cross-appeals on its claims that had been denied by the court.
ITEM 3. LEGAL PROCEEDINGS Set forth below is information related to the Company’s material pending legal proceedings as of February 15, 2023, other than ordinary routine litigation incidental to the business, required to be disclosed in this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS Set forth below is information related to the Company’s material pending legal proceedings as of February 14, 2024, other than ordinary routine litigation incidental to the business, required to be disclosed in this Annual Report on Form 10-K.
In July 2019, the Board of Supervisors heard appeals filed by MCWD and a public advocacy group, at which time it denied the appeals and 42 Table of Contents approved the permit.
In July 2019, the Board of Supervisors heard appeals filed by MCWD and a public advocacy group, at which time it denied the appeals and approved the permit.
Proposed Acquisition of Monterey System Assets — Local Area Formation Commission Litigation In November 2018, voters in Monterey, California passed “Measure J,” which decided that the MPWMD should conduct a feasibility study concerning the potential purchase of Cal Am’s Monterey system assets, and, if feasible, to proceed with a purchase of 44 Table of Contents those assets without an additional public vote.
Proposed Acquisition of Monterey System Assets — Potential Condemnation Local Agency Formation Commission Litigation In November 2018, voters in Monterey, California passed “Measure J,” which decided that the MPWMD should conduct a feasibility study concerning the potential purchase of Cal Am’s Monterey system assets, and, if feasible, to proceed with a purchase of those assets without an additional public vote.
The final decision sets the cost cap for the proposed facilities at approximately $62 million. Cal Am may seek recovery of amounts above the cost cap in a subsequent rate filing or general rate case. Additionally, the final decision authorizes AFUDC at Cal Am’s actual weighted average cost of debt for most of the facilities.
Cal Am may seek recovery of amounts above the cost cap in a subsequent rate filing or general rate case. Additionally, the final decision authorizes AFUDC at Cal Am’s actual weighted average cost of debt for most of the facilities.
Continued compliance with the diversion limitations in 2023 and future years may be impacted by a number of factors, including without limitation continued drought conditions in California and the exhaustion of water supply reserves, and will require successful development of alternate water supply sources sufficient to meet customer demand.
Continued compliance with the diversion limitations in 2024, and future years may be impacted by a number of factors, including without limitation potential recurrence of drought conditions in California and the reduction or exhaustion of water supply reserves, and will require successful development of alternate water supply sources sufficient to meet customer demand.
While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as the CPUC’s 2016 and 2018 final decisions, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $112 million in aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its 2016 and December 2022 final decisions.
While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as relevant final decisions of the CPUC related thereto, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $112 million in aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its 2016 and December 2022 final decisions, as amended by its March 30, 2023 rehearing decision.
On June 17, 2022, the court granted, with conditions, a motion by Cal Am to intervene in the MPWMD’s lawsuit against LAFCO. On December 13, 2022, the court sustained in part, and denied in part, demurrers that had been filed by LAFCO seeking to dismiss the MPWMD’s lawsuit. This matter remains pending.
In June 2022, the court granted, with conditions, a motion by Cal Am to intervene in the MPWMD’s lawsuit against LAFCO. In December 2022, the court sustained in part, and denied in part, demurrers that had been filed by LAFCO seeking to dismiss the MPWMD’s lawsuit.
On December 29, 2022, the City, Marina Coast Water District (“MCWD”), MCWD’s groundwater sustainability agency (“GSA”), and the MPWMD jointly filed a petition for writ of mandate in Monterey County Superior Court against the Coastal Commission, alleging that the Coastal Commission violated the California Coastal Act and the California Environmental Quality Act in issuing a coastal development permit to Cal Am for construction of the MPWSP slant wells.
Cal Am continues to seek the remaining permits necessary to construct the Water Supply Project. 41 Table of Contents In December 2022, the City, Marina Coast Water District (“MCWD”), MCWD’s groundwater sustainability agency (“GSA”), and the MPWMD jointly filed a petition for writ of mandate in Monterey County Superior Court against the Coastal Commission, alleging that the Coastal Commission violated the California Coastal Act and the California Environmental Quality Act in issuing a coastal development permit to Cal Am for construction of the MPWSP slant wells.
In December 2019, the City filed a lawsuit in Monterey County Superior Court challenging Monterey County’s filing, and SDWR’s acceptance of the filing, as the exclusive GSA for the CEMEX site.
SDWR accepted Monterey County’s filing in December 2019, and now lists Monterey County as the exclusive GSA for the site. 43 Table of Contents In December 2019, the City filed a lawsuit in Monterey County Superior Court challenging Monterey County’s filing, and SDWR’s acceptance of the filing, as the exclusive GSA for the CEMEX site.
In October 2021, the court granted a motion filed by Cal Am related to MCWD’s cross-complaint, which motion requested a referral of certain issues related to MCWD’s water rights and unreasonable use claims to the SWRCB for its expert advisory opinion.
In October 2021, the court granted a motion filed by Cal Am related to MCWD’s cross-complaint, which motion requested a referral of certain issues related to MCWD’s water rights and unreasonable use claims to the SWRCB for its expert advisory opinion. The SWRCB held hearings in 2022 and 2023, on the referred issues before its Administrative Hearing Officer.
Water Supply Project Land Acquisition and Slant Well Site Use In July 2017, the Coastal Commission adopted a consent agreement and cease and desist order requiring sand mining operations on the property owned by CEMEX on which intake wells for the Water Supply Project will be located, to cease by the end of 2020 and the property to be sold to either a non-profit or governmental entity.
A required lease obtained from the California State Lands Commission, as amended, expires on December 16, 2027. 42 Table of Contents Water Supply Project Land Acquisition and Slant Well Site Use In July 2017, the Coastal Commission adopted a consent agreement and cease and desist order requiring sand mining operations on the property owned by CEMEX on which intake wells for the Water Supply Project will be located, to cease by the end of 2020 and the property to be sold to either a non-profit or governmental entity.
The subpoena seeks documents regarding AWR’s operations and its contractor network in the New York City metropolitan area. On September 9, 2022, a former employee of AWR pled guilty in U.S. District Court to two felony counts in connection with the matters being investigated by the EDNY.
Attorney’s Office for the Eastern District of New York (the “EDNY”). The subpoena sought documents regarding AWR’s operations and its contractor network in the New York City metropolitan area. In September 2022, a former employee of AWR pled guilty in U.S. District Court to two felony counts in connection with the matters under investigation by the EDNY.
In December 2019, the County of Monterey filed its own notice to become the exclusive GSA at the CEMEX site in order to resolve the overlap, which is permitted under SGMA. SDWR accepted Monterey County’s filing in December 2019, and now lists Monterey County as the exclusive GSA for the site.
In December 2019, the County of Monterey filed its own notice to become the exclusive GSA at the CEMEX site in order to resolve the overlap, which is permitted under SGMA.
A permanent easement granted by CEMEX to Cal Am was recorded in June 2018 to allow Cal Am access to the property and to construct, operate and maintain the Water Supply Project intake wells. in November 2019, the City notified CEMEX that, based on this permanent easement and Cal Am’s proposed use of the site for the intake wells, CEMEX has breached or will soon breach a prior 1996 annexation agreement (to which Cal Am was not a party).
In November 2019, the City notified CEMEX that, based on this permanent easement and Cal Am’s proposed use of the site for the intake wells, CEMEX has breached or will soon breach a prior 1996 annexation agreement (to which Cal Am was not a party).
On November 18, 2022, the Coastal Commission approved the Marina Application and the Original Jurisdiction Application with respect to the phased development of the proposed desalination plant, subject to compliance with a number of conditions, all of which Cal Am expects to satisfy. Cal Am continues to seek the remaining permits necessary to construct the Water Supply Project.
In November 2022, the Coastal Commission approved the Marina Application and the Original Jurisdiction Application with respect to the phased development of the proposed desalination plant, subject to compliance with a number of conditions, all of which Cal Am expects to satisfy.
In November 2021, the City appealed this decision, and in December 2021, Monterey County appealed the court’s decision as to the finding that the City’s action creating a GSA was not void.
In November 2021, the City appealed this decision, and in December 2021, Monterey County appealed the court’s decision as to the finding that the City’s action creating a GSA was not void. The related validation and reverse validation actions remain stayed during the pendency of the appeal.
In December 2021, LAFCO’s commissioners denied the MPWMD’s application to become a retail water provider, determining that the MPWMD does not have the authority to operate the Monterey system assets, a result that precludes the MPWMD from proceeding with a condemnation thereof. On April 1, 2022, the MPWMD filed a lawsuit against LAFCO challenging its denial.
In December 2021, LAFCO’s commissioners denied the MPWMD’s application to become a retail water provider, determining that the MPWMD does not have the authority to proceed with a condemnation of the Monterey system assets. In April 2022, the MPWMD filed a lawsuit against LAFCO challenging its decision to deny the MPWMD’s application seeking approval to become a retail water provider.
The 2009 Order responded to claims that Cal Am had not sufficiently implemented actions to terminate its unpermitted diversions of water from the Carmel River as required by the 1995 Order issued by the SWRCB.
See Item 1—Business—Regulated Businesses—Water Supply and Wastewater Services and Item 1A—Risk Factors. The 2009 Order responded to claims that Cal Am had not sufficiently implemented actions to terminate its unpermitted diversions of water from the Carmel River as required by the 1995 Order issued by the SWRCB.
Other Matters In April 2021, American Water Resources, LLC (“AWR”), which, prior to the December 9, 2021 sale of the Company’s former HOS business was one of the indirect, wholly owned subsidiaries comprising that business, received a grand jury subpoena in connection with an investigation by the U.S. Attorney’s Office for the Eastern District of New York (the “EDNY”).
This matter remains pending. Other Matters In April 2021, American Water Resources, LLC (“AWR”), which, prior to the December 2021 sale of the Company’s former Homeowner Services Group business (“HOS”) was one of the indirect, wholly owned subsidiaries comprising that business, received a grand jury subpoena in connection with an investigation by the U.S.
In September 2021, Cal Am, Monterey One Water and the MPWMD reached an agreement on Cal Am’s purchase of additional water from an expansion to the GWR Project, which is not expected to produce additional water until 2024 at the earliest.
Cal Am has incurred $241 million in aggregate costs as of December 31, 2023, related to the Water Supply Project, which includes $72 million in AFUDC. 40 Table of Contents In September 2021, Cal Am, Monterey One Water and the MPWMD reached an agreement on Cal Am’s purchase of additional water from an expansion to the GWR Project, which is not expected to produce additional water until 2024 at the earliest.
Cal Am is named as a real party in interest. This matter remains pending. Subject to the impact or resolution of this litigation, construction of the desalination plant is expected to begin in 2024 and the desalination plant is estimated to be in-service by the end of 2027.
Subject to the impact or resolution of this litigation, construction of the desalination plant is expected to begin in 2025 and the desalination plant is estimated to be in-service by the end of 2027.
General Periodically, the Company is involved in other proceedings or litigation arising in the ordinary course of business. Other than those proceedings described in this Item 3—Legal Proceedings, the Company does not believe that the ultimate resolution of these matters will materially affect its financial position or results of operations.
Other than those proceedings described in this Item 3—Legal Proceedings, the Company does not believe that the ultimate resolution of these matters will materially affect its financial position or results of operations. However, litigation and other proceedings are subject to many uncertainties, and the outcome of individual matters is not predictable with assurance.
However, litigation and other proceedings are subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. It is possible that some litigation and other proceedings could be decided unfavorably to the Company, and that any such unfavorable decisions could have a material adverse effect on its business, financial condition, results of operations and cash flows.
It is possible that some litigation and other proceedings could be decided unfavorably to the Company, and that any such unfavorable decisions could have a material adverse effect on its business, financial condition, results of operations and cash flows. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 48 Table of Contents PART II
West Virginia Elk River Freedom Industries Chemical Spill See Note 16—Commitments and Contingencies—Contingencies—West Virginia Elk River Freedom Industries Chemical Spill in the Notes to Consolidated Financial Statements for information regarding the final court approval of the global settlement with respect to the January 2014 Freedom Industries, Inc. chemical spill.
West Virginia Elk River Freedom Industries Chemical Spill See Note 16—Commitments and Contingencies—Contingencies—West Virginia Elk River Freedom Industries Chemical Spill in the Notes to Consolidated Financial Statements for information regarding the final court approval of the global settlement with respect to the January 2014 Freedom Industries, Inc. chemical spill. 47 Table of Contents PFAS Multi-District Litigation Several of the Company’s utility subsidiaries are parties to a multi-district litigation (the “MDL”) lawsuit, which commenced on December 7, 2018, in U.S.
In July 2016, at the request of Cal Am and several Monterey County government agencies, the SWRCB issued the 2016 Order approving a deadline of December 31, 2021 for Cal Am’s compliance with the 2009 Order. 40 Table of Contents The 2009 Order includes a condition prohibiting Cal Am from diverting water from the Carmel River for new service connections or for any increased use of water at existing service addresses resulting from a change in zoning or use.
The 2009 Order includes a condition prohibiting Cal Am from diverting water from the Carmel River for new service connections or for any increased use of water at existing service addresses resulting from a change in zoning or use.
This requested amount was in addition to, and consistent in regulatory treatment with, the prior $50 million of cost recovery for facilities associated with the original water purchase agreement, which was approved by the CPUC in its unanimous 2016 final decision. 41 Table of Contents On December 5, 2022, the CPUC issued a final decision that authorizes Cal Am to enter into the amended water purchase agreement, and specifically to increase pumping capacity and reliability of groundwater extraction from the Seaside Groundwater Basin.
This requested amount was in addition to, and consistent in regulatory treatment with, the prior $50 million of cost recovery for facilities associated with the original water purchase agreement, which was approved by the CPUC in its unanimous 2016 final decision.
On July 5, 2022, the Circuit Court entered an order again certifying a class to address at trial certain liability issues but not to consider damages. On August 26, 2022, WVAWC filed another Petition for Writ of Prohibition in the Supreme Court of Appeals of West Virginia challenging the West Virginia Circuit Court’s July 5, 2022 order.
In July 2022, the Circuit Court entered an order again certifying a class to address at trial certain liability issues but not to consider damages.
In February 2021, the City filed a separate but related in rem reverse validation complaint challenging the adoption by Monterey County of a GSP for the CEMEX site. This complaint remains pending. Currently, both validation actions remain stayed during the pendency of the City’s appeals.
In February 2021, the City filed a separate but related in rem reverse validation complaint challenging the adoption by Monterey County of a GSP for the CEMEX site. On May 3, 2023, the City filed a second reverse validation complaint, challenging the adoption of amendments to the GSP for the 180/400 subbasin.
This service territory represents approximately 40,000 customers. See Item 1—Business—Regulated Businesses—Condemnation and Eminent Domain for more information on this matter. In February 2021, the MPWMD filed an application with LAFCO seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries.
In February 2021, the MPWMD filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries.
While it is not possible at this time to predict the outcome of the investigation or determine the amount, if any, of fines, penalties or other liabilities that may be incurred in connection with it, the Company does not currently believe that the investigation will have a material adverse effect on the Company’s results of operations, financial condition or liquidity.
While the EDNY has not formally communicated that its investigation is complete, the Company does not believe that the investigation will have a material adverse effect on the Company’s results of operations, financial condition or liquidity. General Periodically, the Company is involved in other proceedings or litigation arising in the ordinary course of business.
On December 30, 2022, Cal Am filed with the CPUC an application for rehearing of the CPUC’s December 5, 2022 final decision. Cal Am is requesting inclusion in the cost cap all infrastructure costs for the GWR Project expansion that were not included in the final decision.
On December 30, 2022, Cal Am filed with the CPUC an application for rehearing of the CPUC’s December 5, 2022 final decision. On March 30, 2023, the CPUC issued a decision denying Cal Am’s application for rehearing but adopting its proposed AFUDC for already incurred and future costs.
Removed
Alternative Water Supply in Lieu of Carmel River Diversions Compliance with SWRCB Orders to Reduce Carmel River Diversions Under the 2009 Order, Cal Am is required, among other things, to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule. See Item 1—Business—Regulated Businesses—Water Supply and Wastewater Services and Item 1A—Risk Factors.
Added
In July 2016, at the request of Cal Am and several Monterey County government agencies, the SWRCB issued the 2016 Order approving a deadline of December 31, 2021, for Cal Am’s compliance with the 2009 Order.
Removed
Cal Am has incurred $206 million in aggregate costs as of December 31, 2022, related to the Water Supply Project, which includes $51 million in AFUDC.
Added
On December 5, 2022, the CPUC issued a final decision that authorizes Cal Am to enter into the amended water purchase agreement, and specifically to increase pumping capacity and reliability of groundwater extraction from the Seaside Groundwater Basin. The final decision sets the cost cap for the proposed facilities at approximately $62 million.
Removed
Cal Am believes that the December 5, 2022 final decision is contrary to the CPUC’s precedent and that obtaining recovery of these infrastructure costs is a key component of the GWR Project expansion and Cal Am’s ability to meet the future water supply needs of its customers in Monterey. This application remains pending.
Added
The decision also provides Cal Am the opportunity to serve supplemental testimony to increase its cost cap for certain of the Water Supply Project’s extraction wells. The amended water purchase agreement and a memorandum of understanding to negotiate certain milestones related to the expansion of the GWR Project have been signed by the relevant parties.
Removed
The changes to the local coastal plan must be submitted to the Coastal Commission for approval and are not effective until such approval is obtained.
Added
Further hearings were scheduled in a Phase 2 to this CPUC proceeding to focus on updated supply and demand estimates for the Water Supply Project, and Phase 2 testimony was completed in September 2022. On October 23, 2023, a status conference was held to determine procedural steps to conclude the proceeding.
Removed
A required lease obtained from the California State Lands Commission, as amended, expired on December 16, 2022. Cal Am has filed an applications for extension of the State Lands Commission lease. This application remains pending.
Added
Further evidentiary hearings in this proceeding have been scheduled for March 2024.
Removed
The SWRCB has scheduled hearings on the referred issues before its Administrative Hearing Officer, which took place in the fourth quarter of 2022 and are set to continue into early 2023. The Monterey County Superior Court has set a trial date of October 23, 2023, for the City’s lawsuit.
Added
Cal Am is named as a real party in interest. On November 14, 2023, the court set an initial trial date of May 1, 2024. This matter remains pending.
Removed
The Writ Petition has been supported by an amicus brief filed by certain water and utility industry trade groups. On February 9, 2023, the Supreme Court of Appeals accepted the Writ Petition by issuing a Rule to Show Cause and scheduling oral argument for April 26, 2023.
Added
On September 8, 2023, the court of appeal issued its opinion reversing the trial court’s determination in favor of MCWD as to the statement of overriding considerations and rejecting MCWD’s appeals on all of its claims that the Monterey County Superior Court had denied.
Removed
The Company has been fully cooperating with the EDNY investigation and continues to do so, and continues to believe that the investigation is not focused on the Company.
Added
On September 25, 2023, MCWD filed a petition for rehearing in the court of appeal, which was denied on October 4, 2023. On November 13, 2023, MCWD filed a petition for review in the California Supreme Court, which was denied on January 10, 2024.
Removed
In connection with the sale of the HOS operations (including all of the Company’s equity interests in AWR), in December 2021, the Company and AWR entered into an agreement with the buyer of the HOS operations, which facilitates a common defense for, and the sharing of information concerning, the EDNY investigation and any legal or regulatory inquiries or proceedings related to or resulting from it or the subject matter in the subpoena (collectively, the “Covered Matters”).
Added
The changes to the local coastal plan would need to be submitted to the Coastal Commission for approval; however, the Coastal Commission’s November 2022 approval of Cal Am’s coastal development permit application has rendered moot the impact of these proposed local coastal program and zoning changes on the issuance of the coastal development permit.
Removed
The Company, on behalf of AWR, is required to defend any Covered Matter, using commercially reasonable efforts to resolve it on a reasonably expedient basis.
Added
A permanent easement granted by CEMEX to Cal Am was recorded in June 2018 to allow Cal Am access to the property and to construct, operate and maintain the Water Supply Project intake wells.
Removed
Further, the Company is required to consult with the buyer in specified circumstances and obtain its prior written consent (which consent may not be unreasonably withheld, conditioned or delayed) before entering into any resolution of any Covered Matter that imposes non-monetary provisions or undertakings or any other terms for which there will be no indemnification under this agreement.
Added
The Monterey County Superior Court has set a trial date of July 15, 2024, for the City’s lawsuit.
Removed
In addition, until March 9, 2025, the Company is required to indemnify the buyer for any monetary losses or out-of-pocket damages (as described in the agreement) incurred by the buyer or certain of the HOS subsidiaries to the extent directly arising in connection with, or directly resulting from, any Covered Matter.
Added
On November 13, 2023, the California Court of Appeal affirmed the trial court's decision. On December 22, 2023, the City filed a petition for review with the California Supreme Court.
Removed
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 46 Table of Contents PART II
Added
In 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (1) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (2) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (3) the acquisition of the Monterey system assets by the MPWMD would be economically feasible.
Added
In 2020, the MPWMD certified a final environmental impact report, analyzing the environmental impacts of the MPWMD’s project to (1) acquire the Monterey system assets through the power of eminent domain, if necessary, and (2) expand its geographic boundaries to include all parts of this system.
Added
In June 2021, LAFCO’s commissioners voted to require a third-party independent financial study as to the feasibility of an acquisition by the MPWMD of the Monterey system assets.
Added
On December 11, 2023, the Monterey County Superior Court issued a writ of mandate directing LAFCO to vacate and set aside its original denial of the MPWMD’s application to serve as a retail water provider (in conjunction with its effort to acquire the Monterey water system assets) and allowing the MPWMD to seek further LAFCO review of its application in compliance with all applicable law.
Added
The court held that LAFCO incorrectly applied two statutory standards and noted a lack of sufficient evidence to support certain of LAFCO’s factual findings. As a result, the LAFCO denial has been nullified and LAFCO will be required to hold another hearing on the MPWMD’s application.
Added
On February 8, 2024, and February 9, 2024, each of Cal Am and LAFCO, respectively, filed a notice of appeal with the California Court of Appeals regarding the Monterey County Superior Court’s decision to issue the writ of mandate.
Added
Cal Am is evaluating potential additional actions to contest the writ of mandate and to seek to uphold LAFCO’s denial of the MPWMD’s application, including filing other challenges and/or making suitable presentations at a subsequent LAFCO rehearing. 44 Table of Contents Potential Condemnation Actions by MPWMD Separate from the proceedings related to the MPWMD’s application with LAFCO, by letter dated October 3, 2022, the MPWMD notified Cal Am of a decision to appraise the Monterey system assets and requesting access to a number of Cal Am’s properties and documents to assist the MPWMD with such an appraisal.
Added
Cal Am responded by letter on October 24, 2022, denying the request for access, stating that the MPWMD does not have the right to appraise Cal Am’s system without LAFCO approval to become a retail water provider. On April 28, 2023, Cal Am rejected an offer by the MPWMD to purchase the Monterey system assets for $448.8 million.
Added
Over the written and oral objections of Cal Am, at a hearing held on October 10, 2023, the MPWMD adopted a resolution of necessity to authorize it to file an eminent domain lawsuit with respect to the Monterey system assets.
Added
On December 15, 2023, the MPWMD filed a lawsuit in Monterey County Superior Court seeking to condemn the Monterey system assets.
Added
While the Company cannot currently predict the outcome of this lawsuit, the Company believes that, given existing legal precedent related to similar attempts by public agencies in California to take over water systems and its other defenses, Cal Am should be able to defend itself successfully against the MPWMD’s eminent domain lawsuit.
Added
In August 2022, WVAWC filed another Petition for Writ of Prohibition in the Supreme Court of Appeals of West Virginia challenging the West Virginia Circuit Court’s July 2022 order, which petition was denied on June 8, 2023.
Added
On August 21, 2023, the Circuit Court set a date of September 9, 2024, for a class trial on issues relating to duty and breach of that duty. The trial will not find class-wide or punitive damages.
Added
On September 21, 2023, the court upheld its prior ruling but gave the Tennessee Plaintiffs the option to file an amended class definition. On October 12, 2023, the Tennessee Plaintiffs filed an amended class definition seeking certification of a business customer-only class. On December 1, 2023, TAWC filed a memorandum in opposition to the amended class definition.
Added
On January 18, 2024, the court heard oral argument on the motions but issued no decision. The court instead requested additional briefing and a second oral argument, deadlines for which have not yet been set.
Added
Mountaineer Gas Company Main Break During the afternoon of November 10, 2023, WVAWC was informed that an 8-inch ductile iron water main owned by WVAWC, located on the West Side of Charleston, West Virginia and originally installed in approximately 1989, experienced a leak.
Added
In the early morning hours of November 11, 2023, WVAWC crews successfully completed a repair to the water main. A precautionary boil water advisory was issued the same day to approximately 300 WVAWC customers and ultimately lifted on November 12, 2023.
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On November 10, 2023, a break was reported in a low-pressure natural gas main located near the affected WVAWC water main break, and an inflow of water into the natural gas main and associated delivery pipelines occurred.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Since April 23, 2008, the Company’s common stock has traded on the New York Stock Exchange (“NYSE”) under the symbol “AWK.” As of January 31, 2023, there were 181,858,619 shares of common stock outstanding held by approximately 2,234 record holders.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Since April 23, 2008, the Company’s common stock has traded on the New York Stock Exchange (“NYSE”) under the symbol “AWK.” As of February 6, 2024, there were 194,755,320 shares of common stock outstanding held by approximately 2,101 record holders.
From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through December 31, 2022, the Company repurchased an aggregate of 4,860,000 shares of its common stock under the program, leaving an aggregate of 5,140,000 shares available for repurchase under this program. There were no repurchases of common stock in 2022.
From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through December 31, 2023, the Company repurchased an aggregate of 4,860,000 shares of its common stock under the program, leaving an aggregate of 5,140,000 shares available for repurchase under this program. There were no repurchases of common stock in 2023.
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ITEM 6. [RESERVED] 47 Table of Content s

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe Company’s adjusted regulated O&M efficiency ratio (i) is not an accounting measure that is based on GAAP; (ii) is not based on a standard, objective industry definition or method of calculation; (iii) may not be comparable to other companies’ operating measures; and (iv) should not be used in place of the GAAP information provided elsewhere in this Annual Report on Form 10-K. 51 Table of Content s Presented in the table below is the calculation of the Company’s adjusted regulated O&M efficiency ratio and a reconciliation that compares operation and maintenance expenses and operating revenues, each as determined in accordance with GAAP, to those amounts utilized in the calculation of its adjusted O&M efficiency ratio: For the Years Ended December 31, (Dollars in millions) 2022 2021 2020 Total operation and maintenance expenses $ 1,589 $ 1,777 $ 1,622 Less: Operation and maintenance expenses—Other 244 452 364 Total operation and maintenance expenses—Regulated Businesses 1,345 1,325 1,258 Less: Regulated purchased water expenses 154 153 149 Allocation of non-operation and maintenance expenses 31 34 41 Adjusted operation and maintenance expenses—Regulated Businesses (i) $ 1,160 $ 1,138 $ 1,068 Total operating revenues $ 3,792 $ 3,930 $ 3,777 Less: Operating revenues—Other 287 546 522 Total operating revenues—Regulated Businesses 3,505 3,384 3,255 Less: Regulated purchased water revenues (a) 154 153 149 Revenue reductions from the amortization of EADIT (89) (104) (7) Adjusted operating revenues—Regulated Businesses (ii) $ 3,440 $ 3,335 $ 3,113 Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii) 33.7 % 34.1 % 34.3 % (a) The calculation assumes regulated purchased water revenues approximate regulated purchased water expenses. 52 Table of Content s Regulatory Matters General Rate Cases Presented in the table below are annualized incremental revenues, including reductions for the amortization of EADIT that are generally offset in income tax expense, assuming a constant water sales volume and customer count, resulting from general rate case authorizations that became effective during 2022: (In millions) Effective Date Amount General rate cases by state: New Jersey September 1, 2022 $ 46 Hawaii July 1, 2022 2 West Virginia February 25, 2022 13 California, Step Increase January 1, 2022 9 Pennsylvania, Step Increase January 1, 2022 20 Total general rate case authorizations $ 90 Presented in the table below are annualized incremental revenues, including reductions for the amortization of EADIT that are generally offset in income tax expense, assuming a constant water sales volume and customer count, resulting from general rate case authorizations that became effective on or after January 1, 2023: (In millions) Effective Date Amount General rate cases by state: Pennsylvania January 28, 2023 $ 138 Illinois January 1, 2023 67 California, Step Increase January 1, 2023 13 Total general rate case authorizations $ 218 On December 15, 2022, the Illinois Commerce Commission issued an order approving the adjustment of base rates requested in a rate case filed on February 10, 2022, by the Company’s Illinois subsidiary.
Biggest changePresented in the table below is the calculation of the Company’s adjusted regulated O&M efficiency ratio and a reconciliation that compares operation and maintenance expenses and operating revenues, each as determined in accordance with GAAP, to those amounts utilized in the calculation of its adjusted O&M efficiency ratio: For the Years Ended December 31, (Dollars in millions) 2023 2022 2021 Total operation and maintenance expenses $ 1,720 $ 1,589 $ 1,777 Less: Operation and maintenance expenses—Other 279 244 452 Total operation and maintenance expenses—Regulated Businesses 1,441 1,345 1,325 Less: Regulated purchased water expenses 161 154 153 Allocation of non-operation and maintenance expenses 25 31 34 Adjusted operation and maintenance expenses—Regulated Businesses (i) $ 1,255 $ 1,160 $ 1,138 Total operating revenues $ 4,234 $ 3,792 $ 3,930 Less: Operating revenues—Other 314 287 546 Total operating revenues—Regulated Businesses 3,920 3,505 3,384 Less: Regulated purchased water revenues (a) 161 154 153 Revenue reductions from the amortization of EADIT (66) (89) (104) Adjusted operating revenues—Regulated Businesses (ii) $ 3,825 $ 3,440 $ 3,335 Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii) 32.8 % 33.7 % 34.1 % (a) The calculation assumes regulated purchased water revenues approximate regulated purchased water expenses. 53 Table of Contents Regulatory Matters General Rate Cases Presented in the table below are annualized incremental revenues assuming a constant sales volume and customer count, resulting from general rate case authorizations that became effective during 2023: (In millions) Effective Date Amount General rate cases by state: Missouri May 28, 2023 $ 44 Virginia April 24, 2023 (a) 11 Pennsylvania January 28, 2023 138 Illinois January 1, 2023 67 California, Step Increase January 1, 2023 13 Total general rate case authorizations $ 273 (a) Interim rates were effective May 1, 2022, and the difference between interim and final approved rates were subject to refund.
Details of each component can be found on the Consolidated Statements of Cash Flows. (b) Changes in working capital include changes to receivables and unbilled revenues, income tax receivable, accounts payable and accrued liabilities, accrued taxes and other current assets and liabilities, net.
Details of each component can be found on the Consolidated Statements of Cash Flows. (b) Changes in working capital include changes to receivables and unbilled revenues, income tax receivable, accounts payable and accrued liabilities, accrued taxes and other current assets and liabilities, net. Details of each component can be found on the Consolidated Statements of Cash Flows.
AWCC’s ability to make payments of amounts owed to holders of the senior notes will be dependent upon AWCC’s receipt of sufficient payments of amounts owed pursuant to the terms of such intercompany loans and from its ability to issue indebtedness or otherwise obtain loans in the future, the proceeds of which would be used to fund the repayment of the senior notes.
AWCC’s ability to make payments of amounts owed to holders of the senior notes and the Notes will be dependent upon AWCC’s receipt of sufficient payments of amounts owed pursuant to the terms of such intercompany loans and from its ability to issue indebtedness or otherwise obtain loans in the future, the proceeds of which would be used to fund the repayment of the senior notes and the Notes.
Furthermore, parent company’s operating subsidiaries are separate and distinct legal entities and, other than AWCC, have no obligation to make any payments on the senior notes or to make available or provide any funds for such payment, other than through their repayment obligations under intercompany loans, if any, with AWCC.
Furthermore, parent company’s operating subsidiaries are separate and distinct legal entities and, other than AWCC, have no obligation to make any payments on the senior notes or the Notes or to make available or provide any funds for such payment, other than through their repayment obligations under intercompany loans, if any, with AWCC.
Since the Company expects its capital investments over the next few years to be greater than its cash flows from operating activities, the Company currently plans to fund the excess of its capital investments over its cash flows from operating activities for the next five years through a combination of long-term debt and equity in addition to the remaining proceeds from the sale of HOS.
Since the Company expects its capital investments over the next few years to be greater than its cash flows from operating activities, the Company currently plans to fund the excess of its capital investments over its cash flows from operating activities for the next five years through a combination of long-term debt and equity issuances, in addition to the remaining proceeds from the sale of HOS.
If AWCC is unable to make timely payment of any interest, principal or premium, if any, on such senior notes, parent company will provide to AWCC, at its request or the request of any holder of such senior notes, funds to make such payment in full.
If AWCC is unable to make timely payment of any interest, principal or premium, if any, on such senior notes or the Notes, parent company will provide to AWCC, at its request or the request of any holder thereof, funds to make such payment in full.
On May 18, 2022, the California Supreme Court issued a writ of review for the Company’s California subsidiary’s petition and the petitions filed by other entities challenging the decision.
On May 18, 2022, the California Supreme Court issued a writ of review for the California subsidiary’s petition and the petitions filed by other entities challenging the decision.
Credit Facilities and Short-Term Debt Interest rates on advances under the Company’s revolving credit facility are based on a credit spread to the Secured Overnight Financing Rate (“SOFR”) rate (or applicable market replacement rate) or base rate, each determined in accordance with Moody Investors Service’s and S&P Global Ratings’ then applicable credit rating on AWCC’s senior unsecured, non-credit enhanced debt.
Credit Facilities and Short-Term Debt Interest rates on advances under the AWCC revolving credit facility are based on a credit spread to the Secured Overnight Financing Rate (“SOFR”) rate (or applicable market replacement rate) or base rate, each determined in accordance with Moody Investors Service’s and S&P Global Ratings’ then applicable credit rating on AWCC’s senior unsecured, non-credit enhanced debt.
As of December 31, 2022, the Company concluded that the operations of its utilities met the criteria. Application of this authoritative guidance has a further effect on the Company’s financial statements as it pertains to allowable costs used in the ratemaking process. The Company makes significant assumptions and estimates to quantify amounts recorded as regulatory assets and liabilities.
As of December 31, 2023, the Company concluded that the operations of its utilities met the criteria. Application of this authoritative guidance has a further effect on the Company’s financial statements as it pertains to allowable costs used in the ratemaking process. The Company makes significant assumptions and estimates to quantify amounts recorded as regulatory assets and liabilities.
If AWCC fails or refuses to take timely action to enforce certain rights under the support agreement or if AWCC defaults in the timely payment of any amounts owed to any holder of such senior notes, when due, the support agreement provides that the holder may proceed directly against parent company to enforce such rights or to obtain payment of the defaulted amounts owed to that holder.
If AWCC fails or refuses to take timely action to enforce certain rights under the support agreement or if AWCC defaults in the timely payment of any amounts owed to any such holder, when due, the support agreement provides that such holder may proceed directly against parent company to enforce such rights or to obtain payment of the defaulted amounts owed to that holder.
The resulting tax balances as of December 31, 2022 and 2021 are appropriately accounted for in accordance with the applicable authoritative guidance; however, the ultimate outcome of tax matters could result in favorable or unfavorable adjustments to the Consolidated Financial Statements and such adjustments could be material.
The resulting tax balances as of December 31, 2023 and 2022, are appropriately accounted for in accordance with the applicable authoritative guidance; however, the ultimate outcome of tax matters could result in favorable or unfavorable adjustments to the Consolidated Financial Statements and such adjustments could be material.
Growth Through Capital Investment in Infrastructure and Regulated Acquisitions The Company continues to grow its businesses, with the majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, reliable and affordable water and wastewater services to its customers, and (ii) regulated acquisitions to expand the Company’s services to new customers.
Growth Through Capital Investment in Infrastructure and Regulated Acquisitions The Company continues to grow its businesses, with the substantial majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, and (ii) regulated acquisitions to expand the Company’s services to new customers.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with GAAP requires that management apply accounting policies and make estimates, assumptions and judgments that could affect the Company’s financial condition, results of operations and cash flows. Actual results could differ from these estimates, assumptions and judgments.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with GAAP requires that management apply accounting policies and develop estimates, assumptions and judgments that could affect the Company’s financial condition, results of operations and cash flows. Actual results could differ from these estimates, assumptions and judgments.
The general rate case order also includes recovery of the Company’s Pennsylvania subsidiary’s COVID-19 deferral balance.
The general rate case order also includes recovery of the Pennsylvania subsidiary’s COVID-19 deferral balance.
The general rate case order approved a $67 million annualized increase in water and wastewater system revenues excluding previously recovered infrastructure surcharges, effective January 1, 2023, based on an authorized return on equity of 9.8%, authorized rate base of $1.64 billion, a common equity ratio of 49.0% and a debt ratio of 51.0%.
The general rate case order approved a $67 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $18 million, effective January 1, 2023, based on an authorized return on equity of 9.78%, authorized rate base of $1.64 billion, a common equity ratio of 49.0% and a debt ratio of 51.0%.
The items discussed above were excluded from the O&M efficiency ratio calculation as they are not reflective of management’s ability to increase the efficiency of the Regulated Businesses. The Company evaluates its operating performance using this ratio, and believes it is useful to investors because it directly measures improvement in the operating performance and efficiency of the Regulated Businesses.
The items discussed above were excluded from the O&M efficiency ratio calculation as they are not reflective of management’s ability to increase the efficiency of the Regulated Businesses. 52 Table of Contents The Company evaluates its operating performance using this ratio, and believes it is useful to investors because it directly measures improvement in the operating performance and efficiency of the Regulated Businesses.
The transfer of these Bargained VEBA investment assets into the Active VEBA permits access to approximately $194 million of assets for purposes of paying active union employee medical benefits. The Company recorded the transfer of assets as a negative contribution and therefore did not record a gain or loss, as permitted by accounting guidance.
The transfer of these Bargained VEBA investment assets into the Active VEBA permits access to approximately $194 million of assets, as of December 31, 2022, for purposes of paying active union employee medical benefits. The Company recorded the transfer of assets as a negative contribution and therefore did not record a gain or loss, as permitted by accounting guidance.
See Note 18—Fair Value of Financial Information in the Notes to Consolidated Financial Statements, for additional information on accounting for the assets as investments in debt and equity securities as of December 31, 2022. Revenue Recognition Revenue from the Company’s Regulated Businesses is generated primarily from water and wastewater services delivered to customers.
See Note 18—Fair Value of Financial Information in the Notes to Consolidated Financial Statements, for additional information on accounting for the assets as investments in debt and equity securities. Revenue Recognition Revenue from the Company’s Regulated Businesses is generated primarily from water and wastewater services delivered to customers.
For the Company’s unregulated operations, the change in deferred taxes are recorded as a non-cash re-measurement adjustment to earnings. 70 Table of Content s Actual income taxes could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, the Company’s forecasted financial condition and results of operations, failure to successfully implement tax planning strategies and recovery of taxes through the regulatory process for the Regulated Businesses, as well as results of audits and examinations of filed tax returns by taxing authorities.
For the Company’s unregulated operations, the change in deferred taxes are recorded as a non-cash re-measurement adjustment to earnings. 71 Table of Contents Actual income taxes could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, the Company’s forecasted financial condition and results of operations, failure to successfully implement tax planning strategies and recovery of taxes through the regulatory process for the Regulated Businesses, as well as results of audits and examinations of filed tax returns by taxing authorities.
Sale of Homeowner Services Group On December 9, 2021, the Company sold all of the equity interests in subsidiaries that comprised the Company’s HOS to a wholly owned subsidiary of funds advised by Apax Partners LLP, a global private equity advisory firm (the “Buyer”), for total consideration of approximately $1.275 billion, resulting in pre-tax gain of $748 million during the fourth quarter of 2021.
Sale of Homeowner Services Group On December 9, 2021, the Company sold all of the equity interests in subsidiaries that comprised HOS to a wholly owned subsidiary (the “Buyer”) of funds advised by Apax Partners LLP, a global private equity advisory firm, for total consideration of approximately $1.275 billion, resulting in pre-tax gain of $748 million.
The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” The Company’s utilities operate in approximately 1,600 communities in 14 states in the United States, with 3.4 million active customers with services provided by its water and wastewater networks.
The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” The Company’s utilities operate in approximately 1,700 communities in 14 states in the United States, with 3.5 million active customers with services provided by its water and wastewater networks.
Parent company’s borrowings are not a source of capital for the Regulated Businesses, therefore, parent company is not able to recover the interest charges on its debt through regulated water and wastewater rates. As of December 31, 2022, AWCC has made long-term fixed rate loans and commercial paper loans to the Regulated Businesses amounting to $7.6 billion.
Parent company’s borrowings are not a source of capital for the Regulated Businesses, therefore, parent company is not able to recover the interest charges on its debt through regulated water and wastewater rates. As of December 31, 2023, AWCC has made long-term fixed rate loans to the Regulated Businesses amounting to $7.6 billion.
Failure to meet the criteria of this authoritative guidance could materially impact the Company’s Consolidated Financial Statements. As of December 31, 2022 and 2021, the Company’s regulatory asset balance was $1.0 billion and $1.1 billion, respectively, and its regulatory liability balance was $1.6 billion and $1.6 billion, respectively.
Failure to meet the criteria of this authoritative guidance could materially impact the Company’s Consolidated Financial Statements. As of December 31, 2023 and 2022, the Company’s regulatory asset balance was $1.1 billion and $1.0 billion, respectively, and its regulatory liability balance was $1.5 billion and $1.6 billion, respectively.
For each plan, the discount rate was developed as the level equivalent rate that would yield the same present value as using spot rates aligned with the projected benefit payments. The weighted-average discount rate assumption for determining pension benefit obligations was 5.58%, 2.94% and 2.74% at December 31, 2022, 2021 and 2020, respectively.
For each plan, the discount rate was developed as the level equivalent rate that would yield the same present value as using spot rates aligned with the projected benefit payments. The weighted-average discount rate assumption for determining pension benefit obligations was 5.18%, 5.58% and 2.94% at December 31, 2023, 2022 and 2021, respectively.
The weighted-average discount rate assumption for determining other postretirement benefit obligations was 5.60%, 2.90% and 2.56% at December 31, 2022, 2021 and 2020, respectively. In selecting an EROA, the Company considered tax implications, past performance and economic forecasts for the types of investments held by the plans.
The weighted-average discount rate assumption for determining other postretirement benefit obligations was 5.22%, 5.60% and 2.90% at December 31, 2023, 2022 and 2021, respectively. In selecting an EROA, the Company considered tax implications, past performance and economic forecasts for the types of investments held by the plans.
The Company updated its filing in January 2023 to capture the authorized step increase effective January 1, 2023. The filing was also updated to incorporate a decoupling proposal and a revision to the Company’s sales and associated variable expense forecast. The revised requested additional annualized revenues for the test year 2024 is now $37 million, compared against 2023 revenues.
The Company updated its filing in January 2023 to capture the authorized step increase effective January 1, 2023. The filing was also updated to incorporate a decoupling proposal and a revision to the Company’s sales and associated variable expense forecast. The revised filing requested additional annualized revenues for the test year 2024 of $37 million, compared to 2023 revenues.
On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the NJBPU that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015.
On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (“NJBPU”) that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015.
Market disruptions may also limit the Company’s ability to issue debt and equity securities in the capital markets. 62 Table of Content s If these unfavorable business, market, financial and other conditions deteriorate to the extent that the Company is no longer able to access the commercial paper and/or capital markets on reasonable terms, AWCC has access to an unsecured revolving credit facility.
Market disruptions may also limit the Company’s ability to issue debt and equity securities in the capital markets. 63 Table of Contents If these unfavorable business, market, financial and other conditions deteriorate to the extent that the Company is no longer able to access the commercial paper and/or capital markets on reasonable terms, AWCC has access to an unsecured revolving credit facility.
Additional discussion regarding these critical accounting policies and their application can be found in Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements. 69 Table of Content s Regulation and Regulatory Accounting The Company’s regulated utilities are subject to regulation by PUCs and, as such, the Company follows the authoritative accounting principles required for rate regulated utilities, which requires the Company to reflect the effects of rate regulation in its Consolidated Financial Statements.
Additional discussion regarding these critical accounting policies and their application can be found in Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements. 70 Table of Contents Regulation and Regulatory Accounting The Company’s regulated utilities are subject to regulation by PUCs and, as such, the Company follows the authoritative accounting principles required for rate regulated utilities, which requires the Company to reflect the effects of rate regulation in its Consolidated Financial Statements.
For a discussion and analysis of the Company’s financial statements for fiscal 2021 compared to fiscal 2020, please refer to Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 16, 2022.
For a discussion and analysis of the Company’s financial statements for fiscal 2022 compared to fiscal 2021, please refer to Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 15, 2023.
For a discussion and analysis of the Company’s financial statements for fiscal 2021 compared to fiscal 2020, please refer to Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 16, 2022.
For a discussion and analysis of the Company’s financial statements for fiscal 2022 compared to fiscal 2021, please refer to Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 15, 2023.
The senior notes also have been issued with the benefit of a support agreement, as amended, between parent company and AWCC, which serves as the functional equivalent of a full and unconditional guarantee by parent company of AWCC’s payment obligations under the senior notes. No other subsidiary of parent company provides guarantees for any of the outstanding senior notes.
The senior notes and the Notes have been issued with the benefit of a support agreement, as amended, between parent company and AWCC, which serves as the functional equivalent of a full and unconditional guarantee by parent company of AWCC’s payment obligations under such indebtedness. No other subsidiary of parent company provides guarantees for any of such indebtedness.
Debt Covenants The Company’s debt agreements contain financial and non-financial covenants. To the extent that the Company is not in compliance with these covenants, an event of default may occur under one or more debt agreements and the Company, or its subsidiaries, may be restricted in its ability to pay dividends, issue new debt or access the revolving credit facility.
To the extent that the Company is not in compliance with these covenants, an event of default may occur under one or more debt agreements and the Company, or its subsidiaries, may be restricted in its ability to pay dividends, issue new debt or access the revolving credit facility.
In addition, changes in the timing of meter reading schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the unbilled revenue calculation. Unbilled revenue for the Company’s regulated utilities as of December 31, 2022 and 2021 was $178 million and $162 million, respectively.
In addition, changes in the timing of meter reading schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the unbilled revenue calculation. Unbilled revenue for the Company’s regulated utilities as of December 31, 2023 and 2022 was $193 million and $178 million, respectively.
The annualized revenue increase is being driven primarily by significant water and wastewater system capital investments since the Illinois subsidiary’s 2017 rate case order that have been completed or are planned through December 31, 2023, expected higher pension and other postretirement benefit costs, and increases in production costs, including chemicals, fuel and power costs.
The annualized revenue increase was driven primarily by significant water and wastewater system capital investments since the Illinois subsidiary’s 2017 rate case order that have been completed or were planned through December 31, 2023, expected higher pension and other postretirement benefit costs, and increases in production costs, including chemicals, fuel and power costs.
The annualized revenue increase is driven primarily by significant incremental capital investments since the Pennsylvania subsidiary’s 2021 rate case order that will be completed through December 31, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs.
The annualized revenue increase was driven primarily by significant incremental capital investments since the Pennsylvania subsidiary’s 2021 rate case order that were completed through December 31, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs.
Subject to satisfying certain conditions, the credit agreement also permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million and to request extensions of its expiration date for up to two one-year periods.
Subject to satisfying certain conditions, the credit agreement also permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million and to request extensions of its expiration date for up to two one-year periods, as to which one such extension request remains.
The actuarial gains and losses associated with the AWPP will continue to be amortized over the average remaining service period for active participants.
The actuarial gains and losses associated with the AWPP continued to be amortized over the average remaining service period for active participants.
The trustee for the Company’s defined benefit pension and postretirement welfare plans uses an independent valuation firm to calculate the fair value of plan assets. In selecting a rate of compensation increase, the Company considers past experience in light of movements in inflation rates.
The trustee for the Company’s defined benefit pension and postretirement welfare plans uses an independent valuation firm to calculate the fair value of plan assets. In selecting a rate of compensation increase, the Company considers past experience in light of movements in inflation rates. The Company’s rate of compensation increase was 3.51% for 2023, 2022 and 2021.
On December 31, 2022, the Company’s ratio was 0.62 to 1.00 and therefore the Company was in compliance with the covenants. 68 Table of Content s Security Ratings Presented in the table below are long-term and short-term credit ratings and rating outlooks as of February 15, 2023, as issued by Moody’s Investors Service on December 19, 2022, and S&P Global Ratings on February 6, 2023: Securities Moody’s Investors Service S&P Global Ratings Rating outlook Stable Stable Senior unsecured debt Baa1 A Commercial paper P-2 A-1 A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating.
On December 31, 2023, the Company’s ratio was 0.56 to 1.00 and therefore the Company was in compliance with the covenants. 69 Table of Contents Security Ratings Presented in the table below are long-term and short-term credit ratings and rating outlooks as of February 14, 2024, as issued by Moody’s Investors Service on January 29, 2024, and S&P Global Ratings on February 6, 2023: Securities Moody’s Investors Service S&P Global Ratings Rating outlook Stable Stable Senior unsecured debt Baa1 A Commercial paper P-2 A-1 A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating.
The weighted-average EROA assumption used in calculating pension cost was 6.50% for 2022, 6.50% for 2021, and 6.50% for 2020.
The weighted-average EROA assumption used in calculating pension cost was 6.79% for 2023, 6.50% for 2022 and 6.50% for 2021.
The Company’s 2022 pension and postretirement total net benefit credit was $47 million and the 2021 pension and postretirement total net benefit credit was $41 million. The Company expects to make pension contributions to the plan trusts of $39 million in 2023; however, the actual amounts contributed could change materially from this estimate.
The Company’s 2023 pension and postretirement total net benefit credit was $6 million and the 2022 pension and postretirement total net benefit credit was $47 million. The Company expects to make pension contributions to the plan trusts of $44 million in 2024; however, the actual amounts contributed could change materially from this estimate.
The weighted-average EROA assumption used in calculating other postretirement benefit costs was 3.60% for 2022, 3.67% for 2021 and 3.68% for 2020. 71 Table of Content s Presented in the table below are the allocations of the pension plan assets by asset category: 2023 Target Allocation Percentage of Plan Assets as of December 31, Asset Category 2022 2021 Equity securities 37 % 57 % 53 % Fixed income 63 % 43 % 47 % Total 100 % 100 % 100 % Presented in the table below are the allocations of the other postretirement benefit plan assets by asset category: 2023 Target Allocation (a) Percentage of Plan Assets as of December 31, Asset Category 2022 2021 Equity securities 27 % 30 % 22 % Fixed income 73 % 70 % 78 % Total 100 % 100 % 100 % (a) Refer to Note 15—Employee Benefits in the Notes to Consolidated Financial Statements for additional details on the allocations of assets and the trusts which fund the other postretirement benefit plans The investments of the pension and postretirement welfare plan trusts include debt and equity securities held either directly or through mutual funds, commingled funds and limited partnerships.
The weighted-average EROA assumption used in calculating other postretirement benefit costs was 5.00% for 2023, 3.60% for 2022 and 3.67% for 2021. 72 Table of Contents Presented in the table below are the allocations of the pension plan assets by asset category: 2024 Target Allocation Percentage of Plan Assets as of December 31, Asset Category 2023 2022 Equity securities 37 % 41 % 57 % Fixed income 63 % 59 % 43 % Total 100 % 100 % 100 % Presented in the table below are the allocations of the other postretirement benefit plan assets by asset category: 2024 Target Allocation (a) Percentage of Plan Assets as of December 31, Asset Category 2023 2022 Equity securities 27 % 32 % 30 % Fixed income 73 % 68 % 70 % Total 100 % 100 % 100 % (a) Refer to Note 15—Employee Benefits in the Notes to Consolidated Financial Statements for additional details on the allocations of assets and the trusts which fund the other postretirement benefit plans The investments of the pension and postretirement welfare plan trusts include debt and equity securities held either directly or through mutual funds, commingled funds and limited partnerships.
Pending General Rate Case Filings On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of $56 million and a total increase in revenue over the 2024 to 2026 period of $95 million, with all increases compared against 2022 revenues.
On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of $56 million and a total increase in revenue over the 2024 to 2026 period of $95 million, all as compared to 2022 revenues.
These treasury lock agreements terminate in January 2024, and have an average fixed rate of 3.35%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss.
These treasury lock agreements terminate in September 2024, and have an average fixed rate of 4.24%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss.
As of December 31, 2022, AWCC had no outstanding borrowings and $78 million of outstanding letters of credit under its revolving credit facility, with $1.50 billion available to fulfill its short-term liquidity needs and to issue letters of credit.
As of December 31, 2023, AWCC had no outstanding borrowings and $75 million of outstanding letters of credit under its revolving credit facility, with $2.50 billion available to fulfill its short-term liquidity needs and to issue letters of credit.
As previously noted, over the next five years the Company expects to invest between $14 billion to $15 billion, with $12.5 billion to $13 billion for infrastructure improvements in the Regulated Businesses, and the Company expects to invest between $30 billion to $34 billion over the next 10 years.
As previously noted, over the next five years the Company expects to invest between $16 billion to $17 billion, with $14.5 billion to $15 billion for infrastructure improvements in the Regulated Businesses, and the Company expects to invest between $34 billion to $38 billion over the next 10 years.
The Company will use a weighted-average discount rate and EROA of 5.58% and 6.75%, respectively, for estimating its 2023 pension costs. Additionally, the Company will use a weighted-average discount rate and EROA of 5.60% and 5.00%, respectively, for estimating its 2023 other postretirement benefit costs. A decrease in the discount rate or the EROA would increase the Company’s pension expense.
Additionally, the Company will use a weighted-average discount rate and EROA of 5.22% and 5.00%, respectively, for estimating its 2024 other postretirement benefit costs. A decrease in the discount rate or the EROA would increase the Company’s pension expense.
Other also includes corporate costs that are not allocated to the Regulated Businesses segment, i nterest income related to the seller promissory note and income from the revenue share agreement from the sale of HOS, eliminations of inter-segment transactions and fair value adjustments related to acquisitions that have not been allocated to the Regulated Businesses segment.
Other also includes corporate costs that are not allocated to the Company’s Regulated Businesses , i nterest income related to the secured seller promissory note from the sale of HOS, income from assets not associated with the Regulated Businesses, eliminations of inter-segment transactions and fair value adjustments related to acquisitions that have not been allocated to the Regulated Businesses segment.
Presented in the table below is a summary of the major items affecting the Company’s cash flows from operating activities: For the Years Ended December 31, (In millions) 2022 2021 2020 Net income $ 820 $ 1,263 $ 709 Add (less): Depreciation and amortization 649 636 604 Deferred income taxes and amortization of investment tax credits (c) 80 230 207 Other non-cash activities (a) (16) (27) — Changes in working capital (b) (355) 126 (55) Pension and non-pension postretirement benefit contributions (51) (40) (39) (Gain) or loss on sale of businesses (19) (747) — Net cash provided by operating activities $ 1,108 $ 1,441 $ 1,426 (a) Includes provision for losses on accounts receivable, pension and non-pension postretirement benefits and other non-cash, net.
Presented in the table below is a summary of the major items affecting the Company’s cash flows from operating activities: For the Years Ended December 31, (In millions) 2023 2022 2021 Net income $ 944 $ 820 $ 1,263 Add (less): Depreciation and amortization 704 649 636 Deferred income taxes and amortization of investment tax credits 208 80 230 Other non-cash activities (a) (9) (16) (27) Changes in working capital (b) 76 (355) 126 Pension and non-pension postretirement benefit contributions (49) (51) (40) Gain on sale of businesses — (19) (747) Net cash provided by operating activities $ 1,874 $ 1,108 $ 1,441 (a) Includes provision for losses on accounts receivable, pension and non-pension postretirement benefits and other non-cash, net.
Presented in the table below is a summary of the Company’s capital expenditures by category: For the Years Ended December 31, (In millions) 2022 2021 2020 Transmission and distribution $ 901 $ 749 $ 704 Treatment and pumping 190 197 306 Services, meter and fire hydrants 546 366 333 General structure and equipment 380 251 299 Sources of supply 95 64 54 Wastewater 185 137 126 Total capital expenditures $ 2,297 $ 1,764 $ 1,822 In 2022, the Company’s capital expenditures increased $533 million due to an increase across most infrastructure categories.
Presented in the table below is a summary of the Company’s capital expenditures by category: For the Years Ended December 31, (In millions) 2023 2022 2021 Transmission and distribution $ 922 $ 901 $ 749 Treatment and pumping 322 190 197 Services, meter and fire hydrants 652 546 366 General structure and equipment 333 380 251 Sources of supply 88 95 64 Wastewater 258 185 137 Total capital expenditures $ 2,575 $ 2,297 $ 1,764 In 2023, the Company’s capital expenditures increased $278 million due to an increase across most infrastructure categories.
In 2023, the Company expects to invest $2.9 billion, consisting of $2.5 billion for infrastructure improvements and $400 million for acquisitions in the Regulated Businesses. 64 Table of Content s Cash Flows from Financing Activities Presented in the table below is a summary of the major items affecting the Company’s cash flows from financing activities: For the Years Ended December 31, 2022 2021 2020 (In millions) Proceeds from long-term debt $ 822 $ 1,118 $ 1,334 Repayments of long-term debt (15) (372) (342) (Repayments of) proceeds from term loan — (500) 500 Net short-term borrowings (repayments) with maturities less than three months 591 (198) (5) Dividends paid (467) (428) (389) Other financing activities, net (a) 69 35 22 Net cash provided by (used in) financing activities $ 1,000 $ (345) $ 1,120 (a) Includes proceeds from issuances of common stock under various employee stock plans and the Company’s dividend reinvestment plan, net of taxes paid, advances and contributions in aid of construction, net of refunds, and debt issuance costs and make-whole premiums on early debt redemption.
In 2024, the Company expects to invest $3.1 billion, consisting of infrastructure improvements and acquisitions in the Regulated Businesses. 65 Table of Contents Cash Flows from Financing Activities Presented in the table below is a summary of the major items affecting the Company’s cash flows from financing activities: For the Years Ended December 31, 2023 2022 2021 (In millions) Proceeds from long-term debt $ 1,264 $ 822 $ 1,118 Repayments of long-term debt (282) (15) (372) (Repayments of) proceeds from term loan — — (500) Net proceeds from common stock financing 1,688 — — Net short-term (repayments) borrowings with maturities less than three months (996) 591 (198) Dividends paid (532) (467) (428) Other financing activities, net (a) 46 69 35 Net cash provided by (used in) financing activities $ 1,188 $ 1,000 $ (345) (a) Includes proceeds from issuances of common stock under various employee stock plans and the Company’s dividend reinvestment plan, net of taxes paid, advances and contributions in aid of construction, net of refunds, and debt issuance costs and make-whole premiums on early debt redemption.
Presented in the table below is the Company’s total available liquidity as of December 31, 2022 and 2021: Cash and Cash Equivalents Availability on Revolving Credit Facility Total Available Liquidity (In millions) Available liquidity as of December 31, 2022 $ 85 $ 1,495 $ 1,580 Available liquidity as of December 31, 2021 116 1,590 1,706 The weighted average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.41% and 0.20%, for the years ended December 31, 2022 and 2021, respectively.
Presented in the table below is the Company’s total available liquidity as of December 31, 2023 and 2022: Cash and Cash Equivalents Availability on Revolving Credit Facility Total Available Liquidity (In millions) Available liquidity as of December 31, 2023 $ 330 $ 2,495 $ 2,825 Available liquidity as of December 31, 2022 $ 85 $ 1,495 $ 1,580 The weighted average interest rate on AWCC’s outstanding short-term borrowings was approximately 5.51% and 4.41%, for the years ended December 31, 2023 and 2022, respectively.
For the Years Ended December 31, (In millions, except per share data) 2022 2021 2020 2019 2018 Statement of Operations data: Operating revenues $ 3,792 $ 3,930 $ 3,777 $ 3,610 $ 3,440 Net income attributable to common shareholders 820 1,263 709 621 567 Net income attributable to common shareholders per basic common share 4.51 6.96 3.91 3.44 3.16 Net income attributable to common shareholders per diluted common share 4.51 6.95 3.91 3.43 3.15 Balance Sheet data: Total assets $ 27,787 $ 26,075 $ 24,766 $ 22,682 $ 21,223 Long-term debt and redeemable preferred stock at redemption value 10,929 10,344 9,333 8,644 7,576 Other data: Cash dividends declared per common share $ 2.62 $ 2.41 $ 2.20 $ 2.00 $ 1.82 Net cash provided by operating activities 1,108 1,441 1,426 1,383 1,386 Net cash used in investing activities (2,127) (1,536) (2,061) (1,945) (2,036) Net cash provided by (used in) financing activities 1,000 (345) 1,120 494 726 Capital expenditures included in net cash used in investing activities (2,297) (1,764) (1,822) (1,654) (1,586) 48 Table of Content s Financial Results For the years ended December 31, 2022, 2021 and 2020, diluted earnings per share (GAAP) were $4.51, $6.95 and $3.91, respectively.
For the Years Ended December 31, (In millions, except per share data) 2023 2022 2021 2020 2019 Statement of Operations data: Operating revenues $ 4,234 $ 3,792 $ 3,930 $ 3,777 $ 3,610 Net income attributable to common shareholders 944 820 1,263 709 621 Net income attributable to common shareholders per basic common share 4.90 4.51 6.96 3.91 3.44 Net income attributable to common shareholders per diluted common share 4.90 4.51 6.95 3.91 3.43 Balance Sheet data: Total assets $ 30,298 $ 27,787 $ 26,075 $ 24,766 $ 22,682 Long-term debt and redeemable preferred stock at redemption value 11,718 10,929 10,344 9,333 8,644 Other data: Cash dividends declared per common share $ 2.83 $ 2.62 $ 2.41 $ 2.20 $ 2.00 Net cash provided by operating activities 1,874 1,108 1,441 1,426 1,383 Net cash used in investing activities (2,815) (2,127) (1,536) (2,061) (1,945) Net cash provided by (used in) financing activities 1,188 1,000 (345) 1,120 494 Capital expenditures included in net cash used in investing activities (2,575) (2,297) (1,764) (1,822) (1,654) 50 Table of Contents Financial Results For the years ended December 31, 2023, 2022 and 2021, diluted earnings per share (GAAP) were $4.90, $4.51 and $6.95, respectively.
The Company remeasured the pension plan obligation and assets for each plan as of December 31, 2022. 72 Table of Content s Upon evaluating prior plan changes, Company funding and market performance, in December 2022, the Company completed plan amendments to spin-off and merge a portion of the American Water Retiree Welfare Plan, with and into the Company’s medical plan for active employees (“Active Medical Plan”), in order to repurpose the over-funded portion of the Bargained Retiree Voluntary Employees’ Beneficiary Association (“Bargained VEBA”) trust.
The Company remeasured the pension plan obligation and assets to reflect the amendment for each plan as of December 31, 2022. 73 Table of Contents In December 2022, the Company completed plan amendments to spin-off and merge a portion of the American Water Retiree Welfare Plan, with and into the Company’s medical plan for active employees (“Active Medical Plan”), in order to repurpose the over-funded portion of the Bargained Retiree Voluntary Employees’ Beneficiary Association (“Bargained VEBA”) trust.
Other In 2022, as compared to 2021, other increased $10 million primarily due to increase to the insurance other than group reserve which had an unfavorable claims experience compared to prior year.
Other In 2023, as compared to 2022, other increased $12 million primarily due to an increase to the insurance other than group reserve which had an unfavorable claims experience compared to prior year, as well as higher insurance premiums.
AWCC’s revolving credit facility is used principally to support its commercial paper program, to provide additional liquidity support, and to provide a sublimit for the issuance of up to $150 million in letters of credit.
The facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support and to provide a sub-limit of up to $150 million for letters of credit.
Liquidity and Capital Resources The Company uses its capital resources, including cash, primarily to (i) fund operating and capital requirements, (ii) pay interest and meet debt maturities, (iii) pay dividends, (iv) fund acquisitions, (v) fund pension and postretirement benefit obligations, and (vi) to pay federal income taxes.
Legislation was signed by the Governor and became effective on January 12, 2024. Liquidity and Capital Resources The Company uses its capital resources, including cash, primarily to (i) fund operating and capital requirements, (ii) pay interest and meet debt maturities, (iii) pay dividends, (iv) fund acquisitions, (v) fund pension and postretirement benefit obligations, and (vi) to pay federal income taxes.
None of the Company’s borrowings are subject to default or prepayment as a result of the downgrading of these security ratings, although such a downgrading could increase fees and interest charges under its credit facility.
The Company does not have any material borrowings that are subject to default or prepayment as a result of the downgrading of these security ratings, although such a downgrading could increase fees and interest charges under its credit facility.
The consideration was comprised of $480 million in cash, a seller promissory note issued by the Buyer in the principal amount of $720 million, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023.
The consideration at closing was comprised of $480 million in cash, a secured seller promissory note payable in cash and issued by the Buyer in the principal amount of $720 million, with an interest rate of 7.00% per year, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023.
Presented in the table below are the retirements and redemptions of long-term debt in 2022 through sinking fund provisions, optional redemption or payment at maturity: Company Type Rate Weighted Average Rate Maturity Amount (in millions) AWCC Private activity bonds and government funded debt—fixed rate 1.79%-2.31% 2.24% 2024-2031 $ 1 Other American Water subsidiaries Private activity bonds and government funded debt—fixed rate 0.00%-5.50% 1.50% 2022-2051 13 Other American Water subsidiaries Mandatorily redeemable preferred stock 8.49% 8.49% 2022 1 Total retirements and redemptions $ 15 From time to time and as market conditions warrant, the Company may engage in long-term debt retirements through make-whole redemptions, tender offers, open market repurchases or other viable alternatives. 66 Table of Content s Issuer and Guarantor of Senior Notes The outstanding senior notes issued by AWCC have been issued under two indentures, each by and between AWCC and Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as trustee, providing for the rights and obligations of the parties thereto and the holders of the notes issued thereunder.
Presented in the table below are the retirements and redemptions of long-term debt in 2023 through sinking fund provisions, optional redemption or payment at maturity: Company Type Rate Weighted Average Rate Maturity Amount (in millions) AWCC Senior notes—fixed rate 6.55% 6.55% 2023 $ 14 AWCC Private activity bonds and government funded debt—fixed rate 0.60%-2.31% 0.68% 2023-2031 87 Other American Water subsidiaries Private activity bonds and government funded debt—fixed rate 0.00%-5.50% 1.20% 2023-2051 163 Other American Water subsidiaries Mortgage bonds—fixed rate 6.76%-6.96% 6.84% 2023 18 Total retirements and redemptions $ 282 From time to time and as market conditions warrant, the Company may engage in long-term debt retirements through make-whole redemptions, tender offers, open market repurchases or other viable alternatives. 67 Table of Contents Issuer and Guarantor of Senior Notes Outstanding unsecured senior notes issued by AWCC (other than the Notes) have been issued under two indentures, each by and between AWCC and Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as trustee, providing for the rights and obligations of the parties thereto and the holders of the notes issued thereunder.
The Company’s expected future investments include: • capital investment for infrastructure improvements in the Regulated Businesses between $12.5 billion to $13 billion over the next five years, and between $27 billion to $30 billion over the next 10 years, including $2.5 billion expected in 2023; and • growth from acquisitions in the Regulated Businesses to expand the Company’s water and wastewater customer base of between $1.5 billion to $2 billion over the next five years, and between $3 billion to $4 billion over the next 10 years, including $400 million expected in 2023.
The Company’s expected future investments include: • capital investment for infrastructure improvements in the Regulated Businesses between $14.5 billion to $15 billion over the next five years, and between $30 billion to $33 billion over the next 10 years; and 51 Table of Contents • growth from acquisitions in the Regulated Businesses to expand the Company’s water and wastewater customer base of between $1.5 billion to $2 billion over the next five years, and between $4 billion to $5 billion over the next 10 years.
In response to the legislation, on January 27, 2023, the Company’s California subsidiary filed an updated application requesting the CPUC to consider a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which would be effective 2024 through 2026.
In response to the legislation, on January 27, 2023, the Company’s California subsidiary filed an updated application requesting the CPUC to consider a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which, if adopted, will become effective upon receiving an order in the current pending rate case.
Presented in the table below are the issuances of long-term debt in 2022: Company Type Rate Weighted Average Rate Maturity Amount (in millions) AWCC (a) Senior notes—fixed rate 4.45% 4.45% 2032 $ 800 Other American Water subsidiaries Private activity bonds and government funded debt—fixed rate 0.00%-1.75% 1.03% 2027-2042 22 Total issuances $ 822 (a) This indebtedness is considered “debt” for purposes of a support agreement between parent company and AWCC, which serves as a functional equivalent of a full and unconditional guarantee by parent company of AWCC’s payment obligations under such indebtedness.
Presented in the table below are the issuances of long-term debt in 2023: Company Type Rate Weighted Average Rate Maturity Amount (in millions) AWCC (a) Senior notes—fixed rate 3.63% 3.63% 2026 $ 1,035 AWCC (a) Private activity bonds and government funded debt—fixed rate 3.70%-3.88% 3.80% 2028 86 Other American Water subsidiaries Private activity bonds and government funded debt—fixed rate 0.00%-3.75% 2.88% 2025-2041 143 Total issuances $ 1,264 (a) This indebtedness is considered “debt” for purposes of a support agreement between parent company and AWCC, which serves as a functional equivalent of a full and unconditional guarantee by parent company of AWCC’s payment obligations under such indebtedness.
Cash Flows from Investing Activities Presented in the table below is a summary of the major items affecting the Company’s cash flows from investing activities: For the Years Ended December 31, (In millions) 2022 2021 2020 Capital expenditures $ (2,297) $ (1,764) $ (1,822) Acquisitions, net of cash acquired (315) (135) (135) Proceeds from sale of assets, net of cash on hand 608 472 2 Removal costs from property, plant and equipment retirements, net (123) (109) (106) Net cash used in investing activities $ (2,127) $ (1,536) $ (2,061) In 2022, cash flows used in investing activities increased $591 million primarily due to increased payments for capital expenditures and acquisitions partially offset by proceeds of $608 million received from the sale of the Company’s New York operations.
Cash Flows from Investing Activities Presented in the table below is a summary of the major items affecting the Company’s cash flows from investing activities: For the Years Ended December 31, (In millions) 2023 2022 2021 Capital expenditures $ (2,575) $ (2,297) $ (1,764) Acquisitions, net of cash acquired (81) (315) (135) Proceeds from sale of assets, net of cash on hand — 608 472 Removal costs from property, plant and equipment retirements, net (159) (123) (109) Net cash used in investing activities $ (2,815) $ (2,127) $ (1,536) In 2023, cash flows used in investing activities increased $688 million as a result of increased payments for capital expenditures, as well as no assets sales in 2023 whereas 2022 had $608 million of proceeds from the sale of the Company’s New York operations.
These changes were partially offset by lower proceeds from long-term debt. The Company’s financing activities are primarily focused on funding regulated infrastructure expenditures, regulated acquisitions and payment of dividends. These activities included the issuance of long-term and short-term debt, primarily through AWCC.
The Company’s financing activities are primarily focused on funding regulated infrastructure expenditures, regulated acquisitions and payment of dividends. These activities included the issuance of long-term and short-term debt, primarily through AWCC and equity issuances from parent company.
In 2022, the Company invested $2.6 billion, primarily in the Regulated Businesses, as discussed below: Regulated Businesses Growth and Optimization • $2.3 billion capital investment in the Regulated Businesses, the substantial majority for infrastructure improvements and replacements; and • $315 million to fund acquisitions in the Regulated Businesses, which added approximately 70,000 customers during 2022, in addition to approximately 18,500 customers added through organic growth during 2022.
In 2023, the Company invested $2.7 billion, in the Regulated Businesses, as discussed below: Regulated Businesses Growth and Optimization • $2.6 billion capital investment in the Regulated Businesses, the substantial majority for infrastructure improvements and replacements; and • $81 million to fund acquisitions, including deposits for pending acquisitions, in the Regulated Businesses, which added approximately 18,100 customers during 2023, in addition to approximately 18,800 customers added through organic growth during 2023.
The restructuring involved the spin-off of certain inactive participants from the existing AWPP into a separate tax-qualified defined benefit pension plan, the American Water Pension Plan for Certain Inactive Participants (“AWPP Inactive”). Benefits offered to the plan participants remain unchanged.
The restructuring involved the spin-off of certain inactive participants from the existing AWPP into a separate tax-qualified defined benefit pension plan, the American Water Pension Plan for Certain Inactive Participants (“AWPP Inactive”). Benefits offered to the plan participants remain unchanged. Actuarial gains and losses associated with AWPP Inactive are amortized over the average remaining life expectancy of the inactive participants.
The Company does not enter into derivative contracts (through AWCC) for speculative purposes and does not use leveraged instruments. The derivative contracts entered into are for periods consistent with the related underlying exposures. The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations.
The derivative contracts entered into are for periods consistent with the related underlying exposures. The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations.
Presented in the tables below are the aggregate credit facility commitments, commercial paper limit and letter of credit availability under the revolving credit facility, as well as the available capacity for each, as of December 31: 2022 Commercial Paper Limit Letters of Credit Total (a) (In millions) Total availability $ 2,600 $ 150 $ 2,750 Outstanding debt (1,177) (78) (1,255) Remaining availability as of December 31, 2022 $ 1,423 $ 72 $ 1,495 (a) Total remaining availability of $1.50 billion as of December 31, 2022, may be accessed through revolver draws. 67 Table of Content s 2021 Commercial Paper Limit Letters of Credit Total (a) (In millions) Total availability $ 2,100 $ 150 $ 2,250 Outstanding debt (584) (76) (660) Remaining availability as of December 31, 2021 $ 1,516 $ 74 $ 1,590 (a) Total remaining availability of $1.59 billion as of December 31, 2021, may be accessed through revolver draws.
Presented in the tables below are the aggregate credit facility commitments, commercial paper limit and letter of credit availability under the revolving credit facility, as well as the available capacity for each, as of December 31: 2023 Commercial Paper Limit Letters of Credit Total (a) (In millions) Total availability $ 2,600 $ 150 $ 2,750 Outstanding debt (180) (75) (255) Remaining availability as of December 31, 2023 $ 2,420 $ 75 $ 2,495 (a) Total remaining availability of $2.50 billion as of December 31, 2023, was accessible through revolver draws. 68 Table of Contents 2022 Commercial Paper Limit Letters of Credit Total (a) (In millions) Total availability $ 2,600 $ 150 $ 2,750 Outstanding debt (1,177) (78) (1,255) Remaining availability as of December 31, 2022 $ 1,423 $ 72 $ 1,495 (a) Total remaining availability of $1.50 billion as of December 31, 2022, was accessible through revolver draws.
There is no financial impact to the Company as a result of the NJBPU’s order, since the acquisition adjustments are currently recorded as goodwill on the Consolidated Balance Sheets. 55 Table of Content s Consolidated Results of Operations Presented in the table below are the Company’s consolidated results of operations: For the Years Ended December 31, 2022 2021 2020 (In millions) Operating revenues $ 3,792 $ 3,930 $ 3,777 Operating expenses: Operation and maintenance 1,589 1,777 1,622 Depreciation and amortization 649 636 604 General taxes 281 321 303 Total operating expenses, net 2,519 2,734 2,529 Operating income 1,273 1,196 1,248 Other income (expense): Interest expense (433) (403) (397) Interest income 52 4 2 Non-operating benefit costs, net 77 78 49 Gain on sale of businesses 19 747 — Other, net 20 18 22 Total other income (expense) (265) 444 (324) Income before income taxes 1,008 1,640 924 Provision for income taxes 188 377 215 Net income attributable to common shareholders $ 820 $ 1,263 $ 709 Segment Results of Operations The Company’s operating segments are comprised of its businesses which generate revenue, incur expense and have separate financial information which is regularly used by management to make operating decisions, assess performance and allocate resources.
Consolidated Results of Operations Presented in the table below are the Company’s consolidated results of operations: For the Years Ended December 31, 2023 2022 2021 (In millions) Operating revenues $ 4,234 $ 3,792 $ 3,930 Operating expenses: Operation and maintenance 1,720 1,589 1,777 Depreciation and amortization 704 649 636 General taxes 307 281 321 Other (1) — — Total operating expenses, net 2,730 2,519 2,734 Operating income 1,504 1,273 1,196 Other income (expense): Interest expense (460) (433) (403) Interest Income 73 52 4 Non-operating benefit costs, net 32 77 78 Gain on sale of businesses — 19 747 Other, net 47 20 18 Total other income (expense) (308) (265) 444 Income before income taxes 1,196 1,008 1,640 Provision for income taxes 252 188 377 Net income attributable to common shareholders $ 944 $ 820 $ 1,263 57 Table of Contents Segment Results of Operations The Company’s operating segments are comprised of its businesses which generate revenue, incur expense and have separate financial information which is regularly used by management to make operating decisions, assess performance and allocate resources.
The remaining proceeds from the sale of HOS include receipt of a seller promissory note, plus interest, and a contingent cash payment payable upon satisfaction of certain conditions on or before December 31, 2023. If necessary, the Company may delay certain capital investments or other funding requirements or pursue financing from other sources to preserve liquidity.
The remaining proceeds from the sale of HOS include receipt of payments under a secured seller promissory note, plus interest. If necessary, the Company may delay certain capital investments or other funding requirements or pursue financing from other sources to preserve liquidity.
The IRA contains a Corporate Alternative Minimum Tax (“CAMT”) provision, effective January 1, 2023. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1 billion.
To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1 billion. An applicable corporation must make several adjustments to net income when determining AFSI.
Capital Structure Presented in the table below is the percentage of the Company’s capitalization represented by the components of its capital structure as of December 31: 2022 2021 2020 Total common shareholders’ equity 38.3 % 39.9 % 37.1 % Long-term debt and redeemable preferred stock at redemption value 54.4 % 56.6 % 53.6 % Short-term debt and current portion of long-term debt 7.3 % 3.5 % 9.3 % Total 100 % 100 % 100 % The changes in the capital structure mix between periods were mainly attributable to the impacts of the HOS sale on December 9, 2021, and the repayment of short-term borrowings with proceeds from the sale, and the Company’s long-term debt offering that was completed on May 5, 2022.
Capital Structure Presented in the table below is the percentage of the Company’s capitalization represented by the components of its capital structure as of December 31: 2023 2022 2021 Total common shareholders’ equity 44.2 % 38.3 % 39.9 % Long-term debt and redeemable preferred stock at redemption value 52.9 % 54.4 % 56.6 % Short-term debt and current portion of long-term debt 2.9 % 7.3 % 3.5 % Total 100 % 100 % 100 % The change in the capital structure mix in 2023 is mainly attributable to the common stock issuance on March 3, 2023, and the long-term debt issuance on June 29, 2023.
One of the principal market risks to which the Company is exposed is changes in interest rates. In order to manage the exposure, the Company follows risk management policies and procedures, including the use of derivative contracts such as treasury lock agreements. The Company also reduces exposure to interest rates by managing commercial paper and debt maturities.
In order to manage the exposure, the Company follows risk management policies and procedures, including the use of derivative contracts such as treasury lock agreements. The Company also reduces exposure to interest rates by managing commercial paper and debt maturities. The Company does not enter into derivative contracts (through AWCC) for speculative purposes and does not use leveraged instruments.
Presented in the table below are annualized incremental revenues, assuming a constant water sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2022: (In millions) Effective Date Amount Infrastructure surcharges by state: New Jersey (a) $ 11 Pennsylvania (b) 19 Missouri (c) 30 Tennessee August 8, 2022 3 Kentucky July 1, 2022 3 Indiana March 21, 2022 8 West Virginia March 1, 2022 3 Illinois January 1, 2022 6 Total infrastructure surcharge authorizations $ 83 (a) In 2022, $1 million was effective December 30 and $10 million was effective June 27.
Presented in the table below are annualized incremental revenues, assuming a constant sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2023: (In millions) Effective Date Amount Infrastructure surcharges by state: New Jersey (a) $ 32 Kentucky October 1, 2023 4 Indiana (b) 26 Missouri January 16, 2023 14 Pennsylvania January 1, 2023 3 West Virginia January 1, 2023 7 Total infrastructure surcharge authorizations $ 86 (a) In 2023, $15 million was effective October 30, $1 million was effective June 29 and $16 million was effective April 29.
The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss.
The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. In June 2023, the Company terminated the treasury lock agreements realizing a net gain of $3 million included in Other, net in the accompanying Consolidated Statements of Operations.
See Note 18—Fair Value of Financial Information for additional information relating to the seller promissory note and contingent cash payment. For the year ended December 31, 2022, the Company recorded post-close adjustments, primarily related to working capital, of pre-tax income of $20 million, which is included in Gain on sale of businesses on the Consolidated Statements of Operations.
For the year ended December 31, 2022, the Company recorded post-closing adjustments, primarily related to working capital, of pre-tax income of $20 million, which is included in Gain on sale of businesses on the Consolidated Statements of Operations. The Company recognized $50 million of interest income during the years ended December 31, 2023 and 2022, from the secured seller note.
The increase was primarily due to the decrease in the amortization of EADIT due to the completion of stub period amortization, pursuant to regulatory orders.
The increase was primarily due to the decrease in the amortization of EADIT, pursuant to regulatory orders. The amortization of EADIT is generally offset with reductions in revenue.
As of January 1, 2022 , the Company’s health care cost trend rate assumption used to calculate the periodic benefit cost was 6.00% in 2022 gradually declining to 5.00% in 2026 and thereafter. As of December 31, 2022, the Company projects that medical inflation will be 7.00% in 2023 gradually declining to 5.00% in 2031 and thereafter.
In selecting health care cost trend rates, the Company considers past performance and forecasts of increases in health care costs. As of January 1, 2023 , the Company’s health care cost trend rate assumption used to calculate the periodic benefit cost was 7.00% in 2023 gradually declining to 5.00% in 2031 and thereafter.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Company’s primary credit risk is exposure to customer default on contractual obligations and the associated loss that may be incurred due to the non-payment of customer accounts receivable balances.
Biggest changeThe Company’s Regulated Businesses serve residential, commercial, industrial and other customers, while the businesses within Other engage in business activities with government entities and other customers. The Company’s primary credit risk is exposure to customer default on contractual obligations and the associated loss that may be incurred due to the non-payment of customer accounts receivable balances.
In addition, the Regulated Businesses are generally able to recover all prudently incurred costs including uncollectible customer accounts receivable expenses and collection costs through rates. 74 Table of Content s The Company’s retirement trust assets are exposed to the market prices of debt and equity securities.
In addition, the Regulated Businesses are generally able to recover all prudently incurred costs including uncollectible customer accounts receivable expenses and collection costs through rates. The Company’s retirement trust assets are exposed to the market prices of debt and equity securities.
Treasury lock agreements to manage and mitigate interest rate risk exposure. As of December 31, 2022, a hypothetical increase of interest rates by 1% associated with the Company’s short-term borrowings would result in a $6 million increase in short-term interest expense.
Treasury lock agreements to manage and mitigate interest rate risk exposure. As of December 31, 2023, a hypothetical increase of interest rates by 1% associated with the Company’s short-term borrowings would result in a $3 million increase in short-term interest expense.
In addition, there can be no assurances that regulators will grant sufficient rate authorizations. Therefore, the Company’s ability to fully recover operating expense, recover its investment and provide an appropriate return on invested capital made in the Regulated Businesses may be adversely impacted. 75 Table of Content s
In addition, there can be no assurances that regulators will grant sufficient rate authorizations. Therefore, the Company’s ability to fully recover operating expense, recover its investment and provide an appropriate return on invested capital made in the Regulated Businesses may be adversely impacted. 76 Table of Contents
This volatility may make it difficult for the Company to access the capital markets in the future through additional offerings of its common stock or other equity securities, regardless of its financial performance, and such difficulty may preclude the Company from being able to take advantage of certain business opportunities or meet business obligations.
This volatility may make it difficult for the Company to access the capital markets in the future through additional offerings of its common stock or other equity securities, regardless of its financial performance, and such difficulty may preclude the Company from being able to take advantage of certain business opportunities or meet business obligations. 75 Table of Contents The Company is exposed to credit risk through its water, wastewater and related services.
Removed
The Company is exposed to credit risk through its water, wastewater and related services. The Company’s Regulated Businesses serve residential, commercial, industrial and other customers, while the businesses within Other engage in business activities with government entities and other customers.
Added
As of December 31, 2023, the Company had six treasury lock agreements, each with a term of 10 years, with notional amounts totaling $225 million, to reduce interest rate exposure on debt expected to be issued in 2024. These treasury lock agreements terminate in September 2024, and have an average fixed rate of 4.24%.
Added
When entering into treasury locks, the Company is subject to market risk with respect to changes in the underlying benchmark interest rate that impacts the fair value of the treasury locks. The Company manages market risk by matching the terms of the treasury locks with the critical terms of the expected debt issuance.
Added
The fair value of the treasury locks at December 31, 2023, was in a loss position of $8 million. A hypothetical 1% adverse change in interest rates would result in a decrease in the fair value of the treasury locks to a loss position of approximately $26 million at December 31, 2023.

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