# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

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

For	the	fiscal	year	ended	December	31,	2014

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

# AMERICAN	WATER	WORKS	COMPANY,	INC.

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

1025	Laurel	Oak	Road,	Voorhees,	NJ (Address	of	principal	executive	offices)

(Registrant's	telephone	number,	including	area	code)

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

Title	of	each	class

Common	stock,	par	value	$0.01	per	share

Name	of	each	exchange	on	which	registered

New	York	Stock	Exchange,	Inc.

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

# None.

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.				Yes		 x				No		¨

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.					Yes		 ¨				No		x

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

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Web	site,	if	any,	every	Interactive	Data	File	required	to	be	submitted	and	posted pursuant	to	Rule	405	of	Regulation	S-T	(§	232.405	of	this	chapter)	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	submit	and	post	such files).				Yes		x				No		¨

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of	registrant's	knowledge,	in definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.		¨

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer	or	a	smaller	reporting	company.	See	the	definitions	of	"large	accelerated filer,"	"accelerated	filer"	and	"small	reporting	company"	in	Rule	12(b)-2	of	the	Exchange	Act.:

Large	accelerated	filer 	 x

Non-accelerated	filer 	 ¨

Accelerated	filer 	 ¨

Small	reporting	company 	 ¨

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

State	the	aggregate	market	value	of	the	voting	and	non-voting	common	equity	held	by	non-affiliates	computed	by	reference	to	the	price	at	which	the	common	equity	was	last	sold,	or	the average	bid	and	asked	price	of	such	common	equity,	as	of	the	last	business	day	of	the	registrant's	most	recently	completed	second	fiscal	quarter.

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

# DOCUMENTS	INCORPORATED	BY	REFERENCE

(1)	Portions	of	the	Company's	Proxy	Statement	for	the	Company's	2015	Annual	Meeting	of	Stockholders	are	incorporated	by	reference	into	Part	III	of	this	report.

# TABLE	OF	CONTENTS

| Forward-Looking	Statements |  | 1 |
| :--- | :--- | :--- |
|  | Part\tI |  |
| Item\t1. | Business | 3 |
| Item\t1A. | Risk\tFactors | 15 |
| Item\t1B. | Unresolved\tStaff\tComments | 27 |
| Item\t2. | Properties | 27 |
| Item\t3. | Legal\tProceedings | 27 |
| Item\t4. | Mine\tSafety\tDisclosures | 31 |
|  | Part\tII |  |
| Item\t5. | Market\tFor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 32 |
| Item\t6. | Selected\tFinancial\tData | 32 |
| Item\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 33 |
| Item\t7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 68 |
| Item\t8. | Financial\tStatements\tand\tSupplementary\tData | 70 |
| Item\t9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 115 |
| Item\t9A. | Controls\tand\tProcedures | 115 |
| Item\t9B. | Other\tInformation | 116 |
|  | Part\tIII |  |
| Item\t10. | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 117 |
| Item\t11. | Executive\tCompensation | 120 |
| Item\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 120 |
| Item\t13. | Certain\tRelationships\tand\tRelated\tTransactions\tand\tDirector\tIndependence | 120 |
| Item\t14. | Principal\tAccounting\tFees\tand\tServices | 120 |
|  | Part\tIV |  |
| Item\t15. | Exhibits\tand\tFinancial\tStatement\tSchedules | 120 |
| Signatures |  | 121 |
| Exhibit\tIndex |  | 122 |

# FORWARD-LOOKING	STATEMENTS

We	have	made	statements	under	the	captions	"Business,"	"Risk	Factors,"	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of Operations,"	and	in	other	sections	of	this	Annual	Report	on	Form	10-K	("Form	10-K"),	or	incorporated	certain	statements	by	reference	into	this	Form	10-K,	that	are forward-looking	statements	within	the	meaning	of	Section	27A	of	the	Securities	Act	of	1933,	as	amended,	Section	21E	of	the	Securities	Exchange	Act	of	1934,	as amended	(the	"Exchange	Act"),	and	the	Private	Securities	Litigation	Reform	Act	of	1995.	In	some	cases,	these	forward-looking	statements	can	be	identified	by	words with	prospective	meanings	such	as	"intend,"	"plan,"	"estimate,"	"believe,"	"anticipate,"	"expect,"	"predict,"	"project,"	"forecast,"	"outlook,"	"future,"	"potential," "continue,"	"may,"	"can,"	"should"	and	"could"	and	similar	expressions.	Forward-looking	statements	may	relate	to,	among	other	things,	our	future	financial performance,	including	our	operation	and	maintenance	("O&M")	efficiency	ratio,	cash	flows,	our	growth	and	portfolio	optimization	strategies,	our	projected	capital expenditures	and	related	funding	requirements,	our	ability	to	repay	debt,	our	projected	strategy	to	finance	current	operations	and	growth	initiatives,	the	impact	of	legal proceedings	and	potential	fines	and	penalties,	business	process	and	technology	improvement	initiatives,	trends	in	our	industry,	regulatory	or	legal	developments	or	rate adjustments,	including	rate	case	filings,	filings	for	infrastructure	surcharges	and	filings	to	address	regulatory	lag.

Forward-looking	statements	are	predictions	based	on	our	current	expectations	and	assumptions	regarding	future	events.	They	are	not	guarantees	of	any	outcomes, financial	results	or	levels	of	performance	and	you	are	cautioned	not	to	place	undue	reliance	upon	them.	These	forward-looking	statements	are	subject	to	a	number	of risks	and	uncertainties,	and	new	risks	and	uncertainties	of	which	we	are	not	currently	aware	or	which	we	do	not	currently	perceive	may	arise	in	the	future	from	time	to time.	Should	any	of	these	risks	or	uncertainties	materialize,	or	should	any	of	our	expectations	or	assumptions	prove	incorrect,	then	our	results	may	vary	materially	from those	discussed	in	the	forward-looking	statements	herein.	Factors	that	could	cause	actual	results	to	differ	from	those	discussed	in	forward-looking	statements	include,	but are	not	limited	to,	the	factors	discussed	under	the	caption	"Risk	Factors"	and	the	following	factors:

· the	decisions	of	governmental	and	regulatory	bodies,	including	decisions	to	raise	or	lower	rates;

· the	timeliness	of	regulatory	commissions'	actions	concerning	rates,	permitting	and	other	decisions;

· changes	in	customer	demand	for,	and	patterns	of	use	of,	water,	such	as	may	result	from	conservation	efforts;

· changes	in	laws,	governmental	regulations	and	policies,	including	environmental,	health	and	water	quality	and	public	utility	regulations	and	policies;

· weather	conditions,	patterns,	events	or	natural	disasters,	including	drought	or	abnormally	high	rainfall,	strong	winds,	coastal	and	intercoastal	flooding, earthquakes,	landslides,	hurricanes	and	tornados;

· the	outcome	of	litigation	and	government	action	related	to	recent	events	in	West	Virginia;

· our	ability	to	appropriately	maintain	current	infrastructure,	including	our	technology	systems,	and	manage	expansion	of	our	business;

· our	ability	to	obtain	permits	and	other	approvals	for	projects;

· changes	in	our	capital	requirements;

· our	ability	to	control	operating	expenses	and	to	achieve	efficiencies	in	our	operations;

· the	intentional	or	unintentional	actions	of	a	third	party,	including	contamination	of	our	water	supplies	and	attacks	on	our	computer	systems;

· our	ability	to	obtain	adequate	and	cost-effective	supplies	of	chemicals,	electricity,	fuel,	water	and	other	raw	materials	that	are	needed	for	our	operations;

· our	ability	to	successfully	acquire	and	integrate	water	and	wastewater	systems	that	are	complementary	to	our	operations	and	the	growth	of	our	business, including,	among	other	core	growth	opportunities,	concession	arrangements	and	agreements	for	the	provision	of	water	services	in	the	unregulated	shale arena;	cost	overruns	relating	to	improvements	or	the	expansion	of	our	operations;

· changes	in	general	economic,	business	and	financial	market	conditions;

· access	to	sufficient	capital	on	satisfactory	terms;

· fluctuations	in	interest	rates;

· restrictive	covenants	in	or	changes	to	the	credit	ratings	on	our	current	or	future	debt	that	could	increase	our	financing	costs	or	affect	our	ability	to	borrow, make	payments	on	debt	or	pay	dividends;

· fluctuations	in	the	value	of	benefit	plan	assets	and	liabilities	that	could	increase	our	cost	and	funding	requirements;

· our	ability	to	utilize	our	U.S.	and	state	net	operating	loss	carryforwards;

· migration	of	customers	into	or	out	of	our	service	territories	and	the	use	by	municipalities	to	condemn	our	systems	through	eminent	domain;

· difficulty	in	obtaining	insurance	at	acceptable	rates	and	on	acceptable	terms	and	conditions;

· the	incurrence	of	impairment	charges;

· labor	actions,	including	work	stoppages;

· ability	to	retain	and	attract	qualified	employees;	and

· civil	disturbance,	or	terrorist	threats	or	acts	or	public	apprehension	about	future	disturbances	or	terrorist	threats	or	acts.

Any	forward-looking	statements	we	make,	speak	only	as	of	the	date	of	this	Form	10-K.	Except	as	required	by	the	federal	securities	laws,	we	do	not	have	any obligation,	and	we	specifically	disclaim	any	undertaking	or	intention,	to	publicly	update	or	revise	any	forward-looking	statements,	whether	as	a	result	of	new information,	future	events,	changed	circumstances	or	otherwise.

# PART	I

# ITEM	1. BUSINESS

# Our	Company

Founded	in	1886,	American	Water	Works	Company,	Inc.,	(the	"Company,"	"American	Water"	or	"AWW")	is	a	Delaware	holding	company.	American	Water	is the	most	geographically	diversified,	as	well	as	the	largest	publicly-traded,	United	States	water	and	wastewater	utility	company,	as	measured	by	both	operating	revenues and	population	served.	As	a	holding	company,	we	conduct	substantially	all	of	our	business	operations	through	our	subsidiaries.	Our	approximately	6,400	employees provide	an	estimated	15	million	people	with	drinking	water,	wastewater	and/or	other	water-related	services	in	47	states	and	one	Canadian	province.

# Operating	Segments

We	report	our	results	of	operations	in	two	operating	segments:	the	Regulated	Businesses	and	the	Market-Based	Operations.	Additional	information	with	respect to	our	operating	segment	results	is	included	in	the	section	entitled	"Item	7—Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations," and	Note	18	of	the	Consolidated	Financial	Statements.

# Regulated	Businesses

Our	primary	business	involves	the	ownership	of	subsidiaries	that	provide	water	and	wastewater	utility	services	to	residential,	commercial,	industrial	and	other customers,	including	sale	for	resale	and	public	authority	customers.	We	report	the	results	of	this	business	in	our	Regulated	Businesses	segment.	Our	subsidiaries	that provide	these	services	are	generally	subject	to	economic	regulation	by	certain	state	commissions	or	other	entities	engaged	in	economic	regulation,	hereafter	referred	to	as Public	Utility	Commissions,	or	"PUCs,"	of	the	states	in	which	we	operate.	The	federal	and	state	governments	also	regulate	environmental,	health	and	safety,	and	water quality	matters.

The	following	table	sets	forth	our	Regulated	Businesses	operating	revenues,	number	of	customers	and	an	estimate	of	population	served	as	of	December	31, 2014:

|  | Operating<br>Revenues<br>(In	millions) | %	of	Total | Number	of<br>Customers | %	of	Total | Estimated<br>Population<br>Served<br>(In	millions) | %	of	Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| New\tJersey | $652.3 | 24.5% | 648,066 | 20.2% | 2.7 | 22.7% |
| Pennsylvania | 605.4 | 22.6% | 666,415 | 20.7% | 2.2 | 18.5% |
| Missouri | 270.2 | 10.1% | 464,498 | 14.4% | 1.5 | 12.7% |
| Illinois\t(a) | 262.3 | 9.8% | 312,017 | 9.7% | 1.3 | 10.9% |
| California | 209.8 | 7.8% | 174,198 | 5.4% | 0.6 | 5.0% |
| Indiana | 200.6 | 7.5% | 293,666 | 9.1% | 1.2 | 10.1% |
| West\tVirginia\t(b) | 127.0 | 4.7% | 170,371 | 5.3% | 0.6 | 5.0% |
| Subtotal\t(Top\tSeven\tStates) | 2,327.6 | 87.0% | 2,729,231 | 84.8% | 10.1 | 84.9% |
| Other\t(c) | 346.7 | 13.0% | 489,961 | 15.2% | 1.8 | 15.1% |
| Total\tRegulated\tBusinesses | $2,674.3 | 100.0% | 3,219,192 | 100.0% | 11.9 | 100.0% |

(a) Includes	Illinois-American	Water	Company,	which	we	refer	to	as	ILAWC	and	American	Lake	Water	Company,	also	a	regulated	subsidiary	in	Illinois.

(b) Includes	West	Virginia-American	Water	Company,	which	we	refer	to	as	WVAWC,	and	its	subsidiary	Bluefield	Valley	Water	Works	Company.

(c) Includes	data	from	our	operating	subsidiaries	in	the	following	states:	Georgia,	Hawaii,	Iowa,	Kentucky,	Maryland,	Michigan,	New	York,	Tennessee	and Virginia.

# Overview	of	Networks,	Facilities	and	Water	Supply

Our	Regulated	Businesses	operate	in	approximately	1,600	communities	in	16	states	in	the	United	States.	Our	primary	operating	assets	include	89	dams	and	81 surface	water	treatment	plants	along	with	approximately	500	groundwater	treatment	plants,	1,000	groundwater	wells,	100	wastewater	treatment	facilities,	1,200	treated water	storage	facilities,	1,300	pumping	stations,	and	48,000

miles	of	mains	and	collection	pipes.	Our	regulated	utilities	own	substantially	all	of	the	assets	used	by	our	Regulated	Businesses.	We	generally	own	the	land	and	physical assets	used	to	store,	extract	and	treat	source	water.	Typically,	we	do	not	own	the	water	itself,	which	is	held	in	public	trust	and	is	allocated	to	us	through	contracts	and allocation	rights	granted	by	federal	and	state	agencies	or	through	the	ownership	of	water	rights	pursuant	to	local	law.	Maintaining	the	reliability	of	our	networks	is	a	key activity	of	our	Regulated	Businesses.	We	have	ongoing	infrastructure	renewal	programs	in	all	states	in	which	our	Regulated	Businesses	operate.	These	programs	consist of	both	rehabilitation	of	existing	mains	and	other	equipment	and	replacement	of	mains	and	other	equipment	that	are	damaged	or	have	reached,	or	are	near,	the	end	of their	useful	service	lives.

As	noted,	our	Regulated	Businesses	are	dependent	upon	a	defined	source	of	water	supply	and	obtain	their	water	supply	from	surface	water	sources	such	as reservoirs,	lakes,	rivers	and	streams.	In	addition,	we	also	obtain	water	from	ground	water	sources,	such	as	wells,	and	purchase	water	from	other	water	suppliers.	The following	chart	sets	forth	the	sources	of	water	supply	for	our	Regulated	Businesses	for	2014	by	volume:

Our	ability	to	meet	the	existing	and	future	water	demands	of	our	customers	depends	on	an	adequate	supply	of	water.	Drought,	governmental	restrictions,	overuse of	sources	of	water,	the	protection	of	threatened	species	or	habitats	or	other	factors	may	limit	the	availability	of	ground	and	surface	water.	We	employ	a	variety	of measures	to	ensure	that	we	have	adequate	sources	of	water	supply,	both	in	the	short-term	and	over	the	long-term.	The	geographic	diversity	of	our	service	areas	tends	to mitigate	some	of	the	economic	effect	associated	with	weather	extremes	we	might	encounter	in	any	particular	service	territory.	In	any	given	summer,	some	areas	may have	source	issues	and	experience	drier	than	average	weather	while	other	areas	we	serve	may	experience	wetter	than	average	weather.

In	our	long-term	planning,	we	evaluate	quality,	quantity,	growth	needs	and	alternate	sources	of	water	supply	as	well	as	transmission	and	distribution	capacity. Sources	of	supply	are	seasonal	in	nature	and	weather	conditions	can	have	a	pronounced	effect	on	supply.	In	order	to	ensure	that	we	have	adequate	sources	of	water supply,	we	use	planning	processes	and	maintain	contingency	plans	to	minimize	the	potential	impact	on	service	through	a	wide	range	of	weather	fluctuations.	In connection	with	supply	planning	for	most	surface	or	groundwater	sources,	we	employ	models	to	determine	safe	yields	under	different	rainfall	and	drought	conditions. Surface	and	groundwater	levels	are	routinely	monitored	so	that	supply	capacity	deficits	may,	to	the	extent	possible,	be	predicted	and	mitigated	through	demand management	and	additional	supply	development.

Additionally,	in	California	as	part	of	the	Urban	Water	Management	Plan	of	1983,	water	suppliers	serving	greater	than	3,000	acre	feet	per	year	or	3,000 connections	are	required	to	submit	an	Urban	Water	Management	Plan	to	the	Department	of	Water	Resources	every	five	years.	These	plans	assess	water	supply	reliability over	a	20-year	planning	period	under	normal,	dry	and	multi-year	dry	periods	to	ensure	that	water	suppliers	have	adequate	water	supply	for	current	and	future	demands. In	2009,	additional	conservation	elements	were	added	to	the	plan	that	required	utilities	to	show	how	they	could	meet	a	20%	demand	reduction	by	2020.

The	percentage	of	finished	water	supply	by	source	type	for	our	top	seven	states	by	Regulated	Businesses	revenues	for	2014	is	as	follows:

|  | Ground	water | Surface	water | Purchased	Water |
| :--- | :--- | :--- | :--- |
| New\tJersey | 24% | 71% | 5% |
| Pennsylvania | 7% | 92% | 1% |
| Missouri\t(a) | 19% | 80% | 1% |
| Illinois | 35% | 54% | 11% |
| California\t(b) | 66% | — | 34% |
| Indiana | 56% | 43% | 1% |
| West\tVirginia | — | 99% | 1% |

(a) There	are	limitations	in	our	Joplin,	Missouri	service	area	where	the	projected	source	of	water	supply	capacity	is	unable	to	meet	projected	peak	demands	under certain	drought	conditions.	To	manage	this	issue	on	the	demand	side,	the	water	use	of	a	large	industrial	customer	can	be	restricted	under	an	interruptible	tariff. Additional	wells	have	been	and	will	be	developed	to	address	short-term	supply	deficiencies.	Missouri-American	Water	Company	is	working	with	a	consortium of	agencies	to	determine	a	long-term	supply	solution	for	the	Joplin,	Missouri	region.

(b) In	Monterey,	California,	in	order	to	augment	our	sources	of	water	supply,	we	have	implemented	conservation	rates	and	other	programs	to	address	demand.	These include	utilizing	aquifer	storage	and	recovery	facilities	to	store	winter	water	for	summer	use.	Additionally,	in	other	areas	we	are	making	arrangements	to	extend or	expand	our	purchase	of	water	from	neighboring	water	providers.

The	level	of	treatment	we	apply	to	the	water	varies	significantly	depending	upon	the	quality	of	the	water	source	and	customer	stipulations.	Surface	water	sources, such	as	rivers,	typically	require	significant	treatment,	while	some	groundwater	sources,	such	as	aquifers,	require	chemical	treatment	only.	In	addition,	a	small	amount	of treated	water	is	purchased	from	neighboring	water	purveyors.	Treated	water	is	transported	through	our	transmission	and	distribution	network,	which	includes underground	pipes,	above	ground	storage	facilities	and	numerous	pumping	facilities	with	the	ultimate	distribution	of	the	treated	water	to	the	customers'	premises.

We	have	installed	production	meters	to	measure	the	water	that	we	deliver	to	our	distribution	network.	We	also	employ	a	variety	of	methods	of	customer	meter reading	to	monitor	consumption;	ranging	from	meters	with	mechanical	registers	where	consumption	is	manually	recorded	by	meter	readers,	to	meters	with	electronic registers	capable	of	transmitting	consumption	data	to	proximity	devices	(touch	read)	or	via	radio	frequency	to	mobile	or	fixed	network	data	collectors.	The	majority	of new	meters	are	able	to	support	future	advances	in	electronic	meter	reading.

Wastewater	services	involve	the	collection	of	wastewater	from	customers'	premises	through	sewer	lines.	The	wastewater	is	then	transported	through	a	sewer network	to	a	treatment	facility,	where	it	is	treated	to	meet	required	effluent	standards.	The	treated	wastewater	is	finally	returned	to	the	environment	as	effluent,	and	the solid	waste	by-product	of	the	treatment	process	is	disposed	of	in	accordance	with	applicable	standards	and	regulations.

# Economic	Regulation	and	Rate	Making	Process

The	operations	of	our	Regulated	Businesses	are	generally	subject	to	extensive	economic	regulation	by	their	respective	PUCs.	The	term	"economic	regulation"	is intended	to	indicate	that	these	state	PUCs	regulate	the	economic	aspects	of	service	to	the	public	but	do	not	generally	establish	water	quality	standards,	which	are typically	set	by	the	federal	Environmental	Protection	Agency	("EPA")	and/or	state	environmental	authorities.	State	PUCs	have	broad	authority	to	regulate	many	of	the economic	and	service	aspects	of	the	utilities.	For	example,	state	PUCs	often	issue	certificates	of	public	convenience	and	necessity	(or	similar	authorizations)	that	may	be required	for	a	company	to	provide	service	in	specific	areas.	They	also	approve	the	rates	and	conditions	under	which	service	is	provided	and	have	extensive	authority	to establish	rules	and	regulations	under	which	the	utilities	operate.	Specific	authority	might	differ	from	state	to	state,	but	in	most	states	PUCs	approve	rates,	accounting treatments,	long-term	financing	programs	and	cost	of	capital,	significant	capital	expenditures	and	plant	additions,	transactions	and	relationships	between	the	regulated subsidiary	and	affiliated	entities,	reorganizations	and	mergers	and	acquisitions.	In	many	instances,	regulatory	approvals	are	required	to	effect	the	transaction.	Regulatory policies	not	only	vary	from	state	to	state,	but	can	change	over	time	as	well.	These	policies	will	affect	the	timing	as	well	as	the	extent	of	recovery	of	expenses	and	the realized	return	on	invested	capital.	Our	results	of	operations	are	significantly	affected	by	rates	authorized	by	the	PUCs	in	the	states	in	which	we	operate,	and	we	are subject	to	risks	and	uncertainties	associated	with	rate	case	delays	or	inadequate	rate	recovery.

Economic	regulation	of	utilities	involves	many	competing,	and	occasionally	conflicting,	public	interests	and	policy	goals.	The	primary	responsibility	of	PUCs	is to	promote	the	overall	public	interest	by	balancing	the	interests	of	customers	and	utility	investors.	Although	the	specific	approach	to	economic	regulation	varies,	certain general	principles	are	consistent	across	the	states	in	which	our

regulated	subsidiaries	operate.	Based	on	certain	legal	and	regulatory	principles,	economic	regulation	is	generally	intended	to	provide	a	utility	the	right	to	serve	specific geographic	areas.	In	return,	the	utility	undertakes	the	obligation	to	provide	safe	and	adequate	service	to	all	customers	within	its	service	area	and	is	authorized	an	annual revenue	requirement	intended	to	provide	recovery	of	prudent	operation	and	maintenance	costs,	depreciation	and	taxes	and	an	opportunity	to	earn	a	fair	return	on	capital investment	necessary	to	provide	service	to	customers.

Our	operating	revenue	is	typically	determined	by	reference	to	a	volumetric	charge	based	on	consumption	and	a	base	fee	component	set	by	a	tariff	approved	by the	PUC.	The	process	to	obtain	approval	for	a	change	in	rates	generally	occurs	by	way	of	a	"rate	case"	filed	by	the	utility	with	the	PUC	on	a	periodic	basis.	The	timing	of rate	case	filings	may	be	determined	by	either	periodic	requirements	in	the	regulatory	jurisdiction	or	by	the	utility's	need	to	increase	its	revenue	requirement	to	recover capital	investment	costs,	changes	in	operating	revenues,	operating	costs	or	other	market	conditions.	A	PUC	may	also	initiate	the	filing	of	a	rate	case	to	conduct	an investigation	and	may	impose	other	conditions	on	the	content	and	timing	of	filings	under	certain	circumstances.

State	PUCs	differ	with	regard	to	the	types	of	expenses	and	investments	that	may	be	recovered	in	rates	as	well	as	with	regard	to	the	transparency	of	their	rate- making	processes	and	how	they	reach	their	final	rate	determinations.	However,	in	evaluating	a	rate	case,	state	PUCs	typically	focus	on	a	number	of	areas,	including,	the cost	and	prudence	of	investment	in	facilities;	operating	and	maintenance	expenses	and	taxes;	the	appropriate	cost	of	capital	and	equity	return;	revenues	or	consumption at	current	and	expected	levels;	allocation	of	the	revenue	requirements	among	customer	classes;	service	quality	and	issues	raised	by	customers.

Failure	of	the	PUCs	to	recognize	reasonable	and	prudent	operating	and	capital	costs	can	result	in	the	inability	of	the	utility	to	meet	its	debt	service,	provide adequate	service	to	its	customers	and	earn	its	authorized	return,	which	can	impact	the	operations	and	earnings	of	our	Regulated	Businesses.	Rate	cases	and	other	rate- related	proceedings	can	take	several	months	to	over	a	year	to	complete.	Therefore,	there	may	be	delays,	or	regulatory	lag,	between	the	time	one	of	our	regulated subsidiaries	makes	a	capital	investment	or	incurs	an	operating	cost	increase	and	when	those	costs	are	reflected	in	rates.	For	instance,	an	unexpected	increase	in	chemical costs	or	new	capital	investment	that	is	not	reflected	in	the	most	recently	completed	rate	case	will	generally	not	begin	to	be	recovered	by	the	regulated	subsidiary	until	the effective	date	of	the	subsequent	rate	case.	Our	rate	case	management	program	is	guided	by	the	goals	of	obtaining	efficient	recovery	of	costs	of	capital,	recognition	of declining	consumption	and	appropriate	recovery	of	utility	operating	and	maintenance	costs,	including	costs	incurred	for	compliance	with	environmental	regulations.	The management	team	at	each	of	our	Regulated	Businesses	anticipates	the	time	required	for	the	regulatory	process	and	files	rate	cases	with	the	goal	of	obtaining	rates	that reflect	as	closely	as	possible	the	cost	of	providing	service	at	the	time	the	rates	become	effective	and	a	reasonable	opportunity	to	earn	the	authorized	return	on	invested capital,	or	rate	base.

Our	regulated	subsidiaries	work	with	legislatures	and	PUCs	to	mitigate	the	adverse	impact	of	regulatory	lag	through	the	adoption	of	positive	regulatory	policies. These	policies	include,	for	example,	infrastructure	replacement	surcharges	that	allow	rates	to	change	outside	the	context	of	a	general	rate	proceeding	to	reflect,	on	a more	timely	basis,	investments	to	replace	infrastructure	necessary	to	sustain	high	quality,	reliable	service.	Currently,	Pennsylvania,	Illinois,	Missouri,	Indiana,	New York,	New	Jersey	and	Tennessee	allow	the	use	of	infrastructure	surcharges.	Forward-looking	test	year	mechanisms	allow	us	to	earn,	on	a	more	current	basis,	our	current or	projected	usage	and	costs	and	a	rate	of	return	on	our	current	or	projected	invested	capital.	Some	states	have	permitted	the	use	of	a	fully	forecasted	test	year	instead	of historical	data	to	set	rates.	Those	states	are:	Illinois,	Kentucky,	New	York,	Tennessee,	California,	Pennsylvania,	Indiana,	Hawaii	and	Virginia.	In	all	states	in	which	we operate	on	a	regulated	basis,	PUCs	have	allowed	utilities	to	update	historical	data	for	certain	"known	and	measurable"	changes	that	occur	for	some	limited	period	of	time subsequent	to	the	historical	test	year.	This	allows	utilities	to	take	into	account	more	current	costs	or	capital	investments	in	the	rate-setting	process.	The	extent	to	which historical	data	can	be	updated	will	generally	vary	from	state	to	state.

Another	mechanism	to	address	issues	of	regulatory	lag	is	the	ability,	in	certain	circumstances,	to	recover	the	full	return	on	utility	plant	costs	during	the construction	period,	instead	of	capitalizing	an	allowance	for	funds	used	during	construction.	Examples	of	states	that	have	allowed	such	recovery	include	Pennsylvania, Kentucky,	Virginia,	Illinois	and	California.	In	addition,	some	states,	such	as	Indiana,	allow	the	utility	to	seek	pre-approval	of	certain	capital	projects	and	associated	costs. In	this	pre-approval	process,	the	PUC	assesses	the	prudency	of	such	projects.

Surcharge	mechanisms	are	also	available	in	a	number	of	states	to	reflect,	outside	of	a	general	rate	proceeding,	changes	in	major	operating	expenses	which	may	be beyond	the	utility's	control.	For	example,	New	Jersey,	California,	Virginia,	Illinois	and	Tennessee	have	allowed	surcharges	for	purchased	water	costs.	California	has allowed	surcharges	for	power	and	certain	other	costs,	and	New	York	has	allowed	annual	reconciliations	for	expenses	such	as	power,	fuel,	chemicals	and	property	taxes. Tennessee	has	allowed	surcharges	for	power,	chemical	and	Tennessee	River	Authority	inspections	fees.

Certain	states	have	approved	consolidated	rates	or	single-tariff	pricing	policies.	Consolidated	rates	or	single-tariff	pricing	is	the	use	of	a	unified	rate	structure	for multiple	water	systems	that	are	owned	and	operated	by	a	single	utility,	but	may	or	may	not	be	contiguous	or	physically	interconnected.	The	single-tariff	pricing	structure may	be	used	fully	or	partially	in	a	state,	based	on	costs	that	are	determined	on	a	state-wide	or	intra-state	regional	basis,	thereby	moderating	the	impact	of	periodic fluctuations	in	local	costs	while

lowering	administrative	costs	for	our	customers.	For	states	that	do	not	employ	single-tariffs,	we	may	have	multiple	general	rate	cases	filed	at	any	given	point	in	time. Examples	of	states	that	have	adopted	a	full	or	partial	single-tariff	pricing	policy	include:	Pennsylvania,	New	Jersey,	Missouri,	West	Virginia,	Kentucky,	Indiana,	Illinois and	Iowa.	Therefore,	of	our	seven	largest	states,	six	have	some	form	of	single-tariff	pricing.	Pennsylvania	also	permits	a	blending	of	water	and	wastewater	rate structures,	which	results	in	single-tariff	pricing	among	water	and	wastewater	systems.

In	some	states,	the	PUC	has	implemented	mechanisms	to	enhance	utility	revenue	stability	in	light	of	conservation	initiatives,	decreasing	per	capita	consumption or	other	factors.	Sometimes	referred	to	as	"decoupling,"	these	mechanisms,	to	some	extent,	separate	recoverable	revenues	from	volumes	of	water	sold.	For	example,	the state	of	California	has	decoupled	revenues	from	water	sold	to	help	achieve	the	state	initiative	to	reduce	water	usage	by	20%	by	2020.	This	progressive	regulation	enables utilities	to	encourage	water	efficiency,	as	revenues	are	not	tied	to	sales.	Similarly,	New	York	has	implemented	a	surcharge	or	credit	based	on	the	difference	between actual	net	revenues	and	the	revenues	allowed	in	the	most	recent	rate	order.

California	also	has	a	multi-year	cost	of	capital	proceeding	outside	of	the	general	rate	case	process.	This	proceeding	authorizes	the	utility's	capital	structure	and authorized	rates	of	return,	as	well	as	provides	an	automatic	adjustment	mechanism	that	triggers	an	adjustment	to	the	authorized	cost	of	capital	if	the	Moody's	utility	bond index	changes	beyond	certain	thresholds	on	an	annual	basis.

We	pursue	positive	regulatory	policies	as	part	of	our	rate	and	revenue	management	program	to	enhance	our	ability	to	provide	high	quality,	sustainable,	cost effective	service	to	customers,	to	facilitate	efficient	recovery	of	our	costs	and	investments,	and	to	ensure	positive	short-term	liquidity	and	long-term	profitability	for	a financially	stable	company	which	benefits	our	customers,	employees	and	shareholders.	The	ability	to	seek	regulatory	treatment	as	described	above	does	not	guarantee that	the	state	PUCs	will	accept	our	proposal	in	the	context	of	a	particular	rate	case,	and	these	policies	will	reduce,	but	not	eliminate,	regulatory	lag	associated	with traditional	rate	making	processes.	However,	the	Company	strives	to	use	these	and	other	regulatory	policies	to	address	issues	of	regulatory	lag	wherever	appropriate.	It	is also	our	strategy	to	expand	their	use	in	areas	where	they	may	not	currently	apply.

# Customers

We	have	a	large	and	geographically	diverse	customer	base	in	our	Regulated	Businesses.	An	active	customer	is	defined	as	a	party	with	an	active	agreement	to receive	a	specific	service	from	a	connection	to	our	water	or	wastewater	system	as	of	the	last	business	day	of	each	monthly	reporting	period.	Also,	as	in	the	case	of apartment	complexes,	businesses	and	many	homes,	multiple	individuals	may	be	served	by	a	single	contract.

Residential	customers	make	up	the	majority	of	our	customer	base	in	all	of	the	states	in	which	we	operate.	In	2014,	residential	customers	accounted	for	91.0%	of the	customers,	59.3%	of	the	operating	revenues	and	approximately	50.4%	of	the	billed	water	sales	of	our	Regulated	Businesses.	We	also	serve	commercial	customers, such	as	shops	and	businesses;	industrial	customers,	such	as	large-scale	manufacturing	and	production	operations;	and	public	authorities,	such	as	government	buildings and	other	public	sector	facilities,	including	schools.	We	also	supply	water	to	public	fire	hydrants	for	firefighting	purposes,	to	private	fire	customers	for	use	in	fire suppression	systems	in	office	buildings	and	other	facilities,	as	well	as	providing	bulk	water	supplies	to	other	water	utilities	for	distribution	to	their	own	customers.

The	vast	majority	of	our	regulated	water	customers	are	metered,	which	allows	us	to	measure	and	bill	for	our	customers'	water	consumption,	typically	on	a monthly	basis.	Our	wastewater	customers	are	billed	either	on	a	fixed	charge	basis	or	based	on	their	water	consumption.

In	fiscal	year	2014,	no	single	Regulated	Businesses	customer	accounted	for	more	than	10%	of	our	consolidated	annual	operating	revenues.

The	following	table	sets	forth	the	number	of	water	and	wastewater	customers	(by	customer	class)	for	our	Regulated	Businesses	as	of	December	31,	2014,	2013, and	2012:

|  | Water | Wastewater | Water | Wastewater | Water | Wastewater |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Residential | 2,813,715 | 117,602 | 2,813,601 | 117,584 | 2,783,354 | 95,576 |
| Commercial | 218,314 | 6,221 | 219,510 | 6,287 | 218,988 | 5,477 |
| Industrial | 3,793 | 17 | 3,822 | 16 | 3,894 | 12 |
| Public\t&amp;\tother | 59,249 | 281 | 58,420 | 259 | 50,702 | 223 |
| Total | 3,095,071 | 124,121 | 3,095,353 | 124,146 | 3,056,938 | 101,288 |

Changes	in	customer	growth	in	our	Regulated	Businesses	is	driven	by	(i)	organic	population	growth	or	contraction	in	our	authorized	service	areas;	(ii)	adding new	customers	to	our	regulated	customer	base	by	acquiring	water	and/or	wastewater	utility	systems;	and	(iii)	the	sale	of	water	to	other	community	water	systems. Generally,	we	add	customers	through	tuck-ins	of	small	and	medium	water	and/or	wastewater	systems,	in	close	geographic	proximity	to	areas	where	we	operate	our Regulated	Businesses,	which	we	refer	to	as	"tuck-ins."	We	will	continue	to	acquire	water	and	wastewater	utilities	through	tuck-ins.	The	proximity	of	tuck-in opportunities	to	our	regulated	footprint	allows	us	to	integrate	and	manage	the	acquired	systems	and	operations	primarily	using	our	existing	management	and	to	achieve efficiencies.	Historically,	pursuing	tuck-ins	has	been	a	fundamental	part	of	our	growth	strategy.	We	intend	to	continue	to	expand	our	regulated	footprint	geographically by	acquiring	water	and	wastewater	systems	in	our	existing	markets	and,	if	appropriate,	certain	markets	in	the	United	States	where	we	do	not	operate	our	Regulated Businesses.	We	will	also	selectively	seek	larger	acquisitions	that	allow	us	to	acquire	multiple	water	and	wastewater	utility	systems	in	our	existing	and	new	markets. Before	entering	new	regulated	markets,	we	will	evaluate	the	regulatory	environment	to	ensure	that	we	will	have	the	opportunity	to	achieve	an	appropriate	rate	of	return on	our	investment	while	maintaining	our	high	standards	for	quality,	reliability	and	compliance	with	environmental,	health	and	safety	and	water	quality	standards.

# Seasonality

Customer	usage	of	water	is	affected	by	weather	conditions,	particularly	during	the	summer.	Our	water	systems	generally	experience	higher	demand	in	the summer	due	to	the	warmer	temperatures	and	increased	usage	by	customers	for	lawn	irrigation	and	other	outdoor	uses.	Summer	weather	that	is	cooler	and/or	wetter	than average	generally	serves	to	suppress	customer	water	demand	and	can	reduce	water	operating	revenues	and	operating	income.	Summer	weather	that	is	hotter	and	drier than	average	generally	increases	operating	revenues	and	operating	income.	However,	when	weather	conditions	are	extremely	dry,	and	even	if	our	water	supplies	are sufficient	to	serve	our	customers,	our	systems	may	be	affected	by	drought-related	warnings	and/or	water	usage	restrictions	imposed	by	governmental	agencies,	thereby reducing	customer	usage	and	operating	revenues.	These	restrictions	may	be	imposed	at	a	regional	or	state	level	and	may	affect	our	service	areas,	regardless	of	our readiness	to	meet	unrestricted	customer	demands.	Other	factors	affecting	our	customers'	usage	of	water	include	conservation	initiatives,	such	as	the	use	of	more efficient	household	fixtures	and	appliances	among	residential	consumers;	declining	household	sizes	in	the	United	States;	and	changes	in	the	economy	and	credit	markets which	could	have	significant	impacts	on	our	industrial	and	commercial	customers'	operational	and	financial	performance.

# Competition

In	our	Regulated	Businesses,	we	generally	do	not	face	direct	competition	in	providing	services	in	our	existing	markets	because	(i)	we	operate	within	those markets	pursuant	to	certificates	of	public	convenience	and	necessity	(or	similar	authorizations)	issued	by	state	PUCs;	and	(ii)	the	high	cost	of	constructing	a	new	water and	wastewater	system	in	an	existing	market	creates	a	barrier	to	market	entry.	Our	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.	Our	largest	investor-owned	competitors,	when	pursuing	acquisitions,	based	on	a	comparison	of	operating	revenues	and population	served,	are	Aqua	America	Inc.,	United	Water	(owned	by	Suez	Environnement),	American	States	Water	Co.	and	California	Water	Services	Group.	From	time to	time,	we	also	face	competition	from	infrastructure	funds,	multi-utility	companies	and	others,	such	as	Algonquen	Power,	Colix	and	others.

# Supplies

Our	water	and	wastewater	operations	require	an	uninterrupted	supply	of	chemicals,	energy	and	fuel,	as	well	as	maintenance	material	and	other	critical	inputs. Many	of	these	inputs	are	subject	to	short-term	price	volatility.	Short-term	price	volatility	is	partially	mitigated	through	existing	procurement	contracts,	current	supplier continuity	plans,	the	regulatory	rate	setting	process	and	rate	mechanisms.

Because	of	our	geographic	diversity,	we	maintain	relationships	with	many	chemical,	equipment	and	service	suppliers	in	the	marketplace,	and	we	do	not	rely	on any	single	entity	for	a	significant	amount	of	our	supplies.	We	also	employ	a	strategic	sourcing	process	intended	to	ensure	reliability	in	supply	and	long-term	cost effectiveness.	As	a	result	of	this	process	and	our	strong	relationships	with	suppliers,	we	have	historically	been	able	to	mitigate	interruptions	in	the	delivery	of	the products	and	services	that	are	critical	to	our	operations.

We	typically	have	a	combination	of	standby	power	generation	or	dual	electric	service	feeds	at	key	facilities,	multiple	water	production	facilities,	emergency interconnections	with	adjacent	water	systems	and	finished	water	storage	that	keep	our	operations	running	in	the	event	of	a	temporary	loss	of	our	primary	energy supplies.

# Condemnation

The	potential	exists	that	all	or	portions	of	our	regulated	subsidiaries'	utility	assets	could	be	acquired	by	municipalities	or	other	local	government	entities	through one	or	more	of	the	following	methods:

· eminent	domain	(also	known	as	condemnation);

· the	right	of	purchase	given	or	reserved	by	a	municipality	or	political	subdivision	when	the	original	certificate	of	public	convenience	and	necessity	was granted;	and

· the	right	of	purchase	given	or	reserved	under	the	law	of	the	state	in	which	the	utility	subsidiary	was	incorporated	or	from	which	it	received	its	certificate.

For	example,	condemnation	threats	have	been	made	over	the	last	several	years	with	respect	to	the	following	systems:

· Mooresville,	Indiana:	The	Town	of	Mooresville	(approximately	3,700	customer	connections)	filed	a	lawsuit	to	condemn	Indiana	American's	Mooresville operations	in	August	2012.	The	Town	originally	offered	$6.5	million,	while	Indiana-American's	appraisal	valued	the	system	at	$24.1	million.	Following a	June/July	2014	trial,	the	jury	determined	the	Mooresville	operations	had	a	value	of	$20.3	million.	As	a	result	of	the	determination,	the	Town	decided not	to	pursue	the	purchase.

· Monterey,	California:	A	citizens	group	in	Monterey,	California	(approximately	40,000	customer	connections)	submitted	enough	signatures	to	have	a measure	added	to	the	June	2014	election	ballot	asking	voters	to	decide	whether	the	local	water	management	district	should	conduct	a	nine-month feasibility	study	concerning	the	potential	purchase	of	the	assets	of	the	California	American	Water's	Monterey	service	district.	In	the	election,	the	voters rejected	the	proposed	feasibility	study;	although	it	is	possible	that	similar	initiatives	may	be	pursued	in	the	future.

The	acquisition	consideration	related	to	such	a	transaction	initiated	by	a	local	government	may	be	determined	consistent	with	applicable	eminent	domain	law,	or may	be	negotiated	or	fixed	by	appraisers	as	prescribed	by	the	law	of	the	state	or	in	the	particular	franchise	or	charter.	We	believe	our	Regulated	Businesses	would	be entitled	to	fair	market	value	for	any	assets	required	to	be	sold,	and	we	are	of	the	opinion	that	fair	market	value	would	be	in	excess	of	the	book	value	for	such	assets.	For additional	information,	including	with	respect	to	ongoing	condemnation	efforts,	see	"Item	1A—Risk	Factors—The	assets	of	our	Regulated	Businesses	are	subject	to condemnation	through	eminent	domain."

We	actively	monitor	condemnation	activities	that	may	affect	us	as	soon	as	we	become	aware	of	them.	We	do	not	believe	that	condemnation	poses	a	material threat	to	our	ability	to	operate	our	Regulated	Businesses.

# Market-Based	Operations

In	addition	to	our	Regulated	Businesses,	we	also	provide	services	to	military	bases,	municipalities,	industrial,	commercial	and	residential	customers	that	are	not subject	to	economic	regulation	by	state	PUCs	and	do	not	require	substantial	infrastructure	investment	through	our	Market-Based	Operations.	For	2014,	operating revenues	for	our	Market-Based	Operations	was	$354.7	million,	or	11.8%	of	total	operating	revenues.	In	2014,	no	single	customer	accounted	for	more	than	10%	of	our consolidated	annual	operating	revenues.

Our	Market-Based	Operations	include	three	lines	of	business:

· Military	Services	Group,	which	enters	into	50-year	contracts	with	the	Department	of	Defense	for	the	operation	and	maintenance	of	the	water	and wastewater	systems	on	certain	military	bases;

· Homeowner	Services	Group,	which	provides	services	to	domestic	homeowners	and	smaller	commercial	establishments	to	protect	against	the	cost	of repairing	broken	or	leaking	water	pipes,	clogged	or	blocked	sewer	pipes	inside	and	outside	their	accommodations	and	interior	electric	line	repairs;	and

· Contract	Operations	Group,	which	enters	into	contracts	to	operate	and	maintain	water	and	wastewater	facilities	and	other	related	services	mainly	for municipalities	and	the	food	and	beverage	industry.

In	November	2014,	we	disposed	of	our	Class	B	Biosolids	line	of	business	by	selling	our	subsidiary	Terratec	Environmental	Ltd	("Terratec"),	which	provided biosolids	management,	transport	and	disposal	services	to	municipal	and	industrial	customers	in	Ontario,	Canada.	In	accordance	with	generally	accepted	accounting principles	in	the	United	States	("GAAP"),	the	results	of	Terratec	are	presented	as	discontinued	operations	and,	as	such,	have	been	excluded	from	continuing	operations and	operating	segment	results	for	all	periods	presented.	Unless	otherwise	noted,	all	information	in	this	Form	10-K	is	presented	on	the	basis	of	continuing	operations.	See Note	3	of	the	Consolidated	Financial	Statements	for	additional	details	on	our	discontinued	operations.

# Military	Services	Group

Our	Military	Services	Group	has	eleven	50-year	contracts	with	the	Department	of	Defense	for	the	operation	and	maintenance	of	the	water	and	wastewater systems	on	certain	military	bases.	All	of	our	contracts	with	the	U.S.	government	may	be	terminated,	in	whole	or	in	part,	prior	to	the	end	of	the	50-year	term	for convenience	of	the	U.S.	government	or	as	a	result	of	default	or	non-performance	by	the	subsidiary	performing	the	contract.	In	either	event,	pursuant	to	the	standard	terms of	the	U.S.	government	contract	termination	provisions,	we	would	be	entitled	to	recover	allowable	costs	that	we	may	have	incurred	under	the	contract,	plus	the	contract profit	margin	on	incurred	costs.	The	contract	price	for	nine	of	these	contracts	is	subject	to	redetermination	two	years	after	commencement	of	operations	and	every	three years	thereafter.	Price	redetermination	is	a	contract	mechanism	to	periodically	adjust	the	service	fee	in	the	next	period	to	reflect	changes	in	contract	obligations	and anticipated	market	conditions.	Two	contracts	are	subject	to	annual	price	adjustments	under	a	mechanism	similar	to	price	redetermination,	called	"Economic	Price Adjustment."	During	the	contract	term,	we	may	make	limited	short-term	capital	investments	under	our	contracts	with	the	United	States	military.	.

# Homeowner	Services	Group

Our	Homeowner	Services	Group,	through	our	Service	Line	Protection	Program,	provides	services	to	domestic	homeowners	and	smaller	commercial establishments	to	protect	against	the	cost	of	interior	and	external	water	and	sewer	line	repairs	and	interior	electric	line	repairs.	Our	LineSaver™	program	involves partnering	with	municipalities	to	offer	our	protection	programs	to	homeowners	serviced	by	the	municipalities.	As	of	December	31,	2014,	our	Homeowner	Services Group	has	approximately	1.4	million	customer	contracts	in	43	states	and	the	District	of	Columbia.

# Contract	Operations	Group

Our	Contract	Operations	Group	enters	into	public/private	partnerships,	including	O&M,	Design,	Build	and	Operate	("DBO")	and	Design,	Build,	Finance,	Operate and	Maintain	("DBFOM")	contracts	for	the	provision	of	services	to	water	and	wastewater	facilities	for	municipalities,	the	food	and	beverage	industry	and	other customers.	We	are	party	to	approximately	70	contracts,	varying	in	size	and	scope,	across	the	United	States	and	Canada,	with	contracts	ranging	in	terms	from	one	to	30 years.	Historically,	we	have	made	little	long-term	capital	investment	under	these	contracts	with	municipalities	and	other	customers;	instead	we	perform	our	services	for	a fee.	Occasionally	we	provide	our	customers	with	financing	for	capital	projects	as	part	of	a	long-term	operations	and	maintenance	partnership.

We	face	competition	in	our	Market-Based	Operations	from	a	number	of	service	providers,	including	Veolia	Environnement,	American	States	Water,	OMI	and Southwest	Water,	particularly	in	the	area	of	O&M	contracting.	Securing	new	O&M	contracts	is	highly	competitive,	as	these	contracts	are	awarded	based	on	a combination	of	customer	relationships,	service	levels,	competitive	pricing,	references	and	technical	expertise.	We	also	face	competition	in	maintaining	existing	O&M contracts	to	which	we	are	a	party,	as	the	municipal	and	industrial	fixed	term	contracts	frequently	come	up	for	renegotiation	and	are	subject	to	an	open	bidding	process.

Our	Homeowner	Services	Group	faces	competition	outside	our	existing	footprint	primarily	from	HomeServe	USA	and	Utility	Service	Partners,	Inc.

# Industry	Matters

# Overview

The	United	States	water	and	wastewater	industry	has	two	main	sectors:	(i)	utility	ownership,	which	involves	supplying	water	and	wastewater	services	to consumers;	and	(ii)	general	services,	which	involves	providing	water	and	wastewater	related	services	to	water	and	wastewater	utilities	and	other	customers	on	a	contract basis.

The	utility	sector	includes	investor-owned	as	well	as	municipal	systems	that	are	owned	and	operated	by	local	governments	or	governmental	subdivisions.	The EPA	estimates	that	government-owned	systems	account	for	approximately	84%	of	all	United	States	community	water	systems	and	approximately	98%	of	all	United States	community	wastewater	systems.	Investor-owned	water	and	wastewater	systems,	including	a	small	number	of	private	companies	and	developers,	account	for	the remainder	of	the	United	States	water	and	wastewater	systems.	Growth	of	service	providers	in	the	investor-owned	regulated	utility	sector	is	achieved	through	organic growth	within	a	franchise	area,	the	provision	of	bulk	water	service	to	other	community	water	systems	and/or	acquisitions	of	entire	systems,	including	small	and	medium water	and	wastewater	systems	that	are	in	close	geographic	proximity	to	already	established	regulated	operations,	as	well	as	acquisitions	in	new	service	areas.

According	to	the	EPA,	the	utility	segment	of	the	United	States	water	and	wastewater	industry	is	highly	fragmented,	with	approximately	52,000	community	water systems	and	approximately	15,000	community	wastewater	facilities.	Over	half	of	the	community	water	systems	are	very	small,	serving	a	population	of	500	or	less.

This	large	number	of	relatively	small,	fragmented	water	systems	as	well	as	fragmented	wastewater	facilities	may	result	in	inefficiencies	in	the	marketplace,	since such	utilities	may	not	have	the	operating	expertise,	financial	and	technological	capability	or	economies	of	scale	to	provide	services	or	raise	capital	as	efficiently	as	larger utilities.	Larger	utilities	that	have	greater	access	to	capital	are	generally	more	capable	of	making	mandated	and	other	necessary	infrastructure	upgrades	to	both	water	and wastewater	systems.	In	addition,	water	and	wastewater	utilities	with	large	customer	bases,	spread	across	broad	geographic	regions,	may	more	easily	absorb	the	impact	of significant	variations	in	precipitation	and	temperatures,	such	as	droughts,	excessive	rain	and	cool	temperatures	in	specific	areas.	Larger	utilities	generally	are	able	to spread	support	services	over	a	larger	customer	base,	thereby	reducing	the	costs	to	serve	each	customer.	Since	many	administrative	and	support	activities	can	be efficiently	centralized	to	gain	economies	of	scale,	companies	that	participate	in	industry	consolidation	have	the	potential	to	improve	operating	efficiencies,	lower	costs per	unit	and	improve	service	at	the	same	time.

The	utility	sector	is	characterized	by	high	barriers	to	entry,	given	the	capital	intensive	nature	of	the	industry.	The	aging	water	and	wastewater	infrastructure	in	the United	States	is	in	constant	need	of	modernization	and	replacement.	Increased	regulations	to	improve	water	quality	and	the	management	of	water	and	wastewater residuals'	discharges,	which	began	with	passage	of	the	Clean	Water	Act	in	1972	and	the	Safe	Drinking	Water	Act	in	1974,	have	been	among	the	primary	drivers	of	the need	for	modernization.	In	2007,	the	EPA	estimated	that	approximately	$390	billion	of	capital	spending	would	be	necessary	over	the	then	next	20	years	to	replace	aging infrastructure	and	ensure	quality	wastewater	systems	across	the	United	States.	The	EPA	estimated	that	the	nation's	drinking	water	utilities	need	$384	billion	in infrastructure	investments	for	thousands	of	miles	of	pipe	as	well	as	thousands	of	treatment	plants	storage	tanks,	and	other	key	assets	between	2011	and	2030	to	ensure the	public	health,	security	and	economic	well-being	of	our	cities,	towns	and	communities.	Additionally,	in	2013	the	American	Society	of	Civil	Engineers'	("ASCE"), Report	Card	for	America's	Infrastructure,	gave	the	water	and	wastewater	infrastructure	a	grade	of	"D"	due	to	the	fact	that	much	of	the	infrastructure	is	nearing	the	end of	its	useful	life.	The	report	concluded	that	there	will	be	an	investment	gap	between	now	and	2020	of	$84	billion	for	drinking	water	and	wastewater	infrastructure.

The	following	chart	sets	forth	estimated	capital	expenditure	needs	from	2011	through	2030	for	United	States	water	systems:

Note:		Numbers	may	not	total	due	to	rounding

Source:		U.S.	Environmental	Protection	Agency's	2011	Drinking	Water	Infrastructure	Needs	Survey	and	Assessment

For	2015	to	2019,	we	estimate	that	Company-funded	capital	investment	will	amount	to	approximately	$6.0	billion.	Of	the	$6.0	billion,	$5.2	billion	is	anticipated to	be	utilized	to	upgrade	our	infrastructure	and	systems.	In	addition	to	these	capital	expenditures,	we	are	also	estimating	additional	capital	investment	over	the	five-year period	of	approximately	$0.8	billion	for	acquisitions	and	for	strategic	capital.	Strategic	investments	could	include	opportunities	in	the	unregulated	shale	arena,	or investments	related	to	the	water/energy	nexus,	and/or	concession	agreements	or	acquisitions.	Our	total	capital	plan	for	2015	is	estimated	to	be	approximately	$1.2	billion with	approximately	$1.1	billion	allocated	to	upgrading	our	infrastructure	and	systems,	including	infrastructure	renewal	programs	and	construction	of	facilities	to	meet environmental	requirements	and	new	customer	growth.	The	remaining	$0.1	billion	is	expected	to	be	spent	for	acquisitions	and	strategic	investment	purposes.	The	charts below	set	forth	our	estimated	percentage	of	projected	capital	expenditures	over	the	period	of	2015	to	2019	for	upgrading	our	infrastructure	and	systems	by	asset	type	and purpose	of	investment,	respectively:

# Water	and	Wastewater	Rates

Water	and	wastewater	rates	in	the	United	States	are	among	the	lowest	for	developed	countries;	and	for	most	U.S.	consumers,	water	and	wastewater	bills	make	up a	relatively	small	percentage	of	household	expenditures	compared	to	other	utility	services.	The	following	chart	sets	forth	the	relative	cost	of	water	and	other	public services,	including	trash	and	garbage	collection	and	sewer	maintenance,	in	the	United	States	as	a	percentage	of	total	household	utility	expenditures:

*Source:		Bureau	of	Labor	Statistics-Consumer	Expenditures	Survey,	2012	(assumes	four	person	household)

# Environmental,	Health	and	Safety	and	Water	Quality	Regulation

Our	water	and	wastewater	operations,	including	the	services	provided	under	both	our	Regulated	Businesses	and	Market-Based	Operations,	are	subject	to extensive	United	States	federal,	state	and	local	laws	and	regulations,	and	in	the	case	of	our	Canadian	operations,	Canadian	laws	and	regulations	governing	the	protection of	the	environment,	health	and	safety,	the	quality	of	the	water	we	deliver	to	our	customers,	water	allocation	rights	and	the	manner	in	which	we	collect,	treat,	discharge and	dispose	of	wastewater.	We

are	also	subject	to	certain	regulations	regarding	fire	protection	services	in	the	areas	we	serve.	These	regulations	include	the	Safe	Drinking	Water	Act,	the	Clean	Water Act	and	other	federal,	state,	local	and	Canadian	laws	and	regulations	governing	the	provision	of	water	and	wastewater	services,	particularly	with	respect	to	the	quality	of water	we	distribute.	We	also	are	subject	to	various	federal,	state,	local	and	Canadian	laws	and	regulations	governing	the	storage	of	hazardous	materials,	the	management and	disposal	of	hazardous	and	solid	wastes,	discharges	to	air	and	water,	the	cleanup	of	contaminated	sites,	dam	safety	and	other	matters	relating	to	the	protection	of	the environment	and	health	and	safety.	State	PUCs	also	set	conditions	and	standards	for	the	water	and	wastewater	services	we	deliver.

Environmental,	health	and	safety	and	water	quality	regulations	are	complex	and	change	frequently.	The	overall	trend	has	been	that	they	have	become	more stringent	over	time.	As	newer	or	stricter	standards	are	introduced,	our	capital	and	operating	costs	could	increase.	We	incur	substantial	costs	associated	with	compliance with	environmental,	health	and	safety	and	water	quality	regulation	to	which	our	Regulated	Businesses	are	subject.	In	the	past,	we	have	generally	been	able	to	recover costs	associated	with	compliance	related	to	environmental,	health	and	safety	standards,	but	this	recovery	is	affected	by	regulatory	lag	and	the	corresponding uncertainties	surrounding	rate	recovery.

We	maintain	an	appropriate	environmental	policy	including	responsible	business	practices,	compliance	with	environmental	laws	and	regulations,	effective	use	of natural	resources,	and	stewardship	of	biodiversity.	We	believe	that	our	operations	are	materially	in	compliance	with,	and	in	many	cases	surpass,	minimum	standards required	by	applicable	environmental	laws	and	regulations.	Water	samples	from	across	our	water	systems	are	analyzed	on	a	regular	basis	for	compliance	with	regulatory requirements.	Across	the	Company,	we	conduct	over	one	million	water	quality	tests	each	year	at	our	laboratory	facilities	and	plant	operations,	including	continuous	on- line	instrumentations	such	as	monitoring	turbidity	levels,	disinfectant	residuals	and	adjustments	to	chemical	treatment	based	on	changes	in	incoming	water.	For	2014,	we achieved	a	score	of	greater	than	99%	for	drinking	water	compliance	and	according	to	the	EPA	statistics,	American	Water's	performance	has	been	far	better	than	the industry	average	over	the	last	several	years.	In	fact,	in	2014,	American	Water	was	20	times	better	than	the	industry	average	for	compliance	with	drinking	water	quality standards	(Maximum	Contaminant	Levels)	and	150	times	better	for	compliance	with	drinking	water	monitoring	and	reporting	requirements.

We	participate	in	the	Partnership	for	Safe	Water,	EPA's	voluntary	program	to	meet	more	stringent	goals	for	reducing	microbial	contaminants.	With	68	of	our	81 surface	water	plants	receiving	the	program's	"Director"	award,	which	recognizes	utilities	that	have	completed	a	comprehensive	self-	assessment	report,	created	an	action plan	for	continuous	improvement	and	produces	high	quality	drinking	water,	we	account	for	approximately	one-third	of	the	plants	receiving	such	awards	nationwide.	In addition,	63	American	Water	plants	have	received	the	"Five-Year	Phase	III"	award,	while	59	have	been	awarded	the	"Ten-Year	Phase	III"	award.	Additionally,	three plants	received	the	inaugural	"Fifteen-Year	Phase	III"	award,	which	recognizes	plants	that	have	met	the	Director	award	status	for	15	years.

# Safe	Drinking	Water	Act

The	Federal	Safe	Drinking	Water	Act	and	regulations	promulgated	thereunder	establish	national	quality	standards	for	drinking	water.	The	EPA	has	issued	rules governing	the	levels	of	numerous	naturally	occurring	and	man-made	chemical	and	microbial	contaminants	and	radionuclides	allowable	in	drinking	water	and	continues to	propose	new	rules.	These	rules	also	prescribe	testing	requirements	for	detecting	regulated	contaminants,	the	treatment	systems	which	may	be	used	for	removing	those contaminants	and	other	requirements.	Federal	and	state	water	quality	requirements	have	become	increasingly	stringent,	including	increased	water	testing	requirements,	to reflect	public	health	concerns.	To	date,	the	EPA	has	set	standards	for	approximately	90	contaminants	and	indicators	for	drinking	water.	Further,	certain	of	our	water systems	are	in	the	process	of	monitoring	for	28	additional	contaminants	that	are	not	currently	regulated	to	help	the	EPA	determine	if	any	of	them	occur	at	high	enough levels	to	warrant	being	regulated.	There	are	thousands	of	other	chemical	compounds	that	are	not	regulated,	many	of	which	are	lacking	a	testing	methodology,	occurrence data,	health	effects	information	and/or	treatment	technology.

To	effect	the	removal	or	inactivation	of	microbial	organisms,	the	EPA	has	promulgated	various	rules	to	improve	the	disinfection	and	filtration	of	drinking	water and	to	reduce	consumers'	exposure	to	disinfectants	and	byproducts	of	the	disinfection	process.	In	January	2006,	the	EPA	promulgated	the	Long-term	2	Enhanced Surface	Water	Treatment	Rule	and	the	Stage	2	Disinfectants	and	Disinfection	Byproduct	Rule.	In	October	2006,	the	EPA	finalized	the	Ground	Water	Rule,	applicable	to water	systems	providing	water	from	underground	sources.	The	EPA	also	revised	the	monitoring	and	reporting	requirements	of	the	existing	Lead	and	Copper	Rule	in 2007	and	Congress	enacted	the	Reduction	of	Lead	in	Drinking	Water	Act	on	January	4,	2011	regarding	the	use	and	introduction	into	commerce	of	lead	pipes,	plumbing fittings	or	fixtures,	solder	and	flux.	In	2012,	the	EPA	finalized	revisions	to	the	Total	Coliform	Rule	that	were	part	of	the	mandate	of	a	Federal	Advisory	Committee appointed	to	negotiate	the	changes.	Most	of	the	anticipated	changes	to	the	rule	will	not	be	effective	until	2016.	The	EPA	is	actively	considering	regulations	for	a	number of	contaminants,	including,	strontium,	hexavalent	chromium,	fluoride,	nitrosamines,	perchlorate,	some	pharmaceuticals	and	certain	volatile	organic	compounds,	but	we do	not	anticipate	that	any	of	these	regulations	will	require	implementation	in	2015.	On	July	1,	2014	the	State	of	California	implemented	a	standard	making	the	primary drinking	water	standard	10	ug/L	for	hexavalent	chromium.	We	are	in	compliance	with	this	new	standard.

Although	it	is	difficult	to	project	the	ultimate	costs	of	complying	with	the	above	or	other	pending	or	future	requirements,	we	do	not	expect	current	requirements under	the	Safe	Drinking	Water	Act	to	have	a	material	impact	on	our	operations	or	financial	condition.	In	addition,	capital	expenditures	and	operating	costs	to	comply with	environmental	mandates	traditionally	have	been	recognized	by	PUCs	as	appropriate	for	inclusion	in	establishing	rates.	As	a	result,	we	expect	to	fully	recover	the operating	and	capital	costs	resulting	from	these	pending	or	future	requirements.

# Clean	Water	Act

The	Federal	Clean	Water	Act	regulates	discharges	from	drinking	water	and	wastewater	treatment	facilities	into	lakes,	rivers,	streams	and	groundwater.	In addition	to	requirements	applicable	to	our	wastewater	collection	systems,	our	operations	require	discharge	permits	under	the	National	Pollutant	Discharge	Elimination System	("NPDES")	permit	program	established	under	the	Clean	Water	Act.	Pursuant	to	the	NPDES	program,	the	EPA	or	implementing	states	set	maximum	discharge limits	for	wastewater	effluents	and	overflows	from	wastewater	collection	systems.	We	maintain	the	necessary	permits	and	approvals	for	the	discharges	from	our	water and	wastewater	facilities.	From	time	to	time,	discharge	violations	occur	at	our	facilities,	some	of	which	result	in	fines.	We	do	not	expect	any	such	violations	or	fines	to have	a	material	impact	on	our	results	of	operations	or	financial	condition.

# Other	Environmental,	Health	and	Safety	and	Water	Quality	Matters

Our	operations	also	involve	the	use,	storage	and	disposal	of	hazardous	substances	and	wastes.	For	example,	our	water	and	wastewater	treatment	facilities	store and	use	chlorine	and	other	chemicals	which	generate	wastes	that	require	proper	handling	and	disposal	under	applicable	environmental	requirements.	We	also	could	incur remedial	costs	in	connection	with	any	contamination	relating	to	our	operations	or	facilities	or	our	off-site	disposal	of	wastes.	Although	we	are	not	aware	of	any	material cleanup	or	decontamination	obligations,	the	discovery	of	contamination	or	the	imposition	of	such	obligations	in	the	future	could	result	in	additional	costs.	Our	facilities and	operations	also	are	subject	to	requirements	under	the	United	States	Occupational	Safety	and	Health	Act	and	are	subject	to	inspections	thereunder.	For	further information,	see	"Business—Research	and	Development."

Certain	of	our	subsidiaries	are	involved	in	pending	legal	proceedings	relating	to	environmental	matters.	These	proceedings	are	described	further	in	the	section entitled	"Item	3—Legal	Proceedings."

# Research	and	Development

We	established	a	formal	research	and	development	program	in	1981	with	the	goal	of	improving	water	quality	and	operational	effectiveness	in	all	areas	of	our business.	Our	research	and	development	personnel	are	located	in	New	Jersey.	In	addition,	our	quality	control	and	testing	laboratory	in	Belleville,	Illinois	supports research	through	testing	and	analysis.

Since	the	formation	of	the	EPA	in	1970,	we	have	collaborated	with	the	agency	to	achieve	effective	environmental,	health	and	safety	and	water	quality	regulation. This	relationship	has	developed	to	include	sharing	of	our	research	and	national	water	quality	monitoring	data	in	addition	to	our	treatment	and	distribution	system optimization	research.	Our	engagement	with	the	EPA	has	helped	us	to	achieve	a	leadership	position	for	our	company	within	the	water	and	wastewater	industry	and	has provided	us	with	early	insight	into	emerging	regulatory	issues	and	initiatives,	thereby	allowing	us	to	anticipate	and	to	accommodate	our	future	compliance	requirements.

Approximately	one-quarter	of	our	research	budget	is	funded	by	competitively	awarded	outside	research	grants.	Such	grants	reduce	the	cost	of	research	and	allow collaboration	with	leading	national	and	international	researchers.	In	2014,	we	spent	$3.6	million,	including	$0.8	million	funded	by	research	grants.	Spending,	net	of research	grant	funding,	amounted	to	$2.9	million	and	$2.8	million	in	2013	and	2012,	respectively.

We	believe	that	continued	research	and	development	activities	are	critical	for	providing	quality	and	reliable	service	at	reasonable	rates,	and	maintaining	our leadership	position	in	the	industry,	which	provides	us	with	a	competitive	advantage	as	we	seek	additional	business	with	new	and	existing	customers.

# Support	Services

Our	American	Water	Works	Service	Company	subsidiary	provides	shared	services	and	corporate	governance	for	our	operating	subsidiaries	that	gain	economies of	scale	through	central	administration.	These	services	are	provided	predominantly	to	our	Regulated	Businesses	under	the	terms	of	contracts	with	these	companies	that have	been	approved	by	state	PUCs,	where	necessary.	These	services,	which	are	provided	at	cost,	may	include	accounting,	administration,	business	development, communications,	corporate	administrative,	education	and	training,	engineering,	financial,	health	and	safety,	human	resources,	information	systems,	internal	audit, investor	relations,	legal,	operations,	procurement,	rates	support,	security,	risk	management,	water	quality	and	research	and

development.	These	arrangements	afford	our	operating	companies	professional	and	technical	talent	on	an	economical	and	timely	basis.	We	also	operate	two	national customer	service	centers,	which	are	located	in	Alton,	Illinois	and	Pensacola,	Florida,	that	provide	customer	relations,	operations	and	field	service	support.

Our	security	department	provides	oversight	and	governance	of	physical	and	information	security	throughout	our	operations	and	is	responsible	for	designing, implementing,	monitoring	and	supporting	active	and	effective	physical	and	information	security	controls.	We	have	complied	with	EPA	regulations	concerning vulnerability	assessments	and	have	made	filings	to	the	EPA	as	required.	Vulnerability	assessments	are	conducted	periodically	to	evaluate	the	effectiveness	of	existing security	controls	and	serve	as	the	basis	for	further	capital	investment	in	security	for	the	facility.	Information	security	controls	are	deployed	or	integrated	to	prevent unauthorized	access	to	company	information	systems,	assure	the	continuity	of	business	processes	dependent	upon	automation,	ensure	the	integrity	of	our	data	and support	regulatory	and	legislative	compliance	requirements.	While	we	do	not	make	public	comments	on	the	details	of	our	security	programs,	we	are	in	contact	with federal,	state	and	local	law	enforcement	agencies	to	coordinate	and	improve	the	security	of	our	water	delivery	systems	and	to	safeguard	our	water	supply.

# Employee	Matters

Approximately	50%	of	our	workforce	is	represented	by	unions.	We	have	75	collective	bargaining	agreements	in	place	with	17	different	unions	representing	our unionized	employees.	We	have	two	union	contracts	beyond	expiration	that	affect	approximately	50	employees,	all	of	which	are	actively	working	under	the	old agreements.	During	2015,	24	of	our	local	union	contracts	will	expire.

On	October	13,	2014,	we	entered	into	a	settlement	agreement	with	the	Utility	Workers	Union	of	America	("UWUA")	designed	to	resolve	a	dispute	between	our company	and	the	labor	unions	representing	employees	in	the	Regulated	Businesses	("the	Unions").	Among	other	things,	the	settlement	agreement	provides	for	a	new 2014-2018	National	Benefits	Agreement	that	will	be	in	effect	generally	until	July	31,	2018.	In	addition,	we	agreed	to	make	a	$10.0	million	lump-sum	payment,	to	be distributed	in	accordance	with	procedures	set	forth	in	the	settlement	agreement	among	eligible	employees	represented	by	the	Unions	and	affected	by	implementation	of our	last,	best	and	final	offer.	The	majority	of	the	distributions	are	expected	to	be	used	to	reimburse	employees	for	medical	claims,	which	were	incurred	during	the relevant	period	and	will	be	funded	by	the	Group	Insurance	Plan	for	American	Water	Works	Company,	Inc.	and	Its	Designated	Subsidiaries	and	Affiliates	–	Active Employees	VEBA	(the	"VEBA	Trust"),	to	which	we	previously	have	made	contributions.

The	Unions	approved	the	settlement	agreement	on	October	30,	2014,	and	the	National	Labor	Relations	Board	(the	"NLRB")	approved	the	settlement	agreement on	October	31,	2014.	The	NLRB,	UWUA	and	the	Company	filed	a	joint	stipulation	to	dismiss	the	petition	for	review.	The	Seventh	Circuit	voluntarily	dismissed	all	the parties'	appeals	on	December	16,	2014.	The	NLRB	will	dismiss	the	unfair	labor	practice	charge	pending	on	the	national	benefits	dispute	when	we	have	complied	with	the settlement	agreement.

# Available	Information

We	are	subject	to	the	reporting	requirements	of	the	Exchange	Act,	as	amended.	We	file	or	furnish	annual,	quarterly	and	current	reports,	proxy	statements	and other	information	with	the	United	States	Securities	and	Exchange	Commission	("SEC").	You	may	obtain	a	copy	of	any	of	these	reports,	free	of	charge,	from	the Investor	Relations	section	of	our	website,	http://www.amwater.com,	shortly	after	we	file	or	furnish	the	information	to	the	SEC.	Information	contained	on	our	website shall	not	be	deemed	incorporated	into,	or	to	be	a	part	of,	this	report.

You	may	also	obtain	a	copy	of	any	of	these	reports	directly	from	the	SEC.	You	may	read	and	copy	any	material	we	file	or	furnish	with	the	SEC	at	their	Public Reference	Room,	located	at	100	F	Street	N.E.,	Washington,	D.C.	20549.	The	phone	number	for	information	about	the	operation	of	the	Public	Reference	Room	is	1-800- 732-0330	(if	you	are	calling	from	within	the	United	States),	or	202-551-8090.	Because	we	electronically	file	our	reports,	you	may	also	obtain	this	information	from	the SEC	internet	website	at	http://www.sec.gov.	You	can	obtain	additional	contact	information	for	the	SEC	on	their	website.

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	our	corporate	governance,	are	available	on	our	website,	http://www.amwater.com,	and	will	be	made available,	without	charge,	in	print	to	any	shareholder	who	requests	such	documents	from	Investor	Relations	Department,	American	Water	Works	Company,	Inc.,	1025 Laurel	Oak	Road,	Voorhees,	NJ,	08043.

# ITEM	1A. RISK	FACTORS

We	operate	in	a	market	and	regulatory	environment	that	involves	significant	risks,	many	of	which	are	beyond	our	control.	In	addition	to	the	other	information included	or	incorporated	by	reference	in	this	Form	10-K,	the	following	factors	should	be	considered

in	evaluating	our	business	and	future	prospects.	Any	of	the	following	risks,	either	alone	or	taken	together,	could	materially	and	adversely	affect	our	business,	financial position,	results	of	operations	or	cash	flows	and	liquidity.

# Risks	Related	to	Our	Industry	and	Business

# Our	utility	operations	are	subject	to	extensive	economic	regulation.	Decisions	by	state	PUCs	and	other	regulatory	agencies	can	significantly	affect	our	business	and results	of	operations.

Our	Regulated	Businesses	provide	water	and	wastewater	services	to	our	customers	through	subsidiaries	that	are	economically	regulated	by	state	PUCs. Economic	regulation	affects	the	rates	we	charge	our	customers	and	has	a	significant	impact	on	our	business	and	results	of	operations.	Generally,	the	state	PUCs authorize	us	to	charge	rates	that	they	determine	are	sufficient	to	recover	our	prudently	incurred	operating	expenses,	including,	but	not	limited	to,	operating	and maintenance	costs,	depreciation,	financing	costs	and	taxes	and	provide	us	the	opportunity	to	earn	an	appropriate	rate	of	return	on	our	invested	capital.

Our	ability	to	successfully	implement	our	business	plan	and	strategy	depends	on	the	rates	authorized	by	the	various	state	PUCs.	We	periodically	file	rate	increase applications	with	state	PUCs.	The	ensuing	administrative	process	may	be	lengthy	and	costly.	Our	rate	increase	requests	may	not	be	approved,	and	any	approval	may	not be	given	in	a	timely	manner.	Moreover,	a	PUC	may	not	approve	a	rate	request	to	an	extent	that	is	sufficient	to	cover	our	expenses,	including	purchased	water	and	costs of	chemicals,	fuel	and	other	commodities	used	in	our	operations;	enable	us	to	recover	our	investment;	and	provide	us	with	an	opportunity	to	earn	an	appropriate	rate	of return	on	our	investment,	in	which	case	our	business,	financial	condition,	results	of	operations,	cash	flows	and	liquidity	may	be	adversely	affected.	Even	if	rates	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.	This	could	occur	if	certain	conditions exist,	including	but	not	limited	to,	if	water	usage	is	less	than	anticipated	in	establishing	rates,	as	billings	to	customers	are,	to	a	considerable	extent,	based	on	usage	in addition	to	a	base	rate,	or	if	our	investments	or	expenses	prove	to	be	higher	than	was	estimated	in	establishing	rates.

Our	operations	and	the	quality	of	water	we	supply	are	subject	to	extensive	environmental,	water	quality	and	health	and	safety	laws	and	regulations.	Compliance	with increasingly	stringent	laws	and	regulations	could	impact	our	operating	costs;	and	violations	of	such	laws	and	regulations	could	subject	us	to	substantial	liabilities and	costs.

Our	water	and	wastewater	operations	are	subject	to	extensive	federal,	state	and	local	laws	and	regulations	and,	in	the	case	of	our	Canadian	operations,	Canadian laws	and	regulations	that	govern	the	protection	of	the	environment,	health	and	safety,	the	quality	of	the	water	we	deliver	to	our	customers,	water	allocation	rights,	and	the manner	in	which	we	collect,	treat,	discharge	and	dispose	of	wastewater.	These	requirements	include	the	Clean	Water	Act	of	1972,	which	we	refer	to	as	the	Clean	Water Act,	and	the	Safe	Drinking	Water	Act	of	1974,	which	we	refer	to	as	the	Safe	Drinking	Water	Act,	and	similar	state	and	Canadian	laws	and	regulations.	We	are	also required	to	obtain	various	environmental	permits	from	regulatory	agencies	for	our	operations.

In	addition,	state	PUCs	also	set	conditions	and	standards	for	the	water	and	wastewater	services	we	deliver.	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.	In	the	most	serious	cases,	regulators	could	reduce requested	rate	increases	or	force	us	to	discontinue	operations	and	sell	our	operating	assets	to	another	utility	or	to	a	municipality.	Given	the	nature	of	our	business	which, in	part,	involves	supplying	water	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	incur	substantial	operating	and	capital	costs	on	an	ongoing	basis	to	comply	with	environmental,	water	quality	and	health	and	safety	laws	and	regulations. These	laws	and	regulations,	and	their	enforcement,	generally	have	become	more	stringent	over	time,	and	new	or	stricter	requirements	could	increase	our	costs.	Although we	may	seek	to	recover	ongoing	compliance	costs	in	our	rates,	there	can	be	no	guarantee	that	the	various	state	PUCs	or	similar	regulatory	bodies	that	govern	our Regulated	Businesses	would	approve	rate	increases	that	would	enable	us	to	recover	such	costs	or	that	such	costs	will	not	materially	and	adversely	affect	our	financial condition,	results	of	operations,	cash	flows	and	liquidity.

We	may	also	incur	liabilities	if,	under	environmental	laws	and	regulations,	we	are	required	to	investigate	and	clean	up	environmental	contamination	at	our properties,	including	potential	spills	of	hazardous	chemicals,	such	as	chlorine,	which	we	use	to	treat	water,	or	at	off-site	locations	where	we	have	disposed	of	waste	or caused	an	adverse	environmental	impact.	The	discovery	of	previously	unknown	conditions,	or	the	imposition	of	cleanup	obligations	in	the	future,	could	result	in significant	costs	and	could	adversely	affect	our	financial	condition,	results	of	operations,	cash	flows	and	liquidity.	Such	remediation	costs	may	not	be	covered	by insurance	and	may	make	it	difficult	for	us	to	secure	insurance	at	acceptable	rates	in	the	future.

# Limitations	on	availability	of	water	supplies	or	restrictions	on	our	use	of	water	supplies	as	a	result	of	government	regulation	or	action	may	adversely	affect	our access	to	sources	of	water,	our	ability	to	supply	water	to	customers	or	the	demand	for	our	water	services.

Our	ability	to	meet	the	existing	and	future	demand	of	our	customers	depends	on	the	availability	of	an	adequate	supply	of	water.	As	a	general	rule,	sources	of public	water	supply,	including	rivers,	lakes,	streams	and	groundwater	aquifers,	are	held	in	the	public	trust	and	are	not	owned	by	private	interests.	As	a	result,	we	typically do	not	own	the	water	that	we	use	in	our	operations,	and	the	availability	of	our	water	supply	is	established	through	allocation	rights	(determined	by	legislation	or	court decisions)	and	passing-flow	requirements	set	by	governmental	entities.	Passing-flow	requirements	set	minimum	volumes	of	water	that	must	pass	through	specified water	sources,	such	as	rivers	and	streams,	in	order	to	maintain	environmental	habitats	and	meet	water	allocation	rights	of	downstream	users.	Allocation	rights	are imposed	to	ensure	sustainability	of	major	water	sources	and	passing-flow	requirements	are	most	often	imposed	on	source	waters	from	smaller	rivers,	lakes	and	streams. These	requirements,	which	can	change	from	time	to	time,	may	adversely	impact	our	water	supply.	Supply	issues,	such	as	drought,	overuse	of	sources	of	water,	the protection	of	threatened	species	or	habitats,	or	other	factors	may	limit	the	availability	of	ground	and	surface	water.	For	example,	in	our	Monterey	County,	California operations,	we	are	seeking	to	augment	our	sources	of	water	supply,	principally	to	comply	with	an	October	20,	2009	cease	and	desist	order	of	the	California	State	Water Resources	Control	Board	(the	"2009	Order")	that	our	subsidiary,	California-American	Water	Company	("Cal	Am"),	significantly	decrease	its	diversions	from	the Carmel	River	in	accordance	with	a	reduction	schedule	running	through	December	31,	2016	(the	"2016	Deadline").	We	are	also	required	to	augment	our	Monterey County	sources	of	water	supply	to	comply	with	the	requirements	of	the	Endangered	Species	Act.	We	cannot	predict	whether	Cal	Am	will	be	able	to	secure	alternative sources	of	water,	or	if	Cal	Am	will	be	exposed	to	liabilities	if	it	is	unable	to	meet	the	2016	Deadline	under	the	2009	Order.	If	Cal	Am	or	any	of	our	other	subsidiaries	are unable	to	secure	an	alternative	source	of	water,	or	if	other	adverse	consequences	result	from	the	events	described	above,	our	business,	financial	condition,	results	of operations	and	cash	flows	could	be	adversely	affected.	See	Part	I,	Item	3,	"Legal	Proceedings"	in	this	report	that	includes	additional	information	regarding	the	Cal	Am matter.

# Service	disruptions	caused	by	severe	weather	conditions	or	natural	disasters	may	disrupt	our	operations	and	economic	conditions	may	reduce	the	demand	for	water services,	either	of	which	could	adversely	affect	our	financial	condition	and	results	of	operations.

Service	interruptions	due	to	severe	weather	events	are	possible	across	all	our	service	areas.	These	include	winter	storms	and	freezing	conditions,	high	wind conditions,	hurricanes,	tornados,	earthquakes,	landslides	coastal	and	intercoastal	floods	or	high	water	conditions,	including	those	in	or	near	designated	flood	plains,	and severe	electrical	storms.	Weather	events	such	as	these	may	affect	the	condition	or	operability	of	our	facilities,	limiting	or	preventing	us	from	delivering	water	or wastewater	services	to	our	customers,	or	requiring	us	to	make	substantial	capital	expenditures	to	repair	any	damage.	In	October	2012,	our	east	coast	subsidiaries	were affected	by	Hurricane	Sandy.	The	most	significant	impact	to	our	business	was	caused	by	the	widespread	power	outages	caused	by	the	storm's	heavy	winds,	rain	and snow.	In	addition,	adverse	economic	conditions	can	cause	our	customers,	particularly	industrial	customers,	to	curtail	operations.	A	curtailment	of	operations	by	an industrial	customer	would	typically	result	in	reduced	water	usage.	In	more	severe	circumstances,	the	decline	in	usage	could	be	permanent.	Any	decrease	in	demand resulting	from	difficult	economic	conditions	could	adversely	affect	our	financial	condition	and	results	of	operations.

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	and	results	of	operations.	Seasonal	drought	conditions	that	would	impact	our	water	services	are	possible	across	all	of	our service	areas.	If	a	regional	drought	were	to	occur,	governmental	restrictions	may	be	imposed	on	all	systems	within	a	region	independent	of	the	supply	adequacy	of	any individual	system.	For	example,	as	a	result	of	the	reduced	rain	fall	and	overall	dry	conditions	throughout	the	state	of	California,	Cal	Am	has	been	closely	monitoring	its owned	and	purchased	water	supplies.	On	January	17,	2014,	the	Governor	of	California	issued	a	drought	declaration	asking	Californians	to	reduce	their	water	use	by 20%.	On	April	25,	2014,	the	Governor	issued	an	Executive	Order	addressing	the	drought	and	on	July	15,	2014	the	State	Water	Resources	Control	Board	approved mandatory	statewide	water	restrictions.	The	CPUC	issued	a	resolution	requiring	Cal	Am	and	all	other	regulated	water	providers	to	abide	by	the	State	Water	Resources Control	Board	restrictions	and	requirements.	While	expenses	incurred	in	implementing	water	conservation	and	rationing	plans	in	Cal	Am's	districts	are	generally recoverable	provided	the	CPUC	determines	they	were	reasonable,	Cal	Am	cannot	assure	that	such	expenses	will,	in	fact,	be	fully	recovered.	Moreover,	reductions	in water	consumption,	including	those	resulting	from	installation	of	equipment	or	changed	consumer	behavior,	may	persist	even	after	drought	restrictions	are	repealed	and the	drought	has	ended,	which	could	adversely	affect	our	business,	financial	condition,	results	of	operations	and	cash	flows.

Some	scientific	experts	are	predicting	a	worsening	of	weather	volatility	in	the	future.	Changing	severe	weather	patterns	could	require	additional	expenditures	to reduce	the	risk	associated	with	any	increasing	storm,	flood	and	drought	occurrences.	The	issue	of	climate	change	is	receiving	increased	attention	worldwide.	Many climate	change	predictions,	if	true,	present	several	potential	challenges	to	water	and	wastewater	utilities,	such	as:	increased	frequency	and	duration	of	droughts, increased	precipitation	and	flooding,	potential	degradation	of	water	quality,	and	changes	in	demand	for	services.	Because	of	the	uncertainty	of	weather	volatility	related to	climate	change,	we	cannot	predict	its	potential	impact	on	our	business,	financial	condition,	or	results	of	operations.

# Regulatory	and	environmental	risks	associated	with	the	collection,	treatment	and	disposal	of	wastewater	may	impose	significant	costs.

The	wastewater	collection,	treatment	and	disposal	operations	of	our	subsidiaries	are	subject	to	substantial	regulation	and	involve	significant	environmental	risks. If	collection,	treatment	or	disposal	systems	fail,	overflow,	or	do	not	operate	properly,	untreated	wastewater	or	other	contaminants	could	spill	onto	nearby	properties	or into	nearby	streams	and	rivers,	causing	damage	to	persons	or	property,	injury	to	aquatic	life	and	economic	damages.	This	risk	is	most	acute	during	periods	of	substantial rainfall	or	flooding,	which	are	the	main	causes	of	sewer	overflow	and	system	failure.	Liabilities	resulting	from	such	damage	could	adversely	and	materially	affect	our business,	results	of	operations	and	financial	condition.	Moreover,	if	we	are	deemed	liable	for	any	damage	caused	by	overflow	or	disposal	operations,	our	losses	might not	be	covered	by	insurance,	and	such	losses	may	make	it	difficult	for	us	to	secure	insurance	at	acceptable	rates	in	the	future.

The	current	regulatory	rate	setting	structure	may	result	in	a	significant	delay,	or	"regulatory	lag,"	from	the	time	that	we	invest	in	infrastructure	improvements, incur	increased	operating	expenses	or	experience	declining	water	usage,	to	the	time	at	which	we	can	address	these	events	through	the	rate	case	application	process; our	inability	to	minimize	regulatory	lag	could	adversely	affect	our	business.

There	is	typically	a	delay,	or	regulatory	lag,	between	the	time	one	of	our	regulated	subsidiaries	makes	a	capital	investment	or	incurs	an	operating	expense increase	and	the	time	when	those	costs	are	reflected	in	rates.	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.	Thus,	we	may	experience	a	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	reduce	this	regulatory	lag	could	have	an	adverse	effect	on	our	financial condition,	results	of	operations,	cash	flows	and	liquidity.

We	endeavor	to	reduce	regulatory	lag	by	pursuing	positive	regulatory	policies.	For	example,	seven	state	PUCs	permit	rates	to	be	adjusted	outside	of	the	rate	case application	process	through	surcharges	that	address	certain	capital	investments,	such	as	replacement	of	aging	infrastructure.	These	surcharges	are	adjusted	periodically based	on	factors	such	as	project	completion	or	future	budgeted	expenditures,	and	specific	surcharges	are	eliminated	once	the	related	capital	investment	is	incorporated	in new	PUC	approved	rates.	Other	examples	of	such	programs	include	states	that	allow	us	to	increase	rates	for	certain	cost	increases	that	are	beyond	our	control,	such	as purchased	water	costs	or	property	or	other	taxes,	or	power,	conservation,	chemical	or	other	expenditures.	These	surcharge	mechanisms	enable	us	to	adjust	rates	in	less time	after	costs	have	been	incurred	than	would	be	the	case	under	the	rate	case	application	process.	While	these	programs	have	been	a	positive	development	and	we continue	to	seek	expansion	of	programs	to	mitigate	regulatory	lag,	some	state	PUCs	have	not	approved	such	programs.	The	PUC	may	not	adopt	any	surcharge	programs and	existing	programs	may	not	continue	in	their	current	form,	or	at	all.	Furthermore,	no	state	has	adopted	surcharge	programs	that	include	all	elements	of	cost	that	may change	between	general	rate	proceedings.	Although	we	intend	to	continue	our	efforts	to	expand	state	PUC	approval	of	surcharges	to	address	issues	of	regulatory	lag,	our efforts	may	not	be	successful,	in	which	case	our	business,	financial	condition,	results	of	operations,	cash	flows	and	liquidity	may	be	adversely	affected.

# Our	Regulated	Businesses	require	significant	capital	expenditures	and	may	suffer	if	we	fail	to	secure	appropriate	funding	to	make	investments,	or	if	we	experience delays	in	completing	major	capital	expenditure	projects.

The	water	and	wastewater	utility	business	is	capital	intensive.	We	invest	significant	amounts	of	capital	to	add,	replace	and	maintain	property,	plant	and equipment.	In	2014,	we	invested	$1.0	billion	in	net	Company-funded	capital	improvements.	The	level	of	capital	expenditures	necessary	to	maintain	the	integrity	of	our systems	could	increase	in	the	future.	We	fund	capital	improvement	projects	using	cash	generated	from	operations,	borrowings	under	our	revolving	credit	facility	and commercial	paper	programs	and	issuances	of	long-term	debt	and	equity	securities.	We	may	not	be	able	to	access	the	debt	and	equity	capital	markets,	when	necessary	or desirable	to	fund	capital	improvements	on	favorable	terms	or	at	all.

In	addition,	we	could	be	limited	in	our	ability	to	both	pursue	growth	and	pay	dividends	in	accordance	with	our	dividend	policy.	In	order	to	fund	construction expenditures,	acquisitions,	principal	and	interest	payments	on	our	indebtedness,	and	dividends	at	the	level	currently	anticipated	under	our	dividend	policy,	we	expect that	we	will	need	additional	financing.	We	expect	cash	from	operating	activities,	after	the	distribution	of	dividends,	to	fund	a	portion	of	our	capital	expenditures.

The	ability	to	obtain	financing	at	reasonable	rates	is	contingent	upon	our	credit	ratings	and	general	market	conditions.	If	we	do	not	obtain	sufficient	financing,	we could	be	unable	to	maintain	our	existing	property,	plant	and	equipment,	fund	our	capital	investment	strategies,	meet	our	growth	targets	and	expand	our	rate	base	to enable	us	to	earn	satisfactory	future	returns	on	our	investments.	Even	with	adequate	financial	resources	to	make	required	capital	expenditures,	we	face	the	additional	risk that	we	will	not	complete	our	major	capital	projects	on	time,	as	a	result	of	construction	delays,	permitting	delays,	environmental	restrictions,	or	other	obstacles.	Each	of these	outcomes	could	adversely	affect	our	financial	condition	and	results	of	operations.

# Weather	conditions	could	adversely	affect	demand	for	our	water	service	and	our	revenues.

Demand	for	our	water	during	the	warmer	months	is	generally	greater	than	during	cooler	months	due	primarily	to	increased	water	usage	for	irrigation	systems, swimming	pools,	cooling	systems	and	other	applications.	Throughout	the	year,	and	particularly	during	typically	warmer	months,	demand	tends	to	vary	with	temperature, rainfall	levels	and	rainfall	frequency.	In	the	event	that	temperatures	during	the	typically	warmer	months	are	cooler	than	normal,	or	if	there	is	more	rainfall	than	normal, the	demand	for	our	water	may	decrease	and	adversely	affect	our	revenues.

# Market	conditions	may	unfavorably	impact	the	value	of	benefit	plan	assets	and	liabilities,	as	well	as	assumptions	related	to	the	benefit	plans,	which	may	require	us to	provide	significant	additional	funding.

The	performance	of	the	capital	markets	affects	the	values	of	the	assets	that	are	held	in	trust	to	satisfy	significant	future	obligations	under	our	pension	and postretirement	benefit	plans.	The	value	of	these	assets	is	subject	to	market	fluctuations,	which	may	cause	investment	returns	to	fall	below	our	projected	return	rates.	A decline	in	the	market	value	of	the	pension	and	postretirement	benefit	plan	assets	can	increase	the	funding	requirements	under	our	pension	and	postretirement	benefit plans.	Additionally,	our	pension	and	postretirement	benefit	plan	liabilities	are	sensitive	to	changes	in	interest	rates.	If	interest	rates	decrease,	our	liabilities	would increase,	potentially	increasing	benefit	expense	and	funding	requirements.	Further,	changes	in	demographics,	such	as	increases	in	life	expectancy	assumptions	may	also increase	our	funding	requirements.	Future	increases	in	pension	and	other	postretirement	costs	as	a	result	of	reduced	plan	assets	may	not	be	fully	recoverable	in	rates,	in which	case	our	results	of	operations	and	financial	position	could	be	negatively	affected.

In	addition,	market	factors	can	affect	assumptions	we	use	in	determining	funding	requirements	with	respect	to	our	pension	and	postretirement	plans.	For example,	a	relatively	modest	change	in	our	assumptions	regarding	discount	rates	can	materially	affect	our	calculation	of	funding	requirements.	To	the	extent	that	market data	compels	us	to	reduce	the	discount	rate	used	in	our	assumptions,	our	benefit	obligations	could	be	materially	increased,	which	could	adversely	affect	our	financial position	and	results	of	operations.

# Our	indebtedness	could	affect	our	business	adversely	and	limit	our	ability	to	plan	for	or	respond	to	changes	in	our	business,	and	we	may	be	unable	to	generate sufficient	cash	flows	to	satisfy	our	liquidity	needs.

As	of	December	31,	2014,	our	indebtedness	(including	preferred	stock	with	mandatory	redemption	requirements)	was	$6	billion,	and	our	working	capital (defined	as	current	assets	less	current	liabilities)	was	in	a	deficit	position.	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;

· likely	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.

In	order	to	meet	our	capital	expenditure	needs,	we	may	be	required	to	make	additional	borrowings	under	our	revolving	credit	facility	or	issue	new	debt securities.	Moreover,	additional	borrowings	may	be	required	to	refinance	outstanding	indebtedness.	Debt	maturities	and	sinking	fund	payments	in	2015,	2016	and	2017 are	$61.1	million,	$53.4	million	and	$572.8	million,	respectively.	We	can	provide	no	assurance	that	we	will	be	able	to	access	the	debt	capital	markets	on	favorable	terms, if	at	all.	Moreover,	if	new	debt	is	added	to	our	current	debt	levels,	the	related	risks	we	now	face	could	intensify,	limiting	our	ability	to	refinance	existing	debt	on favorable	terms.

We	will	depend	primarily	on	operations	to	fund	our	expenses	and	to	pay	the	principal	and	interest	on	our	outstanding	debt.	Therefore,	our	ability	to	pay	our expenses	and	satisfy	our	debt	service	obligations	depends	on	our	future	performance,	which	will	be	affected	by	financial,	business,	economic,	competitive,	legislative, regulatory	and	other	factors	largely	beyond	our	control.	If	we	do	not	have	sufficient	cash	flows	to	pay	the	principal	and	interest	on	our	outstanding	debt,	we	may	be required	to	refinance	all	or	part	of	our	existing	debt,	sell	assets,	borrow	additional	funds	or	sell	additional	equity.	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	operating	results	and	prospects	to	be	affected	adversely.

# Contamination	of	our	sources	of	water	could	result	in	service	interruptions	and	exposure	to	substances	not	typically	found	in	potable	water	supplies,	and	subject	our subsidiaries	to	reduction	in	usage,	governmental	enforcement	actions,	private	litigation	and	responsive	obligations.

The	water	supplies	that	flow	into	our	treatment	plants	and	are	then	delivered	into	our	distribution	system	are	subject	to	contamination,	including	contamination from	naturally-occurring	compounds,	chemicals	in	groundwater	systems,	pollution	resulting	from	man-made	sources,	such	as	perchlorate	and	methyl	tertiary	butyl	ether, and	possible	terrorist	attacks.	If	one	of	our	water	supplies	is	contaminated,	depending	on	the	nature	of	the	contamination,	we	may	have	to	take	responsive	actions	that could	include	(1)	continuing	limited	use	of	the	water	supply	under	a	"Do	Not	Use"	protective	order	that	enables	continuation	of	basic	sanitation	and	essential	fire protection,	or	(2)	interrupting	the	use	of	that	water	supply	and	locating	an	adequate	supply	of	water	from	another	water	source,	including,	in	some	cases,	through	the purchase	of	water	from	a	third-party	supplier.	If	service	is	disrupted	and	we	are	unable	to	access	a	substitute	water	supply	in	a	cost-effective	manner,	our	financial condition,	results	of	operations,	cash	flows,	liquidity	and	reputation	may	be	adversely	affected.	In	addition,	we	may	incur	significant	costs	in	order	to	treat	the contaminated	source	through	expansion	of	our	current	treatment	facilities,	or	development	of	new	treatment	methods.	We	might	not	be	able	to	recover	costs	associated with	treating	or	decontaminating	water	supplies	through	rates,	or	recovery	of	these	costs	may	not	occur	in	a	timely	manner.	Moreover,	we	could	be	subject	to	claims	for damages	arising	from	government	enforcement	actions	or	toxic	tort	or	other	lawsuits	arising	out	of	interruption	of	service	or	human	exposure	to	hazardous	substances	in our	drinking	water	supplies.

In	this	regard,	on	January	9,	2014,	a	chemical	storage	tank	owned	by	Freedom	Industries,	Inc.	leaked	two	substances	used	for	processing	coal	into	the	Elk	River near	the	WVAWC	treatment	plant	intake	in	Charleston,	West	Virginia.

WVAWC	has	and	may	continue	to	incur	significant	costs	in	responding	to	this	incident	and	may	not	be	able	to	recover	such	costs	through	rates	or	from	insurers. Even	if	recovery	is	possible,	it	may	not	occur	in	a	timely	manner.	Government	investigations	relating	to	the	Freedom	Industries	spill	have	been	initiated,	state	laws	have been	enacted,	state	and	federal	legislatures	are	considering	changes	to	existing	laws	or	rules	associated	with	new	laws,	and	58	lawsuits	have	been	filed	to	date	against WVAWC	and,	in	a	few	cases,	against	us	or	another	of	our	affiliates.	While	the	Company	and	WVAWC	believe	that	WVAWC	has	responded	appropriately	to,	and	has no	responsibility	for,	the	Freedom	Industries	spill,	and	the	Company	and	WVAWC	believe	they	and	other	Company	affiliates	have	valid,	meritorious	defenses	to	the lawsuits,	WVAWC	will	incur	defense	costs	that	may	not	be	recoverable.	Moreover,	an	adverse	outcome	in	one	or	more	of	the	lawsuits	could	have	a	material	adverse effect	on	our	financial	condition,	results	of	operations,	cash	flows,	liquidity	and	reputation.	WVAWC	and	the	Company	are	unable	to	predict	the	outcome	of	the	ongoing government	investigations	or	any	legislative	initiatives	that	might	affect	water	utility	operations.	See	Part	I,	Item	3,	"Legal	Proceedings"	in	this	report	for	additional information	regarding	the	WVAWC	matter.

In	addition,	we	are	a	party	to	litigation	in	the	normal	course	of	business.	Since	we	engage	in	providing	drinking	water	to	our	customers,	failures	can	result	in substantial	injury	or	damage	to	our	customers,	employees	or	others	and	we	could	be	exposed	to	substantial	claims	and	litigation.	Such	claims	could	relate	to,	among other	things,	personal	injury,	loss	of	life,	business	interruption,	property	damage,	pollution,	and	environmental	damage	and	may	be	brought	by	our	customers	or	third parties.

Litigation	and	regulatory	proceedings	are	subject	to	inherent	uncertainties	and	unfavorable	rulings	can	and	do	occur.	Pending	or	future	claims	against	us,	to	the extent	we	are	not	insured	against	a	loss	or	our	insurer	fails	to	provide	coverage,	could	have	a	material	adverse	impact	on	our	business,	financial	condition,	and	results	of operations.

# We	may	sustain	losses	that	exceed	or	are	excluded	from	our	insurance	coverage	or	for	which	we	are	not	insured

We	maintain	insurance	coverage	as	part	of	our	overall	legal	and	risk	management	strategy	to	minimize	our	potential	liabilities.	Our	insurance	programs	have varying	coverage	limits,	exclusions	and	maximums,	and	insurance	companies	may	seek	to	deny	claims	we	might	make.	Generally,	our	insurance	policies	cover	property damage,	worker's	compensation,	employer's	liability,	general	liability	and	automobile	liability.	Each	policy	includes	deductibles	or	self-insured	retentions	and	policy limits	for	covered	claims.	As	a	result,	we	may	sustain	losses	that	exceed	or	that	are	excluded	from	our	insurance	coverage	or	for	which	we	are	not	insured.

Although	in	the	past	we	have	been	generally	able	to	cover	our	insurance	needs,	there	can	be	no	assurances	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.

# Work	stoppages	and	other	labor	relations	matters	could	adversely	affect	our	results	of	operations.

Approximately	50%	of	our	workforce	is	represented	by	unions.	We	have	75	collective	bargaining	agreements	in	place	with	17	different	unions	representing	our unionized	employees.	We	might	not	be	able	to	renegotiate	labor	contracts	on	terms	that	are	fair	to	us.	Any	negotiations	or	dispute	resolution	processes	undertaken	in connection	with	our	labor	contracts	could	be	delayed	or	affected	by	labor	actions	or	work	stoppages.	Labor	actions,	work	stoppages	or	the	threat	of	work	stoppages,	and our	failure	to	obtain	favorable	labor	contract	terms	during	renegotiations	may	adversely	affect	our	financial	condition,	results	of	operations,	cash	flows	and	liquidity.

While	we	have	developed	contingency	plans	to	be	implemented	as	necessary	if	a	work	stoppage	or	strike	does	occur,	a	strike	or	work	stoppage	may	have	a material	adverse	impact	on	our	results	of	operations,	financial	position	or	cash	flows.

# The	failure	of,	or	the	requirement	to	repair,	upgrade	or	dismantle,	any	of	our	dams	may	adversely	affect	our	financial	condition	and	results	of	operations.

We	own	89	dams.	A	failure	of	any	of	those	dams	could	result	in	personal	injury	and	downstream	property	damage	for	which	we	may	be	liable.	The	failure	of	a dam	would	also	adversely	affect	our	ability	to	supply	water	in	sufficient	quantities	to	our	customers	and	could	adversely	affect	our	financial	condition	and	results	of operations.	Any	losses	or	liabilities	incurred	due	to	a	failure	of	one	of	our	dams	might	not	be	covered	by	insurance	policies	or	be	recoverable	in	rates,	and	such	losses may	make	it	difficult	for	us	to	secure	insurance	at	acceptable	rates	in	the	future.

We	also	are	required	from	time	to	time	to	decommission,	repair	or	upgrade	the	dams	that	we	own.	The	cost	of	such	repairs	or	upgrades	can	be	and	has	been material.	The	federal	and	state	agencies	that	regulate	our	operations	may	adopt	rules	and	regulations	requiring	us	to	dismantle	our	dams,	which	also	could	entail	material costs.	Although	in	most	cases,	the	PUC	has	permitted	recovery	of	expenses	and	capital	investment	related	to	dam	rehabilitation,	we	might	not	be	able	to	recover	costs	of repairs,	upgrades	or	dismantling	through	rates	in	the	future.	The	inability	to	recover	these	costs	or	delayed	recovery	of	the	costs	as	a	result	of	regulatory	lag	can	affect our	financial	condition,	results	of	operations,	cash	flows	and	liquidity.

# Any	failure	of	our	network	of	water	and	wastewater	pipes	and	water	reservoirs	could	result	in	losses	and	damages	that	may	affect	our	financial	condition	and reputation.

Our	operating	subsidiaries	distribute	water	and	collect	wastewater	through	an	extensive	network	of	pipes	and	storage	systems	located	across	the	United	States.	A failure	of	major	pipes	or	reservoirs	could	result	in	injuries	and	property	damage	for	which	we	may	be	liable.	The	failure	of	major	pipes	and	reservoirs	may	also	result	in the	need	to	shut	down	some	facilities	or	parts	of	our	network	in	order	to	conduct	repairs.	Such	failures	and	shutdowns	may	limit	our	ability	to	supply	water	in	sufficient quantities	to	our	customers	and	to	meet	the	water	and	wastewater	delivery	requirements	prescribed	by	government	regulators,	including	state	PUCs	with	jurisdiction	over our	operations,	and	adversely	affect	our	financial	condition,	results	of	operations,	cash	flows,	liquidity	and	reputation.	Any	business	interruption	or	other	losses	might not	be	covered	by	insurance	policies	or	be	recoverable	in	rates,	and	such	losses	may	make	it	difficult	for	us	to	secure	insurance	at	acceptable	rates	in	the	future. Moreover,	to	the	extent	such	business	interruptions	or	other	losses	are	not	covered	by	insurance,	they	may	not	be	recovered	through	rate	adjustments.

# Our	inability	to	access	the	capital	or	financial	markets	could	affect	our	ability	to	meet	our	liquidity	needs	at	reasonable	cost	and	our	ability	to	meet	long-term commitments,	which	could	adversely	affect	our	financial	condition	and	results	of	operations.

In	addition	to	cash	from	operations,	we	rely	on	our	revolving	credit	facility,	commercial	paper	programs,	and	the	capital	markets	to	satisfy	our	liquidity	needs.	In this	regard,	our	principal	external	source	of	liquidity	is	our	revolving	credit	facility.	We	regularly	use	our	commercial	paper	program	as	a	principal	source	of	short-term borrowing	due	to	the	generally	more	attractive	rates	we	obtain	in	the	commercial	paper	market.	However,	disruptions	in	the	capital	markets	could	limit	our	ability	to access	capital.	While	our	credit	facility	lending	banks	have	met	all	of	their	obligations,	disruptions	in	the	credit	markets,	changes	in	our	credit	ratings,	or	deterioration	of the	banking	industry's	financial	condition	could	discourage	or	prevent	lenders	from	meeting	their	existing	lending	commitments,	extending	the	terms	of	such commitments,	or	agreeing	to	new	commitments.	In	order	to	meet	our	short-term	liquidity	needs,	particularly	if	borrowings	through	the	commercial	paper	market	are unavailable,	we	maintain	a	$1.25	billion	revolving	credit	facility.	Under	the	terms	of	our	revolving	credit	facility,	commitments	of	$70	million	mature	in	October	2017 and	$1.18	billion	mature	in	October	2018.	Our	inability	to	maintain,	renew	or	replace	these	commitments	could	materially	increase	our	cost	of	capital	and	adversely affect	our	financial	condition,	results	of	operations	and	liquidity.

American	Water	Capital	Corp.	("AWCC"),	our	financing	subsidiary,	had	no	outstanding	borrowings	under	the	revolving	credit	facility	and	$36.5	million	of outstanding	letters	of	credit	under	the	credit	facility	as	of	February	19,	2015.	AWCC	had	$502.9	million	of	outstanding	commercial	paper	as	of	February	19,	2015.	Our lenders	may	not	meet	their	existing	commitments	and	we	may	not	be	able	to	access	the	commercial	paper	or	loan	markets	in	the	future	on	terms	acceptable	to	us	or	at	all.

Longer	term	disruptions	in	the	capital	and	credit	markets	as	a	result	of	uncertainty,	reduced	financing	alternatives,	or	failures	of	significant	financial	institutions could	adversely	affect	our	access	to	the	liquidity	needed	for	our	business.	Any	significant	disruption	in	the	capital	and	credit	markets,	or	financial	institution	failures could	require	us	to	take	measures	to	conserve	cash	until	the	market	stabilizes	or	until	alternative	financing	can	be	arranged.	Such	measures	could	include	deferring capital	expenditures,	reducing	or	suspending	dividend	payments,	and	reducing	other	discretionary	expenditures.

Any	impediments	to	our	access	to	the	capital	markets	or	failure	of	our	lenders	to	meet	their	commitments	that	result	from	financial	market	disruptions	could expose	us	to	increased	interest	expense,	require	us	to	institute	cash	conservation	measures	or	otherwise	adversely	affect	our	business,	financial	condition,	results	of operations,	cash	flows,	and	liquidity.

# Changes	in	laws	and	regulations	over	which	we	have	no	control	and	changes	in	certain	agreements	can	significantly	affect	our	business	and	results	of	operations.

New	legislation,	regulations,	government	policies	or	court	decisions	can	materially	affect	our	operations.	The	individuals	who	serve	as	regulators	are	elected	or are	political	appointees.	Therefore,	elections	which	result	in	a	change	of	political	administration	or	new	appointments	may	also	result	in	changes	in	the	individuals	who serve	as	regulators	and	the	policies	of	the	regulatory	agencies	that	they	serve.	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	raise	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;

· 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	services	at	reduced	rates	to	certain	customers;

· restricting	our	ability	to	buy	or	sell	assets	or	issue	securities;

· changing	regulations	that	affect	the	benefits	we	expected	to	receive	when	we	began	offering	services	in	a	particular	area;

· 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	eminent	domain;

· 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	our	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	the	certificates	of	public	convenience	and	necessity	(or	similar	authorizations)	issued	to	us	by	state	PUCs.

Any	of	the	foregoing	consequences	could	have	an	adverse	effect	on	our	business,	financial	condition,	results	of	operations,	cash	flows	and	liquidity.

An	important	part	of	our	growth	strategy	is	the	acquisition	of	water	and	wastewater	systems.	Any	further	acquisitions	we	undertake	may	involve	risks.	Further, competition	for	acquisition	opportunities	from	other	regulated	utilities,	governmental	entities,	and	strategic	and	financial	buyers	may	hinder	our	ability	to	grow	our business.

An	important	element	of	our	growth	strategy	is	the	acquisition	of	water	and	wastewater	systems	in	order	to	broaden	our	current,	and	move	into	new,	service areas.	We	will	not	be	able	to	acquire	other	businesses	if	we	cannot	identify	suitable	acquisition	opportunities	or	reach	mutually	agreeable	terms	with	acquisition candidates.	Further,	competition	for	acquisition	opportunities	from	other	regulated	utilities,	governmental	entities,	and	strategic	and	financial	buyers	may	hinder	our ability	to	expand	our	business.

The	negotiation	of	potential	acquisitions	as	well	as	the	integration	of	acquired	businesses	with	our	existing	operations	could	require	us	to	incur	significant	costs and	cause	diversion	of	our	management's	time	and	resources.	Future	acquisitions	by	us	could	result	in:

· issuances	of	our	equity	securities;

· incurrence	of	debt,	contingent	liabilities,	environmental	liabilities	and	assumption	of	liabilities	of	an	acquired	business,	including	liabilities	that	were unknown	at	the	time	of	acquisition;

· seeking	recovery	of	acquisition	premiums

· unanticipated	capital	expenditures;

· 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	if	we	do	not	realize	the	initially	recorded value;

· fluctuations	in	quarterly	results;

· other	acquisition-related	expenses;

· failure	to	realize	anticipated	benefits,	such	as	cost	savings	and	revenue	enhancements;	and

· difficulties	assimilating	personnel,	services	and	systems.

Some	or	all	of	these	items	could	have	a	material	adverse	effect	on	our	business	and	our	ability	to	finance	our	business,	pay	dividends	and	to	comply	with regulatory	requirements.	The	businesses	we	acquire	in	the	future	may	not	achieve	anticipated	sales	and	profitability,	and	any	difficulties	we	encounter	in	the	integration process	could	interfere	with	our	operations,	reduce	our	operating	margins	and	adversely	affect	our	internal	control	over	financial	reporting.

We	compete	with	governmental	entities,	other	regulated	utilities,	and	strategic	and	financial	buyers,	for	acquisition	opportunities.	If	consolidation	becomes	more prevalent	in	the	water	and	wastewater	industries	and	competition	for	acquisitions	increases,	the	prices	for	suitable	acquisition	candidates	may	increase	to	unacceptable levels	and	limit	our	ability	to	expand	through	acquisitions.	In	addition,	our	competitors	may	impede	our	growth	by	purchasing	water	utilities	adjacent	to	or	near	our existing	service	areas,	thereby	impairing	our	ability	to	geographically	expand	the	affected	service	areas.	Competing	governmental	entities,	utilities,	environmental	or social	activist	groups,	and	strategic	and	financial	buyers	have	challenged,	and	may	in	the	future	challenge,	our	efforts	to	acquire	new	companies	and/or	service	areas.	Our growth	could	be	hindered	if	we	are	not	able	to	compete	effectively	for	new	companies	and/or	service	areas	with	other	companies	or	strategic	and	financial	buyers	that have	lower	costs	of	operations.	Any	of	these	risks	may	adversely	affect	our	business,	financial	condition,	and	results	of	operations.

# We	have	recorded	a	significant	amount	of	goodwill,	and	we	may	never	realize	the	full	value	of	our	intangible	assets,	causing	us	to	record	impairments	that	may negatively	affect	our	results	of	operations.

Our	total	assets	include	$1.2	billion	of	goodwill	at	December	31,	2014.	The	goodwill	is	primarily	associated	with	the	acquisition	of	American	Water	by	an affiliate	of	our	previous	owner	in	2003	and	the	acquisition	of	E'Town	Corporation	by	a	predecessor	to	our	previous	owner	in	2001.	Goodwill	represents	the	excess	of	the purchase	price	the	purchaser	paid	over	the	fair	value	of	the	net	tangible	and	other	intangible	assets	acquired.	Goodwill	is	recorded	at	fair	value	on	the	date	of	an acquisition	and	is	reviewed	annually	or	more	frequently	if	changes	in	circumstances	indicate	the	carrying	value	may	not	be	recoverable.	As	required	by	the	applicable accounting	rules,	we	have	taken	significant	non-cash	charges	to	operating	results	for	goodwill	impairments	in	the	past.

We	may	be	required	to	recognize	an	impairment	of	goodwill	in	the	future	due	to	market	conditions	or	other	factors	related	to	our	performance.	These	market events	could	include	a	decline	over	a	period	of	time	of	our	stock	price,	a	decline	over	a	period	of	time	in	valuation	multiples	of	comparable	water	utilities,	market	price performance	of	our	common	stock	that	composes	unfavorably	to	our	peer	companies,	or	decreases	in	control	premiums.	A	decline	in	the	results	forecasted	in	our business	plan	due	to	events	such	as	changes	in	rate	case	results,	capital	investment	budgets	or	our	interest	rates,	could	also	result	in	an	impairment	charge.	Recognition	of impairments	of	a	significant	portion	of	goodwill	would	negatively	affect	our	reported	results	of	operations	and	total	capitalization,	the	effect	of	which	could	be	material and	could	make	it	more	difficult	to	maintain	our	credit	ratings,	secure	financing	on	attractive	terms,	maintain	compliance	with	debt	covenants	and	meet	expectations	of our	regulators.

# The	assets	of	our	Regulated	Businesses	are	subject	to	condemnation	through	eminent	domain.

Municipalities	and	other	government	subdivisions	have	historically	been	involved	in	the	provision	of	water	and	wastewater	services	in	the	United	States,	and organized	efforts	may	arise	from	time	to	time	in	one	or	more	of	the	service	areas	in	which	our

Regulated	Businesses	operate	to	convert	our	assets	to	public	ownership	and	operation	through	exercise	of	the	governmental	power	of	eminent	domain.	Should	a municipality	or	other	government	subdivision	or	a	citizen	group	seek	to	acquire	our	assets	through	eminent	domain,	either	directly	or	indirectly	as	a	result	of	a	citizen petition	we	may	resist	the	acquisition.	For	example,	condemnation	threats	have	been	made	in	the	Chicago,	Illinois	area	where	the	municipalities	of	Homer	Glen (approximately	6,000	customer	connections)	and	Bolingbrook	(approximately	23,000	customer	connections)	have	commissioned	studies	to	determine	the	cost	and feasibility	of	condemning	Illinois-American's	retail	distribution	systems	serving	those	communities	and	have	formally	requested	certain	financial	and	other	information from	Illinois-American.	In	addition,	five	municipalities	(approximately	29,200	customer	connections)	formed	a	water	agency	to	pursue	eminent	domain	with	respect	to our	water	pipeline	that	serves	those	five	communities	and	made	an	offer	of	$37.6	million	for	the	pipeline.	The	water	agency	filed	an	eminent	domain	lawsuit	in	January 2013	that	is	still	pending.

Contesting	an	exercise	of	condemnation	through	eminent	domain,	or	responding	to	a	citizen	petition,	may	result	in	costly	legal	proceedings	and	may	divert	the attention	of	the	affected	Regulated	Businesses'	management	from	the	operation	of	its	business.	Moreover,	our	efforts	to	resist	the	condemnation	may	not	be	successful.

If	a	municipality	or	other	government	subdivision	succeeds	in	acquiring	the	assets	of	one	or	more	of	our	Regulated	Businesses	through	eminent	domain,	there	is	a risk	that	we	will	not	receive	adequate	compensation	for	the	business,	that	we	will	not	be	able	to	keep	the	compensation,	or	that	we	will	not	be	able	to	divest	the	business without	incurring	significant	one-time	charges.

For	information	regarding	specific	condemnation	threats	made	against	us	that	were	recently	concluded	see	Item	1,	"Business—Condemnation."

# We	rely	on	technology	to	facilitate	the	management	of	our	business	and	customer	and	supplier	relationships,	and	a	disruption	of	these	systems	could	adversely affect	our	business.

Our	technology	systems,	particularly	our	information	technology	("IT")	systems,	are	an	integral	part	of	our	business,	and	a	serious	disruption	of	our	IT	systems could	significantly	limit	our	ability	to	manage	and	operate	our	business	efficiently,	which,	in	turn,	could	cause	our	business	and	competitive	position	to	suffer	and adversely	affect	our	results	of	operations.	For	example,	we	depend	on	our	IT	systems	to	bill	customers,	process	orders,	provide	customer	service,	manage	construction projects,	manage	our	financial	records,	track	assets,	remotely	monitor	certain	of	our	plants	and	facilities	and	manage	human	resources,	inventory	and	accounts receivable	collections.	Our	IT	systems	also	enable	us	to	purchase	products	from	our	suppliers	and	bill	customers	on	a	timely	basis,	maintain	cost-effective	operations	and provide	service	to	our	customers.	While	we	recently	completed	the	business	transformation	implementation	for	our	Enterprise	Resource	Planning	("ERP"),	Enterprise Asset	Management	("EAM")	and	Customer	Information	("CIS")	systems,	a	number	of	our	mission	and	business	critical	IT	systems	are	older,	such	as	our	SCADA (supervisory	control	and	data	acquisition)	system.	Although	we	do	not	believe	that	our	IT	systems	are	at	a	materially	greater	risk	of	cybersecurity	incidents	than	other similar	organizations,	our	IT	systems	remain	vulnerable	to	damage	or	interruption	from:

●power	loss,	computer	systems	failures,	and	internet,	telecommunications	or	data	network	failures;

●operator	negligence	or	improper	operation	by,	or	supervision	of,	employees;

●physical	and	electronic	loss	of	customer	data	due	to	security	breaches,	cyber	attacks,	misappropriation	and	similar	events;

●computer	viruses;

●intentional	security	breaches,	hacking,	denial	of	services	actions,	misappropriation	of	data	and	similar	events;	and

●hurricanes,	fires,	floods,	earthquakes	and	other	natural	disasters.

These	events	may	result	in	physical	and	electronic	loss	of	customer	or	financial	data,	security	breaches,	misappropriation	and	other	adverse	consequences.	In addition,	the	lack	of	redundancy	for	certain	of	our	IT	systems,	including	billing	systems,	could	exacerbate	the	impact	of	any	of	these	events	on	us.

In	addition,	we	may	not	be	successful	in	developing	or	acquiring	technology	that	is	competitive	and	responsive	to	the	needs	of	our	business,	and	we	might	lack sufficient	resources	to	make	the	necessary	upgrades	or	replacements	of	outdated	existing	technology	to	enable	us	to	continue	to	operate	at	our	current	level	of	efficiency.

# We	may	be	subject	to	physical	and/or	cyber	attacks.

As	operators	of	critical	infrastructure,	we	may	face	a	heightened	risk	of	physical	and/or	cyber	attacks.	Our	water	and	wastewater	systems	may	be	vulnerable	to disability	or	failures	as	a	result	of	physical	or	cyber	acts	of	war	or	terrorism,	vandalism	or	other	causes.	Our	corporate	and	information	technology	systems	may	be vulnerable	to	unauthorized	access	due	to	hacking,	viruses,	acts	of	war	or	terrorism,	and	other	causes.

If,	despite	our	security	measures,	a	significant	physical	attack	or	cyber	breach	occurred,	we	could	have	our	operations	disrupted,	property	damaged,	and	customer information	stolen;	experience	substantial	loss	of	revenues,	response	costs,	and	other	financial	loss;	and	be	subject	to	increased	regulation,	litigation,	and	damage	to	our reputation,	any	of	which	could	have	a	negative	impact	on	our	business	and	results	of	operations.

# We	may	not	be	able	to	fully	utilize	our	U.S.	and	state	net	operating	loss	carryforwards.

As	of	December	31,	2014,	we	had	U.S.	federal	and	state	net	operating	loss	("NOL")	carryforwards	of	approximately	$1.0	billion	and	$542	million,	respectively. Our	federal	NOL	carryforwards	begin	to	expire	in	2028,	and	our	state	NOL	carryforwards	will	expire	between	2015	and	2033.	Our	ability	to	utilize	our	NOL carryforwards	is	primarily	dependent	upon	our	ability	to	generate	sufficient	taxable	income.	Moreover,	because	our	previous	owner's	divestiture	of	its	stock	was considered	an	"ownership	change"	under	Section	382	of	the	Internal	Revenue	Code,	the	amount	of	NOL	carryforwards	that	may	be	utilized	in	any	year	is	limited.	Our management	believes	the	federal	NOL	carryforwards	are	more	likely	than	not	to	be	recovered	and	therefore	currently	require	no	valuation	allowance.	At	December	31, 2014,	$63.1	million	of	the	state	NOL	carryforwards	have	been	offset	by	a	valuation	allowance	because	we	do	not	believe	these	NOLs	will	more	likely	than	not	be realized	in	the	future,	and	we	have,	in	the	past,	been	unable	to	utilize	certain	of	our	NOLs.	The	establishment	or	increase	of	a	valuation	allowance	in	the	future	would reduce	our	deferred	income	tax	assets	and	our	net	income.

Our	actual	results	may	differ	from	those	estimated	by	management	in	making	its	assessment	as	to	our	ability	to	use	the	NOL	carryforwards.	Moreover,	changes in	income	tax	laws,	the	economy	and	the	general	business	environment	could	affect	the	future	utilization	of	the	NOL	carryforwards.	If	we	are	unable	to	fully	utilize	our NOL	carryforwards	to	offset	taxable	income	generated	in	the	future,	our	financial	position,	results	of	operations	and	cash	flows	could	be	materially	adversely	affected.

We	(excluding	our	regulated	subsidiaries)	provide	performance	guarantees	with	respect	to	certain	obligations	of	our	Market-Based	Operations,	including	financial guarantees	or	deposits,	to	our	public-sector	and	public	clients,	which	may	seek	to	enforce	the	guarantees	if	our	Market-Based	Operations	do	not	satisfy	these obligations.

Under	the	terms	of	some	of	our	agreements	for	the	provision	of	services	to	water	and	wastewater	facilities	with	municipalities,	other	governmental	entities	and other	customers,	American	Water	(excluding	our	regulated	subsidiaries)	provides	guarantees	of	specified	performance	obligations	of	our	Market-Based	Operations, including	financial	guarantees	or	deposits.	In	the	event	our	Market-Based	Operations	fail	to	perform	these	obligations,	the	entity	holding	the	guarantees	may	seek	to enforce	the	performance	commitments	against	us	or	proceed	against	the	deposit.	In	that	event,	our	financial	condition,	results	of	operations,	cash	flows,	and	liquidity could	be	adversely	affected.

At	December	31,	2014,	we	had	remaining	performance	commitments	as	measured	by	remaining	contract	revenue	totaling	approximately	$865.8	million	and	this amount	is	likely	to	increase	if	our	Market-Based	Operations	expand.	The	presence	of	these	commitments	may	adversely	affect	our	financial	condition	and	make	it	more difficult	for	us	to	secure	financing	on	attractive	terms.

# Our	Market-Based	Operations'	long-term	contracts	with	the	Department	of	Defense	may	be	terminated	for	the	convenience	of	the	U.S.	Government	and	are	subject to	periodic	contract	price	redetermination.

All	of	our	contracts	with	the	Department	of	Defense	for	the	operation	and	maintenance	of	water	and	wastewater	systems	may	be	terminated,	in	whole	or	in	part, prior	to	the	end	of	the	50-year	term	for	convenience	of	the	U.S.	Government	or	as	a	result	of	default	or	non-performance	by	the	subsidiary	performing	the	contract.	In addition,	the	contract	price	for	each	of	these	military	contracts	is	typically	subject	to	redetermination	two	years	after	commencement	of	operations	and	every	three	years thereafter.	Price	redetermination	is	a	contract	mechanism	to	periodically	adjust	the	service	fee	in	the	next	period	to	reflect	changes	in	contract	obligations	and	anticipated market	conditions.	Any	early	contract	termination	or	unfavorable	price	redetermination	could	adversely	affect	our	results	of	operations.

# We	operate	a	number	of	water	and	wastewater	systems	under	O&M	contracts	and	face	the	risk	that	the	owners	of	those	systems	may	fail	to	provide	capital	to properly	maintain	those	systems,	which	may	negatively	affect	us	as	the	operators	of	the	systems.

We	operate	a	number	of	water	and	wastewater	systems	under	O&M	contracts.	Pursuant	to	these	contracts,	we	operate	the	system	according	to	the	standards	set forth	in	the	applicable	contract,	and	it	is	generally	the	responsibility	of	the	owner	of	the	system	to	undertake	capital	improvements.	In	some	cases,	we	may	not	be	able	to convince	the	owner	to	make	needed	improvements	in	order	to	maintain	compliance	with	applicable	regulations.	Although	violations	and	fines	incurred	by	water	and wastewater	systems	may	be	the	responsibility	of	the	owner	of	the	system	under	these	contracts,	those	non-compliance	events	may	reflect	poorly	on	us	as	the	operator	of the	system	and	damage	our	reputation,	and	in	some	cases,	may	result	in	liability	to	the	same	extent	as	if	we	were	the	owner.

# Our	Market-Based	Operations	are	party	to	long-term	contracts	to	operate	and	maintain	water	and	wastewater	systems	under	which	we	may	incur	costs	in	excess	of payments	received.

Some	of	our	Market-Based	Operations	enter	into	long-term	contracts	under	which	they	agree	to	operate	and	maintain	a	municipality's,	federal	government's	or other	party's	water	or	wastewater	treatment	and	delivery	facilities,	which	includes	specified	major	maintenance	for	some	of	those	facilities,	in	exchange	for	an	annual fee.	Our	Market-Based	Operations	are	generally	subject	to	the	risk	that	costs	associated	with	operating	and	maintaining	the	facilities,	including	production	costs	such	as purchased	water,	electricity,	fuel	and	chemicals	used	in	water	treatment,	may	exceed	the	fees	received	from	the	municipality	or	other	contracting	party.	Losses	under these	contracts	or	guarantees	may	adversely	affect	our	financial	condition,	results	of	operations,	cash	flows	and	liquidity.

# Our	inability	to	efficiently	optimize	and	stabilize	our	recently	implemented	business	transformation	project,	could	result	in	higher	than	expected	costs	or	otherwise adversely	impact	our	internal	controls	environment,	operations	and	profitability.

Over	the	past	several	years,	we	have	implemented	a	"business	transformation"	project,	which	is	intended	to	improve	our	business	processes	and	upgrade	our legacy	core	information	technology	systems.	This	multi-year,	enterprise-wide	initiative	supports	our	broader	strategic	initiatives.	The	project	is	intended	to	optimize workflow	throughout	our	field	operations,	improve	our	back-office	operations	and	enhance	our	customer	service	capabilities.	The	scale	and	costs	associated	with	the business	transformation	project	were	significant.	Any	technical	or	other	difficulties	in	optimizing	and	stabilizing	this	initiative	may	increase	the	costs	of	the	project	and have	an	adverse	effect	on	our	operations	and	reporting	processes,	including	our	internal	control	over	financial	reporting.	In	August	2012,	our	new	business	systems associated	with	Phase	I	of	our	business	transformation	project	became	operational.	Phase	I	consisted	of	the	roll-out	of	the	ERP,	which	encompassed	applications	that handle	human	resources,	finance,	and	supply	chain/procurement	management	activities.	In	the	second	quarter	of	2013,	we	implemented	Phase	II	of	our	business transformation	project	in	a	number	of	our	regulated	subsidiaries.	In	the	fourth	quarter	of	2013,	Phase	II	of	our	business	transformation	project	was	implemented	in	our remaining	regulated	subsidiaries.	Phase	II	consisted	of	the	roll-out	of	a	new	Enterprise	Asset	Management	system,	which	manages	an	asset's	lifecycle,	and	a	Customer Information	system,	which	contains	all	billing	and	collections	data	pertaining	to	American	Water's	customers	for	our	Regulated	segment.	Although	efforts	have	been made	to	minimize	any	adverse	impact	on	our	controls,	we	cannot	assure	that	all	such	impacts	have	been	mitigated.

As	we	make	adjustments	to	our	operations,	we	may	incur	incremental	expenses	prior	to	realizing	the	benefits	of	a	more	efficient	workforce	and	operating structure.	Further,	we	may	not	realize	anticipated	cost	improvements	and	greater	efficiencies	from	the	project.

We	operate	numerous	information	technology	systems	that	are	in	various	stages	of	integration,	sometimes	leading	to	inefficiencies.	Therefore,	delays	in stabilization	and	optimization	of	the	business	transformation	project	will	also	delay	cost	savings	and	efficiencies	expected	to	result	from	the	project.	We	may	also experience	difficulties	consolidating	our	current	systems,	moving	to	a	common	set	of	operational	processes	and	implementing	a	successful	change	management	process. These	difficulties	may	impact	our	ability	to	meet	customer	needs	efficiently.	Any	such	delays	or	difficulties	may	have	a	material	and	adverse	impact	on	our	business, client	relationships	and	financial	results.

# Our	business	has	inherently	dangerous	workplaces.	If	we	fail	to	maintain	safe	work	sites,	we	can	be	exposed	to	financial	losses	as	well	as	penalties	and	other liabilities.

Our	safety	record	is	critical	to	our	reputation.	We	maintain	health	and	safety	standards	to	protect	our	employees,	customers,	vendors	and	the	public.	Although	we intend	to	adhere	to	such	health	and	safety	standards	it	is	unlikely	that	we	will	be	able	to	avoid	accidents	at	all	times.

Our	business	sites,	including	construction	and	maintenance	sites,	often	put	our	employees	and	others	in	close	proximity	with	large	pieces	of	equipment,	moving vehicles,	pressurized	water,	chemicals	and	other	regulated	materials.	On	many	sites	we	are	responsible	for	safety	and,	accordingly,	must	implement	safety	procedures.	If we	fail	to	implement	such	procedures	or	if	the	procedures	we	implement	are	ineffective	or	are	not	followed	by	our	employees	or	others,	our	employees	and	others	may be	injured	or	die.	Unsafe	work	sites	also	have	the	potential	to	increase	employee	turnover	and	raise	our	operating	costs.	Any	of	the	foregoing	could	result	in	financial losses,	which	could	have	a	material	adverse	impact	on	our	business,	financial	condition,	and	results	of	operations.

In	addition,	our	operations	can	involve	the	handling	and	storage	of	hazardous	chemicals,	which,	if	improperly	handled,	stored	or	disposed	of,	could	subject	us	to penalties	or	other	liabilities.	We	are	also	subject	to	regulations	dealing	with	occupational	health	and	safety.	Although	we	maintain	functional	employee	groups	whose primary	purpose	is	to	ensure	we	implement	effective	health,	safety,	and	environmental	work	procedures	throughout	our	organization,	including	construction	sites	and maintenance	sites,	the	failure	to	comply	with	such	regulations	could	subject	us	to	liability.

# Our	continued	success	is	dependent	upon	our	ability	to	hire,	retain,	and	utilize	qualified	personnel.

The	success	of	our	business	is	dependent	upon	our	ability	to	hire,	retain,	and	utilize	qualified	personnel,	including	engineers,	craft	personnel,	and	corporate management	professionals	who	have	the	required	experience	and	expertise.	From	time	to	time,	it	may	be	difficult	to	attract	and	retain	qualified	individuals	with	the expertise	and	in	the	timeframe	demanded	for	our	business	needs.	In	certain	geographic	areas,	for	example,	we	may	not	be	able	to	satisfy	the	demand	for	our	services because	of	our	inability	to	successfully	hire	and	retain	qualified	personnel.

In	addition,	as	some	of	our	key	personnel	approach	retirement	age,	we	need	to	have	appropriate	succession	plans	in	place	and	to	successfully	implement	such plans.	If	we	cannot	attract	and	retain	qualified	personnel	or	effectively	implement	appropriate	succession	plans,	it	could	have	a	material	adverse	impact	on	our	business, financial	condition,	and	results	of	operations.

# ITEM	1B. UNRESOLVED	STAFF	COMMENTS

# ITEM	2. PROPERTIES

Our	properties	consist	of	transmission,	distribution	and	collection	pipes,	water	and	wastewater	treatment	plants,	pumping	wells,	tanks,	meters,	supply	lines,	dams, reservoirs,	buildings,	vehicles,	land,	easements,	software	rights	and	other	facilities	and	equipment	used	for	the	operation	of	our	systems,	including	the	collection, treatment,	storage	and	distribution	of	water,	and	the	collection	and	treatment	of	wastewater.	Substantially	all	of	our	properties	are	owned	by	our	subsidiaries,	and	a substantial	portion	of	our	property	is	subject	to	liens	of	our	mortgage	bonds.	We	lease	our	corporate	offices,	equipment	and	furniture,	located	in	Voorhees,	New	Jersey from	certain	of	our	wholly-owned	subsidiaries.	These	properties	are	utilized	by	our	directors,	officers	and	staff	in	the	conduct	of	the	business.

Our	regulated	subsidiaries	own,	in	the	states	in	which	they	operate,	transmission,	distribution	and	collection	pipes,	pump	stations,	treatment	plants,	storage	tanks, reservoirs	and	related	facilities.	A	substantial	acreage	of	land	is	owned	by	our	Regulated	Businesses,	the	greater	part	of	which	is	located	in	watershed	areas,	with	the balance	being	principally	sites	of	pumping	and	treatment	plants,	storage	reservoirs,	tanks	and	standpipes.	Additionally,	properties	and	facilities	including	such	items	as well	fields,	tanks,	offices	and	operation	centers	are	also	leased	by	our	regulated	subsidiaries.	Our	Market-Based	Operations'	properties	consist	mainly	of	office	furniture and	IT	equipment	and	are	primarily	located	in	New	Jersey.	Approximately	51%	of	our	properties	are	located	in	New	Jersey	and	Pennsylvania.

We	maintain	property	insurance	against	loss	or	damage	to	our	properties	by	fire	or	other	perils,	subject	to	certain	exceptions.	For	insured	losses,	we	are	self- insured	to	the	extent	that	any	losses	are	within	the	policy	deductible	or	exceed	the	amount	of	insurance	maintained.	Any	such	losses	could	have	a	material	adverse	effect on	our	consolidated	results	of	operations,	financial	position	or	cash	flows.

We	believe	that	our	properties	are	generally	maintained	in	good	operating	condition	and	in	accordance	with	current	standards	of	good	water	and	wastewater works	industry	practice,	and	units	of	property	are	replaced	as	and	when	necessary.

# ITEM	3. LEGAL	PROCEEDINGS

# Alternative	Water	Supply	in	Lieu	of	Carmel	River	Diversions

In	1995,	the	California	Water	Resources	Control	Board	(the	"Water	Resources	Control	Board")	issued	an	administrative	order	(the	"1995	Order")	to	Cal	Am requiring	Cal	Am	to	implement	an	alternative	water	supply	in	lieu	of	diversions	from	the	Carmel	River.	In	response	to	claims	that	Cal	Am	had	not	diligently	pursued establishing	an	alternative	water	supply	as	required	by	the	1995	Order,	the	Water	Resources	Control	Board	adopted	the	2009	Order,	finding	that	Cal	Am	has	not sufficiently	implemented	actions	to	terminate	its	unpermitted	diversions	from	the	Carmel	River	as	required	by	the	1995	Order.	The	2009	Order	requires,	among	other things,	that	Cal	Am	significantly	decrease	its	yearly	diversions	from	the	Carmel	River	according	to	a	set	reduction	schedule	running	from	the	date	the	2009	Order	was adopted	until	December	31,	2016,	at	which	point	all	unpermitted	diversions	must	end.	Failure	to	effect	the	decrease	in	diversions	mandated	by	the	2009	Order	could result	in	substantial	penalties.	We	can	provide	no	assurances	that	Cal	Am	will	be	able	to	comply	with	the	diversion	reduction	requirements	and	other	remaining requirements	under	the	2009	Order	or	that	any	such	compliance	will	not	result	in	material	additional	costs	or	obligations	to	us.	As	noted	below,	Cal	Am	does	not	expect to	have	sufficient	alternative	sources	of	water	available	by	the	December	31,	2016	deadline,	and	is	engaged	in	discussions	with	the	Water	Resources	Control	Board	to extend	the	deadline.

On	December	2,	2010,	the	California	Public	Utilities	Commission	("CPUC")	approved	the	Regional	Desalination	Project	(the	"RDP"),	involving	the	construction of	a	desalination	facility	in	the	City	of	Marina,	north	of	Monterey.	The	RDP	was	to	be	implemented	through	a	Water	Purchase	Agreement	and	ancillary	agreements (collectively,	the	"Agreements")	among	the	Marina	Coast	Water	District	("MCWD"),	the	Monterey	County	Water	Resources	Agency	("MCWRA")	and	Cal	Am.	The desalination	facility	was	to	be	constructed	and	owned	by	MCWD,	and	MCWRA	was	to	construct	the	wells	that	were	to	supply	water	to	the	desalination	facility.	The RDP	was	intended,	among	other	things,	to	fulfill	Cal	Am's	obligations	under	the	1995	Order	and	the	2009	Order,	in	addition	to	other	obligations.

The	RDP	was	subject	to	delay	due	to,	among	other	things,	funding	delays	and	investigations	and	inquiries	initiated	by	public	authorities	relating	to	an	alleged conflict	of	interest	concerning	a	former	member	of	the	MCWRA	Board	of	Directors	(the	"Former	Director").	On	July	7,	2011,	MCWRA	advised	MCWD	and	Cal	Am that	the	Agreements	were	void	as	a	result	of	the	conduct	of	the	Former	Director.	Subsequently,	on	August	12,	2011,	Cal	Am	advised	MCWD	and	MCWRA	that	they had	defaulted	in	performance	of	certain	financing	obligations	under	the	Water	Purchase	Agreement.	By	letter	delivered	to	MCWD	and	MCWRA	on	September	28, 2011,	Cal	Am	terminated	the	Agreements	as	a	result	of	MCWRA's	anticipatory	repudiation	of	the	Agreements	by	stating	they	were	void.	On	January	17,	2012, following	unsuccessful	mediation	efforts	among	the	parties,	Cal	Am	publicly	announced	that	it	had	withdrawn	support	of	the	RDP.	Disputes	among	the	parties	with respect	to	the	RDP	continued	thereafter.	On	July	12,	2012,	the	CPUC	closed	the	proceedings	relating	to	the	RDP	and	stated	that	it	would	examine	the	recoverability	of costs	related	to	the	RDP	in	other	proceedings.	Cal	Am	plans	to	file	a	new	application	seeking	recovery	of	legal	costs	relating	to	the	RDP	after	any	pending	legal	disputes are	resolved.

In	December	2012,	Cal	Am,	MCWRA	and	the	County	of	Monterey	entered	into	a	settlement	agreement	under	which	Cal	Am	will	forgive	approximately	$1.9 million	previously	loaned	by	Cal	Am	to	MCWRA	in	connection	with	the	RDP,	and	Cal	Am	will	make	additional	payments	of	up	to	approximately	$1.5	million	to MCWRA.	The	settlement	agreement,	the	debt	forgiveness	and	the	additional	payments	are	conditioned	on	CPUC	approval,	including	approval	of	Cal	Am	rate	recovery of	the	debt	forgiveness	and	the	additional	payments.	Cal	Am	and	MCWD	also	entered	into	a	tolling	agreement,	which,	as	extended	by	subsequent	agreements,	toll applicable	statutes	of	limitations	and	the	deadline	for	commencement	of	litigation	regarding	Cal	Am's	claims	until	June	30,	2015.	The	MCWRA	settlement	agreement and	the	tolling	and	standstill	agreement	do	not	affect	litigation	initiated	by	Cal	Am	seeking	a	determination	regarding	the	validity	of	the	Agreements,	which	is	described below.	On	May	24,	2013,	Cal	Am	filed	an	application	with	the	CPUC	for	approval	of	the	settlement	agreement	and	rate	recovery	on	Cal	Am's	debt	forgiveness	and additional	payments	to	MCWRA	under	the	settlement	agreement.	The	application	is	pending.

On	October	4,	2012,	Cal	Am	filed	a	Complaint	for	Declaratory	Relief	in	the	Monterey	County	Superior	Court	(subsequently	transferred	to	the	San	Francisco Superior	Court)	against	MCWRA	and	MCWD,	seeking	a	determination	by	the	Court	as	to	whether	the	Agreements	are	void	as	a	result	of	the	Former	Director's	alleged conflict	of	interest,	or	remained	valid.	A	trial	on	the	matter	was	held	on	December	2-5,	2014.	The	Court	has	established	deadlines	for	post-trial	closing	and	reply	briefs, but	has	not	yet	scheduled	a	date	for	oral	argument	following	the	February	10,	2015	deadline	for	submission	of	reply	briefs.

On	April	23,	2012,	Cal	Am	filed	an	application	with	the	CPUC	for	approval	of	the	Monterey	Peninsula	Water	Supply	Project	(the	"Water	Supply	Project").	The Water	Supply	Project	involves	construction	of	a	desalination	plant	and	related	facilities,	all	to	be	owned	by	Cal	Am.	In	addition,	the	Water	Supply	Project	may encompass	Cal	Am's	purchase	of	water	from	the	proposed	Monterey	Peninsula	Groundwater	Replenishment	Project	(the	"GWR	Project"),	a	joint	project	between	the Monterey	Regional	Water	Pollution	Control	Agency	and	the	Monterey	Peninsula	Water	Management	District	("MPWMD").	The	Water	Supply	Project	also	would involve	aquifer	storage	and	recovery	through	an	already	established	aquifer	storage	and	recovery	program	between	Cal	Am	and	the	MPWMD.

On	July	31,	2013,	Cal	Am	entered	into	a	settlement	agreement	with	15	other	parties	that	have	intervened	in	the	CPUC	proceedings	with	respect	to	the	Water Supply	Project,	including	several	Monterey	County	government	entities,	the	Office	of	Ratepayer	Advocates	of	the	CPUC	and	several	interest	groups	(the	"WSP Settlement").	Under	the	settlement	agreement,	the	parties	have	agreed	on	several	matters	relating	to	the	Water	Supply	Project.	In	a	separate	settlement	agreement	among most	of	the	same	parties,	the	participating	parties	agreed	on	sizing	of	the	desalination	plant	at	9.6	million	gallons	per	day,	if	the	GWR	Project	does	not	supply	water	to Cal	Am,	and,	if	the	GWR	Project	supplies	water	to	Cal	Am,	either	6.4	million	gallons	per	day	or	6.9	million	gallons	per	day	depending	on	discrete	capacities	of	GWR Project	water.	This	settlement	agreement	is	subject	to	the	approval	of	the	CPUC	and	will	not	take	effect	unless	the	CPUC	determines	that	it	is	reasonable	within	the	law and	the	public	interest,	and	until	the	CPUC	certifies	an	environmental	impact	report	for	the	proposed	Water	Supply	Project,	which	currently	is	expected	to	be	issued	in the	first	quarter	of	2016.

A	preliminary	step	to	building	the	desalination	plant	is	the	test	slant	well	project,	involving	the	construction	and	operation	of	a	test	slant	well,	as	well	as monitoring	well	clusters	and	other	related	infrastructure,	to	confirm	the	suitability	of	the	property	on	which	permanent	intake	wells	will	be	located	to	draw	water	from under	Monterey	Bay.	As	proposed	by	Cal	Am,	the	site	of	the	test	slant	well	is	on	a	property	owned	by	one	or	more	affiliates	of	Cemex,	Inc.	(collectively,	"Cemex"),	and in	the	WSP	Settlement,	the	parties	agreed	that	the	preferred	location	to	build	a	test	slant	well	project	is	the	Cemex	property.	Cal	Am	and	Cemex	have	entered	into	an agreement

under	which	Cal	Am	acquired	a	temporary	investigative	easement	to	construct	and	operate	the	test	slant	well	together	with	monitoring	wells	and	other	related infrastructure	on	Cemex	property	and	a	four	year	option	to	purchase	a	permanent	easement	that	will	enable	Cal	Am's	access	to	and	operation	of	slant	wells	and	related pipelines	and	utilities	for	the	Water	Supply	Project	on	portions	of	the	Cemex	property	to	be	determined	if	and	when	the	final	configuration	of	new	water	supply	wells	are approved	by	the	California	Coastal	Commission	("Coastal	Commission").

On	November	12,	2014,	the	Coastal	Commission	approved	the	coastal	development	permit	for	the	test	slant	well	on	the	Cemex	property.	In	addition,	the	Coastal Commission	approved	a	second	coastal	development	permit,	enabling	Cal	Am	to	construct	the	portion	of	the	test	slant	well	that	will	be	under	state	lands	(beneath	the ocean	floor),	provided	that	Cal	Am	acquires	a	lease	from	the	California	State	Lands	Commission	(the	"State	Lands	Commission"),	which	owns	the	state	lands.	The	State Lands	Commission	executed	the	required	lease	on	January	22,	2015,	and	the	Coastal	Commission	issued	the	second	coastal	development	permit	on	January	28,	2015.

On	December	11,	2014,	MCWD	filed	a	Petition	for	Writ	of	Mandate	and	Complaint	for	Declaratory	and	Injunctive	Relief	in	the	Monterey	County	Superior Court	against	the	Coastal	Commission	and	Cal	Am.	With	the	consent	of	all	parties	involved,	the	matter	was	transferred	to	the	San	Jose	County	Superior	Court.	MCWD seeks,	among	other	things,	a	peremptory	writ	of	mandate	commanding	the	Coastal	Commission	to	vacate	its	decision	to	approve	the	coastal	development	permit	relating to	the	Cemex	property,	and	a	permanent	injunction	restraining	Cal	Am	and	the	Coastal	Commission	from	taking	any	action	to	implement	the	test	slant	well	project, pending	full	compliance	with	the	California	Environmental	Quality	Act	("CEQA")	and	the	California	Coastal	Act	(the	"Coastal	Act").

On	December	23,	2014,	Ag	Land	Trust,	an	agricultural	land	conservancy,	filed	its	First	Amended	Petition	for	Writ	of	Mandamus	with	the	San	Jose	County Superior	Court	against	the	Coastal	Commission	and	Cal	Am	(the	"Ag	Land	Trust	Petition").	The	Ag	Land	Trust	Petition	seeks	writs	of	mandate	ordering	the	Coastal Commission	to	set	aside	its	approval	of	the	test	slant	well	project	and	follow	California	regulations	and	statutes	in	complying	with	CEQA	and	the	Coastal	Act,	and enjoining	Cal	Am	from	engaging	in	any	activity	pursuant	to	the	test	slant	well	project	until	the	project	and	the	Coastal	Commission	comply	with	California	regulations and	statutes.

On	January	15,	2015,	MCWD	filed	a	Petition	for	Writ	of	Mandate	and	Complaint	for	Declaratory	and	Injunctive	Relief	in	the	Santa	Cruz	County	against	the California	State	Lands	Commission	and	Cal	Am	(the	"January	2015	Petition").	The	January	2015	Petition	seeks	injunctive	relief	restraining	the	State	Lands	Commission and	Cal	Am	from	taking	any	action	to	further	implement	the	test	slant	well	project	pending	full	compliance	with	CEQA	and	other	applicable	laws;	a	peremptory	writ	of mandate	commanding	the	State	Lands	Commission	to	vacate	and	set	aside	the	decision	to	approve	the	lease	allowing	Cal	Am	to	construct	and	operate	a	test	slant	well and	associated	monitoring	wells	on	sovereign	lands;	and	a	peremptory	writ	of	mandate	directing	the	State	Lands	Commission	and	Cal	Am	to	comply	with	the requirements	of	CEQA	and	other	applicable	laws.

The	Coastal	Commission	and	the	State	Lands	Commission	have	not	yet	responded	to	the	action	or	actions	in	which	they	respectively	are	a	respondent.	Cal	Am has	not	yet	responded	to	the	actions,	although	it	intends	to	contest	these	actions	vigorously.

In	addition	to	the	foregoing	matters,	Cal	Am's	ability	to	move	forward	on	the	Water	Supply	Project	is	subject	to	extensive	administrative	review	by	the	CPUC, review	by	other	government	agencies	of	necessary	permit	applications,	and	intervention	from	other	parties,	including	some	that	are	not	participants	in	the	settlement agreements	relating	to	the	Water	Supply	Project.	In	addition,	there	have	been	delays	in	the	initial	timetable	for	preparation	of	the	environmental	impact	report	due	to, among	other	things,	uncertainties	regarding	timing	of	government	approval	of	various	required	permits.	As	a	result,	Cal	Am	estimates	that	the	earliest	date	by	which	the Water	Supply	Project	could	be	completed	is	early	2019.	We	cannot	assure	that	Cal	Am's	application	for	the	Water	Supply	Project	will	be	approved	or	that	the	Water Supply	Project	will	be	completed	on	a	timely	basis,	if	ever.

Because	the	projected	completion	date	of	the	Water	Supply	Project	is	beyond	the	December	31,	2016	deadline	for	Cal	Am	to	terminate	unpermitted	diversions from	the	Carmel	River,	Cal	Am	has	commenced	discussions	with	the	Water	Resources	Control	Board	to	extend	the	December	2016	deadline.	While	Cal	Am	believes	the discussions	have	been	constructive,	we	cannot	assure	that	the	deadline	will	be	extended.

# West	Virginia	Elk	River	Freedom	Industries'	Chemical	Spill

On	January	9,	2014,	a	chemical	storage	tank	owned	by	Freedom	Industries,	Inc.	leaked	two	substances	used	for	processing	coal,	4-methylcyclohexane	methanol, or	MCHM,	and	PPH/DiPPH,	a	mix	of	polyglycol	ethers,	into	the	Elk	River	near	the	West	Virginia-American	Water	Company	("WVAWC")	treatment	plant	intake	in Charleston,	West	Virginia.	After	having	been	alerted	to	the	leak	of	MCHM	by	the	West	Virginia	Department	of	Environmental	Protection	("DEP"),	WVAWC	took immediate	steps	to	gather	more	information	about	MCHM,	augment	its	treatment	process	as	a	precaution,	and	begin	consultations	with	federal,	state	and	local	public health	officials.	As	soon	as	possible	after	it	was	determined	that	the	augmented	treatment	process	would	not	fully	remove	the	MCHM,	a	joint	decision	was	reached	in consultation	with	the	West	Virginia	Bureau	for	Public	Health	to	issue	a	"Do	Not	Use"	order	for	all	of

its	approximately	93,000	customer	accounts	in	parts	of	nine	West	Virginia	counties	served	by	the	Charleston	treatment	plant.	The	order	addressed	the	use	of	water	for drinking,	cooking,	washing	and	bathing,	but	did	not	affect	continued	use	of	water	for	sanitation	and	fire	protection.	Over	the	next	several	days,	WVAWC	and	an interagency	team	of	state	and	federal	officials	engaged	in	extensive	sampling	and	testing	to	determine	if	levels	of	MCHM	were	below	one	part	per	million	(1	ppm),	a level	that	the	U.S.	Centers	for	Disease	Control	and	Prevention	("CDC")	and	EPA	indicated	would	be	protective	of	public	health.	Beginning	on	January	13,	2014,	based on	the	results	of	the	continued	testing,	the	Do	Not	Use	order	was	lifted	in	stages	to	help	ensure	the	water	system	was	not	overwhelmed	by	excessive	demand,	which could	have	caused	additional	water	quality	and	service	issues.	By	January	18,	2014,	none	of	WVAWC's	customers	were	subject	to	the	Do	Not	Use	order,	although	CDC guidance	suggesting	that	pregnant	women	avoid	consuming	the	water	until	the	chemicals	were	at	non-detectable	levels	remained	in	place.	In	addition,	based	on	saved samples	taken	on	or	before	January	18,	2014,	PPH/DiPPH	was	no	longer	detected	in	the	water	supply	as	of	January	18,	2014.	On	February	21,	2014,	WVAWC announced	that	all	points	of	testing	throughout	its	water	distribution	system	indicated	that	levels	of	MCHM	were	below	10	parts	per	billion	(10	ppb).	The	interagency team	established	10	ppb	as	the	"non-detect"	level	of	MCHM	in	the	water	distribution	system	based	on	the	measurement	capabilities	of	the	multiple	laboratories	used. WVAWC	continued	to	work	with	laboratories	to	test	down	to	below	2	ppb	of	MCHM	and	announced	on	March	3,	2014,	that	it	had	cleared	the	system	to	below	this level.

To	date,	58	lawsuits	have	been	filed	against	WVAWC	with	respect	to	this	matter	in	the	United	States	District	Court	for	the	Southern	District	of	West	Virginia	or West	Virginia	Circuit	Courts	in	Kanawha,	Boone	and	Putnam	counties.	Fifty-two	of	the	state	court	cases	naming	WVAWC,	and	one	case	naming	both	WVAWC	and American	Water	Works	Service	Company,	Inc.	("AWWSC,"	and	together	with	WVAWC	and	the	Company,	the	"American	Water	Defendants")	were	removed	to	the United	States	District	Court	for	the	Southern	District	of	West	Virginia,	but	are	subject	to	motions	to	remand	the	cases	back	to	the	state	courts	and	have	been	consolidated for	the	sole	purpose	of	resolving	venue	issues.	Four	of	the	cases	pending	before	the	federal	district	court	were	consolidated	for	purposes	of	discovery,	and	an	amended consolidated	complaint	for	those	cases	was	filed	on	December	9,	2014	by	several	plaintiffs	who	allegedly	suffered	economic	losses,	loss	of	use	of	property	and	tap	water or	other	specified	adverse	consequences	as	a	result	of	the	Freedom	Industries	spill,	on	behalf	of	a	purported	class	of	all	persons	and	businesses	supplied	with,	using,	or exposed	to	water	contaminated	with	Crude	MCHM	and	provided	by	WVAWC	in	Logan,	Clay,	Lincoln,	Roane,	Jackson,	Boone,	Putnam,	and	Kanawha	Counties	and	the Culloden	area	of	Cabell	County,	West	Virginia	as	of	January	9,	2014.	The	consolidated	complaint	names	several	individuals	and	corporate	entities	as	defendants, including	the	American	Water	Defendants.	The	plaintiffs	seek	unspecified	damages	for	alleged	business	or	economic	losses;	unspecified	damages	or	a	mechanism	for recovery	to	address	a	variety	or	alleged	costs,	loss	of	use	of	property,	personal	injury	and	other	consequences	allegedly	suffered	by	purported	class	members;	punitive damages	and	certain	additional	relief,	including	the	establishment	of	a	medical	monitoring	program	to	protect	the	purported	class	members	from	an	alleged	increased risk	of	contracting	serious	latent	disease.	The	American	Water	Defendants	have	each	filed	an	answer	to	the	consolidated	complaint.	The	Company	individually,	and AWWSC	and	WVAWC	together,	filed	motions	to	dismiss	the	consolidated	complaint.	Briefing	on	these	motions	was	completed	on	January	28,	2015.

Additionally,	investigations	with	respect	to	the	matter	have	been	initiated	by	the	Chemical	Safety	Board,	the	U.S.	Attorney's	Office	for	the	Southern	District	of West	Virginia,	the	West	Virginia	Attorney	General,	and	the	Public	Service	Commission	of	West	Virginia	(the	"PSC").	As	a	result	of	the	U.S.	Attorney's	Office investigation,	on	December	17,	2014,	four	former	Freedom	Industries	officers	(three	of	whom	also	were	former	owners	of	Freedom	Industries),	were	indicted	for,	among other	things,	negligent	discharge	of	a	pollutant	in	violation	of	the	federal	Clean	Water	Act.	These	executives	are	also	facing	additional	federal	charges	resulting	from	a 13-count	superseding	indictment	issued	by	a	grand	jury	on	January	21,	2015.	In	addition,	information	charges	were	filed	against	Freedom	Industries	for,	among	other things,	negligent	discharge	of	a	pollutant	in	violation	of	the	Clean	Water	Act,	and	against	the	former	plant	manager	of	Freedom	Industries'	Elk	River	facility	and	one	of the	individuals	responsible	for	environmental	compliance	at	Freedom	Industries	for	violating	the	Clean	Water	Act.

On	May	21,	2014,	the	PSC	issued	an	Order	initiating	a	General	Investigation	into	certain	matters	relating	to	WVAWC's	response	to	the	Freedom	industries	spill. Three	parties	have	intervened	in	the	proceeding,	including	the	Consumer	Advocate	Division	of	the	PSC	and	two	attorney-sponsored	groups,	including	one	sponsored	by some	of	the	plaintiffs'	counsel	involved	in	the	civil	litigation	described	above.	WVAWC	has	filed	testimony	regarding	its	response	to	the	spill	and	is	subject	to	discovery from	PSC	staff	and	the	intervenors	as	part	of	the	General	Investigation.	Several	disputes	have	arisen	between	the	WVAWC	and	the	intervenors	regarding,	among	other things,	the	scope	of	the	discovery	and	the	maintenance	of	confidentiality	with	regard	to	certain	WVAWC	emergency	planning	documents.	In	addition,	the	intervenors and	PSC	staff	filed	expert	testimony	in	support	of	their	assertions	that	WVAWC	did	not	act	reasonably	with	respect	to	the	Freedom	Industries	spill,	and	WVAWC	has asserted	that	some	of	the	testimony	is	outside	the	scope	of	the	PSC	proceeding.	The	PSC	has	deferred	setting	a	revised	procedural	schedule	and	has	not	set	a	final hearing	date	on	the	matter.

The	Company,	WVAWC	and	the	other	Company-affiliated	entities	named	in	any	of	the	lawsuits	believe	that	WVAWC	has	responded	appropriately	to,	and	has no	responsibility	for,	the	Freedom	Industries	spill	and	the	Company,	WVAWC	and	other	Company-affiliated	entities	named	in	any	of	the	lawsuits	have	valid, meritorious	defenses	to	the	lawsuits.	The	Company,	WVAWC	and	the	other	Company	affiliated	entities	intend	to	vigorously	contest	the	lawsuits.	Nevertheless,	an adverse	outcome	in	one	or	more	of	the	lawsuits	could	have	a	material	adverse	effect	on	the	Company's	financial	condition,	results	of	operations,	cash	flows,	liquidity

and	reputation.	Moreover,	WVAWC	and	the	Company	are	unable	to	predict	the	outcome	of	the	ongoing	government	investigations	or	any	legislative	initiatives	that might	affect	water	utility	operations.

# General

Periodically,	the	Company	is	involved	in	other	proceedings	or	litigation	arising	in	the	ordinary	course	of	business.	We	do	not	believe	that	the	ultimate	resolution of	these	matters	will	materially	affect	the	Company's	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.	It	is	possible	that	some	litigation	and	other	proceedings	could	be	decided unfavorably	to	us,	and	that	any	such	unfavorable	decisions	could	have	a	material	adverse	effect	on	the	Company's	business,	financial	condition,	results	of	operations, and	cash	flows.

# ITEM	4. Mine	Safety	Disclosures

Not	applicable

# PART	II

# ITEM	5. MARKET	FOR	REGISTRANT'S	COMMON	EQUITY,	RELATED	STOCKHOLDER	MATTERS	AND	ISSUER	PURCHASES	OF EQUITY	SECURITIES

Since	April	23,	2008,	our	common	stock	has	traded	on	the	NYSE	under	the	symbol	"AWK."	As	of	February	19,	2015,	there	were	179,787,780	shares	of common	stock	outstanding	and	approximately	2,150	record	holders	of	common	stock.	Holders	of	the	Company's	common	stock	are	entitled	to	receive	dividends	when they	are	declared	by	the	Board	of	Directors.	When	dividends	on	common	stock	are	declared,	they	are	usually	paid	in	March,	June,	September	and	December.	Future dividends	are	not	guaranteed	by	the	Company	and	will	be	dependent	on	future	earnings,	financial	requirements,	contractual	provisions	of	debt	agreements	and	other relevant	factors.

The	following	table	sets	forth	the	per-share	range	of	the	high	and	low	closing	sales	prices	of	our	common	stock	as	reported	on	the	NYSE	and	the	cash	dividends paid	and	declared	per	share	for	the	years	ended	December	31,	2014	and	2013.

|  | First<br>Quarter | Second<br>Quarter | 2014<br>Third<br>Quarter | Fourth<br>Quarter | Year | First<br>Quarter* | Second<br>Quarter | 2013<br>Third<br>Quarter | Fourth<br>Quarter | Year |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Dividends\tpaid\tper\tcommon |  |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\tshare | $0.28 | $0.31 | $0.31 | $0.31 | $1.21 | $0.00 | $0.28 | $0.28 | $0.28 | $0.84 |
| Dividend\tdeclared\tper\tcommon |  |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\tshare | $0.00 | $0.31 | $0.62 | $0.31 | $1.24 | $0.00 | $0.28 | $0.56 | $0.28 | $1.12 |
| Price\trange\tof\tcommon\tstock |  |  |  |  |  |  |  |  |  |  |
| —High | $45.56 | $49.45 | $50.61 | $55.86 | $55.86 | $41.44 | $42.74 | $43.50 | $43.49 | $43.50 |
| —Low | $41.16 | $45.16 | $46.41 | $47.92 | $41.16 | $37.33 | $39.40 | $39.90 | $39.13 | $37.33 |

*The	dividend	that	would	have	normally	been	paid	in	the	first	quarter	of	2013	was	paid	on	December	28,	2012	to	allow	shareholders	to	take	advantage	of	the	existing 2012	tax	rates.

In	February	2015,	our	Board	of	Directors	authorized	a	common	stock	repurchase	program	for	the	specific	purpose	of	providing	a	vehicle	to	minimize	share dilution	that	occurs	through	its	dividend	reinvestment,	employee	stock	purchase	and	executive	compensation	programs.	The	program	will	allow	the	Company	to purchase	up	to	10	million	shares	of	its	outstanding	common	stock	over	an	unrestricted	period	of	time	to	manage	dilution.

For	information	on	securities	authorized	for	issuance	under	our	equity	compensation	see	"Item	12—Security	Ownership	of	Certain	Beneficial	Owners	and Management	and	Related	Stockholder	Matters."

# ITEM		6. SELECTED	FINANCIAL	DATA

|  |  |  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 | 2011 | 2010 |
|  |  |  | (In\tthousands,\texcept\tper\tshare\tdata) | (In\tthousands,\texcept\tper\tshare\tdata) |  |
| Statement\tof\toperations\tdata:\t(1) |  |  |  |  |  |
| Operating\trevenues | $3,011,328 | $2,878,936 | $2,853,926 | $2,641,592 | $2,535,131 |
| Operating\tincome | $1,002,576 | $948,316 | $924,104 | $801,639 | $728,951 |
| Income\tfrom\tcontinuing\toperations | $429,841 | $370,844 | $373,602 | $303,472 | $255,451 |
| Income\tfrom\tcontinuing\toperations |  |  |  |  |  |
| \t\t\t\t\tper\tbasic\tcommon\tshare | $2.40 | $2.08 | $2.12 | $1.73 | $1.46 |
| Income\tfrom\tcontinuing\toperations |  |  |  |  |  |
| \t\t\t\t\tper\tdiluted\tcommon\tshare | $2.39 | $2.07 | $2.10 | $1.72 | $1.46 |

|  | 2014 | 2013 | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tthousands) |  |  |
| Balance\tsheet\tdata: |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $23,080 | $26,964 | $24,433 | $14,207 | $13,112 |
| Utility\tplant\tand\tproperty,\tnet\tof |  |  |  |  |  |
| \t\t\t\t\tdepreciation | $12,899,704 | $12,244,359 | $11,584,944 | $10,872,042 | $10,241,342 |
| Total\tassets | $16,130,956 | $15,088,142 | $14,718,976 | $14,776,391 | $14,086,246 |
| Short-term\tand\tlong-term\tdebt | $5,942,186 | $5,855,712 | $5,574,763 | $5,882,956 | $5,658,473 |
| Redeemable\tpreferred\tstock | $17,151 | $18,827 | $20,511 | $22,036 | $22,794 |
| Total\tdebt\tand\tredeemable\tpreferred\tstock | $5,959,336 | $5,874,539 | $5,595,274 | $5,904,992 | $5,681,267 |
| Common\tstockholders'\tequity | $4,915,591 | $4,727,804 | $4,443,268 | $4,235,837 | $4,127,725 |
| Preferred\tstock\twithout\tmandatory |  |  |  |  |  |
| \t\t\t\t\tredemption\trequirements | $— | $— | $1,720 | $4,547 | $4,547 |
| Total\tstockholders'\tequity | $4,915,591 | $4,727,804 | $4,444,988 | $4,240,384 | $4,132,272 |

|  |  |  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 | 2011 | 2010 |
|  |  |  | (In\tthousands,\texcept\tper\tshare\tdata) | (In\tthousands,\texcept\tper\tshare\tdata) |  |
| Other\tdata: |  |  |  |  |  |
| Cash\tflows\tprovided\tby\t(used\tin): |  |  |  |  |  |
| Operating\tactivities | $1,097,287 | 896,162 | $955,598 | $808,357 | $774,933 |
| Investing\tactivities\t(2) | $(1,013,989) | (1,053,294) | $(382,356) | $(912,397) | $(746,743) |
| Financing\tactivities\t(2) | $(87,182) | 159,663 | $(563,016) | $105,135 | $(37,334) |
| Construction\texpenditures,\tincluded\tin |  |  |  |  |  |
| \t\t\t\t\tinvesting\tactivities | $(956,119) | (980,252) | $(928,574) | $(924,858) | $(765,636) |
| Dividends\tpaid\tper\tcommon\tshare\t(3) | $1.21 | $0.84 | $1.21 | $0.90 | $0.86 |
| Dividends\tdeclared\tper\tcommon\tshare\t(4) | $1.24 | $1.12 | $0.98 | $1.13 | $0.86 |

(1) This	information	has	been	restated	to	reflect	the	impact	of	discontinued	operations,	as	applicable.	See	Note	3	of	the	Consolidated	Financial	Statements	for additional	details	on	our	discontinued	operations.

(2) The	amount	for	the	year	ended	December	31,	2012	includes	net	proceeds	from	the	sale	of	our	Arizona,	New	Mexico	and	Ohio	subsidiaries	of	approximately $561	million,	with	the	majority	of	it	used	to	pay	down	short-term	debt.	For	further	information,	see	"Item	7—Management	Discussion	and Analysis—Consolidated	Results	of	Operations."

(3) 2012	includes	one	additional	dividend	payment	of	$0.25	per	common	share	paid	on	December	28,	2012	to	shareholders	of	record	as	of	December	20,	2012	to allow	them	to	take	advantage	of	the	existing	2012	tax	rates.

(4) Included	in	2011	was	a	change	in	the	timing	of	dividend	declarations.	As	a	result,	five	dividend	declarations	were	made	during	2011.

# ITEM	7. MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF	FINANCIAL	CONDITION	AND	RESULTS	OF	OPERATIONS

The	following	discussion	should	be	read	together	with	the	financial	statements	and	the	notes	thereto	included	elsewhere	in	this	Form	10-K.	This	discussion contains	forward-looking	statements	that	are	based	on	management's	current	expectations,	estimates	and	projections	about	our	business,	operations	and	financial performance.	The	cautionary	statements	made	in	this	Form	10-K	should	be	read	as	applying	to	all	related	forward-looking	statements	whenever	they	appear	in	this Form	10-K.	Our	actual	results	may	differ	materially	from	those	currently	anticipated	and	expressed	in	such	forward-looking	statements	as	a	result	of	a	number	of factors,	including	those	we	discuss	under	"Risk	Factors"	and	elsewhere	in	this	Form	10-K.	You	should	read	"Risk	Factors"	and	"Forward-Looking	Statements."

# Executive	Overview

American	Water	Works	Company,	Inc.	(herein	referred	to	as	"American	Water"	or	the	"Company")	is	the	largest	investor-owned	United	States	water	and wastewater	utility	company,	as	measured	both	by	operating	revenues	and	population	served.	Our	approximately	6,400	employees	provide	drinking	water,	wastewater	and other	water	related	services	to	an	estimated	15	million	people

in	47	states	and	in	one	Canadian	province.	Our	primary	business	involves	the	ownership	of	water	and	wastewater	utilities	that	provide	water	and	wastewater	services	to residential,	commercial,	industrial	and	other	customers.	Our	Regulated	Businesses	that	provide	these	services	are	generally	subject	to	economic	regulation	by	state regulatory	agencies	in	the	states	in	which	they	operate.	The	federal	government	and	the	states	also	regulate	environmental,	health	and	safety	and	water	quality	matters. Our	Regulated	Businesses	provide	services	in	16	states	and	serve	approximately	3.2	million	customers	based	on	the	number	of	active	service	connections	to	our	water and	wastewater	networks.	We	report	the	results	of	these	businesses	in	our	Regulated	Businesses	segment.	We	also	provide	services	that	are	not	subject	to	economic regulation	by	state	regulatory	agencies.	We	report	the	results	of	these	businesses	in	our	Market-Based	Operations	segment.

In	2014,	we	continued	the	execution	of	our	strategic	goals.	Our	commitment	to	growth	through	investment	in	our	regulated	infrastructure	and	expansion	of	our regulated	customer	base	and	our	Market-Based	Operations,	combined	with	operational	excellence	led	to	continued	improvement	in	regulated	operating	efficiency, improved	performance	of	our	Market-Based	Operations,	and	enabled	us	to	provide	increased	value	to	our	customers	and	investors.	During	the	year,	we	focused	on growth,	addressed	regulatory	lag,	made	more	efficient	use	of	capital	and	improved	our	regulated	operation	and	maintenance	("O&M")	efficiency	ratio.

# 2014	Financial	Results

For	the	year	ended	December	31,	2014,	we	continued	to	increase	net	income,	while	making	significant	capital	investment	in	our	infrastructure	and	implementing operational	efficiency	improvements	to	keep	customer	rates	affordable.	Highlights	of	our	2014	operating	results	compared	to	2013	and	2012	include:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Income\tfrom\tcontinuing\toperations | $2.39 | $2.07 | \t$2.10 |
| Income\t(loss)\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $(0.04) | $(0.01) | $(0.09) |
| Diluted\tearnings\tper\tshare | $2.35 | $2.06 | \t$2.01 |

# Continuing	Operations

Income	from	continuing	operations	included	4	cents	per	diluted	share	of	costs	resulting	from	the	Freedom	Industries	chemical	spill	in	West	Virginia	in	2014	and included	14	cents	per	diluted	share	in	2013	related	to	a	tender	offer.	Earnings	from	continuing	operations,	adjusted	for	these	two	items,	increased	10%,	or	22	cents	per share,	mainly	due	to	favorable	operating	results	from	our	Regulated	Businesses	segment	due	to	higher	revenues	and	lower	operating	expenses,	partially	offset	by	higher depreciation	expenses.	Also	contributing	to	the	overall	increase	in	income	from	continuing	operations	was	lower	interest	expense	in	2014	compared	to	the	same	period	in 2013.

# Discontinued	operations

In	the	fourth	quarter	of	2014,	we	sold	our	Terratec	line	of	business,	which	was	part	of	our	Market-Based	Operations	segment.	The	loss	from	discontinued operations,	net	of	tax	reflected	in	the	2014	financial	results	includes	the	loss	on	the	sale,	an	income	tax	valuation	allowance	and	the	2014	operating	results	of	the	entity prior	to	the	sale.

Also,	as	part	of	our	portfolio	optimization	initiative,	the	sales	of	our	regulated	subsidiaries	in	Arizona,	New	Mexico	and	Ohio	were	completed	during	2012. Discontinued	operations	include	the	gain/loss	on	sale,	as	well	as	the	operating	results	of	these	subsidiaries.

See	"Consolidated	Results	of	Operations	and	Variances"	and	"Segment	Results"	below	for	further	detailed	discussion	of	the	consolidated	results	of	operations,	as well	as	our	business	segments.	All	financial	information	in	this	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	("MD&A") reflects	continuing	operations,	unless	otherwise	noted.	See	Note	3	to	Consolidated	Financial	Statements	for	further	details	on	our	discontinued	operations.

# Making	Efficient	Use	of	Capital

We	invested	approximately	$1	billion	and	$950	million	in	Company-funded	capital	improvements	in	2014	and	2013,	respectively.	These	capital	investments	are needed	on	an	ongoing	basis	to	comply	with	existing	and	new	regulations,	renew	aging	treatment	and	network	assets,	provide	capacity	for	new	growth	and	ensure	system reliability,	security	and	quality	of	service.	The	need	for	continuous	investment	presents	a	challenge	as	we	work	to	balance	investment	needs	with	customer	affordability. In	addition,	the	potential	for	regulatory	lag,	or	the	delay	in	recovering	operating	expenses	may	impact	the	level	of	our	capital	investments.

# Expanding	Markets	and	Developing	New	Offerings

During	2014,	our	Regulated	Businesses	completed	the	purchase	of	five	regulated	water	systems,	five	regulated	wastewater	systems	and	three	regulated	water	and wastewater	systems.	These	acquisitions	added	approximately	2,100	water	customers	and	2,400	wastewater	customers	to	our	regulated	operations.	During	2014,	our Military	Services	Group	within	our	Market-Based	Operations	segment	was	awarded	two	U.S.	military	contracts.	In	January	2014,	it	was	awarded	a	contract	for	operation and	maintenance	of	the	water	and	wastewater	systems	at	Hill	Air	Force	Base	in	Utah.	In	August	2014,	the	Military	Services	Group	was	awarded	a	contract	for	operation and	maintenance	of	the	water	and	wastewater	systems	at	Picatinny	Arsenal	in	New	Jersey.	During	2014,	our	Homeowners	Services	Group	("HOS")	began	offering	its water	and	sewer	line	protection	programs	in	eight	new	states.	Additionally,	Orlando	Utilities	Commission	("OUC")	awarded	HOS	a	contract	to	be	OUC's	exclusive provider	of	service	line	protection	programs.	This	contract	enables	HOS	to	market	its	water	line,	sewer	line,	in-home	plumbing,	interior	electric,	surge,	commercial water	line	and	commercial	sewer	line	protection	programs	to	OUC's	234,000	customers.	In	2014,	HOS	also	launched	its	interior	electric	program	and	continued	to develop	new	products	and	services	to	better	meet	customer	needs.

On	November	4,	2014	voters	in	Haddonfield,	New	Jersey,	Arnold,	Missouri	and	Russiaville,	Indiana	approved	referendums	for	us	to	purchase	their	water	and/or wastewater	assets.	Following	regulatory	approval	and	financial	close,	these	three	acquisitions	will	add	approximately	19,000	customers	to	the	company's	regulated footprint.	Additionally,	in	February,	2015	our	Illinois	subsidiary	entered	into	an	agreement	to	purchase	the	City	of	Mt.	Vernon's	water	and	wastewater	systems,	which serves	about	6,600	customer	connections.

# Continuing	Improvement	in	O&M	Efficiency	Ratio	for	our	Regulated	Businesses

We	continued	to	improve	on	our	O&M	efficiency	ratio	during	2014.	Our	O&M	efficiency	ratio	was	36.7%	for	the	year	ended	December	31,	2014	compared	to 38.5%	and	40.7%	for	the	years	ended	December	31,	2013	and	2012,	respectively.	The	improvement	in	our	2014	O&M	efficiency	ratio	in	2014	was	principally attributable	to	the	increase	in	our	Regulated	Businesses'	revenues	as	well	as	a	decrease	in	adjusted	O&M	expenses	compared	to	the	same	period	in	2013.

Our	O&M	efficiency	ratio	(a	non-GAAP	measure)	is	defined	as	our	regulated	operation	and	maintenance	expense	divided	by	regulated	operating	revenues,	where both	O&M	expense	and	operating	revenues	are	adjusted	to	eliminate	purchased	water	expense.	We	also	excluded	from	operating	revenues	and	O&M	expenses	the impact	from	weather	and	the	West	Virginia	Freedom	Industries	chemical	spill.	Additionally,	from	the	O&M	expenses,	we	exclude	the	allocable	portion	of	non-O&M support	services	cost,	mainly	depreciation	and	general	taxes	that	are	reflected	in	the	Regulated	Businesses	segment	as	O&M	costs	but	for	consolidated	financial	reporting purposes	are	categorized	within	other	lines	in	the	Statement	of	Operations.

Management	believes	that	this	calculation	better	reflects	the	Regulated	Businesses	segment's	O&M	efficiency	ratio.	We	evaluate	our	operating	performance using	this	measure,	as	it	is	the	primary	measure	of	the	efficiency	of	our	regulated	operations.	This	information	is	intended	to	enhance	an	investor's	overall	understanding of	our	operating	performance.	O&M	efficiency	ratio	is	not	a	measure	defined	under	GAAP	and	may	not	be	comparable	to	other	companies'	operating	measures	or deemed	more	useful	than	the	GAAP	information	provided	elsewhere	in	this	report.	The	following	table	provides	a	reconciliation	between	operation	and	maintenance expense	and	operating	revenues,	as	determined	in	accordance	with	GAAP,	and	to	those	amounts	utilized	in	the	calculation	of	our	O&M	efficiency	ratio	for	the	years ended	December	31,	2014,	2013	and	2012:

# Regulated	O&M	Efficiency	Ratio	(a	Non-GAAP	Measure)

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tthousands) |  |
| Total\tO&amp;M\texpense | $1,349,864 | $1,289,081 | $1,329,500 |
| Less: |  |  |  |
| O&amp;M\texpense—Market-Based\tOperations | 289,395 | 240,610 | 256,269 |
| O&amp;M\texpense—Other | (51,038) | (56,973) | (56,755) |
| Total\tRegulated\tO&amp;M\texpense | 1,111,507 | 1,105,444 | 1,129,986 |
| Less: |  |  |  |
| Regulated\tpurchased\twater\texpense | 121,301 | 111,119 | 110,173 |
| Allocation\tof\tinternal\tO&amp;M\tcosts | 38,985 | 34,635 | 35,067 |
| Impact\tof\tWest\tVirginia\tFreedom\tIndustries\tchemical\tspill | 10,438 | — | — |
| Estimated\timpact\tof\tweather\t(mid-point\tof\trange) | (1,762) | (1,687) | 4,700 |
| Adjusted\tRegulated\tO&amp;M\texpense\t(a) | $942,545 | $961,377 | $980,046 |
| Total\tOperating\tRevenues | $3,011,328 | $2,878,936 | $2,853,926 |
| Less: |  |  |  |
| Operating\trevenues—Market-Based\tOperations | 354,679 | 302,541 | 307,366 |
| Operating\trevenues—Other | (17,680) | (17,523) | (17,874) |
| Total\tRegulated\toperating\trevenues | 2,674,329 | 2,593,918 | 2,564,434 |
| Less: |  |  |  |
| Regulated\tpurchased\twater\texpense* | 121,301 | 111,119 | 110,173 |
| Plus: |  |  |  |
| Impact\tof\tWest\tVirginia\tFreedom\tIndustries\tchemical\tspill | 1,012 | — | — |
| Estimated\timpact\tof\tweather\t(mid-point\tof\trange) | 16,785 | 15,625 | (47,400) |
| Adjusted\tRegulated\toperating\trevenues\t(b) | $2,570,825 | $2,498,424 | $2,406,861 |
| Regulated\tO&amp;M\tefficiency\tratio\t(a)/(b) | 36.7% | 38.5% | 40.7% |

* Note	calculation	assumes	purchased	water	revenues	approximate	purchased	water	expenses.

# Addressing	Regulatory	Lag

In	2014,	additional	annualized	revenues	from	general	rate	cases	amounting	to	$43.7	million,	including	step	increases	totaling	$5.7	million,	became	effective.

Also,	in	2014,	we	were	granted	$34.6	million	in	additional	annualized	revenues,	assuming	constant	sales	volume,	from	infrastructure	charges	in	several	of	our	states.

On	November	21,	2014,	we	reached	a	stipulation	and	settlement	agreement	related	to	our	rate	case	with	the	Indiana	Office	of	the	Utility	Consumers	Counselor. This	agreement	was	submitted	to	the	Indiana	Utility	Regulatory	Commission	for	consideration.	On	January	28,	2015,	the	PUC	issued	their	order	which	provides additional	annualized	revenues	totaling	$5.1	million	effective	as	of	January	29,	2015.

On	February	19,	2014,	the	Company,	the	Office	of	Ratepayer	Advocate	and	other	intervenors	submitted	an	amended	settlement	of	$24.0	million	that	includes	a test	year	2015	revenue	requirement	increase	of	$12.7	million	from	the	July	2013	filing	date.	The	settlement	also	provides	for	escalation	and	attrition	adjustments	in	2016 and	2017	of	$5.0	million	and	$6.3	million,	respectively.	The	agreement	is	pending	regulatory	approval	and	is	subject	to	change.

On	October	29,	2014,	our	Tennessee	subsidiary	filed	for	additional	annualized	revenues	from	infrastructure	charges	in	the	amount	of	$2.4	million,	as	adjusted.

In	the	fourth	quarter	of	2014,	we	filed	two	general	rate	cases.	On	November	14,	2014,	our	Kentucky	subsidiary	filed	a	general	wastewater	rate	case	requesting	an additional	$0.1	million	in	annualized	revenues.	On	December	19,	2014,	our	Maryland	subsidiary	filed	a	general	rate	case	requesting	an	additional	$0.8	million	in annualized	revenues.

On	January	9,	2015,	our	New	Jersey	subsidiary	filed	a	general	rate	case	requesting	additional	annualized	revenues	of	$66.2	million.	Additionally,	annualized revenues	of	$9.4	million	and	$6.4	million	resulting	in	infrastructure	charges	in	our	New	Jersey	and	Illinois	subsidiaries,	respectively,	became	effective	in	2015.

In	total,	as	of	February	20,	2015,	we	are	awaiting	final	orders	in	four	states	requesting	additional	annualized	revenues	of	approximately	$91.1	million,	for	general rate	cases,	and	the	$2.4	million	in	additional	annualized	revenues	in	Tennessee	for	infrastructure	charges.

# Other	matters

# West	Virginia	Event

On	January	9,	2014,	a	chemical	storage	tank	owned	by	Freedom	Industries,	Inc.	leaked	4-methylcyclohexane	methanol,	or	MCHM,	and	PPH/DiPHH,	a	mix	of polyglycol	ethers,	into	the	Elk	River	near	the	WVAWC	treatment	plant	in	Charleston,	West	Virginia.	As	a	result	of	this	event,	income	after	income	taxes	for	the	twelve months	ended	December	31,	2014	was	reduced	by	$7.0	million	or	$0.04	per	share.	See	Part	I,	Item	3,	"Legal	Proceedings"	in	this	report	for	information	regarding litigation	and	an	investigation	by	the	Public	Service	Commission	of	West	Virginia	relating	to	the	Freedom	Industries	chemical	spill.	The	Company	and	WVAWC	believe that	WVAWC	has	responded	appropriately	to,	and	has	no	responsibility	for,	the	Freedom	Industries	chemical	spill,	and	the	Company,	WVAWC	and	other	Company affiliates	have	valid,	meritorious	defenses	to	the	lawsuits.	Nevertheless,	an	adverse	outcome	in	one	or	more	of	the	lawsuits	could	have	a	material	adverse	effect	on	our financial	condition,	results	of	operations,	cash	flows,	liquidity	and	reputation.	Moreover,	WVAWC	and	the	Company	are	unable	to	predict	the	outcome	of	the	ongoing government	investigations	or	any	legislative	initiatives	that	might	affect	water	utility	operations.

Our	future	results	are	anchored	on	five	central	themes	with	customers	at	the	center	of	all	we	do.	These	five	central	themes	are:

· Our	focus	continues	to	concentrate	on	our	customers	by	achieving	customer	satisfaction	and	service	quality	targets.	In	addition,	we	will	continue	to balance	our	infrastructure	investment	needs	with	the	affordability	impact	on	customer	bills.

# Safety

· Our	focus	continues	on	driving	safety	in	everything	that	we	do.	Our	safety	focus	includes	safety	of	employees,	customers	and	the	public.	We	have	made safety	a	core	value	of	our	company.

# People

· Our	focus	on	employees	and	our	culture	is	paramount	to	our	success	going	forward.	We	intend	to	focus	on	ensuring	we	have	strong	relationships	with	our union	represented	employees,	effective	training	and	development	and	diversity	of	our	workforce.

# Growth

· We	expect	to	invest	$6	billion	over	the	next	five	years,	with	$1.2	billion	in	2015,	as	follows:

§ Capital	investment	to	improve	infrastructure	in	our	Regulated	Businesses	of	$5.2	billion,	with	$1.1	billion	expected	in	2015.

§ Growth	from	acquisitions	in	our	Regulated	Businesses	to	expand	our	water	and	wastewater	customer	base	of	$540	million.

§ Growth	in	our	Market-Based	businesses	from	new	core	growth,	expanded	markets	and	new	offerings,	and	evaluate	potential	opportunities	to	assist the	shale	industry	in	the	delivery	of	water	to	support	their	processes.	We	have	estimated	strategic	capital	of	$230	million.

# Technology	&	Operational	Efficiency

· Continued	commitment	to	operational	efficiency,	technology	innovation	and	environmental	stewardship.	We	intend	to	continue	to	modernize	our infrastructure	and	focus	on	operational	efficiencies,	while	bolstering	a	culture	of	continuous	improvement.	We	have	set	a	goal	to	achieve	an	O&M efficiency	ratio	equal	to	or	below	34%	by	2020.	In	regards	to

environmental	sustainability,	we	are	committed	to	maximizing	our	protection	of	the	environment,	reducing	our	carbon	and	waste	footprints	and	water	lost through	leakage.

We	are	committed	to	operating	our	business	responsibly	and	managing	our	operating	and	capital	costs	in	a	manner	that	benefits	our	customers	and	produces value	for	our	shareholders.	We	are	committed	to	an	ongoing	strategy	that	leverages	processes	and	technology	innovation	to	make	ourselves	more	effective	and	efficient.

# Consolidated	Results	of	Operations

The	following	table	sets	forth	our	consolidated	statement	of	operations	data	for	the	years	ended	December	31,	2014,	2013	and	2012:

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tthousands,\texcept\tper\tshare\tdata) |  |
| Operating\trevenues | $3,011,328 | $2,878,936 | $2,853,926 |
| Operating\texpenses |  |  |  |
| Operation\tand\tmaintenance | 1,349,864 | 1,289,081 | 1,329,500 |
| Depreciation\tand\tamortization | 424,084 | 406,717 | 380,402 |
| General\ttaxes | 236,732 | 234,198 | 220,758 |
| (Gain)\tloss\ton\tasset\tdispositions\tand\tpurchases | (1,928) | 624 | (838) |
| Total\toperating\texpenses,\tnet | 2,008,752 | 1,930,620 | 1,929,822 |
| Operating\tincome | 1,002,576 | 948,316 | 924,104 |
| Other\tincome\t(expenses) |  |  |  |
| Interest,\tnet | (297,818) | (308,164) | (310,794) |
| Loss\ton\textinguishment\tof\tdebt | — | (40,583) | — |
| Allowance\tfor\tother\tfunds\tused\tduring\tconstruction | 9,440 | 12,639 | 15,592 |
| Allowance\tfor\tborrowed\tfunds\tused\tduring\tconstruction | 5,838 | 6,377 | 7,771 |
| Amortization\tof\tdebt\texpense | (7,026) | (6,603) | (5,358) |
| Other,\tnet | (3,196) | (4,045) | (926) |
| Total\tother\tincome\t(expenses) | (292,762) | (340,379) | (293,715) |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 709,814 | 607,937 | 630,389 |
| Provision\tfor\tincome\ttaxes | 279,973 | 237,093 | 256,787 |
| Income\tfrom\tcontinuing\toperations | 429,841 | 370,844 | 373,602 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | (6,733) | (1,580) | (15,532) |
| Net\tincome | $423,108 | $369,264 | $358,070 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax: |  |  |  |
| Change\tin\temployee\tbenefit\tplan\tfunded\tstatus,\tnet\tof\ttax\tof\t$(29,487), |  |  |  |
| \t\t\t\t\t\t$46,974\tand\t$(16,894),\trespectively | $(46,119) | $73,472 | $(26,425) |
| Pension\tamortized\tto\tperiodic\tbenefit\tcost: |  |  |  |
| Prior\tservice\tcost,\tnet\tof\ttax\tof\t$106,\t$111\tand\t$113,\trespectively | 166 | 174 | 176 |
| Actuarial\t(gain)\tloss,\tnet\tof\ttax\tof\t$(19),\t$5,697\tand\t$4,668,\trespectively |  |  |  |
|  | (31) | 8,911 | 7,301 |
| Foreign\tcurrency\ttranslation\tadjustment | (458) | (1,001) | 434 |
| Unrealized\tloss\ton\tcash\tflow\thedge,\tnet\tof\ttax\tof\t$(428) | (791) | — | — |
| Other\tcomprehensive\tincome\t(loss) | (47,233) | 81,556 | (18,514) |
| Comprehensive\tincome | $375,875 | $450,820 | $339,556 |
| Basic\tearnings\tper\tshare:\t(a) |  |  |  |
| Income\tfrom\tcontinuing\toperations | $2.40 | $2.08 | $2.12 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $(0.04) | $(0.01) | $(0.09) |
| Net\tincome | $2.36 | $2.08 | $2.03 |
| Diluted\tearnings\tper\tshare:\t(a)\nIncome\tfrom\tcontinuing\toperations | $2.39 | $2.07 | $2.10 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $(0.04) | $(0.01) | $(0.09) |
| Net\tincome | $2.35 | $2.06 | $2.01 |
| Average\tcommon\tshares\toutstanding\tduring\tthe\tperiod\nBasic | 178,888 | 177,814 | 176,445 |
| Diluted | 179,806 | 179,056 | 177,671 |
| Dividends\tdeclared\tper\tcommon\tshare | $1.24 | $1.12 | $0.98 |

(a) Amounts	may	not	sum	due	to	rounding.

# Comparison	of	consolidated	Results	of	Operations	for	the	Years	Ended	December	31,	2014	and	2013

Operating	revenues.	Consolidated	operating	revenues	for	the	year	ended	December	31,	2014	increased	$132.4	million,	or	4.6%,	compared	to	the	same	period	in 2013.	This	increase	is	the	result	of	higher	revenues	in	our	Regulated	Businesses	of	$80.4	million,	which	was	mainly	attributable	to	rate	increases,	incremental	revenues from	surcharges	and	balancing	accounts	and	acquisitions	partially	offset	by	reduced	consumption	in	2014.	Also	contributing	to	the	higher	revenue	was	a	$52.1	million increase	in	our	Market-Based	Operations	segment.	The	primary	drivers	were	incremental	revenue	from	contract	growth	in	HOS,	and	for	our	military	contracts,	price redeterminations	and	increased	construction	project	activity	with	the	largest	increase	due	to	the	Fort	Polk	wastewater	treatment	plant	project	awarded	in	late	2013.	For further	information	see	the	respective	"Operating	Revenues"	discussions	within	the	"Segment	Results."

Operation	and	maintenance.	Consolidated	operation	and	maintenance	expense	for	the	year	ended	December	31,	2014	increased	$60.8	million,	or	4.7%, compared	to	2013.	The	increase	is	primarily	due	to	an	increase	in	our	Market-Based	Operations	segment	of	$48.8	million	principally	as	a	result	of	incremental	costs related	to	the	increased	activity	under	our	military	contracts,	corresponding	with	the	increased	revenue.	Also,	our	Regulated	Businesses'	costs	increased	by	$6.1	million principally	due	to	increased	production	costs,	uncollectible	expense,	maintenance	expenses	and	costs	associated	with	the	Freedom	Industries	chemical	spill	in	West Virginia	partially	offset	by	lower	employee-related	costs.	For	further	information	see	the	respective	"Operation	and	Maintenance"	discussions	within	the	"Segment Results."

Depreciation	and	amortization.	Depreciation	and	amortization	expense	increased	by	$17.4	million,	or	4.3%,	for	the	year	ended	December	31,	2014	compared	to the	same	period	in	the	prior	year	as	a	result	of	additional	utility	plant	placed	in	service,	including	our	Customer	Information	and	Enterprise	Asset	Management	systems that	were	placed	into	service	during	the	second	and	fourth	quarters	of	2013.

Other	income	(expenses).	Other	expenses	decreased	by	$47.6	million,	or	14.0%,	for	the	year	ended	December	31,	2014	compared	to	the	same	period	in	the	prior year.	This	decrease	is	principally	attributable	to	the	recognition	of	a	pre-tax	loss	on	debt	extinguishment	in	2013	of	$40.6	million	in	connection	with	the	cash	tender	offer for	our	6.085%	Senior	Notes	due	2017.	Also	contributing	to	the	decrease	was	a	reduction	in	interest	expense	resulting	from	interest	savings	as	a	result	of	our	2014	and 2013	refinancings,	offset	by	a	reduction	in	allowance	for	funds	used	during	construction	("AFUDC")	which	is	mainly	attributable	to	our	Customer	Information	and Enterprise	Asset	Management	systems	being	placed	into	service	in	the	second	and	fourths	quarters	of	2013.

Provision	for	income	taxes.	Our	consolidated	provision	for	income	taxes	increased	$42.9	million,	or	18.1%,	to	$280.0	million	for	the	year	ended	December	31, 2014.	The	effective	tax	rates	for	the	years	ended	December	31,	2014	and	2013	were	39.4%	and	39.0%,	respectively.	The	rate	for	the	year	ended	December	31,	2013 includes	a	$3.0	million	tax	benefit	associated	with	a	legal	structure	reorganization	within	our	Market-Based	Operations	segment.	This	strategic	restructuring	allowed	us to	utilize	state	net	operating	loss	carryforwards,	which	without	the	restructuring	most	likely	would	not	have	been	utilized	prior	to	their	expiration.

Loss	from	discontinued	operations,	net	of	tax.	As	previously	noted,	the	financial	results	of	our	Terratec	line	of	business	within	our	Market-Based	Operations segment	was	classified	as	discontinued	operations	for	all	periods	presented.	The	sale	of	Terratec	was	completed	in	the	fourth	quarter	of	2014.	The	increase	in	the	loss from	discontinued	operations,	net	of	tax	is	primarily	related	to	the	after-tax	loss	recorded	on	the	sale	of	$2.3	million	and	lower	operating	results	in	2014	compared	to 2013.

Operating	revenues.	Consolidated	operating	revenues	for	the	year	ended	December	31,	2013	increased	$25.0	million,	or	0.9%,	compared	to	the	same	period	in 2012.	This	increase	is	the	result	of	higher	revenues	in	our	Regulated	Businesses	of	$29.5	million,	which	was	mainly	attributable	to	rate	increases	partially	offset	by decreased	consumption,	primarily	related	to	weather.	For	further	information	see	the	respective	"Operating	Revenues"	discussions	within	the	"Segment	Results."

Operation	and	maintenance.	Consolidated	operation	and	maintenance	expense	for	the	year	ended	December	31,	2013	decreased	$40.4	million,	or	3.0%, compared	to	2012.	This	change	was	mainly	attributable	to	a	$24.5	million	decrease	in	our	Regulated	Businesses'	costs	primarily	related	to	a	decrease	in	employee- related	costs,	primarily	pension	and	group	insurance	expense	as	well	as	lower	preventive	maintenance	expenses.	For	further	information	see	the	respective	"Operation and	Maintenance"	discussions	within	the	"Segment	Results."

Depreciation	and	amortization.	Depreciation	and	amortization	expense	increased	by	$26.3	million,	or	6.9%,	for	the	year	ended	December	31,	2013	compared	to the	same	period	in	the	prior	year	as	a	result	of	additional	utility	plant	placed	in	service	including	our	business	transformation	project,	which	accounted	for	$10.8	million of	the	incremental	expense	in	2013.

General	taxes.	General	taxes	expense,	which	includes	taxes	for	property,	payroll,	gross	receipts	and	other	miscellaneous	items,	increased	by	$13.4	million,	or 6.1%,	for	the	year	ended	December	31,	2013	compared	to	the	year	ended	December	31,	2012.	This	increase	was	principally	due	to	incremental	taxes	in	the	first	half	of 2013	associated	with	the	properties	acquired	in	our	New	York	acquisition	in	the	second	quarter	of	2012.	Also,	2012	property	taxes	were	lower	due	to	the	recognition	of credit	adjustments	in	Indiana	and	Missouri	which	reduced	property	tax	expense	in	the	third	quarter	of	2012.	Lastly,	gross	receipts	taxes	were	higher	in	our	New	Jersey subsidiary	by	$3.5	million.

Other	income	(expenses).	Other	expenses	increased	$46.7	million,	or	15.9%,	for	the	year	ended	December	31,	2013	compared	to	the	same	period	in	the	prior year.	This	increase	is	principally	attributable	to	the	recognition	of	a	pre-tax	loss	on	debt	extinguishment	of	$40.6	million	in	connection	with	the	cash	tender	offer	for	our 6.085%	Senior	Notes	due	2017.	The	loss	consisted	of	a	repurchase	premium	of	$39.4	million,	transaction	fees	of	$0.7	million	and	a	write-off	of	$0.5	million	for unamortized	debt	issuance	costs.	Also	contributing	to	the	increase	was	a	reduction	in	allowance	for	funds	used	during	construction	("AFUDC")	of	$4.3	million	resulting from	decreased	construction	activities,	compared	to	the	same	period	in	2012,	including	the	winding	down	of	our	business	transformation	project.

Provision	for	income	taxes.	Our	consolidated	provision	for	income	taxes	decreased	$19.7	million,	or	7.7%,	to	$237.1	million	for	the	year	ended	December	31, 2013.	The	effective	tax	rates	for	the	years	ended	December	31,	2013	and	2012	were	39.0%	and	40.7%,	respectively.	The	rate	for	the	year	ended	December	31,	2013 includes	a	$3.0	million	tax	benefit	associated	with	a	legal	structure	reorganization	within	our	Market-Based	Operations	segment.	This	strategic	restructuring	allowed	us to	utilize	state	net	operating	loss	carryforwards,	which	without	the	restructuring	most	likely	would	not	have	been	utilized	prior	to	their	expiration.

Loss	from	discontinued	operations,	net	of	tax.	As	noted	above,	the	financial	results	of	our	regulated	water	and	wastewater	systems	in	Arizona,	New	Mexico, Texas	and	Ohio	and	our	Applied	Water	Management,	Inc.	subsidiary	within	the	Market-Based	Operations	segment	have	been	classified	as	discontinued	operations	for all	periods	presented.	The	loss	in	2012	is	primarily	comprised	of	net	losses	recorded	in	connection	with	the	disposition	of	our	Arizona,	New	Mexico	and	Ohio subsidiaries.

# Segment	Results	of	Operations

We	have	two	operating	segments,	which	are	also	our	reportable	segments:	the	Regulated	Businesses	and	the	Market-Based	Operations.	These	segments	are determined	based	on	how	we	assess	performance	and	allocate	resources.	We	evaluate	the	performance	of	our	segments	and	allocated	resources	based	on	several	factors, with	the	primary	measure	being	income	from	continuing	operations	before	income	taxes.

# Regulated	Businesses	Segment

The	following	table	summarizes	certain	financial	information	for	our	Regulated	Businesses	for	the	periods	indicated:

|  |  | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tthousands) |  |
| Operating\trevenues | $2,674,329 | $2,593,918 | $2,564,434 |
| Operation\tand\tmaintenance\texpense | 1,111,507 | 1,105,444 | 1,129,986 |
| Operating\texpenses,\tnet | 1,725,651 | 1,700,052 | 1,685,734 |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 707,449 | 654,834 | 649,117 |

Operating	Revenues.	Our	primary	business	involves	the	ownership	of	water	and	wastewater	utilities	that	provide	services	to	residential,	commercial,	industrial and	other	customers.	This	business	is	subject	to	state	regulation	and	our	results	of	operations	can	be	impacted	significantly	by	rates	authorized	by	the	state	regulatory commissions	in	the	states	in	which	we	operate.	The	table	below	details	additional	annualized	revenues	awarded,	including	step	increases	and	assuming	a	constant volume,	resulting	from	rate	authorizations	granted	in	2014,	2013	and	2012:

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tmillions) |  |
| State |  |  |  |
| General\tRate\tCases: |  |  |  |
| Pennsylvania\t(1) | $— | $26.0 | $— |
| New\tJersey | — | — | 30.0 |
| Kentucky\t(2) | — | 6.9 | — |
| Missouri | — | — | 24.0 |
| Illinois | — | — | 17.9 |
| Indiana | — |  | 1.9 |
| California\t(3) | 1.9 | 3.5 | 32.9 |
| West\tVirginia\t(4) | — | 8.5 | — |
| Virginia(5) | — | — | 2.6 |
| Tennessee | — | — | 5.2 |
| Iowa(6) | 3.8 | — | 2.8 |
| New\tYork(7) | — | — | 5.6 |
| Other | — | 0.1 | 0.2 |
| Total—General\tRate\tCases | $5.7 | $45.0 | $123.1 |

(1) On	December	19,	2013,	a	rate	case	settlement	was	approved	with	an	effective	date	of	January	1,	2014.	This	rate	increase	combined,	in	part,	wastewater	and water	rates.

(2) Final	order	was	received	on	October	25,	2013.	The	increase	approximated	the	interim	rates,	net	of	the	reserve	that	had	been	recorded	since	July	27,	2013.

(3) Second	and	final	step	increases	from	the	2012	rate	case	became	effective	on	April	1,	2013	and	April	1,	2014,	respectively.

(4) Final	order	issued	on	September	26,	2013	by	the	West	Virginia	Public	Service	Commission.	New	rates	were	put	into	effect	October	11,	2013.

(5) The	new	rates	provided	additional	annualized	revenues	of	$2.3	million	in	2012	and	$4.3	million	in	2011	for	jurisdictional	customers,	and	$0.3	million	in	2013 and	$0.5	million	in	2011	for	non-jurisdictional	customers,	which	are	not	subject	to	commission	approval.

(6) Effective	date	of	new	rates	was	April	18,	2014.		The	increase	included	approximately	$2.7	million	of	interim	rates	that	were	effective	May	10,	2013.

(7) Amount	includes	a	$3.0	million	increase	effective	April	1,	2012,	with	the	remainder	of	$1.4	million	and	$1.2	million	becoming	effective	April	1,	2013	and April	1,	2014,	respectively.

The	effective	dates	for	the	more	significant	increases	granted	in	2012	were	January	1,	2012,	April	1,	2012,	May	1,	2012	and	October	1,	2012	for	our	California, Missouri,	New	Jersey,	and	Illinois	subsidiaries,	respectively.

As	previously	noted,	an	increasing	number	of	states	are	permitting	rates	to	be	adjusted	outside	of	a	general	rate	case	for	certain	costs,	such	as	mechanisms	that permit	a	return	on	capital	investments	to	replace	aging	infrastructure.	The	following	table	details	additional	annualized	revenues	authorized	through	infrastructure surcharge	mechanisms	which	were	granted	in	2014,	2013	and	2012.	As	these	surcharges	are	typically	rolled	into	the	new	base	rates	and	therefore	are	reset	to	zero	when new	base	rates	are	effective,	certain	of	these	charges	may	also	be	reflected	in	the	total	general	rate	case	amounts	awarded	in	the	table	above	if	the	order	date	was following	the	infrastructure	surcharge	filing	date:

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tmillions) |  |
| Infrastructure\tCharges: |  |  |  |
| Pennsylvania\t(1) | $— | $19.8 | $10.5 |
| New\tJersey\t(2) | 17.5 | 4.0 | — |
| Missouri\t(3) | 12.7 | 7.9 | 4.2 |
| Indiana\t(4) | — | 3.9 | 3.7 |
| Illinois\t(5) | 2.1 | 0.5 | — |
| New\tYork\t(6) | 1.8 | — | — |
| Other | 0.5 | — | — |
| Total—Infrastructure\tCharges | $34.6 | $36.1 | $18.4 |

(1) Quarterly	filings	made	with	PUC.	$6.7	million,	$3.7	million,	$2.9	million	and	$6.5	million	effective	October	1,	2013,	July	1,	2013,	April	1,	2013	and	January	1, 2013,	respectively.	No	infrastructure	charges	in	2014	as	a	result	of	general	rate	case	effective	January	1,	2014	utilized	forecasted	test	year	and	therefore qualifying	infrastructure	improvements	already	reflected	in	rates.

# Comparison	of	Results	of	Operations	for	the	Years	Ended	December	31,	2014	and	2013

Operating	revenues	increased	by	$80.4	million,	or	3.1%,	for	the	year	ended	December	31,	2014	compared	to	the	same	period	in	2013.	The	increase	in	revenues	is principally	due	to	incremental	revenues	of	approximately	$80.0	million	attributable	to	rate	increases,	including	infrastructure	mechanisms,	obtained	through	rate authorizations	for	a	number	of	our	operating	companies.	Additionally,	revenues	increased	by	$10.9	million	due	to	an	increase	in	surcharges	and	balancing	accounts	and by	approximately	$12.6	million	attributable	to	acquisitions.	The	most	significant	contributor	to	the	increase	in	revenues	from	acquisitions	was	Dale	Service	Corporation ("Dale"),	which	was	acquired	by	our	Virginia	Subsidiary	in	the	fourth	quarter	of	2013.		Partially	offsetting	these	increases	was	a	decrease	in	revenues	of	approximately $27.0	million	as	a	result	of	lower	demand.

The	following	table	sets	forth	the	amounts	and	percentages	of	Regulated	Businesses'	revenues	and	billed	water	sales	volume	by	customer	class:

|  | 2014 | 2013 | Increase<br>(Decrease) | Percentage | 2014 | 2013 | Increase<br>(Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Operating\tRevenues | Operating\tRevenues |  |  | Billed\tWater\tSales\tVolume | Billed\tWater\tSales\tVolume |  |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |  | (Gallons\tin\tmillions) | (Gallons\tin\tmillions) |  |
| Customer\tClass |  |  |  |  |  |  |  |  |
| Water\tservice |  |  |  |  |  |  |  |  |
| Residential | $1,515,049 | $1,465,174 | $49,875 | 3.4% | 176,975 | 180,976 | (4,001) | (2.2%) |
| Commercial | 550,124 | 520,875 | 29,249 | 5.6% | 81,564 | 80,392 | 1,172 | 1.5% |
| Industrial | 131,834 | 118,939 | 12,895 | 10.8% | 39,833 | 37,107 | 2,726 | 7.3% |
| Public\tand\tother | 333,048 | 312,369 | 20,679 | 6.6% | 52,710 | 51,009 | 1,701 | 3.3% |
| Other\twater\trevenues | 26,377 | 17,546 | 8,831 | 50.3% | — | — | — | — |
| \t\t\tBilled\twater\tservices | 2,556,432 | 2,434,903 | 121,529 | 5.0% | 351,082 | 349,484 | 1,598 | 0.5% |
| \t\t\tUnbilled\twater\tservices | (25,419) | 30,142 | (55,561) | (184.3%) |  |  |  |  |
| Total\twater\trevenues | 2,531,013 | 2,465,045 | 65,968 | 2.7% |  |  |  |  |
| Wastewater\trevenues | 93,067 | 82,831 | 10,236 | 12.4% |  |  |  |  |
| Other\trevenues | 50,250 | 46,043 | 4,207 | 9.1% |  |  |  |  |
|  | $2,674,330 | $2,593,919 | $80,411 | 3.1% |  |  |  |  |

Water	Services—Consistent	with	the	above	discussion,	water	service	operating	revenues	for	the	year	ended	December	31,	2014	totaled	$2,531.0	million,	a	$66.0 million	increase,	or	2.7%,	over	the	same	period	of	2013.	As	described	above,	the	increases	are	primarily	due	to	rate	increases,	infrastructure	surcharges,	amortization	of balancing	accounts	and	recent	acquisitions.	Also,	it	should	be	noted	that	the	mix	between	billed	revenues	and	unbilled	revenues	has	changed.	This	is	principally	the result	of	the	implementation	of	our	Customer	Information	System	("CIS")	as	part	of	Phase	II	of	our	business	transformation	project.	At	December	31,	2013,	unbilled revenues	were	significantly	higher	than	historical	levels	due	to	billing	delays	in	certain	accounts.	During	the	first	quarter	of	2014,	we	addressed	a	majority	of	these delayed	billings.	Therefore,	as	a	result,	the	unbilled	water	revenues	decreased	by	$55.6	million	with	corresponding	increases	in	billed	revenues.

Wastewater	services—Our	subsidiaries	provide	wastewater	services	in	11	states.	Revenues	from	these	services	increased	$10.2	million,	or	12.4%,	compared	to the	year	ended	December	31,	2013.	The	increase	was	primarily	attributable	to	incremental	revenues	resulting	from	acquisitions,	most	notably	the	Dale	acquisition	in	the fourth	quarter	of	2013.

Other	revenues—Other	revenues,	which	includes	such	items	as	reconnection	charges,	initial	application	service	fees,	certain	rental	revenues,	revenue	collection services	for	others	and	similar	items,	increased	$4.2	million,	or	9.1%,	compared	to	the	year	ended	December	31,	2013.	The	increase	in	revenues	for	the	year	ended December	31,	2014,	as	compared	to	the	same	period	in	the	prior	year,	was	mainly	due	to	$2.4	million	in	insurance	proceeds	for	business	interruption	as	a	result	of Hurricane	Sandy	in	addition	to	an	increase	in	late	payment	fees.

Operation	and	maintenance	expense.	Operation	and	maintenance	expense	increased	$6.1	million,	or	0.5%,	for	the	year	ended	December	31,	2014,	compared	to the	year	ended	December	31,	2013.	Operation	and	maintenance	expense	for	2014	and	2013,	by	major	expense	category,	was	as	follows:

|  | 2014 | 2013 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Production\tcosts | $289,168 | $271,181 | $17,987 | 6.6% |
| Employee-related\tcosts | 429,878 | 455,690 | (25,812) | (5.7%) |
| Operating\tsupplies\tand\tservices | 216,154 | 215,702 | 452 | 0.2% |
| Maintenance\tmaterials\tand\tsupplies | 68,027 | 65,853 | 2,174 | 3.3% |
| Customer\tbilling\tand\taccounting | 61,459 | 52,625 | 8,834 | 16.8% |
| Other | 46,821 | 44,393 | 2,428 | 5.5% |
| Total | $1,111,507 | $1,105,444 | $6,063 | 0.5% |

Production	costs	including	fuel	and	power,	purchased	water,	chemicals	and	waste	disposal	costs	increased	by	$18.0	million,	or	6.6%,	for	2014	compared	to	2013.

Production	costs	by	major	expense	type	were	as	follows:

|  | 2014 | 2013 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Purchased\twater | $121,301 | $111,119 | $10,182 | 9.2% |
| Fuel\tand\tpower | 92,011 | 86,337 | 5,674 | 6.6% |
| Chemicals | 45,930 | 47,901 | (1,971) | (4.1%) |
| Waste\tdisposal | 29,926 | 25,824 | 4,102 | 15.9% |
| Total | $289,168 | $271,181 | $17,987 | 6.6% |

Overall	production	costs	increased	for	the	year	ended	December	31,	2014	compared	to	the	prior	year	as	a	result	of	increases	in	purchased	water,	fuel	and	power costs	and	waste	disposal.	Partially	offsetting	these	increases	was	a	decrease	in	chemicals	due	to	a	$1.8	million	reversal	of	chemical	expense	resulting	from	a	favorable litigation	settlement.	The	purchased	water	increases	principally	reflect	increased	prices	in	our	California	subsidiary	and,	to	a	lesser	extent,	price	increases	in	our	Illinois subsidiary.	Fuel	and	power	costs	increased	due	to	higher	supplier	prices	in	several	of	our	operating	facilities	as	well	as	incremental	costs	as	a	result	of	the	Dale acquisition	in	the	fourth	quarter	of	2013.	The	increase	in	waste	disposal	costs	was	principally	due	to	an	increase	in	the	amount	allowed	by	a	cost	recovery	mechanism	in one	of	our	operating	companies	and	the	Dale	acquisition.	Also	contributing	to	the		increase	was	incremental	costs	associated	with	the	Freedom	Industries	chemical	spill in	West	Virginia.

Employee-related	costs	including	salaries	and	wages,	group	insurance,	and	pension	expense	decreased	$25.8	million,	or	5.7%,	for	2014	compared	to	2013.	These employee-related	costs	represented	38.7%	and	41.2%	of	operation	and	maintenance	expense	for	2014	and	2013,	respectively,	and	include	the	categories	shown	in	the following	table:

|  | 2014 | 2013 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Salaries\tand\twages | $328,329 | $323,022 | $5,307 | 1.6% |
| Pensions | 26,805 | 48,374 | (21,569) | (44.6%) |
| Group\tinsurance | 55,196 | 65,872 | (10,676) | (16.2%) |
| Other\tbenefits | 19,548 | 18,422 | 1,126 | 6.1% |
| Total | $429,878 | $455,690 | $(25,812) | (5.7%) |

The	overall	decrease	in	employee-related	costs	for	the	year	ended	December	31,	2014,	compared	to	2013,	was	primarily	due	to	a	reduction	in	pension	costs	and postretirement	benefit	costs	(which	is	included	in	group	insurance	expenses).	These	decreases	are	principally	due	to	the	change	in	assumptions	used	for	the	discount	rate, which	in	turn	resulted	in	decreased	contributions.	The	decrease	in	contributions	occurred	at	those	regulated	operating	companies	whose	costs	are	recovered	based	on	our funding	policy,	which	is	to	fund	at	least	the	minimum	amount	required	by	the	Employee	Retirement	Income	Security	Act	of	1974.	Partially	offsetting	these	decreases was	an	increase	in	salaries	and	wages	expense	as	a	result	of	annual	wage	increases	and	increased	overtime	expense	attributable	to	an	increased	number	of	main	breaks	as a	result	of	the	harsh	winter	weather	conditions	and	increases	in	severance	expense	as	a	result	of	the	restructuring	of	certain	functions,	offset	by	a	reduction	in	incentive compensation	due	to	a	lower	than	expected	payout	for	the	2013	incentive	period	as	well	as	higher	capitalization	rates	as	a	result	of	increased	capital	projects.

Operating	supplies	and	services	include	expenses	for	office	operation,	legal	and	other	professional	services,	including	transportation	expenses,	information systems	rental	charges	and	other	office	equipment	rental	charges.	Overall,	these	costs	remained	relatively	unchanged	with	an	increase	of	$0.5	million,	or	0.2%,	for	the year	ended	December	31,	2014	compared	to	the	same	period	in	2013.

|  | 2014 | 2013 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Contracted\tservices | $88,466 | $93,744 | $(5,278) | (5.6%) |
| Office\tsupplies\tand\tservices | 45,224 | 45,272 | (48) | (0.1%) |
| Transportation | 19,749 | 20,620 | (871) | (4.2%) |
| Rents | 15,339 | 15,830 | (491) | (3.1%) |
| Other | 47,376 | 40,236 | 7,140 | 17.7% |
| Total | $216,154 | $215,702 | $452 | 0.2% |

The	increase	in	other	operating	supplies	and	services	was	primarily	offset	by	a	decrease	in	contracted	services.	Other	operating	supplies	and	services	increased	as a	result	of	a	$2.2	million	increase	in	customer	education	and	communication	in	California	related	to	community	relations	and	Measure	"0"	and	an	$0.8	million	increase in	conservation	expense	as	well	as	the	inclusion	in	2013	of	$1.6	million	of	insurance	proceeds	for	the	recovery	of	expenses	related	to	Hurricanes	Irene	and	Sandy	and	an increase	in	legal	expenses.	The	decrease	in	contracted	services	is	primarily	the	result	of	the	completion	of	our	business	transformation	project,	consisting	of	the	roll-out of	our	Enterprise	Asset	Management	system	and	CIS,	which	required	the	use	of	additional	contracted	services	in	2013.	These	decreases	were	partially	offset	by increases	resulting	from	the	Freedom	Industries	chemical	spill	in	West	Virginia.

Maintenance	materials	and	supplies,	which	include	preventive	maintenance	and	emergency	repair	costs,	increased	$2.2	million,	or	3.3%,	for	2014	compared	to 2013.

|  |  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | Increase\n(Decrease) | Percentage |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Maintenance\tmaterials\tand\tsupplies | $68,027 | $65,853 | $2,174 | 3.3% |

The	increase	for	the	year	ended	December	31,	2014,	compared	to	the	same	period	in	2013,	is	primarily	due	to	increases	in	paving,	backfilling	and	other	repair costs,	most	of	which	are	from	the	higher	than	normal	main	breaks	in	the	first	quarter	of	2014	due	to	the	abnormally	harsh	winter	weather	conditions	experienced throughout	our	operating	areas.

Customer	billing	and	accounting	expenses	increased	by	$8.8	million,	or	16.8%,	for	2014	compared	to	2013.

|  | 2014 | 2013 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Uncollectible\taccounts\texpense | $35,027 | $26,443 | $8,584 | 32.5% |
| Postage | 13,793 | 12,757 | 1,036 | 8.1% |
| Other | 12,639 | 13,425 | (786) | (5.9%) |
| Total | $61,459 | $52,625 | $8,834 | 16.8% |

The	increase	for	2014	is	primarily	due	to	incremental	uncollectible	expense	associated	with	an	increase	in	customer	accounts	receivable	attributable	to	the	overall aging	of	receivables	as	well	as	rate	increases.	We	believe	the	change	in	our	aging	of	receivables	in	2014	is	the	result	of	temporary	changes	we	made	in	our	collection process	in	connection	with	the	implementation	of	our	new	CIS	in	2013,	including	Phase	II	which	occurred	in	the	fourth	quarter	of	2013.

Other	operation	and	maintenance	expense	includes	casualty	and	liability	insurance	premiums	and	regulatory	costs.	These	costs	increased	by	$2.4	million,	or 5.5%,	for	2014	compared	to	2013.

|  | 2014 | 2013 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Insurance | $41,067 | $35,406 | $5,661 | 16.0% |
| Regulatory\texpenses | 5,754 | 8,987 | (3,233) | (36.0%) |
| Total | $46,821 | $44,393 | $2,428 | 5.5% |

The	increase	for	the	year	ended	December	31,	2014,	compared	to	the	year	ended	December	31,	2013,	is	primarily	due	to	an	increase	in	our	expected	premiums, principally	due	to	incremental	claims	associated	with	the	Freedom	Industries	chemical	spill	in	West	Virginia,	net	of	favorable	forecasted	experience	for	existing	claims. These	premiums	are	based	upon	current	facts	and	circumstances	with	respect	to	outstanding	claims	and	are	subject	to	change	as	the	claims	mature.	The	increase	in insurance	costs	is	partially	offset	by	lower	regulatory	expenses	in	one	of	our	operating	subsidiaries	compared	to	the	same	period	in	the	prior	year.

Operating	expenses.	The	increase	in	operating	expenses	for	the	year	ended	December	31,	2014	is	principally	due	to	the	higher	operation	and	maintenance expenses	explained	above	and	higher	depreciation	and	amortization	expense	of	$18.2	million.	The	increase	in	depreciation	and	amortization	is	primarily	due	to additional	utility	plant	placed	in	service,	including	CIS	and	our	Enterprise	Asset	Management	system.

Operating	revenues	increased	by	$29.5	million,	or	1.1%,	for	the	year	ended	December	31,	2013	compared	to	the	same	period	in	2012.	The	increase	in	revenues was	primarily	due	to	rate	increases	obtained	through	rate	authorizations	for	a	number	of	our	operating	companies	of	which	the	impact	was	approximately	$72.4	million. Additionally	revenues	increased	by	$16.4	million	due	to	increased	surcharge	and	amortization	of	balancing	accounts.	Lastly,	revenues	were	higher	by	$9.9	million	as	a result	of	acquisitions,	with	the	most	significant	being	the	result	of	our	New	York	acquisition	in	the	second	quarter	of	2012	(additional	four	months	of	revenue	in	2013 compared	to	2012)	and	the	acquisition	of	Dale	by	our	Virginia	subsidiary	in	the	fourth	quarter	of	2013.	These	increases	were	partially	offset	by	decreased	revenues	of approximately	$64.5	million	as	a	result	of	lower	demand,	principally	driven	by	the	hot	and	dry	weather	conditions	in	the	central	and	northeast	portions	of	the	country	in 2012	versus	cooler	and	wetter	weather	conditions	in	2013.

|  | 2013 | 2012 | Increase<br>(Decrease) | Percentage | 2013 | 2012 | Increase<br>(Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Operating\tRevenues | Operating\tRevenues |  |  | Billed\tWater\tSales\tVolume |  |  |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |  | (Gallons\tin\tmillions) |  |  |
| Customer\tClass |  |  |  |  |  |  |  |  |
| Water\tservice |  |  |  |  |  |  |  |  |
| Residential | $1,465,174 | $1,465,803 | $(629) | (0.0%) | 180,976 | 188,927 | (7,951) | (4.2%) |
| Commercial | 520,875 | 518,253 | 2,622 | 0.5% | 80,392 | 84,226 | (3,834) | (4.6%) |
| Industrial | 118,939 | 121,902 | (2,963) | (2.4%) | 37,107 | 39,429 | (2,322) | (5.9%) |
| Public\tand\tother | 312,369 | 321,593 | (9,224) | (2.9%) | 51,009 | 54,202 | (3,193) | (5.9%) |
| Other\twater\trevenues | 17,546 | 16,992 | 554 | 3.3% | — | — | — | — |
| \t\t\tBilled\twater\tservices | 2,434,903 | 2,444,543 | (9,640) | (0.4%) | 349,484 | 366,784 | (17,300) | (4.7%) |
| \t\t\tUnbilled\twater\tservices | 30,142 | 4,484 | 25,658 | 572.2% |  |  |  |  |
| Total\twater\trevenues | 2,465,045 | 2,449,027 | 16,018 | 0.7% |  |  |  |  |
| Wastewater\trevenues | 82,831 | 78,168 | 4,663 | 6.0% |  |  |  |  |
| Other\trevenues | 46,043 | 42,547 | 3,496 | 8.2% |  |  |  |  |
|  | $2,593,919 | $2,569,742 | $24,177 | 0.9% |  |  |  |  |

Water	Services—Consistent	with	the	above	discussion,	water	service	operating	revenues	for	the	year	ended	December	31,	2013	totaled	$2,465.0	million,	a	$21.3 million	increase,	or	0.9%,	over	the	same	period	of	2012.	However,	the	mix	between	billed	revenues/billed	volumes	to	unbilled	revenues/unbilled	volumes	changed significantly	principally	as	a	result	of	our	CIS

implementation.	Unbilled	revenue	increased	$25.7	million	compared	to	the	same	period	in	the	prior	year	mainly	as	a	result	of	delayed	invoicing	to	customers.	With	the implementation,	we	made	a	decision	to	increase	the	level	of	scrutiny	and	verification	around	bills	being	generated	by	the	new	system,	in	particular	larger	and/or	more complex	bills.	As	such	bills	that	exceed	certain	tolerance	levels	are	being	held	until	verification	can	be	performed.	As	such,	the	timing	of	issuance	of	bills	has	caused	a decrease	in	billed	volumes	in	2013	when	compared	to	2012,	with	a	corresponding	increase	in	unbilled	usage.	For	our	residential	and	commercial	customers,	we	believe that	the	majority	of	the	decline	in	billed	volumes	was	attributable	to	the	weather	abnormalities	between	2012	and	2013	as	well	as	the	implementation	of	our	new	CIS system	by	our	regulated	subsidiaries.	For	the	remaining	customer	classes,	we	believe	the	decline	in	billed	volumes	was	mainly	due	to	the	delay	in	invoicing	the	customer as	a	result	of	our	CIS	implementation.

Wastewater	services—Our	subsidiaries	provide	wastewater	services	in	ten	states.	Revenues	from	these	services	increased	by	$4.7	million,	or	6.0%,	to	$82.8 million	for	the	year	ended	December	31,	2013,	from	the	same	period	of	2012.	The	increase	was	primarily	attributable	to	rate	increases	in	our	Pennsylvania	subsidiary	as well	as	the	Dale	acquisition	in	November,	2013.

Other	revenues—Other	revenues,	which	includes	such	items	as	reconnection	charges,	initial	application	service	fees,	certain	rental	revenues,	revenue	collection services	for	others	and	similar	items,	increased	$3.5	million,	or	8.2%,	compared	to	the	year	ended	December	31,	2012.	The	increase	in	revenues	for	the	year	ended December	31,	2013,	as	compared	to	the	same	period	in	the	prior	year,	was	mainly	due	to	the	additional	surcharge	revenues	offset	by	decreases	in	revenues	related	to billings	for	others,	reconnection	and	late	fees.

Operation	and	maintenance.	Operation	and	maintenance	expense	decreased	$24.5	million,	or	2.2%,	for	the	year	ended	December	31,	2013,	compared	to	the	year ended	December	31,	2012.	Operation	and	maintenance	expense	for	2013	and	2012,	by	major	expense	category,	was	as	follows:

|  | 2013 | 2012 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Production\tcosts | $271,181 | $274,775 | $(3,594) | (1.3%) |
| Employee-related\tcosts | 455,690 | 472,075 | (16,385) | (3.5%) |
| Operating\tsupplies\tand\tservices | 215,702 | 210,947 | 4,755 | 2.3% |
| Maintenance\tmaterials\tand\tsupplies | 65,853 | 81,062 | (15,209) | (18.8%) |
| Customer\tbilling\tand\taccounting | 52,625 | 49,257 | 3,368 | 6.8% |
| Other | 44,393 | 41,870 | 2,523 | 6.0% |
| Total | $1,105,444 | $1,129,986 | $(24,542) | (2.2%) |

Production	costs	including	fuel	and	power,	purchased	water,	chemicals	and	waste	disposal	costs	decreased	by	$3.6	million,	or	1.3%,	for	2013	compared	to	2012. Production	costs	by	major	expense	type	were	as	follows:

|  | 2013 | 2012 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Purchased\twater | $111,119 | $110,173 | $946 | 0.9% |
| Fuel\tand\tpower | 86,337 | 89,282 | (2,945) | (3.3%) |
| Chemicals | 47,901 | 49,334 | (1,433) | (2.9%) |
| Waste\tdisposal | 25,824 | 25,986 | (162) | (0.6%) |
| Total | $271,181 | $274,775 | $(3,594) | (1.3%) |

Overall,	production	costs	decreased	for	the	year	ended	December	31,	2013	compared	to	the	prior	year	as	a	result	of	reductions	in	chemical	and	fuel	and	power costs	resulting	from	decreased	usage	mainly	attributable	to	lower	consumption	in	most	of	our	states.

|  | 2013 | 2012 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Salaries\tand\twages | $323,022 | $326,370 | $(3,348) | (1.0%) |
| Pensions | 48,374 | 56,299 | (7,925) | (14.1%) |
| Group\tinsurance | 65,872 | 71,103 | (5,231) | (7.4%) |
| Other\tbenefits | 18,422 | 18,303 | 119 | 0.7% |
| Total | $455,690 | $472,075 | $(16,385) | (3.5%) |

The	overall	decrease	in	employee-related	costs	was	primarily	attributable	to	decreased	salaries	and	wages,	group	insurance	and	pension	expense.	The	decrease	in salaries	and	wages	was	mainly	the	result	of	lower	employee	incentive	and	stock	compensation	expense	of	approximately	$5.9	million	in	addition	to	higher	capitalization rates,	due	to	increased	capital	investment,	and	a	reduction	in	headcount	partially	offset	by	increased	overtime	and	annual	wage	increases.	The	decrease	in	pension expense	was	primarily	due	to	decreased	contributions	in	certain	of	our	regulated	operating	companies	whose	costs	are	recovered	based	on	our	funding	policy,	which	is	to fund	at	least	the	greater	of	the	minimum	amount	required	by	the	Employee	Retirement	Income	Security	Act	of	1974	or	the	normal	cost.	The	reduction	in	group	insurance expense	is	mainly	attributable	to	higher	capitalization	rates	and	reduced	headcount.

Operating	supplies	and	services	include	expenses	for	office	operation,	legal	and	other	professional	services,	including	transportation	expenses,	information systems	rental	charges	and	other	office	equipment	rental	charges.	Overall,	these	costs	increased	$4.8	million,	or	2.3%,	for	the	year	ended	December	31,	2013	compared to	the	same	period	in	2012.

|  | 2013 | 2012 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Contracted\tservices | $93,744 | $87,675 | $6,069 | 6.9% |
| Office\tsupplies\tand\tservices | 45,272 | 49,354 | (4,082) | (8.3%) |
| Transportation | 20,620 | 22,917 | (2,297) | (10.0%) |
| Rents | 15,830 | 16,943 | (1,113) | (6.6%) |
| Other | 40,236 | 34,058 | 6,178 | 18.1% |
| Total | $215,702 | $210,947 | $4,755 | 2.3% |

The	overall	increase	in	operating	supplies	and	services	was	primarily	due	to	increased	contracted	services	and	higher	other	operating	supplies	and	services.	These increases	were	mainly	due	to	incremental	costs	attributable	to	the	continued	maturity	of	our	Enterprise	Resource	Planning	system	in	conjunction	with	the	implementation of	Phase	I	and	Phase	II	of	our	business	transformation	project.	Additionally,	contracted	services	increased	due	to	the	use	of	contractors	for	other	specific	projects.	Other increases	in	the	other	operating	supplies	and	services	costs	are	related	to	a	$1.3	million	increase	in	condemnation	costs	and	a	$1.2	million	increase	in	conservation expense	as	well	as	the	inclusion	in	2012	of	a	$1.0	million	reduction	in	anticipated	insurance	recovery	of	expenses	incurred	as	a	result	of	Hurricane	Sandy	and	a	$2.1 million	credit	adjustment	resulting	from	the	finalization	of	rate	decisions	in	California	and	are	offset	by	$1.6	million	of	insurance	proceeds	related	to	recovery	of expenses	related	to	Hurricanes	Irene	and	Sandy	received	in	2013.	The	decrease	in	office	supplies	and	services	is	due	to	cost	containment	efforts	primarily	related	to employee	travel.	Transportation	costs	decreased	due	to	the	reduction	of	leased	vehicles.

Maintenance	materials	and	services,	which	includes	emergency	repair	as	well	as	costs	for	preventive	maintenance,	decreased	$15.2	million,	or	18.8%,	for	2013 compared	to	2012.

|  |  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 | Increase\n(Decrease) | Percentage |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Maintenance\tmaterials\tand\tsupplies | $65,853 | $81,062 | $(15,209) | (18.8%) |

The	decrease	of	$15.2	million	in	2013	is	mainly	attributable	to	2012	including	increased	preventive	maintenance	expenses	throughout	our	regulated	subsidiaries,

including	hydrant	and	tank	painting,	meter	testing,	pump,	tank	and	well	maintenance,	and	paving	costs.

|  | 2013 | 2012 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Uncollectible\taccounts\texpense | $26,443 | $22,541 | $3,902 | 17.3% |
| Postage | 12,757 | 12,694 | 63 | 0.5% |
| Other | 13,425 | 14,022 | (597) | (4.3%) |
| Total | $52,625 | $49,257 | $3,368 | 6.8% |

The	increase	in	the	uncollectible	accounts	expense	was	primarily	due	to	an	increase	in	our	Regulated	Businesses'	customer	accounts	receivable	attributable	to rate	increases	and	an	increase	in	the	overall	aging	of	receivables	due	to	our	CIS	implementation.

Other	operation	and	maintenance	expenses	include	casualty	and	liability	insurance	premiums	and	regulatory	costs.	These	costs	increased	by	$2.5	million,	or 6.0%,	for	2013	compared	to	2012.

|  | 2013 | 2012 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) | (Dollars\tin\tthousands) |  |
| Insurance | $35,406 | $31,883 | $3,523 | 11.0% |
| Regulatory\texpenses | 8,987 | 9,987 | (1,000) | (10.0%) |
| Total | $44,393 | $41,870 | $2,523 | 6.0% |

Insurance	costs	in	2013	were	higher,	compared	to	2012,	primarily	due	to	higher	casualty	insurance	costs	as	a	result	of	historical	claims	experience	and	retroactive adjustments.

Operating	expenses.	The	increase	in	operating	expenses	for	the	year	ended	December	31,	2013	is	primarily	due	to	the	higher	O&M	expenses	as	explained	above, as	well	as	higher	depreciation	and	amortization	expense	of	$26.3	million	and	higher	general	tax	expense	of	$12.4	million.	The	increase	in	depreciation	and	amortization is	primarily	due	to	additional	utility	plant	placed	in	service,	including	$10.8	million	of	incremental	expense	resulting	from	the	assets	placed	in	service	for	our	business transformation	project.	The	increase	in	general	tax	expense	is	primarily	due	to	higher	property	taxes	in	our	New	York	subsidiary	due	to	a	full	year	of	expense	in	2013	on properties	acquired	in	the	second	quarter	of	2012	of	$5.2	million,	the	inclusion	of	property	tax	adjustments	that	reduced	expense	for	our	Indiana	and	Missouri subsidiaries	by	$4.0	million	in	2012,	and	higher	2013	gross	receipts	taxes	in	our	New	Jersey	subsidiary	of	$3.5	million.

# Market-Based	Operations	Segment

The	following	table	provides	certain	financial	information	for	our	Market-Based	Operations	segment	for	the	periods	indicated:

|  |  | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tthousands) |  |
| Operating\trevenues | $354,679 | $302,541 | $307,366 |
| Operation\tand\tmaintenance\texpense | 289,395 | 240,610 | 256,268 |
| Operating\texpenses,\tnet | 299,549 | 252,302 | 266,005 |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 57,539 | 53,104 | 44,948 |

Operating	revenues.	The	increase	in	revenues	for	the	year	ended	December	31,	2014,	compared	to	the	same	period	in	2013,	is	primarily	attributable	to incremental	Military	Service	Group	revenues	of	$39.4	million	mainly	from	an	increase	in	construction	project	activities	for	our	military	contracts	and	an	increase	in	our Homeowners	Services	Group	("HOS")	revenues	of	approximately	$16.2

million	principally	the	result	of	contract	growth,	mainly	though	our	New	York	City	contracts,	as	well	as	expansion	into	other	geographic	areas	and	price	increases	for certain	existing	customers.	Partially	offsetting	these	increases	was	a	reduction	of	our	Contract	Operations	Group	(ConOp)	revenues	attributable	to	the	termination	of certain	municipal	and	industrial	operations	and	maintenance	contracts.	Additionally,	included	in	the	2013	Military	Service	Group	revenues	was	$5.4	million	in retroactive	price	redeterminations	for	several	of	our	military	contracts.

Operation	and	Maintenance.	Operation	and	maintenance	expense	increased	$48.8	million,	or	20.3%,	for	the	year	ended	December	31,	2014,	compared	to	the year	ended	December	31,	2013.

The	following	table	provides	information	regarding	categories	of	operation	and	maintenance	expense	for	the	periods	indicated:

|  | 2014 | 2013 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) |  |  |
| Production\tcosts | \t $34,691 | \t $36,753 | \t $(2,062) | (5.6%) |
| Employee-related\tcosts | 62,201 | 60,392 | 1,809 | 3.0% |
| Operating\tsupplies\tand\tservices | 138,531 | 97,887 | 40,644 | 41.5% |
| Maintenance\tmaterials\tand\tsupplies | 47,324 | 41,107 | 6,217 | 15.1% |
| Other | 6,648 | 4,471 | 2,177 | 48.7% |
| Total | \t $289,395 | \t $240,610 | \t $48,785 | 20.3% |

As	noted	in	the	table	above,	the	primary	factor	contributing	to	the	overall	increase	was	an	increase	in	operating	supplies	and	services.	This	increase	is	mainly attributable	to	the	increase	in	construction	project	activities	under	our	military	contracts	and	corresponds	with	the	incremental	revenues.	Another	factor	contributing	to this	increase	was	the	inclusion	in	2013	of	the	release	of	$3.8	million	in	loss	contract	reserves	due	to	the	resolution	of	certain	outstanding	issues	and	uncertainties. Maintenance	materials	and	supplies	increased	primarily	due	to	higher	HOS	repair	costs,	which	is	attributable	to	the	increase	in	the	number	of	contracts.

Operating	expense.	The	increase	in	operating	expenses	for	the	year	ended	December	31,	2014	is	primarily	driven	by	the	increase	in	operation	and	maintenance expense	explained	above.

Operating	revenues.	Revenues	decreased	$4.8	million	for	the	year	ended	December	31,	2013,	compared	to	the	same	period	in	2012,	primarily	due	to	lower revenues	of	$14.4	million	resulting	from	the	termination	of	certain	municipal	and	industrial	operations	and	maintenance	contracts,	most	of	which	occurred	in	2012. Additionally,	revenues	from	construction	project	activities	associated	with	military	construction	contracts	decreased	$8.4	million,	due	to	lower	levels	of	work	as compared	to	the	prior	year.	These	decreases	were	offset	by	a	net	increase	of	$4.0	million	from	price	redeterminations	for	several	of	our	military	contracts	as	well	as	an increase	of	$16.6	million	in	our	HOS	revenues	associated	with	contract	growth,	most	notably	in	New	York	City.

Operation	and	maintenance.	Operation	and	maintenance	expense	decreased	$15.7	million,	or	6.1%,	for	the	year	ended	December	31,	2013,	compared	to	the	year ended	December	31,	2012.

|  | 2013 | 2012 | (Decrease) | Percentage |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (Dollars\tin\tthousands) |  |  |
| Production\tcosts | \t $36,753 | \t $42,153 | \t $(5,400) | (12.8%) |
| Employee-related\tcosts | 60,392 | 64,711 | (4,319) | (6.7%) |
| Operating\tsupplies\tand\tservices | 97,887 | 105,082 | (7,195) | (6.8%) |
| Maintenance\tmaterials\tand\tsupplies | 41,107 | 36,135 | 4,972 | 13.8% |
| Other | 4,471 | 8,188 | (3,717) | (45.4%) |
| Total | \t $240,610 | \t $256,269 | \t $(15,659) | (6.1%) |

As	noted	in	the	table	above,	decreases	in	operating	supplies	and	services,	production	costs	and	employee-related	costs	were	partially	offset	by	an	increase	in maintenance	materials	and	supplies.	The	decrease	in	production	costs	and	employee-related	costs	is	mostly	due	to	the	termination	of	certain	municipal	and	industrial operations	and	maintenance	contracts.	The	decrease	in	operating

supplies	and	services	is	attributable	to	the	release	of	$3.8	million	in	loss	contract	reserves	due	to	the	resolution	of	certain	outstanding	issues	and	uncertainties. Additionally,	2013	was	impacted	by	decreased	construction	project	activity	for	our	military	contracts	and	is	partially	offset	by	increased	HOS	contracted	services expense	as	well	as	higher	printing	and	postage	costs	associated	with	expanding	into	new	markets,	including	New	York	City.	The	increase	in	maintenance	materials	and supplies	is	primarily	due	to	higher	HOS	repair	costs,	which	is	attributable	to	new	contracts,	an	increase	in	the	number	of	claims,	as	well	as	the	average	cost	per	claim	and is	partially	offset	by	the	terminated	municipal	and	industrial	operations	and	maintenance	contracts.	The	decrease	in	the	other	category	is	mainly	due	to	decreases	in uncollectible	accounts	expense	of	$3.5	million,	which	is	due	to	2012	including	incremental	amounts	related	to	terminated	contracts	in	addition	to	improved	collection experience	in	2013	for	certain	other	municipal	and	industrial	operations	and	maintenance	contracts.

Operating	expense.	The	decrease	in	operating	expenses	for	the	year	ended	December	31,	2013	is	primarily	driven	by	the	decrease	in	operation	and	maintenance expense,	which	is	explained	above.

# Liquidity	and	Capital	Resources

We	regularly	evaluate	cash	requirements	for	current	operations,	commitments,	development	activities	and	capital	expenditures.	Our	business	is	very	capital intensive	and	requires	significant	capital	resources.	A	majority	of	these	capital	resources	are	provided	by	internally	generated	cash	flows	from	operations.	When necessary,	we	obtain	additional	funds	from	external	sources	in	the	debt	and	equity	capital	markets	and	through	bank	borrowings.	Our	access	to	external	financing	on reasonable	terms	depends	on	our	credit	ratings	and	current	business	conditions,	including	that	of	the	water	utility	industry	in	general,	as	well	as	conditions	in	the	debt	or equity	capital	markets.	If	these	business	and	market	conditions	deteriorate	to	the	extent	that	we	no	longer	have	access	to	the	capital	markets	at	reasonable	terms,	we	have access	to	an	unsecured	revolving	credit	facility	with	aggregate	bank	commitments	of	$1.25	billion.	We	rely	on	this	revolving	credit	facility	and	the	capital	markets	to fulfill	our	short-term	liquidity	needs,	to	issue	letters	of	credit	and	to	support	our	commercial	paper	program.	Disruptions	in	the	credit	markets	may	discourage	lenders from	extending	the	terms	of	such	commitments	or	agreeing	to	new	commitments.	Market	disruptions	may	also	limit	our	ability	to	issue	debt	and	equity	securities	in	the capital	markets.	See	"—Credit	Facility	and	Short-Term	Debt."	In	order	to	meet	our	short-term	liquidity	needs,	we,	through	AWCC,	our	financing	subsidiary,	issue commercial	paper,	which	is	supported	by	the	revolving	credit	facility.	AWCC	had	no	outstanding	borrowings	and	$38.0	million	of	outstanding	letters	of	credit	under	its credit	facility	as	of	December	31,	2014.	As	of	December	31,	2014,	AWCC	had	$1.25	billion	available	under	the	credit	facility	that	we	could	use	to	fulfill	our	short-term liquidity	needs,	to	issue	letters	of	credit	and	support	our	$450.0	million	outstanding	commercial	paper.	We	can	provide	no	assurances	that	our	lenders	will	meet	their existing	commitments	or	that	we	will	be	able	to	access	the	commercial	paper	or	loan	markets	in	the	future	on	terms	acceptable	to	us	or	at	all.

In	addition,	our	regulated	operating	companies	receive	advances	and	contributions	from	customers,	home	builders	and	real	estate	developers	to	fund	construction necessary	to	extend	service	to	new	areas.	Advances	for	construction	are	refundable	for	limited	periods,	which	vary	according	to	state	regulations,	as	new	customers	begin to	receive	service	or	other	contractual	obligations	are	fulfilled.	Amounts	which	are	no	longer	refundable	are	reclassified	to	contributions	in	aid	of	construction.	Utility plant	funded	by	advances	and	contributions	is	excluded	from	the	rate	base.	Generally,	we	depreciate	contributed	property	and	amortize	contributions	in	aid	of construction	at	the	composite	rate	of	the	related	property.	Some	of	our	subsidiaries	do	not	depreciate	contributed	property,	based	on	regulatory	guidelines.

We	use	our	capital	resources,	including	cash,	to	(i)	fund	operating	and	capital	requirements,	including	construction	expenditures,	(ii)	pay	off	maturing	debt, (iii)	pay	dividends,	(iv)	fund	pension	and	postretirement	welfare	obligations	and	(v)	invest	in	new	and	existing	ventures.	We	spend	a	significant	amount	of	cash	on construction	projects	that	we	expect	to	have	a	long-term	return	on	investment.	Additionally,	we	operate	in	rate-regulated	environments	in	which	the	amount	of	new investment	recovery	may	be	limited,	and	where	such	recovery	takes	place	over	an	extended	period	of	time,	as	our	recovery	is	subject	to	regulatory	lag.	See	"Business— Regulation—Economic	Regulation."	We	expect	to	fund	future	maturities	of	long-term	debt	through	a	combination	of	external	debt	and	to	the	extent	available	cash	flows from	operations.	Since	we	continue	to	make	investments	equal	to	or	greater	than	our	cash	flows	from	operating	activities,	we	have	no	plans	to	reduce	debt	significantly.

We	believe	that	our	ability	to	access	the	capital	markets,	our	revolving	credit	facility	and	our	cash	flows	from	operations	will	generate	sufficient	cash	to	fund	our short-term	requirements.	We	fund	liquidity	needs	for	capital	investment,	working	capital	and	other	financial	commitments	through	cash	flows	from	operations,	public and	private	debt	offerings,	commercial	paper	markets	and	to	the	extent	necessary,	our	revolving	credit	facility.	We	believe	we	have	sufficient	liquidity	and	ability	to manage	our	expenditures	should	there	be	a	disruption	of	the	capital	and	credit	markets.

In	addition,	the	Company	can	delay	major	capital	investments	or	other	funding	requirements	or	pursue	financing	from	other	sources	to	preserve	liquidity,	if necessary.	The	Company	believes	it	can	rely	upon	cash	flows	from	operations	to	meet	its	obligations	and	fund	its	minimum	required	capital	investments	for	an	extended period	of	time.

# Cash	Flows	from	Operating	Activities

Cash	flows	from	operating	activities	primarily	result	from	the	sale	of	water	and	wastewater	services	and,	due	to	the	seasonality	of	demand,	are	generally	greater during	the	third	quarter	of	each	fiscal	year.	Our	future	cash	flows	from	operating	activities	will	be	affected	by,	among	other	things,	economic	utility	regulation; infrastructure	investment;	inflation;	compliance	with	environmental,	health	and	safety	standards;	production	costs;	customer	growth;	declining	per	customer	usage	of water;	weather	and	seasonality;	and	overall	economic	conditions.

Cash	flows	from	operating	activities	have	been	a	reliable,	steady	source	of	funding,	sufficient	to	meet	operating	requirements,	make	our	dividend	payments	and fund	a	portion	of	our	capital	expenditure	requirements.	We	will	seek	access	to	debt	and	equity	capital	markets	to	meet	the	balance	of	our	capital	expenditure requirements	as	needed.	There	can	be	no	assurance	that	we	will	be	able	to	access	such	markets	successfully	on	favorable	terms	or	at	all.	Operating	cash	flows	can	be negatively	affected	by	changes	in	our	rate	regulated	environments	or	changes	in	our	customers'	economic	outlook	and	ability	to	pay	for	service	in	a	timely	manner.	We can	provide	no	assurance	that	our	customers'	historical	payment	pattern	will	continue	in	the	future.

The	following	table	provides	a	summary	of	the	major	items	affecting	our	cash	flows	from	operating	activities	for	the	periods	indicated:

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tthousands) |  |
| Net\tincome | $423,108 | $369,264 | $358,070 |
| Add\t(subtract): |  |  |  |
| Non-cash\tactivities\t(1) | 722,871 | 761,772 | 688,126 |
| Changes\tin\tworking\tcapital\t(2) | 3,503 | (137,374) | 38,812 |
| Pension\tand\tpostretirement\thealthcare\tcontributions | (52,195) | (97,500) | (129,410) |
| Net\tcash\tflows\tprovided\tby\toperations | $1,097,287 | $896,162 | $955,598 |

(1) Includes	depreciation	and	amortization,	provision	for	deferred	income	taxes,	amortization	of	deferred	investment	tax	credits,	provision	for	losses	on	accounts receivable,	allowance	for	other	funds	used	during	construction,	(gain)	loss	on	asset	dispositions	and	purchases,	pension	and	non-pension	postretirement	benefits expense,	stock-based	compensation	expense	and	other	non-cash	items.	Details	of	each	component	can	be	found	in	the	Consolidated	Statements	of	Cash	Flows.

(2) Changes	in	working	capital	include	changes	to	receivables	and	unbilled	revenues,	taxes	receivable	(including	income	taxes),	other	current	assets,	accounts payable,	taxes	accrued	(including	income	taxes),	interest	accrued,	change	in	book	overdraft	and	other	current	liabilities.

Our	working	capital	needs	are	primarily	limited	to	funding	the	increase	in	our	customer	accounts	receivable	and	unbilled	revenues	which	is	mainly	associated with	the	revenue	increase	as	a	result	of	rate	increases	in	our	Regulated	Businesses.	We	address	the	timing	issue	through	the	aforementioned	liquidity	funding mechanisms.

The	increase	in	cash	flows	from	operations	for	the	year	ended	December	31,	2014	compared	to	the	same	period	in	2013	is	principally	due	to	the	improvement	in the	cash	collections	of	our	Regulated	Businesses'	accounts	receivable,	some	of	which	were	unbilled	at	December	31,	2013.	Cash	collections	in	2013	for	our	Regulated Businesses'	accounts	receivable	were	slower	than	historical	payment	patterns,	mainly	due	to	the	implementation	of	our	CIS	system	in	May	2013.	We	believe	the slowdown	in	collections	is	the	result	of	the	system	implementation	and	therefore	is	temporary	in	nature.	We	implemented	the	CIS	system	in	our	remaining	Regulated Businesses	in	October	2013	and	we	have	experienced	a	similar	slowdown	in	cash	collections	for	these	operating	companies	in	2014.

The	decrease	in	cash	flows	from	operations	for	the	year	ended	December	31,	2013	compared	to	the	same	period	in	2012	is	principally	due	to	changes	in	working capital,	which	is	related	to	the	aforementioned	delays	in	billing	and	slower	collections	in	our	accounts	receivable	in	our	Regulated	Businesses	and	the	change	in	payables in	2013,	as	we	were	delayed	in	2012	in	executing	payables	at	normal	volumes	due	to	the	implementation	of	Phase	I	of	our	business	transformation	project.	Partially offsetting	these	working	capital	decreases	was	a	reduction	in	the	pension	and	postretirement	healthcare	contributions	in	2013.

The	Company	expects	to	make	pension	and	postretirement	benefit	contributions	to	the	plan	trusts	of	$54.5	million	in	2015,	of	which	$6.1	million	was	already made	in	2015.	In	addition,	we	estimate	that	contributions	will	amount	to	$55.6	million	in	2016,	$52.7	million	in	2017,	$56.7	million	in	2018	and	$66.3	million	in	2019. Actual	amounts	contributed	could	change	materially	from	these	estimates	as	a	result	of	changes	in	assumptions	and	actual	investment	returns.

# Cash	Flows	from	Investing	Activities

Cash	flows	used	in	investing	activities	were	as	follows	for	the	periods	indicated:

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tthousands) |  |
| Net\tcapital\texpenditures | $(956,119) | $(980,252) | $(928,574) |
| Proceeds\tfrom\tsale\tof\tassets\tand\tsecurities | 13,841 | 918 | 561,739 |
| Acquisitions | (8,935) | (23,658) | (44,560) |
| Other\tinvesting\tactivities,\tnet\t(1) | (62,776) | (50,302) | 29,039 |
| Net\tcash\tflows\tused\tin\tinvesting\tactivities | $(1,013,989) | $(1,053,294) | $(382,356) |

(1) Includes	removal	costs	from	property,	plant	and	equipment	retirements,	net	and	net	funds	released.

Cash	flows	used	in	investing	activities	increased	in	2014	compared	to	2013	primarily	due	to	an	increase	in	our	capital	expenditures	for	the	year	ended December	31,	2014	principally	as	a	result	of	incremental	spending	associated	with	the	replacement	of	our	transmission	and	distribution	infrastructure.

Our	infrastructure	investment	plan	consists	of	both	infrastructure	renewal	programs,	where	we	replace	infrastructure	as	needed,	and	major	capital	investment projects,	where	we	construct	new	water	and	wastewater	treatment	and	delivery	facilities	to	meet	new	customer	growth	and	water	quality	regulations.	Our	projected capital	expenditures	and	other	investments	are	subject	to	periodic	review	and	revision	to	reflect	changes	in	economic	conditions	and	other	factors.

While	capital	expenditures	were	$956.1	million,	total	capital	investment	amounted	to	$1.0	billion.	The	following	table	provides	a	summary	of	our	historical capital	expenditures	related	to	upgrading	our	infrastructure	and	systems:

|  |  | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  |  | (In\tthousands) |  |
| Transmission\tand\tdistribution | $462,706 | $435,449 | $343,640 |
| Treatment\tand\tpumping | 96,535 | 89,278 | 138,072 |
| Services,\tmeter\tand\tfire\thydrants | 170,470 | 178,412 | 171,855 |
| General\tstructures\tand\tequipment | 142,193 | 131,446 | 104,854 |
| Business\ttransformation\tproject | 8,379 | 59,746 | 107,049 |
| Sources\tof\tsupply | 30,916 | 50,013 | 44,602 |
| Wastewater | 44,920 | 35,908 | 18,502 |
| Total\tcapital\texpenditures | $956,119 | $980,252 | $928,574 |

Capital	expenditures	for	the	year	ended	December	31,	2014,	decreased	by	$24.1	million	or	2.5%	compared	to	2013,	principally	due	to	the	completion	of	Phase	I and	Phase	II	of	our	business	transformation	project.

Capital	expenditures	for	the	year	ended	December	31,	2013,	increased	by	$51.7	million	or	5.6%	compared	to	2012,	principally	due	to	our	continued	replacement of	transmission	and	distribution	infrastructure,	rehabilitation	to	storage	facilities	and	dam	rehabilitation	and	increased	expenditures	related	to	information	systems,	and vehicles.	Partially	offsetting	this	increase	was	reduction	in	treatment	and	pumping	expenditures	due	to	the	completion	of	certain	water	treatment	plant	projects	in	2012	as well	as	a	reduction	in	our	business	transformation	expenses	also	due	to	completion	of	Phase	I	of	the	project	in	2012	and	the	implementation	of	a	portion	of	Phase	II	in May	2013.

One	avenue	to	seek	growth	is	through	tuck-ins,	by	helping	commissions	with	troubled	water	systems	as	well	as	other	acquisitions	that	are	complementary	to	our existing	business	and	support	the	continued	geographical	diversification	and	growth	of	our	operations.	Generally,	acquisitions	are	funded	initially	with	short-term	debt and	later	refinanced	with	the	proceeds	from	long-term	debt	or	equity	offerings.

The	following	provides	a	summary	of	the	acquisitions	and	dispositions	affecting	our	cash	flows	from	investing	activities	in	the	years	indicated:

# We	paid	approximately	$8.9	million	for	13	water	and	wastewater	systems.

We	received	approximately	$1.9	million	for	the	sale	of	assets	and	securities.

We	paid	approximately	$23.7	million	for	ten	water	and	five	wastewater	system.	These	acquisitions	added	approximately	30,000	customers	to	our	existing regulated	footprint.	The	largest	of	these	acquisitions	was	the	acquisition	of	the	stock	of	a	wastewater	system	in	Virginia	with	approximately	20,000 customers	in	November	2013	for	a	purchase	price	of	$5.1	million	(net	of	cash	acquired	of	$6.9	million)	plus	assumed	liabilities.

We	received	approximately	$0.9	million	for	the	sale	of	assets	and	securities.

We	paid	approximately	$44.6	million	for	numerous	regulated	water	and	wastewater	systems	in	New	York,	Pennsylvania,	Indiana,	Missouri	and	West	Virginia, with	the	largest	associated	with	the	acquisition	of	seven	regulated	water	systems	in	New	York	in	May	2012	for	a	purchase	price	of	$36.7	million	plus assumed	liabilities.

We	received	approximately	$561.7	million	from	the	sale	of	our	assets	and	securities,	including	$458.9	million	associated	with	the	sale	of	our	Arizona,	New Mexico	and	Ohio	regulated	subsidiaries.

As	previously	noted,	in	2015,	we	estimate	that	our	total	capital	plan	is	$1.2	billion	with	approximately	$1.1	billion	allocated	to	upgrading	our	infrastructure	and systems,	including	infrastructure	renewal	programs	and	construction	of	facilities	to	meet	environmental	requirements	and	new	customer	growth,	and	$0.1	billion	for acquisitions	and	strategic	investment	purposes.	For	years	in	the	foreseeable	future	beyond	2015,	we	estimate	such	investment	will	be	between	$1.1	and	$1.2	billion	per year.

We	intend	to	invest	capital	prudently	to	provide	essential	services	to	our	regulated	customer	base,	while	working	with	regulators	in	the	various	states	in	which	we operate	to	have	the	opportunity	to	earn	an	appropriate	rate	of	return	on	our	investment	and	a	return	of	our	investment.

Our	investing	activities	could	require	considerable	capital	resources	which	we	have	generated	through	operations	and	attained	through	financing	activities.	We can	provide	no	assurances	that	these	resources	will	be	sufficient	to	meet	our	expected	investment	needs	and	may	be	required	to	delay	or	reevaluate	our	investment	plans.

# Cash	Flows	from	Financing	Activities

Our	financing	activities,	primarily	focused	on	funding	construction	expenditures,	include	the	issuance	of	long-term	and	short-term	debt,	primarily	through AWCC.	We	intend	to	access	capital	markets	on	a	regular	basis,	subject	to	market	conditions.	In	addition,	new	infrastructure	may	be	funded	with	customer	advances	and contributions	for	construction	(net	of	refunds).	This	amounted	to	$26.3	million,	$19.3	million	and	$31.9	million	for	the	years	ended	December	31,	2014,	2013	and	2012, respectively.	As	previously	noted	AWCC	is	a	wholly-owned	finance	subsidiary	of	the	Company.	Based	on	the	needs	of	our	regulated	subsidiaries	and	the	Company, AWCC	borrows	in	the	capital	markets	and	then,	through	intercompany	loans,	provides	those	borrowings	to	the	regulated	subsidiaries	and	the	Company.	The	regulated subsidiaries	and	the	Company	are	obligated	to	pay	their	portion	of	the	respective	principal	and	interest	to	AWCC	in	the	amount	necessary	to	enable	AWCC	to	meet	its debt	service	obligations.	Because	the	Company's	borrowings	are	not	a	source	of	capital	for	the	regulated	subsidiaries,	the	Company	is	not	able	to	recover	the	interest charges	on	the	Company's	debt	through	regulated	water	and	wastewater	rates.	As	of	December	31,	2014,	AWCC	has	made	long-term	fixed	rate	loans	and	commercial paper	loans	to	our	Regulated	Businesses	amounting	to	$3.0	billion	and	$319.2	million,	respectively.	Additionally,	as	of	December	31,	2014,	AWCC	has	made	long-term fixed	rate	loans	and	commercial	paper	loans	to	the	Company	totaling	$979.9	million	and	$130.8	million	to	the	Company,	respectively.

On	May	4,	2012,	we	and	AWCC	filed	a	universal	shelf	registration	statement	that	enabled	us	to	offer	and	sell	from	time	to	time	various	types	of	securities, including	common	stock,	preferred	stock	and	debt	securities,	all	subject	to	market	demand	and	ratings	status.	During	2014,	2013	and	2012,	$500	million,	$400	million and	$300	million,	respectively,	of	debt	securities	were	issued	pursuant	to	this	registration	statement.

# The	following	long-term	debt	was	issued	in	2014:

| Company | Type | Rate | Maturity | Amount |
| :--- | :--- | :--- | :--- | :--- |
| AWCC\t(1) | Senior\tnotes—fixed\trate | 3.40%-4.30% | 2025-2042 | $500,000 |
| Other\tsubsidiaries\t(2) | Private\tactivity\tbonds\tand\tgovernment\t\tfunded\ndebt—fixed\trate | 0.00%-5.00% | 2031-2033 | 10,474 |
| Total\tissuances |  |  |  | $510,474 |

(1) On	August	14,	2014,	AWCC	closed	on	senior	fixed	rate	notes.	Proceeds	from	this	issuance	were	used	to	refinance	commercial	paper	borrowings	and	to	finance redemptions	of	long-term	debt.

(2) Proceeds	from	the	above	issuance	were	received	in	2014	and	have	been	utilized	to	fund	certain	specific	projects.	$10.0	million	of	these	proceeds	are	held	in	trust pending	our	certification	that	we	have	incurred	qualifying	capital	expenditures.	These	issuances	have	been	presented	as	non-cash	on	the	Consolidated	Statements of	Cash	Flows.	Subsequent	releases	of	all	or	a	lesser	portion	of	the	funds	by	the	trust	are	reflected	as	the	release	of	restricted	funds	and	are	included	in	the investing	activities	in	the	Consolidated	Statements	of	Cash	Flows.

In	addition	to	the	above	issuances,	we	also	assumed	$1.7	million	of	debt	as	a	result	of	acquisitions	in	2014.

The	following	long-term	debt	was	retired	through	optional	redemption	or	payment	at	maturity	during	2014:

| Company | Type | Rate | Maturity | Amount |
| :--- | :--- | :--- | :--- | :--- |
| AWCC | Private\tactivity\tbonds\tand\tgovernment\nfunded\tdebt—fixed\trate | 6.00%-6.75% | 2018-2032 | $101,085 |
| AWCC | Senior\tnotes—fixed\trate | 6.00% | 2039 | 59,561 |
| Other\tsubsidiaries\t(1) | Private\tactivity\tbonds\tand\tgovernment\nfunded\tdebt—fixed\trate | 0.00%-5.25% | 2014-2041 | 78,718 |
| Other\tsubsidiaries | \t Mandatorily\tredeemable\tpreferred\tstock | 8.49%-9.18% | 2031-2036 | 1,650 |
| Other\tsubsidiaries | \t Capital\tlease\tpayments |  |  | 28 |
| Total\tretirements\tand\tredemptions |  |  |  | $241,042 |

(1) Includes	$1.0	million	of	non-cash	redemptions	resulting	from	the	use	of	restricted	funds.

|  |  |  |  | Amount |
| :--- | :--- | :--- | :--- | :--- |
| Company | Type | Interest\tRate | Maturity | (In\tthousands) |
| AWCC\t(1) | \t Senior\tnotes—fixed\trate | 3.85% | 2024 | \t$400,000 |
| AWCC\t(2) | Private\tactivity\tbonds\tand |  |  |  |
|  | government\tfunded\tdebt—fixed\trate | 2.30%-2.90% | 2021-2030 | 8,122 |
| Other\tsubsidiaries\t(3) | Private\tactivity\tbonds\tand |  |  |  |
|  | government\tfunded\tdebt—fixed\trate | 1.59%-2.41% | 2031-2033 | 2,737 |
| Total\tissuances |  |  |  | \t$410,859 |

(1) On	November	20,	2013,	AWCC	closed	on	3.85%	senior	fixed	rate	notes	offering.	Proceeds	from	the	offering	were	used	to	refinance	commercial	paper borrowings.

(2) Proceeds	from	the	above	issuance	were	received	in	the	fourth	quarter	of	2013	and	have	been	utilized	to	fund	certain	specific	projects.	$6.7	million	of	these proceeds	are	held	in	trust	pending	our	certification	that	we	have	incurred	qualifying	capital	expenditures.	These	issuances	have	been	presented	as	non-cash	on	the Consolidated	Statements	of	Cash	Flows.	Subsequent	releases	of	all	or	a	lesser	portion	of	the	funds	by	the	trust	are	reflected	as	the	release	of	restricted	funds	and are	included	in	the	investing	activities	in	the	Consolidated	Statements	of	Cash	Flows.

(3) Proceeds	from	the	above	issuances	were	received	from	Pennsylvania	Infrastructure	Investment	Authority	("PennVest")	and	have	been	used	to	fund	certain projects.

In	addition	to	the	above	issuances,	we	also	assumed	$12.7	million	of	debt	as	a	result	of	acquisitions	in	2013,	of	which	$12.5	million	is	the	result	of	our	Dale Service	Corporation	stock	acquisition	in	the	fourth	quarter	of	2013.

|  |  |  |  | Amount |
| :--- | :--- | :--- | :--- | :--- |
| Company | Type | Interest\tRate | Maturity | (In\tthousands) |
| AWCC\t(1) | \t Senior\tnotes—fixed\trate | 5.39%-10.00% | 2013-2017 | $476,638 |
| Other\tsubsidiaries\t(2) | Private\tactivity\tbonds\tand |  |  |  |
|  | government\tfunded\tdebt—fixed\trate | 0.00%\t-5.50% | 2013-2041 | 17,663 |
| Other\tsubsidiaries | \t Mortgage\tbonds—fixed\trate | 6.59% | 2013 | 2,000 |
| Other\tsubsidiaries | \t Mandatory\tredeemable\tpreferred\tstock | 8.49%-9.18% | 2031-2036 | 1,650 |
| Other | \t Capital\tleases\t&amp;\tother |  |  | 359 |
| Total\tretirements\t&amp;\tredemptions |  |  |  | $498,310 |

(1) On	October	8,	2013,	we	announced	the	purchase	and	retirement	through	a	tender	offer	of	$225.8	million	in	aggregate	outstanding	principal	amount	of	our	6.08% Senior	Notes	due	2017.	On	October	8,	2013,	we	paid	$271.8	million	to	effect	the	tender,	which,	in	addition	to	the	principal,	included	a	repurchase	premium	of $39.4	million	and	accrued	interest	of	$6.6	million.	Also,	in	October	2013	and	related	to	the	tender,	we	recorded	transaction	fees	of	$0.7	million	and	a	write-off	of $0.5	million	for	unamortized	debt	issuance	costs.	The	redemption	was	originally	financed	through	commercial	paper	borrowing.

(2) Includes	a	$3.6	million	of	non-cash	redemptions	resulting	from	the	use	of	restricted	funds.

On	November	1,	2013,	we	issued	notices	of	redemption	for	$74.8	million	and	$75.0	million	of	outstanding	Senior	Notes	with	an	original	maturity	date	of	2038 and	interest	rates	of	8.25%	and	10.0%,	respectively.	These	notes	were	retired	on	December	1,	2013.

Also	on	December	21,	2013,	an	additional	$101.0	million	with	an	interest	rate	of	5.39%	in	Senior	Notes	matured.

|  |  |  |  | Amount |
| :--- | :--- | :--- | :--- | :--- |
| Company | Type | Interest\tRate | Maturity | (In\tthousands) |
| AWCC\t(1) | \t Senior\tnotes—fixed\trate | 4.30% | 2042 | \t $300,000 |
|  | Private\tactivity\tbonds\tand |  |  |  |
| Other\tsubsidiaries\t(2) | government\tfunded\tdebt—fixed\trate | 0.00%-5.00% | 2025-2041 | 68,746 |
|  | Private\tactivity\tbonds\tand |  |  |  |
| Other\tsubsidiaries\t(3) | government\tfunded\tdebt—fixed\trate | 1.00%-2.76% | 2025-2041 | 14,730 |
| Other\tsubsidiaries | \t Mortgage\tbonds—fixed\trate | 4.29% | 2022 | 700 |
| Total\tissuances |  |  |  | \t $384,176 |

(1) The	net	proceeds	from	this	issuance	were	used	to	finance	certain	redemptions	of	long-term	debt	and	to	fund	the	repayment	of	short-term	debt.

(2) Proceeds	from	these	issuances	were	received	from	New	Jersey	Environmental	Infrastructure	Trust	and	will	be	used	to	fund	certain	specific	projects.	The proceeds	are	held	in	trust	pending	our	certification	that	we	have	incurred	qualifying	expenditures.	These	issuances	have	been	presented	as	non-cash	on	the Consolidated	Statements	of	Cash	Flows.	Subsequent	releases	of	all	or	a	lesser	portion	of	the	funds	by	the	Trust	are	reflected	as	the	release	of	restricted	funds	and are	included	in	investing	activities	in	the	Consolidated	Statements	of	Cash	Flows.

(3) Proceeds	from	these	issuances	were	received	from	the	Pennsylvania	Infrastructure	Investment	Authority	and	have	been	used	to	fund	specified	projects.

Also,	in	the	second	quarter	of	2012,	and	in	connection	with	the	acquisition	of	our	additional	subsidiaries	in	New	York,	we	assumed	debt	of	$25.2	million	with coupon	rates	of	5.00%	to	6.00%	and	maturity	dates	ranging	from	2015	to	2035.	In	September	2012,	we	redeemed	$10.9	million	of	these	outstanding	bonds	with	original maturity	dates	of	2031	to	2035	and	interest	rates	ranging	from	5.00%	to	6.00%.

Included	in	the	long-term	debt	redemptions/retirements	is	$4.2	million	related	to	our	previously	held	Ohio	subsidiary,	which	was	classified	in	discontinued operations	prior	to	its	divestiture.

From	time	to	time	and	as	market	conditions	warrant,	we	may	engage	in	long-term	debt	retirements	via	tender	offers,	open	market	repurchases	or	other	viable alternatives	to	strengthen	our	balance	sheets.

In	February	2015,	our	Board	of	Directors	authorized	a	common	stock	repurchase	program	for	the	specific	purpose	of	providing	a	vehicle	to	minimize	share dilution	that	occurs	through	its	dividend	reinvestment,	employee	stock	purchase	and	executive	compensation	programs.	This	program	will	allow	the	Company	to purchase	up	to	10	million	shares	of	its	outstanding	common	stock	over	an	unrestricted	period	of	time	to	manage	dilution.	Under	the	program,	the	Company	may repurchase	its	common	stock	in	the	open	market	or	through	privately	negotiated	transactions.	The	program	will	be	conducted	in	accordance	with	Rule	10b-18	of	the Exchange	Act,	as	amended,	and	to	facilitate	the	purchases,	the	Company	has	also	entered	into	with	a	broker	a	Rule	10b5-1	share	repurchase	plan.	By	having	the	Program administered	through	a	Rule	10b5-1	plan,	the	Company	will	be	able	to	repurchase	its	shares	at	times	when	it	otherwise	might	be	prevented	from	doing	so	under	insider trading	laws	or	because	of	self-imposed	trading	blackout	periods.	Subject	to	applicable	regulations,	the	Company	may	elect	to	amend	or	cancel	the	Program	or	the	Rule 10b5-1	parameters	at	its	discretion.

# Credit	Facility	and	Short-Term	Debt

The	short-term	debt	balance,	consisting	of	commercial	paper,	net	of	discount,	amounted	to	$450.0	million	and	$630.3	million	at	December	31,	2014	and	2013, respectively.

AWCC	has	entered	into	an	unsecured	revolving	credit	facility	with	$1.25	billion	in	aggregate	total	commitments	from	a	diversified	group	of	14	banks	with	$70.0 million	maturing	on	October	2017	and	the	remainder,	$1.18	billion,	maturing	on	October	2018.	Interest	rates	on	advances	under	the	facility	are	based	on	a	credit	spread to	the	Eurodollar	rate	or	base	rate	with	the	credit	spread	of	1.00%	through	June	2012	and	then	based	on	the	higher	of	AWCC's	Moody's	Investors	Service,	which	we refer	to	as	Moody's,	or	Standard	&	Poor's	Ratings	Services	ratings,	which	we	refer	to	as	S&P,	credit	rating.	At	current	ratings	that	spread	would	be	1.00%.	The	facility will	be	principally	used	to	support	AWCC's	commercial	paper	program	and	to	provide	up	to	$150.0	million	in	letters	of	credit.

We	closely	monitor	events	in	the	financial	markets	and	the	financial	institutions	associated	with	this	credit	facility.	In	accordance	with	the	credit	agreement,	no financial	institution	can	have	more	than	$250.0	million	of	the	aggregate	commitment	through	the	facility	expiration	date.	If	any	lender	defaults	in	its	obligation	to	fund advances,	the	Company	may	request	the	other	lenders	to	assume	the	defaulting	lender's	commitment	or	replace	such	defaulting	lender	by	designating	an	assignee	willing to	assume	the	commitment.	However,	the	remaining	lenders	have	no	obligation	to	assume	a	defaulting	lender's	commitment	and	we	can	provide	no	assurances	that	we will	be	able	to	replace	a	defaulting	lender.

The	following	table	provides	information	as	of	December	31,	2014	and	2013,	regarding	the	respective	credit	facility	in	effect	at	the	time,	letters	of	credit	sub- limits	and	available	funds	under	those	revolving	credit	facilities,	as	well	as	outstanding	amounts	of	commercial	paper	and	outstanding	borrowings	under	the	respective facilities:

|  |  |  |  |  | Outstanding |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Available |  | Available | Commercial |  |
|  | Credit\tFacility\nCommitment | Credit\tFacility\nCapacity | Letter\tof\tCredit\nSublimit | Letter\tof\tCredit\nCapacity | Paper\n(Net\tof\tDiscount) | Credit\tLine\nBorrowings |
|  |  |  | (In\tthousands) |  |  |  |
| December\t31,\t2014 | $1,250,000 | \t $1,212,104 | $150,000 | $112,104 | \t $449,959 | $— |
| December\t31,\t2013 | $1,250,000 | \t $1,208,215 | $150,000 | $108,215 | \t $630,307 | $— |

AWCC	had	no	outstanding	borrowings	under	the	credit	facility	and	$36.5	million	of	outstanding	letters	of	credit	under	this	credit	facility	as	of	February	19, 2015.	Also,	as	of	February	19,	2015,	AWCC	had	$502.9	million	of	commercial	paper	outstanding.

The	weighted-average	interest	rate	on	short-term	borrowings	for	the	years	ended	December	31,	2014	and	2013	was	approximately	0.31%	and	0.43%, respectively.

# Capital	Structure

The	following	table	indicates	the	percentage	of	our	capitalization	represented	by	the	components	of	our	capital	structure	as	of	December	31,	2014,	2013	and

|  | At | At | At |
| :--- | :--- | :--- | :--- |
|  | December\t31, | December\t31, | December\t31, |
|  | 2014 | 2013 | 2012 |
| Total\tcommon\tstockholders'\tequity | 45% | 45% | 44% |
| Long-term\tdebt\tand\tredeemable\tpreferred\tstock\tat\tredemption\tvalue | 50% | 49% | 52% |
| Short-term\tdebt\tand\tcurrent\tportion\tof\tlong-term\tdebt | 5% | 6% | 4% |
|  | 100% | 100% | 100% |

The	changes	in	the	capital	structure	between	periods	were	mainly	attributable	to	changes	in	outstanding	commercial	paper	balances.

# Debt	Covenants

Our	debt	agreements	contain	financial	and	non-financial	covenants.	To	the	extent	that	we	are	not	in	compliance,	we	or	our	subsidiaries	may	be	restricted	in	our ability	to	pay	dividends,	issue	new	debt	or	access	our	revolving	credit	facility.	For	two	of	our	smaller	operating	companies,	we	have	informed	our	counterparties	that	we will	provide	only	unaudited	financial	information	at	the	subsidiary	level,	which	resulted	in	technical	non-compliance	with	certain	of	their	reporting	requirements.	We	do not	believe	this	change	will	materially	impact	us.	Our	failure	to	comply	with	restrictive	covenants	under	our	credit	facility	could	accelerate	repayment	obligations.	Our long-term	debt	indentures	contain	a	number	of	covenants	that,	among	other	things,	limit	the	Company	from	issuing	debt	secured	by	the	Company's	assets,	subject	to certain	exceptions.

Certain	long-term	notes	and	the	revolving	credit	facility	require	us	to	maintain	a	ratio	of	consolidated	debt	to	consolidated	capitalization	(as	defined	in	the relevant	documents)	of	not	more	than	0.70	to	1.00.	On	December	31,	2014,	our	ratio	was	0.55	to	1.00	and	therefore	we	were	in	compliance	with	the	covenant.

# Security	Ratings

Our	access	to	the	capital	markets,	including	the	commercial	paper	market,	and	respective	financing	costs	in	those	markets,	is	directly	affected	by	securities ratings	of	the	entity	that	is	accessing	the	capital	markets.	We	primarily	access	the	capital	markets,	including	the	commercial	paper	market,	through	AWCC.	However,	we also	issue	debt	at	our	regulated	subsidiaries,	primarily	in	the	form	of	tax	exempt	securities	or	borrowings	under	state	revolving	funds,	to	lower	our	overall	cost	of	debt.

On	June	2,	2014,	Standard	&	Poor's	Rating	Service	revised	its	rating	outlook	to	positive	from	stable	and	affirmed	its	corporate	credit	rating	of	A-	on	AWCC	and American	Water	and	of	A2	on	AWCC's	short	term	rating.	On	May	29,	2013,	Moody's	upgraded	its	rating	outlook	for	both	American	Water	and	AWCC	from	Baa2	to Baa1	and	revised	its	rating	outlook	to	stable.

The	following	table	shows	the	Company's	securities	ratings	as	of	December	31,	2014:

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.	Security	ratings	are	highly	dependent	upon	our	ability	to	generate	cash	flows	in	an	amount sufficient	to	service	our	debt	and	meet	our	investment	plans.	We	can	provide	no	assurances	that	our	ability	to	generate	cash	flows	is	sufficient	to	maintain	our	existing ratings.	None	of	our	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	our	credit	facility.

As	part	of	the	normal	course	of	business,	we	routinely	enter	into	contracts	for	the	purchase	and	sale	of	water,	energy,	chemicals	and	other	services.	These contracts	either	contain	express	provisions	or	otherwise	permit	us	and	our	counterparties	to	demand	adequate	assurance	of	future	performance	when	there	are	reasonable grounds	for	doing	so.	In	accordance	with	the	contracts	and	applicable	contract	law,	if	we	are	downgraded	by	a	credit	rating	agency,	especially	if	such	downgrade	is	to	a level	below	investment	grade,	it	is	possible	that	a	counterparty	would	attempt	to	rely	on	such	a	downgrade	as	a	basis	for	making	a	demand	for	adequate	assurance	of future	performance,	which	could	include	a	demand	that	we	provide	collateral	to	secure	our	obligations.	We	do	not	expect	to	post	any	collateral	which	will	have	a material	adverse	impact	on	the	Company's	results	of	operations,	financial	position	or	cash	flows.

# Dividends

Our	Board	of	Directors	has	adopted	a	dividend	practice	to	distribute	to	our	stockholders	a	portion	of	our	net	cash	provided	by	operating	activities	as	regular quarterly	dividends,	rather	than	retaining	that	cash	for	other	purposes.	We	expect	that	dividends	will	be	paid	quarterly	to	holders	of	record	approximately	15	days	prior to	the	distribution	date.	Since	the	dividends	on	our	common	stock	will	not	be	cumulative,	only	declared	dividends	will	be	paid.

For	2012,	we	paid	a	dividend	of	$0.25	per	share	on	December	28,	December	3	and	September	3	and	$0.23	per	share	on	June	1	and	March	1.	The	December	28, 2012	cash	dividend	payment	of	$0.25	per	share	would	have	historically	been	paid	in	March	2013,	however,	the	Board	approved	accelerating	the	payment	date	to	2012	to take	advantage	of	the	existing	2012	tax	rates.

On	December	12,	2014,	our	Board	of	Directors	declared	a	quarterly	cash	dividend	payment	of	$0.31	per	share	payable	on	March	2,	2015	to	shareholders	of record	as	of	February	9,	2015.

# Regulatory	Restrictions

The	issuance	by	the	Company	or	AWCC	of	long-term	debt	or	equity	securities	does	not	require	authorization	of	any	state	PUC	if	no	guarantee	or	pledge	of	the regulated	subsidiaries	is	utilized.	However,	state	PUC	authorization	is	required	to	issue	long-term	debt	or	equity	securities	at	most	of	our	regulated	subsidiaries.	Our regulated	subsidiaries	normally	obtain	the	required	approvals	on	a	periodic	basis	to	cover	their	anticipated	financing	needs	for	a	period	of	time	or	in	connection	with	a specific	financing.

Under	applicable	law,	our	subsidiaries	can	pay	dividends	only	from	retained,	undistributed	or	current	earnings.	A	significant	loss	recorded	at	a	subsidiary	may limit	the	dividends	that	the	subsidiary	can	distribute	to	us.

# Insurance	Coverage

We	carry	various	property,	casualty	and	financial	insurance	policies	with	limits,	deductibles	and	exclusions	that	we	believe	are	consistent	with	industry standards.	However,	insurance	coverage	may	not	be	adequate	or	available	to	cover	unanticipated	losses	or	claims.	Additionally,	annual	policy	renewals	can	be	impacted by	claims	experience	which	in	turn	can	impact	coverage	terms	and	conditions	on	a	going	forward	basis.	We	are	self-insured	to	the	extent	that	losses	are	within	the	policy deductible	or	exceed	the	amount	of	insurance	maintained.	Such	losses	could	have	a	material	adverse	effect	on	our	short-term	and	long-term	financial	condition	and	our results	of	operations	and	cash	flows.

# Contractual	Obligations	and	Commitments

We	enter	into	obligations	with	third	parties	in	the	ordinary	course	of	business.	These	financial	obligations,	as	of	December	31,	2014,	are	set	forth	in	the	table below:

|  |  |  |  |  | More	Than |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Contractual\tobligation | Total | \t Less\tThan\t1\tyear | 1-3\tYears | 3-5\tyears | 5\tyears |
|  |  |  | (In\tthousands) |  |  |
| Long-term\tdebt\tobligations\t(a) | $5,456,502 | $59,446 | $622,736 | $617,175 | $4,157,145 |
| Interest\ton\tlong-term\tdebt\t(b) | 4,261,744 | 303,956 | 597,636 | 492,976 | 2,867,176 |
| Capital\tlease\tobligations\t(c) | 885 | 36 | 92 | 115 | 642 |
| Interest\ton\tcapital\tlease\tobligations\t(d) | 832 | 116 | 201 | 182 | 333 |
| Operating\tlease\tobligations\t(e) | 136,712 | 14,007 | 22,868 | 18,220 | 81,617 |
| Purchase\twater\tobligations\t(f) | 677,590 | 55,141 | 95,111 | 86,132 | 441,206 |
| Other\tpurchase\tobligations\t(g) | 126,037 | 126,037 | - | - | - |
| Postretirement\tbenefit\tplans'\tobligations\t(h) | 109,800 | 26,500 | 45,700 | 37,600 | - |
| Pension\tplan\tobligations\t(h) | 234,200 | 28,000 | 62,600 | 85,400 | 58,200 |
| Preferred\tstocks\twith\tmandatory\tredemption\n\t\t\trequirements | 17,252 | 1,650 | 3,300 | 3,478 | 8,824 |
| Interest\ton\tpreferred\tstock\twith\tmandatory\n\t\t\tredemption\trequirements | 12,606 | 1,407 | 2,386 | 1,802 | 7,011 |
| Other\tobligations\t(i) | 814,020 | 184,032 | 144,963 | 61,651 | 423,374 |
| Total | $11,848,180 | $800,328 | $1,597,593 | $1,404,731 | $8,045,528 |

Note:	The	above	table	reflects	only	financial	obligations	and	commitments.	Therefore,	performance	obligations	associated	with	our	Market-Based	Operations	are	not included	in	the	above	amounts.

(a) Represents	sinking	fund	obligations	and	debt	maturities.

(b) Represents	expected	interest	payments	on	outstanding	long-term	debt.	Amounts	reported	may	differ	from	actual	due	to	future	financing	of	debt.

(c) Represents	future	minimum	payments	under	noncancelable	capital	leases.

(d) Represents	expected	interest	payments	on	noncancelable	capital	leases.

(e) Represents	future	minimum	payments	under	noncancelable	operating	leases,	primarily	for	the	lease	of	motor	vehicles,	buildings,	land	and	other	equipment including	water	facilities	and	systems	constructed	by	partners	under	the	Public-Private	Partnerships	described	below.

(f) Represents	future	payments	under	water	purchase	agreements	for	minimum	quantities	of	water.

(g) Represents	the	open	purchase	orders	as	of	December	31,	2014,	for	goods	and	services	purchased	in	the	ordinary	course	of	business.

(h) Represents	contributions	expected	to	be	made	to	pension	and	postretirement	benefit	plans	for	the	years	2015	through	2020.

(i) Includes	an	estimate	of	advances	for	construction	to	be	refunded,	capital	expenditures	estimated	to	be	required	under	legal	and	binding	contractual	obligations, contracts	entered	into	for	energy	purchases,	a	liability	associated	with	a	conservation	agreement	and	service	agreements.

# Public-Private	Partnerships

West	Virginia-American	Water	Company,	which	we	refer	to	as	WVAWC,	has	entered	into	a	series	of	agreements	with	various	public	entities,	which	we	refer	to as	the	Partners,	to	establish	certain	joint	ventures,	commonly	referred	to	as	"public-private	partnerships."	Under	the	public-private	partnerships,	WVAWC	constructed utility	plant,	financed	by	WVAWC,	and	the	Partners	constructed	utility	plant	(connected	to	WVAWC's	property),	financed	by	the	Partners.	WVAWC	agreed	to	transfer and	convey	some	of	its	real	and	personal	property	to	the	Partners	in	exchange	for	an	equal	principal	amount	of	Industrial	Development	Bonds,	commonly	referred	to	as IDBs,	issued	by	the	Partners	under	a	state	Industrial	Development	Bond	and	Commercial	Development	Act.	WVAWC	leased	back	the	total	facilities,	including	portions funded	by	both	WVAWC	and	the	Partners,	under	leases	for	a	period	of	40	years.

WVAWC	leased	back	the	transferred	facilities	under	capital	leases	for	a	period	of	40	years.	The	leases	have	payments	that	approximate	the	payments	required	by the	terms	of	the	IDBs.	We	have	presented	the	transaction	on	a	net	basis	in	the	consolidated	financial	statements.	The	carrying	value	of	the	transferred	facilities,	which	is presented	within	utility	plant,	was	approximately	$156.8	million	at	December	31,	2014.

# Performance	Obligations

We	have	entered	into	agreements	for	the	provision	of	services	to	water	and	wastewater	facilities	for	the	United	States	military,	municipalities	and	other customers.	These	military	services	agreements	expire	between	2051	and	2064	and	have	remaining	performance	commitments	as	measured	by	estimated	remaining contract	revenues	of	$2.5	billion	at	December	31,	2014.	The	Operations	and	Maintenance	agreements	with	municipalities	and	other	customers	expire	between	2015	and 2048	and	have	remaining	performance	commitments	as	measured	by	estimated	remaining	contract	revenue	of	$865.8	million	at	December	31,	2014.	Some	of	the Company's	long-term	contracts	to	operate	and	maintain	a	municipality's,	federal	government's	or	other	party's	water	or	wastewater	treatment	and	delivery	facilities include	responsibility	for	certain	major	maintenance	for	some	of	the	facilities,	in	exchange	for	an	annual	fee.

# Critical	Accounting	Policies	and	Estimates

The	application	of	critical	accounting	policies	is	particularly	important	to	our	financial	condition	and	results	of	operations	and	provides	a	framework	for management	to	make	significant	estimates,	assumptions	and	other	judgments.	Although	our	management	believes	that	these	estimates,	assumptions	and	other	judgments are	appropriate,	they	relate	to	matters	that	are	inherently	uncertain.	Accordingly,	changes	in	the	estimates,	assumptions	and	other	judgments	applied	to	these	accounting policies	could	have	a	significant	impact	on	our	financial	condition	and	results	of	operations	as	reflected	in	our	consolidated	financial	statements.

Our	financial	condition,	results	of	operations	and	cash	flows	are	impacted	by	the	methods,	assumptions	and	estimates	used	in	the	application	of	critical accounting	policies.	Management	believes	that	the	areas	described	below	require	significant	judgment	in	the	application	of	accounting	policy	or	in	making	estimates	and assumptions	in	matters	that	are	inherently	uncertain	and	that	may	change	in	subsequent	periods.	Our	management	has	reviewed	these	critical	accounting	policies,	and	the estimates	and	assumptions	regarding	them,	with	our	audit	committee.	In	addition,	our	management	has	also	reviewed	the	following	disclosures	regarding	the	application of	these	critical	accounting	policies	with	the	audit	committee.

# Regulatory	Accounting

Our	regulated	utility	subsidiaries	are	subject	to	regulation	by	state	PUCs	and	the	local	governments	of	the	states	in	which	they	operate.	As	such,	we	account	for these	regulated	operations	in	accordance	with	authoritative	guidance	that	requires	us	to	reflect	the	effects	of	rate	regulation	in	our	financial	statements.	Use	of	the authoritative	guidance	is	applicable	to	utility	operations	that	meet	the	following	criteria	(1)	third-party	regulation	of	rates;	(2)	cost-based	rates;	and	(3)	a	reasonable assumption	that	all	costs	will	be	recoverable	from	customers	through	rates.	As	of	December	31,	2014,	we	concluded	that	the	operations	of	our	regulated	subsidiaries meet	the	criteria.	If	it	is	concluded	in	a	future	period	that	a	separable	portion	of	the	business	no	longer	meets	the	criteria,	we	are	required	to	eliminate	the	financial statement	effects	of	regulation	for	that	part	of	the	business,	which	would	include	the	elimination	of	any	or	all	regulatory	assets	and	liabilities	that	had	been	recorded	in the	consolidated	financial	statements.	Failure	to	meet	the	criteria	of	the	authoritative	guidance	could	materially	impact	our	consolidated	financial	statements.

Regulatory	assets	represent	costs	that	have	been	deferred	to	future	periods	when	it	is	probable	that	the	regulator	will	allow	for	recovery	through	rates	charged	to customers.	Regulatory	liabilities	represent	revenues	received	from	customers	to	fund	expected	costs	that	have	not	yet	been	incurred.	As	of	December	31,	2014,	we	have recorded	$1.2	billion	of	net	regulatory	assets	and	$391.8	million	of	regulatory	liabilities	within	our	consolidated	financial	statements.	See	Note	6	of	the	Notes	to Consolidated	Financial	Statements	for	further	information	regarding	the	significant	regulatory	assets	and	liabilities.

For	each	regulatory	jurisdiction	where	we	conduct	business,	we	continually	assess	whether	the	regulatory	assets	and	liabilities	continue	to	meet	the	criteria	for probable	future	recovery	or	settlement.	This	assessment	includes	consideration	of	factors	such	as	changes	in	applicable	regulatory	environments,	recent	rate	orders	to other	regulated	entities	in	the	same	jurisdiction,	the	status	of	any	pending	or	potential	deregulation	legislation	and	the	ability	to	recover	costs	through	regulated	rates.	If subsequent	events	indicate	that	the	regulatory	assets	or	liabilities	no	longer	meet	the	criteria	for	probable	future	recovery	or	settlement,	our	statement	of	operations	and financial	position	could	be	materially	affected.

# Goodwill

The	Company	has	recorded	$1.2	billion	of	goodwill	at	December	31,	2014	and	2013.	The	Company's	annual	impairment	test	is	performed	as	of	November	30	of each	year,	in	conjunction	with	the	timing	of	the	completion	of	the	Company's	annual	strategic	business	plan.	The	Company	also	undertakes	interim	reviews	when	the Company	determines	that	a	triggering	event	that	would	more	likely	than	not	reduce	the	fair	value	of	a	reporting	unit	below	its	carrying	value	has	occurred.

The	Company	performs	a	two-step	impairment	test	to	evaluate	the	carrying	value	of	goodwill	for	each	reporting	unit	if	qualitative	factors	indicate	that	it	is	more likely	than	not	that	the	reporting	units'	fair	values	are	less	than	their	carrying	values.	The

step	one	calculation	used	to	identify	potential	impairment	compares	the	estimated	fair	value	for	each	of	the	Company's	reporting	units	to	their	respective	net	carrying values,	including	goodwill,	on	the	measurement	date.	If	the	estimated	fair	value	of	any	reporting	unit	is	less	than	such	reporting	unit's	carrying	value,	then	step	two	is performed	to	measure	the	amount	of	the	impairment	loss	(if	any)	for	such	reporting	unit.

The	step	two	calculation	of	the	impairment	test	compares,	by	reporting	unit,	the	implied	fair	value	of	the	goodwill	to	the	carrying	value	of	goodwill.	The	implied fair	value	of	goodwill	is	equal	to	the	excess	of	the	fair	value	of	each	reporting	unit	above	the	fair	value	of	such	reporting	unit's	identified	assets	and	liabilities.	If	the carrying	value	of	goodwill	exceeds	the	implied	fair	value	of	goodwill	for	any	reporting	unit,	an	impairment	loss	is	recognized	in	an	amount	equal	to	the	excess	(not	to exceed	the	carrying	value	of	goodwill)	for	that	reporting	unit.

The	determination	of	the	fair	value	of	each	reporting	unit	and	the	fair	value	of	each	reporting	unit's	assets	and	liabilities	is	performed	as	of	the	measurement	date using	observable	market	data	before	and	after	the	measurement	date	(if	that	subsequent	information	is	relevant	to	the	fair	value	on	the	measurement	date).

After	assessing	various	events	and	circumstances	in	2014,	2013	and	2012,	the	Company	determined	that	no	qualitative	factors	were	present	that	would	indicate the	estimated	fair	values	of	its	reporting	units	were	less	than	the	respective	carrying	values.	As	such,	the	Company	determined	that	the	two-step	goodwill	impairment test	was	not	necessary	at	November	30,	2014,	2013	and	2012.

There	can	be	no	assurances	that	the	Company	will	not	be	required	to	recognize	an	impairment	of	goodwill	in	the	future	due	to	market	conditions	or	other	factors related	to	the	Company's	performance.	These	market	events	could	include	a	decline	over	a	period	of	time	of	the	Company's	stock	price,	a	decline	over	a	period	of	time	in valuation	multiples	of	comparable	water	utilities,	the	lack	of	an	increase	in	the	Company's	market	price	consistent	with	its	peer	companies,	or	decreases	in	control premiums.	A	decline	in	the	forecasted	results	in	our	business	plan,	such	as	changes	in	rate	case	results	or	capital	investment	budgets	or	changes	in	our	interest	rates, could	also	result	in	an	impairment	charge.

# Impairment	of	Long-Lived	Assets

Long-lived	assets	include	land,	buildings,	equipment	and	long-term	investments.	Long-lived	assets,	other	than	investments	and	land	are	depreciated	over	their estimated	useful	lives,	and	are	reviewed	for	impairment	whenever	changes	in	circumstances	indicate	the	carrying	value	of	the	asset	may	not	be	recoverable.	Such circumstances	would	include	items	such	as	a	significant	decrease	in	the	market	value	of	a	long-lived	asset,	a	significant	adverse	change	in	the	manner	in	which	the	asset is	being	used	or	planned	to	be	used	or	in	its	physical	condition,	or	a	history	of	operating	or	cash	flow	losses	associated	with	the	use	of	the	asset.	In	addition,	changes	in the	expected	useful	life	of	these	long-lived	assets	may	also	be	an	impairment	indicator.	When	such	events	or	changes	occur,	we	estimate	the	fair	value	of	the	asset	from future	cash	flows	expected	to	result	from	the	use	and,	if	applicable,	the	eventual	disposition	of	the	assets,	and	compare	that	to	the	carrying	value	of	the	asset.	If	the carrying	value	is	greater	than	the	fair	value,	an	impairment	loss	is	recognized	equal	to	the	amount	by	which	the	asset's	carrying	value	exceeds	its	fair	value.	The	key variables	that	must	be	estimated	include	assumptions	regarding	sales	volume,	rates,	operating	costs,	labor	and	other	benefit	costs,	capital	additions,	assumed	discount rates	and	other	economic	factors.	These	variables	require	significant	management	judgment	and	include	inherent	uncertainties	since	they	are	forecasting	future	events.	A variation	in	the	assumptions	used	could	lead	to	a	different	conclusion	regarding	the	realizability	of	an	asset	and,	thus,	could	have	a	significant	effect	on	the	consolidated financial	statements.

The	long-lived	assets	of	the	regulated	utility	subsidiaries	are	grouped	on	a	separate	entity	basis	for	impairment	testing	as	they	are	integrated	state-wide	operations that	do	not	have	the	option	to	curtail	service	and	generally	have	uniform	tariffs.	A	regulatory	asset	is	charged	to	earnings	if	and	when	future	recovery	in	rates	of	that	asset is	no	longer	probable.

The	fair	values	of	long-term	investments	are	dependent	on	the	financial	performance	and	solvency	of	the	entities	in	which	we	invest,	as	well	as	volatility	inherent in	the	external	markets.	In	assessing	potential	impairment	for	these	investments,	we	consider	these	factors.	If	such	assets	are	considered	impaired,	an	impairment	loss	is recognized	equal	to	the	amount	by	which	the	asset's	carrying	value	exceeds	its	fair	value.

# Revenue	Recognition

Revenues	of	the	regulated	utility	subsidiaries	are	recognized	as	water	and	wastewater	services	are	delivered	to	customers	and	include	amounts	billed	to customers	on	a	cycle	basis	and	unbilled	amounts	based	on	estimated	usage	from	the	date	of	the	meter	reading	associated	with	the	latest	customer	invoice	to	the	end	of the	accounting	period.	Unbilled	utility	revenues	as	of	December	31,	2014	and	2013	were	$220.5	million	and	$215.7	million,	respectively.	Increases	in	volumes	delivered to	the	utilities'	customers	and

rate	mix	due	to	changes	in	usage	patterns	in	customer	classes	in	the	period	could	be	significant	to	the	calculation	of	unbilled	revenue.	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	estimated	unbilled	revenue;	however, since	the	majority	of	our	customers	are	generally	billed	on	a	monthly	basis,	total	operating	revenues	would	remain	materially	unchanged.

Revenue	from	Market-Based	Operations	is	recognized	as	services	are	rendered.	Revenues	from	certain	construction	projects	are	recognized	over	the	contract term	based	on	the	costs	incurred	to	date	during	the	period	compared	to	the	total	estimated	costs	over	the	entire	contract.	Losses	on	contracts	are	recognized	during	the period	in	which	the	loss	first	becomes	probable	and	estimable.	Revenues	recognized	during	the	period	in	excess	of	billings	on	construction	contracts	are	recorded	as unbilled	revenue.	Billings	in	excess	of	revenues	recognized	on	construction	contracts	are	recorded	as	other	current	liabilities	on	the	balance	sheet	until	the	recognition criteria	are	met.	Changes	in	contract	performance	and	related	estimated	contract	profitability	may	result	in	revisions	to	costs	and	revenues	and	are	recognized	in	the period	in	which	revisions	are	determined.

# Accounting	for	Income	Taxes

Significant	management	judgment	is	required	in	determining	the	provision	for	income	taxes,	primarily	due	to	the	uncertainty	related	to	tax	positions	taken,	as well	as	deferred	tax	assets	and	liabilities,	valuation	allowances	and	the	utilization	of	NOL	carryforwards.

In	accordance	with	applicable	authoritative	guidance,	we	account	for	uncertain	income	tax	positions	using	a	benefit	recognition	model	with	a	two-step	approach, including	a	more-likely-than-not	recognition	threshold	and	a	measurement	approach	based	on	the	largest	amount	of	tax	benefit	that	is	greater	than	50%	likely	of	being realized	upon	ultimate	settlement.	If	it	is	not	more-likely-than-not	that	the	benefit	of	the	tax	position	will	be	sustained	on	its	technical	merits,	no	benefit	is	recorded. Uncertain	tax	positions	that	relate	only	to	timing	of	when	an	item	is	included	on	a	tax	return	are	considered	to	have	met	the	recognition	threshold.	Management	evaluates each	position	based	solely	on	the	technical	merits	and	facts	and	circumstances	of	the	position,	assuming	the	position	will	be	examined	by	a	taxing	authority	having	full knowledge	of	all	relevant	information.	Significant	judgment	is	required	to	determine	whether	the	recognition	threshold	has	been	met	and,	if	so,	the	appropriate	amount	of unrecognized	tax	benefit	to	be	recorded	in	the	consolidated	financial	statements.

We	evaluate	the	probability	of	realizing	deferred	tax	assets	quarterly	by	reviewing	a	forecast	of	future	taxable	income	and	our	intent	and	ability	to	implement	tax planning	strategies,	if	necessary,	to	realize	deferred	tax	assets.	We	also	assess	our	ability	to	utilize	tax	attributes,	including	those	in	the	form	of	carryforwards,	for	which the	benefits	have	already	been	reflected	in	the	financial	statements.	We	record	valuation	allowances	for	deferred	tax	assets	when	we	conclude	it	is	more-likely-than-not such	benefit	will	not	be	realized	in	future	periods.

Actual	income	taxes	could	vary	from	estimated	amounts	due	to	the	future	impacts	of	various	items,	including	changes	in	income	tax	laws,	our	forecasted financial	condition	and	results	of	operations,	failure	to	successfully	implement	tax	planning	strategies,	as	well	as	results	of	audits	and	examinations	of	filed	tax	returns	by taxing	authorities.	While	we	believe	the	resulting	tax	balances	as	of	December	31,	2014	and	2013	are	appropriately	accounted	for	in	accordance	with	the	applicable authoritative	guidance,	the	ultimate	outcome	of	tax	matters	could	result	in	favorable	or	unfavorable	adjustments	to	our	consolidated	financial	statements	and	such adjustments	could	be	material.	See	Note	12	of	the	Notes	to	Consolidated	Financial	Statements	for	additional	information	regarding	income	taxes.

# Accounting	for	Pension	and	Postretirement	Benefits

We	maintain	noncontributory	defined	benefit	pension	plans	covering	eligible	employees	of	our	regulated	utility	and	shared	service	operations.	Benefits	under	the plans	are	based	on	the	employee's	years	of	service	and	compensation.	The	pension	plans	have	been	closed	for	all	employees.		The	pension	plans	were	closed	for	most employees	hired	on	or	after	January	1,	2006.	Union	employees	hired	on	or	after	January	1,	2001	had	their	accrued	benefit	frozen	and	will	be	able	to	receive	this	benefit as	a	lump	sum	upon	termination	or	retirement.	Union	employees	hired	on	or	after	January	1,	2001	and	non-union	employees	hired	on	or	after	January	1,	2006	are provided	with	a	5.25%	of	base	pay	defined	contribution	plan.	We	also	maintain	other	postretirement	benefit	plans,	which	provide	varying	levels	of	medical	and	life insurance	for	eligible	retirees.	These	retiree	welfare	plans	are	closed	for	union	employees	hired	on	or	after	January	1,	2006.	The	plans	had	previously	closed	for	non- union	employees	hired	on	or	after	January	1,	2002.	The	Company	also	has	several	unfunded	noncontributory	supplemental	non-qualified	pension	plans	that	provide additional	retirement	benefits	to	certain	employees.	The	Company	does	not	participate	in	a	multiemployer	plan.	See	Note	13	of	the	Notes	to	Consolidated	Financial Statements	for	further	information	regarding	the	accounting	for	the	defined	benefit	pension	plans	and	postretirement	benefit	plans.	The	Company's	pension	and postretirement	benefit	costs	are	developed	from	actuarial	valuations.	Inherent	in	these	valuations	are	key	assumptions	provided	by	the	Company	to	its	actuaries, including	the	discount	rate	and	expected	long-term	rate	of	return	on	plan	assets.	Material	changes	in	the	Company's	pension	and	postretirement	benefit	costs	may	occur in	the	future	due	to	changes	in	these	assumptions	as	well	as	fluctuations	in	plan	assets.	The	assumptions	are	selected	to	represent	the	average	expected	experience

over	time	and	may	differ	in	any	one	year	from	actual	experience	due	to	changes	in	capital	markets	and	the	overall	economy.	These	differences	will	impact	the	amount	of pension	and	other	postretirement	benefit	expense	that	the	Company	recognizes.	The	primary	assumptions	are:

· Discount	Rate—The	discount	rate	is	used	in	calculating	the	present	value	of	benefits,	which	are	based	on	projections	of	benefit	payments	to	be	made	in	the future.	The	objective	in	selecting	the	discount	rate	is	to	measure	the	single	amount	that,	if	invested	at	the	measurement	date	in	a	portfolio	of	high-quality debt	instruments,	would	provide	the	necessary	future	cash	flows	to	pay	the	accumulated	benefits	when	due;

· Expected	Return	on	Plan	Assets	("EROA")—Management	projects	the	future	return	on	plan	assets	considering	prior	performance,	but	primarily	based upon	the	plans'	mix	of	assets	and	expectations	for	the	long-term	returns	on	those	asset	classes.	These	projected	returns	reduce	the	net	benefit	costs	we record	currently;

· Rate	of	Compensation	Increase—Management	projects	employees'	pay	increases,	which	are	used	to	project	employees'	pension	benefits	at	retirement;

· Health	Care	Cost	Trend	Rate—Management	projects	the	expected	increases	in	the	cost	of	health	care;	and

· Mortality—In	the	determination	of	year	end	2014	projected	benefit	obligations,	Management	adopted	a	new	table	based	on	the	Society	of	Actuaries	RP 2014	mortality	table	including	a	generational	BB-2D	projection	scale.		The	adoption	resulted	in	a	significant	increase	to	pension	and	other	postretirement benefit	plans'	projected	benefit	obligations.

The	discount	rate	assumption,	which	is	determined	for	the	pension	and	postretirement	benefit	plans	independently,	is	subject	to	change	each	year,	consistent	with changes	in	applicable	high-quality,	long-term	corporate	bond	indices.	We	use	an	approach	that	approximates	the	process	of	settlement	of	obligations	tailored	to	the plans'	expected	cash	flows	by	matching	the	plans'	cash	flows	to	the	coupons	and	expected	maturity	values	of	individually	selected	bonds.	The	yield	curve	was	developed for	a	portfolio	containing	the	majority	of	United	States-issued	AA-graded	non-callable	(or	callable	with	make-whole	provisions)	corporate	bonds.	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 discount	rate	for	determining	pension	benefit	obligations	was	4.24%,	5.12%	and	4.17%	at	December	31,	2014,	2013	and	2012,	respectively.	The	discount	rate	for determining	other	post-retirement	benefit	obligations	was	4.24%,	5.10%	and	4.16%	at	December	31,	2014,	2013	and	2012,	respectively.

In	selecting	an	expected	return	on	plan	assets,	we	considered	tax	implications,	past	performance	and	economic	forecasts	for	the	types	of	investments	held	by	the plans.	The	long-term	EROA	assumption	used	in	calculating	pension	cost	was	6.91%	for	2014,	7.49%	for	2013,	and	7.75%	for	2012.	The	weighted	average	EROA assumption	used	in	calculating	other	postretirement	benefit	costs	was	5.87%	for	2014,	6.99%	for	2013	and	7.41%	for	2012.

The	asset	allocations	for	the	Company's	U.S.	pension	plan	at	December	31,	2014	and	2013,	by	asset	category,	are	as	follows:

|  | Target | Percentage	of	Plan	Assets |  |
| :--- | :--- | :--- | :--- |
|  | Allocation | at\tDecember\t31, |  |
| Asset\tcategory | 2015 | 2014 | 2013 |
| Equity\tsecurities | 52% | 51% | 64% |
| Fixed\tincome | 40% | 41% | 35% |
| Real\tEstate | 6% | 6% | — |
| Real\testate\tinvestment\ttrusts\t("REITs") | 2% | 2% | 1 |
| Total | 100% | 100% | 100% |

The	investment	policy	guidelines	of	the	pension	plan	require	that	the	fixed	income	portfolio	has	an	overall	weighted	average	credit	rating	of	AA	or	better	by Standard	&	Poor's	and	the	minimum	credit	quality	for	fixed	income	securities	must	be	BBB-	or	better.	Up	to	20%	of	the	portfolio	may	be	invested	in	collateralized mortgage	obligations	backed	by	the	United	States	Government.

The	Company's	other	postretirement	benefit	plans	are	partially	funded.	The	asset	allocations	for	the	Company's	other	postretirement	benefit	plans	at December	31,	2014	and	2013,	by	asset	category,	are	as	follows:

|  | Target | Percentage	of	Plan	Assets |  |
| :--- | :--- | :--- | :--- |
|  | Allocation | at\tDecember\t31, |  |
| Asset\tcategory | 2015 | 2014 | 2013 |
| Equity\tsecurities | 30% | 30% | 48% |
| Fixed\tincome | 70% | 70% | 52% |
| REITs | — | — | —% |
| Total | 100% | 100% | 100% |

The	Company's	investment	policy,	and	related	target	asset	allocation,	is	evaluated	periodically	through	asset	liability	studies.	The	studies	consider	projected	cash flows	of	maturity	liabilities,	projected	asset	class	return	risk,	and	correlation	and	risk	tolerance.

The	pension	and	postretirement	welfare	plan	trusts	investments	include	debt	and	equity	securities	held	either	directly	or	through	commingled	funds.	The	trustee for	the	Company's	defined	benefit	pension	and	postretirement	welfare	plans	uses	independent	valuation	firms	to	calculate	the	fair	value	of	plan	assets.	Additionally,	the Company	independently	verifies	the	assets	values.	Approximately	48.4%	of	the	assets	are	valued	using	the	quoted	market	price	for	the	assets	in	an	active	market	at	the measurement	date,	while	51.6%	of	the	assets	are	valued	using	other	inputs.

In	selecting	a	rate	of	compensation	increase,	we	consider	past	experience	in	light	of	movements	in	inflation	rates.	Our	rate	of	compensation	increase	was	3.12% for	2014,	3.15%	for	2013	and	3.19%	for	2012.

In	selecting	health	care	cost	trend	rates,	we	consider	past	performance	and	forecasts	of	increases	in	health	care	costs.	Our	health	care	cost	trend	rate	used	to calculate	the	periodic	cost	was	7.00%	in	2014	gradually	declining	to	5.00%	in	2019	and	thereafter.

Assumed	health	care	cost	trend	rates	have	a	significant	effect	on	the	amounts	reported	for	the	other	postretirement	benefit	plans.	The	health	care	cost	trend	rate	is based	on	historical	rates	and	expected	market	conditions.	A	one-percentage-point	change	in	assumed	health	care	cost	trend	rates	would	have	the	following	effects:

|  |  | Impact	on	2014 |
| :--- | :--- | :--- |
|  | Impact\ton\tOther | Total\tService |
|  | Postretirement | and |
|  | Benefit\tObligation\tat | Interest\tCost |
| Change\tin\tActuarial\tAssumption | December\t31,\t2014 | Components |
|  | (In\tthousands) | (In\tthousands) |
| Increase\tassumed\thealth\tcare\tcost\ttrend\tby\t1% | \t\t$105,967 | \t\t$5,943 |
| Decrease\tassumed\thealth\tcare\tcost\ttrend\tby\t1% | \t\t$(86,179)\t\t\t$ | (4,887) |

We	will	use	a	discount	rate	and	EROA	of	4.24%	and	6.91%,	respectively,	for	estimating	our	2015	pension	costs.	Additionally,	we	will	use	a	discount	rate	and EROA	of	4.24%	and	5.87%,	respectively,	for	estimating	our	2015	other	postretirement	benefit	costs.	A	decrease	in	the	discount	rate	or	the	EROA	would	increase	our pension	expense.	Our	2014	and	2013	pension	and	postretirement	costs,	including	such	expenses	charged	to	our	discontinued	operations,	were	$24.1	million	and	$78.1 million,	respectively.	The	Company	expects	to	make	pension	and	postretirement	benefit	contributions	to	the	plan	trusts	of	$54.5	million,	$55.6	million,	$52.7	million, $56.7	million	and	$66.3	million	in	2015,	2016,	2017,	2018	and	2019,	respectively.	Actual	amounts	contributed	could	change	significantly	from	these	estimates.	The assumptions	are	reviewed	annually	and	at	any	interim	re-measurement	of	the	plan	obligations.	The	impact	of	assumption	changes	is	reflected	in	the	recorded	pension and	postretirement	benefit	amounts	as	they	occur,	or	over	a	period	of	time	if	allowed	under	applicable	accounting	standards.	As	these	assumptions	change	from	period	to period,	recorded	pension	and	postretirement	benefit	amounts	and	funding	requirements	could	also	change.

# New	Accounting	Standards

The	following	recently	issued	accounting	standards	have	been	adopted	by	the	Company	and	have	been	included	in	the	consolidated	results	of	operations, financial	position	or	footnotes	of	the	accompanying	Consolidated	Financial	Statements:

# Obligations	Resulting	from	Joint	and	Several	Liability	Arrangements

In	February	2013,	the	Financial	Accounting	Standards	Board	("FASB")	issued	guidance	for	the	recognition,	measurement	and	disclosure	of	obligations	resulting from	joint	and	several	liability	arrangements	for	which	the	total	amount	of	the	obligation	is	fixed	at	the	reporting	date.	Examples	of	obligations	within	the	scope	of	the updated	guidance	include	debt	arrangements,	other	contractual

obligations	and	settled	litigation	and	judicial	rulings.	The	update	requires	an	entity	to	measure	obligations	resulting	from	joint	and	several	liability	arrangements	for which	the	total	amount	of	the	obligation	is	fixed	at	the	reporting	date	as	the	sum	of	the	following:	(a)	the	amount	the	reporting	entity	agreed	to	pay	on	the	basis	of	its arrangement	among	its	co-obligors	and	(b)	any	additional	amount	the	reporting	entity	expects	to	pay	on	behalf	of	its	co-obligors.	The	updated	guidance	also	includes additional	disclosures	regarding	the	nature	and	amount	of	the	obligation,	as	well	as	other	information	about	those	obligations.	The	update	was	effective	on	a retrospective	basis	for	interim	and	annual	periods	beginning	after	December	15,	2013,	which	for	the	Company	was	January	1,	2014.	The	adoption	of	this	updated guidance	did	not	have	an	impact	on	the	Company's	results	of	operations,	financial	position	or	cash	flows.

# Foreign	Currency	Matters

In	June	2013,	the	FASB	issued	guidance	for	a	parent's	accounting	for	the	cumulative	translation	adjustment	upon	derecognition	of	certain	subsidiaries	or	groups of	assets	within	a	foreign	entity	or	of	an	investment	in	a	foreign	entity.	The	amendments	resolve	differing	views	in	practice	and	apply	to	the	release	of	the	cumulative translation	adjustment	into	net	income	when	a	parent	either	sells	a	part	or	all	of	its	investment	in	a	foreign	entity	or	no	longer	holds	a	controlling	financial	interest	in	a subsidiary	or	a	business	within	a	foreign	entity.	The	update	was	effective	prospectively	for	interim	and	annual	periods	beginning	after	December	15,	2013,	which	for	the Company	was	January	1,	2014.	The	adoption	of	this	updated	guidance	did	not	have	an	impact	on	the	Company's	results	of	operations,	financial	position	or	cash	flows.

# The	following	recently	issued	accounting	standards	are	not	yet	required	to	be	adopted	by	the	Company:

# Service	Concession	Arrangements

In	January	2014,	the	FASB	issued	guidance	for	an	operating	entity	that	enters	into	a	service	concession	arrangement	with	a	public	sector	grantor	who	controls	or has	the	ability	to	modify	or	approve	the	services	that	the	operating	entity	must	provide	with	the	infrastructure,	to	whom	it	must	provide	the	services	and	at	what	price. The	grantor	also	controls,	through	ownership	or	otherwise,	any	residual	interest	in	the	infrastructure	at	the	end	of	the	term	of	the	arrangement.	The	guidance	specifies	that an	operating	entity	should	not	account	for	the	service	concession	arrangement	as	a	lease.	The	operating	entity	should	refer	instead	to	other	accounting	guidance	to account	for	the	various	aspects	of	the	arrangement.	The	guidance	also	specifies	that	the	infrastructure	used	in	the	arrangement	should	not	be	recognized	as	property,	plant and	equipment	of	the	operating	entity.	This	update	should	be	applied	on	a	modified	retrospective	basis	to	service	concession	arrangements	that	exist	at	the	beginning	of an	entity's	fiscal	year	of	adoption.	This	requires	the	cumulative	effect	of	applying	the	update	to	be	recognized	as	an	adjustment	to	the	opening	retained	earnings	balance for	the	annual	period	of	adoption.	The	update	is	effective	for	interim	and	annual	periods	beginning	after	December	15,	2014,	which	for	the	Company	is	January	1,	2015. The	adoption	of	this	updated	guidance	resulted	in	a	decrease	to	nonutility	property	and	opening	retained	earnings	of	approximately	$12	million	on	January	1,	2015.

# Reporting	Discontinued	Operations

In	April	2014,	the	FASB	issued	guidance	that	changes	the	criteria	for	determining	which	disposals	can	be	presented	as	discontinued	operations	and	modifies related	disclosure	requirements.	Under	the	updated	guidance,	a	discontinued	operation	is	defined	as	a	component	or	group	of	components	that	is	disposed	of	or	is classified	as	held	for	sale	and	represents	a	strategic	shift	that	has	or	will	have	a	major	effect	on	an	entity's	operations	and	financial	results.	A	strategic	shift	could	include a	disposal	of	a	major	geographical	area	of	operations,	a	major	line	of	business,	a	major	equity	method	investment	or	other	major	part	of	the	entity.	A	component comprises	operations	and	cash	flows	that	can	be	clearly	distinguished,	operationally	and	for	financial	reporting	purposes,	from	the	rest	of	the	entity	including	a reportable	segment,	an	operating	segment,	a	reporting	unit,	a	subsidiary	or	an	asset	group.	The	update	no	longer	precludes	presentation	as	a	discontinued	operation	if there	are	operations	and	cash	flows	of	the	component	that	have	not	been	eliminated	from	the	reporting	entity's	ongoing	operations	or	if	there	is	significant	continuing involvement	with	a	component	after	its	disposal.	The	updated	guidance	is	effective	on	a	prospective	basis	for	interim	and	annual	periods	on	or	after	December	15,	2014, which	for	the	Company	is	January	1,	2015.	In	general,	this	guidance	is	likely	to	result	in	fewer	disposals	of	assets	qualifying	as	discontinued	operations,	but	will ultimately	be	based	on	the	Company's	future	disposal	activity.

# Revenue	from	Contracts	with	Customers

In	May	2014,	the	FASB	issued	a	comprehensive	new	revenue	recognition	standard	that	supersedes	most	current	revenue	recognition	guidance,	including industry-specific	guidance.	The	core	principle	of	the	new	guidance	is	that	a	company	will	recognize	revenue	when	it	transfers	promised	goods	or	services	to	customers	in an	amount	that	reflects	the	consideration	to	which	the	company	expects	to	be	entitled	in	exchange	for	those	goods	or	services.	The	guidance	is	effective	for	annual	and interim	periods	beginning	December	15,	2016,	which	for	the	Company	is	January	1,	2017.	Early	adoption	is	not	permitted.	The	new	guidance	allows	for	either	full retrospective	adoption,	meaning	the	guidance	is	applied	to	all	of	the	periods	presented,	or	modified	retrospective	adoption,	meaning	the	standard	is	applied	only	to	the most	current	period	presented	in	the	financial	statements.	The	Company	is	evaluating	the

new	guidance,	the	best	transition	method	and	the	impact	the	new	standard	will	have	on	its	results	of	operations,	financial	position	or	cash	flows.

# Accounting	for	Stock-based	Compensation	with	Performance	Targets

In	June	2014,	the	FASB	issued	guidance	for	the	accounting	for	stock-based	compensation	tied	to	performance	targets.	The	amendments	clarify	that	a performance	target	that	affects	vesting	of	a	share-based	payment	and	that	could	be	achieved	after	the	requisite	service	period	is	a	performance	condition.	As	a	result,	the target	is	not	reflected	in	the	estimation	of	the	award's	grant	date	fair	value	and	compensation	cost	would	be	recognized	over	the	required	service	period,	if	it	is	probable that	the	performance	condition	will	be	achieved.	The	updated	guidance	may	be	applied	either:	(a)	prospectively	to	all	awards	granted	or	modified	after	the	effective	date; or	(b)	retrospectively	to	all	awards	with	performance	targets	that	are	outstanding	as	of	the	beginning	of	the	earliest	annual	period	presented	in	the	financial	statements and	to	all	new	or	modified	awards	thereafter.	The	updated	guidance	is	effective	for	annual	periods	and	interim	periods	within	those	annual	periods	beginning	after December	15,	2015,	which	for	the	Company	is	January	1,	2016.	Early	adoption	is	permitted.	The	Company	is	evaluating	the	impact	the	updated	guidance	will	have	on its	results	of	operations,	financial	position	or	cash	flows.

# Disclosures	of	Uncertainties	about	an	Entity's	Ability	to	Continue	as	a	Going	Concern

In	August	2014,	the	FASB	issued	guidance	that	explicitly	requires	an	entity's	management	to	assess	the	entity's	ability	to	continue	as	a	going	concern.	The	new guidance	requires	an	entity	to	evaluate,	at	each	interim	and	annual	period,	whether	there	are	conditions	or	events	that	raise	substantial	doubt	about	the	entity's	ability	to continue	as	a	going	concern	within	one	year	after	the	date	the	financial	statements	are	issued	(or	are	available	to	be	issued)	and	to	provide	related	disclosures,	if applicable.	The	new	guidance	is	effective	for	annual	periods	ending	after	December	15,	2016	and	for	interim	and	annual	periods	thereafter,	which	for	the	Company	is January	1,	2017.	Early	adoption	is	permitted.	The	adoption	of	this	updated	guidance	is	not	expected	to	have	a	material	impact	on	results	of	operations,	financial	position or	cash	flows.

# Hybrid	Financial	Instruments	Issued	in	the	Form	of	a	Share

In	November	2014,	the	FASB	updated	the	derivatives	and	hedging	guidance	requiring	issuers	of,	or	investors	in,	hybrid	financial	instruments	to	determine whether	the	nature	of	the	host	contract	is	more	akin	to	a	debt	instrument	or	an	equity	instrument	by	considering	the	economic	characteristics	and	risks	of	the	entire hybrid	financial	instrument,	including	the	embedded	derivative	feature	that	is	being	evaluated	for	separate	accounting	from	the	host	contract.	This	update	should	be applied	on	a	modified	retrospective	basis	to	hybrid	financial	instruments	issued	in	the	form	of	a	share	that	exist	at	the	beginning	of	an	entity's	fiscal	year	of	adoption. The	updated	guidance	is	effective	for	annual	periods	and	interim	periods	within	those	annual	periods	beginning	after	December	15,	2015,	which	for	the	Company	is January	1,	2016.	Early	adoption	is	permitted.	The	Company	is	evaluating	the	impact	the	updated	guidance	will	have	on	its	results	of	operations,	financial	position	or	cash flows.

# Extraordinary	and	Unusual	Items

In	January	2015,	the	FASB	issued	guidance	that	eliminates	the	concept	of	an	extraordinary	item.	As	a	result,	an	entity	will	no	longer	segregate	an	extraordinary item	and	present	it	separately	from	the	results	of	ordinary	operations	or	separately	disclose	income	taxes	or	earnings	per	share	information	applicable	to	an	extraordinary item.	The	presentation	and	disclosure	guidance	for	items	that	are	unusual	in	nature	or	occur	infrequently	has	been	retained	and	expanded	to	include	items	that	are	both unusual	in	nature	and	infrequently	occurring.	The	updated	guidance	is	effective	for	annual	periods	and	interim	periods	within	those	annual	periods	beginning	after December	15,	2015,	which	for	the	Company	is	January	1,	2016.	Early	adoption	is	permitted.	The	updated	guidance	may	be	applied	prospectively	or	retrospectively	to	all periods	presented	in	the	financial	statements.	The	adoption	of	this	updated	guidance	is	not	expected	to	have	a	material	impact	on	results	of	operations,	financial	position or	cash	flows.

# ITEM		7A. QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK

We	are	exposed	to	market	risk	associated	with	changes	in	commodity	prices,	equity	prices	and	interest	rates.	We	are	exposed	to	risks	from	changes	in	interest rates	as	a	result	of	our	issuance	of	variable	and	fixed	rate	debt	and	commercial	paper.	We	manage	our	interest	rate	exposure	by	limiting	our	variable	rate	exposure	and by	monitoring	the	effects	of	market	changes	in	interest	rates.	We	also	have	the	ability	to	enter	into	financial	derivative	instruments,	which	could	include	instruments	such as,	but	not	limited	to,	interest	rate	swaps,	forward	starting	swaps,	swaptions	and	U.S.	Treasury	lock	agreements	to	manage	and	mitigate	interest	rate	risk	exposure.	As	of December	31,	2014,	a	hypothetical	increase	of	interest	rates	by	1%	associated	with	our	short-term	borrowings	would	result	in	a	$4.5	million	decrease	in	our	pre-tax earnings.

In	July	2010,	we	entered	into	an	interest	rate	swap	agreement	with	a	notional	amount	of	$100.0	million.	This	agreement	effectively	converted	the	interest	on $100.0	million	of	outstanding	6.085%	fixed	rate	debt	maturing	2017	to	a	variable	rate	of	six-month	LIBOR	plus	3.422%.	We	entered	into	this	interest	rate	swap	to mitigate	interest	cost	at	the	parent	company	relating	to	debt	that	was	incurred	by	our	prior	owners	and	was	not	used	in	any	manner	to	finance	the	cash	needs	of	our subsidiaries.	For	the	years	ended	December	31,	2014	and	2013,	the	interest	rate	swap	reduced	interest	expense	by	$2.3	million	and	$2.0	million,	respectively.	As	the swap	interest	rates	are	fixed	through	April	2015,	a	hypothetical	1%	increase	in	the	interest	rates	associated	with	the	interest	swap	agreement	would	result	in	a	$0.7 million	decrease	on	our	pre-tax	earnings	for	the	year	ended	December	31,	2014.	This	calculation	holds	all	other	variables	constant	and	assumes	only	the	discussed changes	in	interest	rates.

Our	risks	associated	with	price	increases	for	chemicals,	electricity	and	other	commodities	are	reduced	through	contractual	arrangements	and	the	ability	to	recover price	increases	through	rates.	Non-performance	by	these	commodity	suppliers	could	have	a	material	adverse	impact	on	our	results	of	operations,	financial	position	and cash	flows.

The	market	price	of	our	common	stock	may	experience	fluctuations,	many	of	which	are	unrelated	to	our	operating	performance.	In	particular,	our	stock	price may	be	affected	by	general	market	movements	as	well	as	developments	specifically	related	to	the	water	and	wastewater	industry.	These	could	include,	among	other things,	interest	rate	movements,	quarterly	variations	or	changes	in	financial	estimates	by	securities	analysts	and	governmental	or	regulatory	actions.	This	volatility	may make	it	difficult	for	us	to	access	the	capital	markets	in	the	future	through	additional	offerings	of	our	common	stock,	regardless	of	our	financial	performance,	and	such difficulty	may	preclude	us	from	being	able	to	take	advantage	of	certain	business	opportunities	or	meet	business	obligations.

We	are	exposed	to	credit	risk	through	our	water,	wastewater	and	other	water-related	activities	for	both	our	Regulated	Businesses	and	Market-Based	Operations. Our	Regulated	Businesses	serve	residential,	commercial,	industrial	and	other	customers	while	our	Market-Based	Operations	engage	in	business	activities	with developers,	government	entities	and	other	customers.	Our	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.	Our	credit	risk	is	managed	through	established	credit	and	collection	policies	which	are	in compliance	with	applicable	regulatory	requirements	and	involve	monitoring	of	customer	exposure	and	the	use	of	credit	risk	mitigation	measures	such	as	letters	of	credit or	prepayment	arrangements.	Our	credit	portfolio	is	diversified	with	no	significant	customer	or	industry	concentrations.	In	addition,	our	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.	Changes	to	the	retirement	trust	asset	value	can	impact	the Company's	pension	and	other	benefits	expense,	funded	status	and	future	minimum	funding	requirements.	Our	risk	is	reduced	through	our	ability	to	recover	pension	and other	benefit	costs	through	rates.	In	addition,	pension	and	other	benefits	liabilities	decrease	as	fixed	income	asset	values	decrease	(fixed	income	yields	rise)	since	the	rate at	which	we	discount	pension	and	other	retirement	trust	asset	future	obligations	is	highly	correlated	to	fixed	income	yields.

We	are	also	exposed	to	a	potential	national	economic	recession	or	further	deterioration	in	local	economic	conditions	in	the	markets	in	which	we	operate.	The credit	quality	of	our	customer	accounts	receivable	is	dependent	on	the	economy	and	the	ability	of	our	customers	to	manage	through	unfavorable	economic	cycles	and other	market	changes.	In	addition,	as	a	result	of	the	downturn	in	the	economy	and	heightened	sensitivity	of	the	impact	of	additional	rate	increases	on	certain	customers, there	can	be	no	assurances	that	regulators	will	grant	sufficient	rate	authorizations.	Therefore	our	ability	to	fully	recover	operating	expense,	recover	our	investment	and provide	an	appropriate	return	on	invested	capital	made	in	our	Regulated	Businesses	may	be	adversely	impacted.

# ITEM	8. FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# INDEX	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

|  | Page<br>Number |
| :--- | :--- |
| Audited\tConsolidated\tFinancial\tStatements |  |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 71 |
| Consolidated\tBalance\tSheets\tas\tof\tDecember\t31,\t2014\tand\t2013 | 72 |
| Consolidated\tStatements\tof\tOperations\tand\tComprehensive\tIncome\tfor\tthe\tyears\tended\tDecember\t31,\t2014,\t2013\tand\t2012 | 73 |
| Consolidated\tStatements\tof\tCash\tFlows\tfor\tthe\tyears\tended\tDecember\t31,\t2014,\t2013\tand\t2012 | 74 |
| Consolidated\tStatements\tof\tChanges\tin\tStockholders'\tEquity\tfor\tthe\tyears\tended\tDecember\t31,\t2014,\t2013\tand\t2012 | 75 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 76 |

# Report	of	Independent	Registered	Public	Accounting	Firm

# To	the	Board	of	Directors	and	Shareholders	of

In	our	opinion,	the	accompanying	consolidated	balance	sheets	and	the	related	consolidated	statements	of	operations	and	comprehensive	income,	of	cash	flows, and	of	changes	in	stockholders'	equity	present	fairly,	in	all	material	respects,	the	financial	position	of	American	Water	Works	Company,	Inc.	and	Subsidiary	Companies at	December	31,	2014	and	2013,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2014	in	conformity with	accounting	principles	generally	accepted	in	the	United	States	of	America.	Also	in	our	opinion,	the	Company	maintained,	in	all	material	respects,	effective	internal control	over	financial	reporting	as	of	December	31,	2014,	based	on	criteria	established	in	Internal	Control	-	Integrated	Framework	(2013)	issued	by	the	Committee	of Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).	The	Company's	management	is	responsible	for	these	financial	statements,	for	maintaining	effective internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	included	in	Management's	Report	on Internal	Control	over	Financial	Reporting	appearing	under	Item	9A.	Our	responsibility	is	to	express	opinions	on	these	financial	statements	and	on	the	Company's	internal control	over	financial	reporting	based	on	our	integrated	audits.	We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight Board	(United	States).	Those	standards	require	that	we	plan	and	perform	the	audits	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of material	misstatement	and	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our	audits	of	the	financial	statements included	examining,	on	a	test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements,	assessing	the	accounting	principles	used	and	significant estimates	made	by	management,	and	evaluating	the	overall	financial	statement	presentation.	Our	audit	of	internal	control	over	financial	reporting	included	obtaining	an understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness	exists,	and	testing	and	evaluating	the	design	and	operating effectiveness	of	internal	control	based	on	the	assessed	risk.	Our	audits	also	included	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances. We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinions.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(i)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(ii)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(iii)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the policies	or	procedures	may	deteriorate.

/s/	PricewaterhouseCoopers	LLP Philadelphia,	Pennsylvania

# American	Water	Works	Company,	Inc.	and	Subsidiary	Companies

# Consolidated	Balance	Sheets

(In	thousands,	except	per	share	data)

|  | December	31,<br>2014 | December	31,<br>2013 |
| :--- | :--- | :--- |
| ASSETS |  |  |
| Property\tplant\tand\tequipment |  |  |
| Utility\tplant—at\toriginal\tcost,\tnet\tof\taccumulated\tdepreciation\tof\t$3,991,680\tin\t2014\tand\t$3,894,326\tin\t2013 | $12,899,704 | $12,244,359 |
| Nonutility\tproperty,\tnet\tof\taccumulated\tdepreciation\tof\t$248,341\tin\t2014\tand\t$215,083\tin\t2013 | 129,592 | 143,995 |
| Total\tproperty,\tplant\tand\tequipment | 13,029,296 | 12,388,354 |
| Current\tassets |  |  |
| Cash\tand\tcash\tequivalents | 23,080 | 26,964 |
| Restricted\tfunds | 13,859 | 28,505 |
| Accounts\treceivable | 267,053 | 241,926 |
| Allowance\tfor\tuncollectible\taccounts | (34,941) | (33,823) |
| Unbilled\trevenues | 220,538 | 215,725 |
| Income\ttaxes\treceivable | 2,575 | 5,778 |
| Materials\tand\tsupplies | 37,190 | 32,973 |
| Deferred\tincome\ttaxes | 86,601 | 17,722 |
| Assets\tof\tdiscontinued\toperations | — | 7,761 |
| Other | 45,414 | 28,276 |
| Total\tcurrent\tassets | 661,369 | 571,807 |
| Regulatory\tand\tother\tlong-term\tassets |  |  |
| Regulatory\tassets | 1,153,429 | 858,465 |
| Restricted\tfunds | 8,958 | 754 |
| Goodwill | 1,208,043 | 1,207,764 |
| Other | 69,861 | 60,998 |
| Total\tregulatory\tand\tother\tlong-term\tassets | 2,440,291 | 2,127,981 |
| TOTAL\tASSETS | $16,130,956 | $15,088,142 |
| CAPITALIZATION\tAND\tLIABILITIES |  |  |
| Capitalization |  |  |
|  | $1,795 | $1,784 |
| \t\t\t\tin\t2013) |  |  |
| Paid-in-capital | 6,301,729 | 6,261,396 |
| Accumulated\tdeficit | (1,295,549) | (1,495,698) |
| Accumulated\tother\tcomprehensive\tloss | (81,868) | (34,635) |
| Treasury\tstock | (10,516) | (5,043) |
| Total\tcommon\tstockholders'\tequity | 4,915,591 | 4,727,804 |
| Long-term\tdebt |  |  |
| Long-term\tdebt | 5,432,744 | 5,212,881 |
| Redeemable\tpreferred\tstock\tat\tredemption\tvalue | 15,501 | 17,177 |
| Total\tcapitalization | 10,363,836 | 9,957,862 |
| Current\tliabilities |  |  |
| Short-term\tdebt | 449,959 | 630,307 |
| Current\tportion\tof\tlong-term\tdebt | 61,132 | 14,174 |
| Accounts\tpayable | 285,800 | 264,115 |
| Taxes\taccrued | 24,505 | 32,166 |
| Interest\taccrued | 56,523 | 52,087 |
| Liabilities\tof\tdiscontinued\toperations | — | 3,824 |
| Other | 363,079 | 238,860 |
| Total\tcurrent\tliabilities | 1,240,998 | 1,235,533 |
| Regulatory\tand\tother\tlong-term\tliabilities |  |  |
| Advances\tfor\tconstruction | 367,693 | 375,729 |
| Deferred\tincome\ttaxes | 2,120,739 | 1,840,697 |
| Deferred\tinvestment\ttax\tcredits | 25,014 | 26,408 |
| Regulatory\tliabilities | 391,782 | 373,319 |
| Accrued\tpension | 316,368 | 108,542 |
| Accrued\tpostretirement\tbenefit | 192,502 | 88,419 |
| Other | 37,152 | 38,929 |
| Total\tregulatory\tand\tother\tlong-term\tliabilities | 3,451,250 | 2,852,043 |
| Contributions\tin\taid\tof\tconstruction | 1,074,872 | 1,042,704 |
| Commitments\tand\tcontingencies\t(See\tNote\t14) | — | — |
| TOTAL\tCAPITALIZATION\tAND\tLIABILITIES | $16,130,956 | $15,088,142 |

The	accompanying	notes	are	an	integral	part	of	these	consolidated	financial	statements.

# Consolidated	Statements	of	Operations	and	Comprehensive	Income

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
| Operating\trevenues | $3,011,328 | $2,878,936 | $2,853,926 |
| Operating\texpenses |  |  |  |
| Operation\tand\tmaintenance | 1,349,864 | 1,289,081 | 1,329,500 |
| Depreciation\tand\tamortization | 424,084 | 406,717 | 380,402 |
| General\ttaxes | 236,732 | 234,198 | 220,758 |
| (Gain)\tloss\ton\tasset\tdispositions\tand\tpurchases | (1,928) | 624 | (838) |
| Total\toperating\texpenses,\tnet | 2,008,752 | 1,930,620 | 1,929,822 |
| Operating\tincome | 1,002,576 | 948,316 | 924,104 |
| Other\tincome\t(expenses) |  |  |  |
| Interest,\tnet | (297,818) | (308,164) | (310,794) |
| Loss\ton\textinguishment\tof\tdebt | — | (40,583) | — |
| Allowance\tfor\tother\tfunds\tused\tduring\tconstruction | 9,440 | 12,639 | 15,592 |
| Allowance\tfor\tborrowed\tfunds\tused\tduring\tconstruction | 5,838 | 6,377 | 7,771 |
| Amortization\tof\tdebt\texpense | (7,026) | (6,603) | (5,358) |
| Other,\tnet | (3,196) | (4,045) | (926) |
| Total\tother\tincome\t(expenses) | (292,762) | (340,379) | (293,715) |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 709,814 | 607,937 | 630,389 |
| Provision\tfor\tincome\ttaxes | 279,973 | 237,093 | 256,787 |
| Income\tfrom\tcontinuing\toperations | 429,841 | 370,844 | 373,602 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | (6,733) | (1,580) | (15,532) |
| Net\tincome | $423,108 | $369,264 | $358,070 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax: |  |  |  |
| Change\tin\temployee\tbenefit\tplan\tfunded\tstatus,\tnet\tof\ttax\tof\t$(29,487), |  |  |  |
| \t\t\t\t\t\t$46,974\tand\t$(16,894),\trespectively | $(46,119) | $73,472 | $(26,425) |
| Pension\tamortized\tto\tperiodic\tbenefit\tcost: |  |  |  |
| Prior\tservice\tcost,\tnet\tof\ttax\tof\t$106,\t$111\tand\t$113,\trespectively | 166 | 174 | 176 |
| Actuarial\t(gain)\tloss,\tnet\tof\ttax\tof\t$(19),\t$5,697\tand\t$4,668,\trespectively | (31) | 8,911 | 7,301 |
| Foreign\tcurrency\ttranslation\tadjustment | (458) | (1,001) | 434 |
| Unrealized\tloss\ton\tcash\tflow\thedge,\tnet\tof\ttax\tof\t$(428) | (791) | — | — |
| Other\tcomprehensive\tincome\t(loss) | (47,233) | 81,556 | (18,514) |
| Comprehensive\tincome | $375,875 | $450,820 | $339,556 |
| Basic\tearnings\tper\tshare:\t(a)\nIncome\tfrom\tcontinuing\toperations | $2.40 | $2.08 | $2.12 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $(0.04) | $(0.01) | $(0.09) |
| Net\tincome | $2.36 | $2.08 | $2.03 |
| Diluted\tearnings\tper\tshare:\t(a)\nIncome\tfrom\tcontinuing\toperations | $2.39 | $2.07 | $2.10 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $(0.04) | $(0.01) | $(0.09) |
| Net\tincome | $2.35 | $2.06 | $2.01 |
| Average\tcommon\tshares\toutstanding\tduring\tthe\tperiod\nBasic | 178,888 | 177,814 | 176,445 |
| Diluted | 179,806 | 179,056 | 177,671 |
| Dividends\tdeclared\tper\tcommon\tshare | $1.24 | $1.12 | $0.98 |

# Consolidated	Statements	of	Cash	Flows

|  | 2014 | Years	Ended	December	31,<br>2013 | 2012 |
| :--- | :--- | :--- | :--- |
| CASH\tFLOWS\tFROM\tOPERATING\tACTIVITIES |  |  |  |
| Net\tincome | $423,108 | $369,264 | $358,070 |
| Adjustments |  |  |  |
| Depreciation\tand\tamortization | 424,084 | 407,718 | 381,503 |
| Provision\tfor\tdeferred\tincome\ttaxes | 255,573 | 250,500 | 200,440 |
| Amortization\tof\tdeferred\tinvestment\ttax\tcredits | (1,394) | (1,501) | (1,518) |
| Provision\tfor\tlosses\ton\taccounts\treceivable | 36,587 | 26,953 | 26,701 |
| Allowance\tfor\tother\tfunds\tused\tduring\tconstruction | (9,440) | (12,639) | (15,592) |
| (Gain)\tloss\ton\tasset\tdispositions\tand\tpurchases | (1,928) | 925 | (839) |
| Pension\tand\tnon-pension\tpostretirement\tbenefits | 24,073 | 78,069 | 87,289 |
| Stock-based\tcompensation\texpense | 13,043 | 12,474 | 11,470 |
| Other,\tnet | (17,727) | (727) | (1,328) |
| Changes\tin\tassets\tand\tliabilities |  |  |  |
| Receivables\tand\tunbilled\trevenues | (61,942) | (79,306) | (34,528) |
| Taxes\treceivable,\tincluding\tincome\ttaxes | 3,203 | 3,816 | (1,922) |
| Other\tcurrent\tassets | (1,858) | 672 | (5,223) |
| Pension\tand\tnon-pension\tpostretirement\tbenefit\tcontributions | (52,195) | (97,500) | (129,410) |
| Accounts\tpayable | (26,137) | 16,215 | (10,572) |
| Taxes\taccrued,\tincluding\tincome\ttaxes | (7,895) | (30,182) | 48,440 |
| Interest\taccrued | 4,436 | (1,723) | (5,647) |
| Change\tin\tbook\toverdraft | 31,677 | (32,120) | 34,172 |
| Other\tcurrent\tliabilities | 62,019 | (14,746) | 14,092 |
| Net\tcash\tprovided\tby\toperating\tactivities | 1,097,287 | 896,162 | 955,598 |
| CASH\tFLOWS\tFROM\tINVESTING\tACTIVITIES |  |  |  |
| Capital\texpenditures | (956,119) | (980,252) | (928,574) |
| Acquisitions | (8,935) | (23,658) | (44,560) |
| Proceeds\tfrom\tsale\tof\tassets\tand\tsecurities | 13,841 | 918 | 561,739 |
| Removal\tcosts\tfrom\tproperty,\tplant\tand\tequipment\tretirements,\tnet | (78,175) | (64,727) | (57,101) |
| Net\tfunds\treleased | 15,399 | 14,425 | 86,140 |
| Net\tcash\tused\tin\tinvesting\tactivities | (1,013,989) | (1,053,294) | (382,356) |
| CASH\tFLOWS\tFROM\tFINANCING\tACTIVITIES |  |  |  |
| Proceeds\tfrom\tlong-term\tdebt | 500,497 | 404,157 | 315,430 |
| Repayment\tof\tlong-term\tdebt | (238,371) | (493,095) | (471,954) |
| Proceeds\tfrom\tshort-term\tborrowings\twith\tmaturities\tgreater\tthan\tthree\tmonths | 35,000 | 221,000 | — |
| Repayments\tof\tshort-term\tborrowings\twith\tmaturities\tgreater\tthan\tthree\tmonths | (256,000) | — | — |
| Net\tshort-term\tborrowings\t(repayments)\twith\tmaturities\tless\tthan\tthree\tmonths | 40,652 | 139,322 | (211,064) |
| Proceeds\tfrom\tissuances\tof\temployee\tstock\tplans\tand\tDRIP | 20,913 | 26,351 | 27,860 |
| Advances\tand\tcontributions\tfor\tconstruction,\tnet\tof\trefunds\tof\t$21,470\tin\t2014,\n\t\t\t\t\t\t$23,351\tin\t2013\tand\t\t$17,850\tin\t2012 | 26,295 | 19,251 | 31,909 |
| Change\tin\tbank\toverdraft\tposition | — | — | (34,812) |
| Debt\tissuance\tcosts | (4,593) | (4,503) | (7,393) |
| Redemption\tof\tpreferred\tstock | (1,650) | (3,370) | (4,376) |
| Dividends\tpaid | (216,354) | (149,450) | (213,459) |
| Other | 6,429 | — | 4,843 |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | (87,182) | 159,663 | (563,016) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | (3,884) | 2,531 | 10,226 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tperiod | 26,964 | 24,433 | 14,207 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tperiod | $23,080 | $26,964 | $24,433 |
| Cash\tpaid\tduring\tthe\tyear\tfor: |  |  |  |
| Interest,\tnet\tof\tcapitalized\tamount | $301,138 | $317,826 | $329,331 |
| Income\ttaxes,\tnet\tof\trefunds\tof\t$3,668\tin\t2014,\t$127\tin\t2013\tand\t$766\tin\t2012 | $15,917 | $7,788 | $5,352 |
| Non-cash\tinvesting\tactivity: |  |  |  |
| Capital\texpenditures\tacquired\ton\taccount\tbut\tunpaid\tas\tof\tyear\tend | $185,641 | $128,902 | $159,119 |
| Non-cash\tfinancing\tactivity: |  |  |  |
| Advances\tand\tcontributions | $16,235 | $17,590 | $12,279 |
| Dividends\taccrued | $55,552 | $49,909 | $— |
| Long-term\tdebt\tissued | $9,977 | $6,702 | $68,746 |
| Long-term\tdebt\tretired | $1,021 | $(3,565) | $— |

# Consolidated	Statements	of	Changes	in	Stockholders'	Equity

|  |  |  |  |  |  |  |  | Preferred	Stock |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  |  |  |  | of\tSubsidiary |  |
|  |  |  |  |  |  |  |  | Companies |  |
|  |  |  |  |  | Accumulated |  |  | Without |  |
|  | Common\tStock |  |  |  | Other | Treasury\tStock | Treasury\tStock | Mandatory | Total |
|  | Shares | Par\tValue | Paid-in\tCapital | Accumulated\nDeficit | Comprehensive\nLoss | Shares | At\tCost | Redemption\nRequirements | Stockholders'\nEquity |
| Balance\tat\tDecember\t31,\t2011 | 175,664 | $1,757 | $6,180,558 | $(1,848,801) | $(97,677) | — | $— | $4,547 | $4,240,384 |
| Net\tincome | — | — | — | 358,070 | — | — | — | — | 358,070 |
| Direct\tstock\treinvestment\n\t\t\t\t\t\tand\tpurchase\tplan,\tnet\n\t\t\t\t\t\tof\texpense\tof\t$14 | 60 | — | 2,092 | — | — | — | — | — | 2,092 |
| Employee\tstock\tpurchase |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tplan | 87 | 1 | 3,306 | — | — | 31 | 1,046 | — | 4,353 |
| Stock-based\tcompensation |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tactivity | 1,177 | 12 | 36,688 | (1,168) | — | (31) | (1,046) | — | 34,486 |
| Subsidiary\tpreferred\tstock |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tredemption | — | — | — | — | — | — | — | (2,827) | (2,827) |
| Other\tcomprehensive\n\t\t\t\t\t\tloss,\tnet\tof\ttax\tof\n\t\t\t\t\t\t$(12,113) | — | — | — | — | (18,514) | — | — | — | (18,514) |
| Dividends | — | — | — | (173,056) | — | — | — | — | (173,056) |
| Balance\tat\tDecember\t31,\t2012 | 176,988 | $1,770 | $6,222,644 | $(1,664,955) | $(116,191) | — | $— | $1,720 | $4,444,988 |
| Net\tincome | — | — | — | 369,264 | — | — | — | — | 369,264 |
| Direct\tstock\treinvestment |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tand\tpurchase\tplan,\tnet |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tof\texpense\tof\t$49 | 53 | 1 | 2,122 | — | — | — | — | — | 2,123 |
| Employee\tstock\tpurchase |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tplan | 111 | 1 | 4,554 | — | — | — | — | — | 4,555 |
| Stock-based\tcompensation\n\t\t\t\t\t\tactivity | 1,227 | 12 | 32,076 | (648) | — | (132) | (5,043) | — | 26,397 |
| Subsidiary\tpreferred\tstock |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tredemption | — | — | — | — | — | — | — | (1,720) | (1,720) |
| Other\tcomprehensive\n\t\t\t\t\t\tincome,\tnet\tof\ttax\tof\n\t\t\t\t\t\t$52,782 | — | — | — | — | 81,556 | — | — | — | 81,556 |
| Dividends | — | — | — | (199,359) | — | — | — | — | (199,359) |
| Balance\tat\tDecember\t31,\t2013 | 178,379 | $1,784 | $6,261,396 | $(1,495,698) | $(34,635) | (132) | $(5,043) | $— | $4,727,804 |
| Net\tincome | — | — | — | 423,108 | — | — | — | — | 423,108 |
| Direct\tstock\treinvestment |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tand\tpurchase\tplan,\tnet |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tof\texpense\tof\t$33 | 44 | 1 | 2,086 | — | — | — | — | — | 2,087 |
| Employee\tstock\tpurchase |  |  |  |  |  |  |  |  |  |
| \t\t\t\t\t\tplan | 102 | 1 | 4,821 | — | — | — | — | — | 4,822 |
| Stock-based\tcompensation\n\t\t\t\t\t\tactivity | 937 | 9 | 33,426 | (962) | — | (129) | (5,473) | — | 27,000 |
| Other\tcomprehensive\n\t\t\t\t\t\tloss,\tnet\tof\ttax\tof\n\t\t\t\t\t\t$(29,828) | — | — | — | — | (47,233) | — | — | — | (47,233) |
| Dividends | — | — | — | (221,997) | — | — | — | — | (221,997) |
| Balance\tat\tDecember\t31,\t2014 | 179,462 | $1,795 | $6,301,729 | $(1,295,549) | $(81,868) | (261) | $(10,516) | $— | $4,915,591 |

# Notes	to	Consolidated	Financial	Statements

# Note	1:	Organization	and	Operation

American	Water	Works	Company,	Inc.	("AWW")	and	its	subsidiaries	(collectively	referred	to	herein	as	the	"Company")	is	the	holding	company	for	regulated and	market-based	subsidiaries	throughout	the	United	States	of	America	and	one	Canadian	province.	The	regulated	subsidiaries	provide	water	and	wastewater	services	as public	utilities	in	16	U.S.	states.	The	market-based	subsidiaries	include	various	lines	of	business	including	Homeowner	Services,	which	provides	water	and	sewer	line protection	plans	for	homeowners;	Military	Services	Group,	which	conducts	operation	and	maintenance	of	water	and	wastewater	systems	for	military	bases;	and	the Contract	Operations	Group,	which	conducts	operation	and	maintenance	of	water	and	wastewater	facilities	for	municipalities	and	the	food	and	beverage	industry.

# Note	2:	Significant	Accounting	Policies

# Principles	of	Consolidation

The	accompanying	consolidated	financial	statements	include	the	accounts	of	AWW	and	its	subsidiaries.	Intercompany	balances	and	transactions	between subsidiaries	have	been	eliminated.	The	Company	uses	the	equity	method	to	report	its	investments	in	joint	ventures	in	which	the	Company	holds	a	50%	voting	interest	and cannot	exercise	control	over	the	operations	and	policies	of	the	investments.	Under	the	equity	method,	the	Company	records	its	interests	as	an	investment	and	its percentage	share	of	earnings	as	earnings	or	losses	of	investee.

# Use	of	Estimates

The	preparation	of	consolidated	financial	statements	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	requires	management	to make	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities	and	disclosures	of	contingent	assets	and	liabilities	at	the	date	of	the	financial statements,	and	the	reported	amounts	of	revenues	and	expenses	during	the	reporting	period.	Actual	results	could	differ	from	these	estimates.	The	Company	considers benefit	plan	assumptions;	the	estimates	used	in	impairment	testing	of	goodwill	and	other	long-lived	assets,	including	regulatory	assets;	revenue	recognition;	and accounting	for	income	taxes	to	be	its	critical	accounting	estimates.	The	Company's	significant	accounting	estimates	that	are	particularly	sensitive	to	change	in	the	near term	are	amounts	reported	for	pension	and	other	postemployment	benefits,	contingency-related	obligations	and	goodwill.

# Regulation

The	Company's	regulated	utilities	are	subject	to	economic	regulation	by	the	public	utility	commissions	and	the	local	governments	of	the	states	in	which	they operate	(the	"PUCs").	These	PUCs	have	allowed	recovery	of	costs	and	credits	which	the	Company	has	recorded	as	regulatory	assets	and	liabilities.	Accounting	for future	recovery	of	costs	and	credits	as	regulatory	assets	and	liabilities	is	in	accordance	with	authoritative	guidance	applicable	to	those	companies	whose	rates	are established	by	or	are	subject	to	approval	by	an	independent	third-party	PUC.	Regulated	utilities	defer	costs	and	credits	on	the	balance	sheet	as	regulatory	assets	and liabilities	when	it	is	probable	that	those	costs	and	credits	will	be	recognized	in	the	rate	making	process	in	a	period	different	from	the	period	in	which	they	would	have been	reflected	in	operations	by	a	market-based	company.	These	deferred	regulatory	assets	and	liabilities	are	then	reflected	in	the	statement	of	operations	in	the	period	in which	the	costs	and	credits	are	reflected	in	the	rates	charged	for	service.	(See	Note	6)

# Property,	Plant	and	Equipment

Property,	plant	and	equipment	consist	primarily	of	utility	plant.	Additions	to	utility	plant	and	replacements	of	retirement	units	of	property	are	capitalized.	Costs include	material,	direct	labor	and	such	indirect	items	as	engineering	and	supervision,	payroll	taxes	and	benefits,	transportation	and	an	allowance	for	funds	used	during construction.	The	cost	of	repairs;	maintenance,	including	planned	major	maintenance	activities;	and	minor	replacements	is	charged	to	maintenance	expense	as	incurred.

The	costs	incurred	to	acquire	and	internally	develop	computer	software	for	internal	use	are	capitalized	as	a	unit	of	property.	The	carrying	value	of	these	costs amounted	to	$319,517	and	$303,798	at	December	31,	2014	and	2013,	respectively.

When	units	of	property	are	replaced,	retired	or	abandoned,	the	recorded	value	thereof	is	credited	to	the	asset	account	and	charged	to	accumulated	depreciation. To	the	extent	the	Company	recovers	cost	of	removal	or	other	retirement	costs	through	rates	after	the	retirement	costs	are	incurred,	a	regulatory	asset	is	recorded.	In	some cases,	the	Company	recovers	retirement	costs	through	rates

during	the	life	of	the	associated	asset	and	before	the	costs	are	incurred.	These	amounts	result	in	a	regulatory	liability	being	reported	based	on	the	amounts	previously recovered	through	customer	rates,	until	the	costs	to	retire	those	assets	are	incurred.

The	cost	of	property,	plant	and	equipment	is	depreciated	using	the	straight-line	average	remaining	life	method.

Nonutility	property	consists	primarily	of	buildings	and	equipment	utilized	by	the	Company	for	internal	operations.	This	property	is	stated	at	cost,	net	of accumulated	depreciation	calculated	using	the	straight-line	method	over	the	estimated	useful	lives	of	the	assets,	ranging	from	three	to	50	years.

# Cash	and	Cash	Equivalents

Substantially	all	cash	is	invested	in	interest-bearing	accounts.	All	highly	liquid	investments	with	a	maturity	of	three	months	or	less	when	purchased	are considered	to	be	cash	equivalents.

# Restricted	Funds

Restricted	funds	primarily	represent	proceeds	from	financings	for	the	construction	and	capital	improvement	of	facilities	and	deposits	for	future	services	under operation	and	maintenance	projects.	The	proceeds	of	these	financings	are	held	in	escrow	until	the	designated	expenditures	are	incurred.	Classification	of	restricted	funds in	the	balance	sheet	as	either	current	or	long-term	is	based	upon	the	intended	use	of	the	funds.

# Accounts	and	Unbilled	Receivables

Accounts	receivable	include	regulated	utility	customer	accounts	receivable,	which	represent	amounts	billed	to	water	and	wastewater	customers	on	a	cycle	basis. Credit	is	extended	based	on	the	guidelines	of	the	applicable	PUCs	and	collateral	is	generally	not	required.	Also	included	are	market-based	trade	accounts	receivable	and nonutility	customer	receivables	of	the	regulated	subsidiaries.	Unbilled	receivables	are	accrued	when	service	has	been	provided	but	has	not	been	billed	to	customers.

# Allowance	for	Uncollectible	Accounts

Allowances	for	uncollectible	accounts	are	maintained	for	estimated	probable	losses	resulting	from	the	Company's	inability	to	collect	receivables	from	customers. Accounts	that	are	outstanding	longer	than	the	payment	terms	are	considered	past	due.	A	number	of	factors	are	considered	in	determining	the	allowance	for	uncollectible accounts,	including	the	length	of	time	receivables	are	past	due	and	previous	loss	history.	The	Company	writes	off	accounts	when	they	become	uncollectible.	(See	Note 5)

# Materials	and	Supplies

Materials	and	supplies	are	stated	at	the	lower	of	cost	or	net	realizable	value.	Cost	is	determined	using	the	average	cost	method.	A	provision	is	made	to	reduce excess	or	obsolete	inventory	to	its	net	realizable	value.

Goodwill	is	primarily	associated	with	the	acquisitions	of	AWW	in	2003	and	E'town	Corporation	in	2001	(the	"Acquisitions")	and	has	been	assigned	to	reporting units	based	on	the	fair	values	at	the	date	of	the	Acquisitions.	The	reporting	units	in	the	Regulated	Businesses	segment	are	aggregated	into	a	single	reporting	unit.	The Market-Based	Operations	segment	is	comprised	of	three	reporting	units.	Goodwill	is	tested	annually	or	more	frequently	if	changes	in	circumstances	indicate	goodwill may	be	impaired.	Impairment	exists	when	the	carrying	value	of	a	reporting	unit	exceeds	its	fair	value.	Annual	impairment	tests	are	performed	in	the	fourth	quarter	of	the calendar	year,	in	conjunction	with	the	timing	of	the	completion	of	the	Company's	annual	strategic	business	plan.

The	Company	considers	the	carrying	value	of	goodwill	to	be	one	of	its	critical	accounting	estimates.	The	Company	believes	the	assumptions	and	other considerations	used	to	value	goodwill	to	be	appropriate.	However,	if	experience	differs	from	the	assumptions	and	considerations	used	in	its	analysis,	the	resulting	change could	have	a	material	adverse	impact	on	the	consolidated	financial	statements.

# Long-Lived	Assets

Long-lived	assets	include	land,	buildings,	equipment	and	long-term	investments.	Long-lived	assets,	other	than	investments	and	land,	are	depreciated	over	their estimated	useful	lives,	and	are	reviewed	for	impairment	whenever	changes	in	circumstances	indicate	the	carrying	value	of	the	asset	may	not	be	recoverable.	Such circumstances	would	include	items	such	as	a	significant	decrease	in	the

market	value	of	a	long-lived	asset,	a	significant	adverse	change	in	the	manner	the	asset	is	being	used	or	planned	to	be	used	or	in	its	physical	condition,	or	a	history	of operating	or	cash	flow	losses	associated	with	the	use	of	the	asset.	In	addition,	changes	in	the	expected	useful	life	of	these	long-lived	assets	may	also	be	an	impairment indicator.	When	such	events	or	changes	occur,	the	Company	estimates	the	fair	value	of	the	asset	from	future	cash	flows	expected	to	result	from	the	use	and,	if	applicable, the	eventual	disposition	of	the	asset	and	compares	that	to	the	carrying	value	of	the	asset.	If	the	carrying	value	is	greater	than	the	fair	value,	an	impairment	loss	is recorded.

The	Company	considers	the	estimates	used	in	the	determination	of	fair	value	of	long-lived	assets	to	be	one	of	its	critical	accounting	estimates.	The	Company believes	the	assumptions	and	other	considerations	used	to	evaluate	the	carrying	value	of	long-lived	assets	are	appropriate.	However,	if	actual	experience	differs	from	the assumptions	and	considerations	used	in	its	estimates,	the	resulting	change	could	have	a	material	adverse	impact	on	the	consolidated	financial	statements.

The	key	variables	to	determine	fair	value	include	assumptions	regarding	sales	volume,	rates,	operating	costs,	labor	and	other	benefit	costs,	capital	additions, assumed	discount	rates	and	other	economic	factors.	These	variables	require	significant	management	judgment	and	include	inherent	uncertainties,	since	they	are forecasting	future	events.	If	such	assets	are	considered	impaired,	an	impairment	loss	is	recognized	equal	to	the	amount	by	which	the	asset's	carrying	value	exceeds	its fair	value.

The	long-lived	assets	of	the	regulated	utility	subsidiaries	are	tested	on	a	separate	entity	basis	for	impairment	testing	as	they	are	integrated	state-wide	operations that	do	not	have	the	option	to	curtail	service	and	generally	have	uniform	tariffs.	A	regulatory	asset	is	charged	to	earnings	if	and	when	future	recovery	in	rates	of	that	asset is	no	longer	probable.

The	Company	holds	other	investments	including	investments	in	privately	held	companies	and	investments	in	joint	ventures	accounted	for	using	the	equity method.	The	Company's	investments	in	privately	held	companies	and	joint	ventures	are	classified	as	other	long-term	assets.

The	fair	values	of	long-term	investments	are	dependent	on	the	financial	performance	and	solvency	of	the	entities	in	which	the	Company	invests,	as	well	as volatility	inherent	in	the	external	markets.	If	such	assets	are	considered	impaired,	an	impairment	loss	is	recognized	equal	to	the	amount	by	which	the	asset's	carrying value	exceeds	its	fair	value.

# Advances	for	Construction	and	Contributions	in	Aid	of	Construction

Regulated	utility	subsidiaries	may	receive	advances	for	construction	("advances")	and	contributions	in	aid	of	construction	("contributions")	from	customers, home	builders	and	real	estate	developers	to	fund	construction	necessary	to	extend	service	to	new	areas.

Advances	are	refundable	for	limited	periods	of	time	as	new	customers	begin	to	receive	service	or	other	contractual	obligations	are	fulfilled.	Included	in	other current	liabilities	at	December	31,	2014	and	2013	in	the	accompanying	Consolidated	Balance	Sheets	are	estimated	refunds	of	$18,366	and	$17,308,	respectively.	Those amounts	represent	expected	refunds	during	the	next	12-month	period.

Advances	that	are	no	longer	refundable	are	reclassified	to	contributions.	Contributions	are	permanent	collections	of	plant	assets	or	cash	for	a	particular construction	project.	For	ratemaking	purposes,	the	amount	of	such	contributions	generally	serves	as	a	rate	base	reduction	since	the	contributions	represent	non-investor supplied	funds.

Generally,	the	Company	depreciates	utility	plant	funded	by	contributions	and	amortizes	its	contributions	balance	as	a	reduction	to	depreciation	expense, producing	a	result	which	is	functionally	equivalent	to	reducing	the	original	cost	of	the	utility	plant	for	the	contributions.	In	accordance	with	applicable	regulatory guidelines,	some	of	the	Company's	subsidiaries	do	not	amortize	contributions,	and	any	contribution	received	remains	on	the	balance	sheet	indefinitely.	Amortization	of contributions	in	aid	of	construction	was	$23,913,	$22,363	and	$20,979	for	the	years	ended	December	31,	2014,	2013	and	2012,	respectively.

# Recognition	of	Revenues

Revenues	of	the	regulated	utility	subsidiaries	are	recognized	as	water	and	wastewater	services	are	provided,	and	include	amounts	billed	to	customers	on	a	cycle basis	and	unbilled	amounts	based	on	estimated	usage	from	the	date	of	the	meter	reading	associated	with	the	latest	customer	invoice	to	the	end	of	the	accounting	period.

The	Company	has	agreements	with	the	United	States	Government	to	operate	and	maintain	water	and	wastewater	systems	at	various	military	bases	pursuant	to	50- year	contracts	("military	agreements").	These	contracts	also	include	construction	components	that	are	accounted	for	separately	from	the	operations	and	management components.	The	military	agreements	are	subject	to	periodic

price	redetermination	adjustments	and	modifications	for	changes	in	circumstance.	Additionally,	the	Company	has	agreements	ranging	in	length	from	two	to	40	years with	various	industries	and	municipalities	to	operate	and	maintain	water	and	wastewater	systems	("O&M	agreements").	Revenues	from	operations	and	management services	are	recognized	as	services	are	provided.	(See	Note	14)

# Construction	Contracts

Revenues	from	construction	projects	are	recognized	over	the	contract	term	based	on	the	costs	incurred	to	date	during	the	period	compared	to	the	total	estimated costs	over	the	entire	contract.	Losses	on	contracts	are	recognized	during	the	period	in	which	the	loss	first	becomes	probable	and	estimable.	Revenues	recognized	during the	period	in	excess	of	billings	on	construction	contracts	are	recorded	as	unbilled	revenue.	Billings	in	excess	of	revenues	recognized	on	construction	contracts	are recorded	as	other	current	liabilities	until	the	recognition	criteria	are	met.	Changes	in	contract	performance	and	related	estimated	contract	profitability	may	result	in revisions	to	costs	and	revenues	and	are	recognized	in	the	period	in	which	revisions	are	determined.

# Income	Taxes

AWW	and	its	subsidiaries	participate	in	a	consolidated	federal	income	tax	return	for	U.S.	tax	purposes.	Members	of	the	consolidated	group	are	charged	with	the amount	of	federal	income	tax	expense	determined	as	if	they	filed	separate	returns.

Certain	income	and	expense	items	are	accounted	for	in	different	time	periods	for	financial	reporting	than	for	income	tax	reporting	purposes.	The	Company provides	deferred	income	taxes	on	the	difference	between	the	tax	basis	of	assets	and	liabilities	and	the	amounts	at	which	they	are	carried	in	the	financial	statements. These	deferred	income	taxes	are	based	on	the	enacted	tax	rates	expected	to	be	in	effect	when	these	temporary	differences	are	projected	to	reverse.	In	addition,	the regulated	utility	subsidiaries	recognize	regulatory	assets	and	liabilities	for	the	effect	on	revenues	expected	to	be	realized	as	the	tax	effects	of	temporary	differences, previously	flowed	through	to	customers,	reverse.

Investment	tax	credits	have	been	deferred	by	the	regulated	utility	subsidiaries	and	are	being	amortized	to	income	over	the	average	estimated	service	lives	of	the related	assets.

The	Company	recognizes	accrued	interest	and	penalties	related	to	tax	positions	as	a	component	of	income	tax	expense	and	accounts	for	sales	tax	collected	from customers	and	remitted	to	taxing	authorities	on	a	net	basis.

# Allowance	for	Funds	Used	During	Construction	("AFUDC")

AFUDC	is	a	non-cash	credit	to	income	with	a	corresponding	charge	to	utility	plant	that	represents	the	cost	of	borrowed	funds	or	a	return	on	equity	funds	devoted to	plant	under	construction.	The	regulated	utility	subsidiaries	record	AFUDC	to	the	extent	permitted	by	the	PUCs.

# Environmental	Costs

The	Company's	water	and	wastewater	operations	are	subject	to	federal,	state,	local	and	foreign	requirements	relating	to	environmental	protection,	and	as	such, the	Company	periodically	becomes	subject	to	environmental	claims	in	the	normal	course	of	business.	Environmental	expenditures	that	relate	to	current	operations	or provide	a	future	benefit	are	expensed	or	capitalized	as	appropriate.	Remediation	costs	that	relate	to	an	existing	condition	caused	by	past	operations	are	accrued,	on	an undiscounted	basis,	when	it	is	probable	that	these	costs	will	be	incurred	and	can	be	reasonably	estimated.	Remediation	costs	accrued	amounted	to	$2,200	and	$3,300	at December	31,	2014	and	2013,	respectively.	The	accrual	relates	entirely	to	a	conservation	agreement	entered	into	by	a	subsidiary	of	the	Company	with	the	National Oceanic	and	Atmospheric	Administration	("NOAA")	requiring	the	Company	to,	among	other	provisions,	implement	certain	measures	to	protect	the	steelhead	trout	and its	habitat	in	the	Carmel	River	watershed	in	the	state	of	California.	The	Company	has	agreed	to	pay	$1,100	annually	from	2010	to	2016.	The	Company	pursues	recovery of	incurred	costs	through	all	appropriate	means,	including	regulatory	recovery	through	customer	rates.	The	Company's	regulatory	assets	at	December	31,	2014	and	2013 include	$7,791	and	$8,027,	respectively,	related	to	the	NOAA	agreement.

# Derivative	Financial	Instruments

The	Company	uses	derivative	financial	instruments	for	purposes	of	hedging	exposures	to	fluctuations	in	interest	rates.	These	derivative	contracts	are	entered	into for	periods	consistent	with	the	related	underlying	exposures	and	do	not	constitute	positions	independent	of	those	exposures.	The	Company	does	not	enter	into	derivative contracts	for	speculative	purposes	and	does	not	use	leveraged	instruments.

All	derivatives	are	recognized	on	the	balance	sheet	at	fair	value.	On	the	date	the	derivative	contract	is	entered	into,	the	Company	may	designate	the	derivative	as a	hedge	of	the	fair	value	of	a	recognized	asset	or	liability	(fair-value	hedge)	or	a	hedge	of	a	forecasted	transaction	or	of	the	variability	of	cash	flows	to	be	received	or	paid related	to	a	recognized	asset	or	liability	(cash-flow	hedge).

Changes	in	the	fair	value	of	a	fair-value	hedge,	along	with	the	gain	or	loss	on	the	underlying	hedged	item,	are	recorded	in	current-period	earnings.	The	effective portion	of	gains	and	losses	on	cash-flow	hedges	are	recorded	in	other	comprehensive	income,	until	earnings	are	affected	by	the	variability	of	cash	flows.	Any	ineffective portion	of	designated	hedges	is	recognized	in	current-period	earnings.

Cash	flows	from	derivative	contracts	are	included	in	net	cash	provided	by	operating	activities.

In	February	2013,	the	Financial	Accounting	Standards	Board	("FASB")	issued	guidance	for	the	recognition,	measurement	and	disclosure	of	obligations	resulting from	joint	and	several	liability	arrangements	for	which	the	total	amount	of	the	obligation	is	fixed	at	the	reporting	date.	Examples	of	obligations	within	the	scope	of	the updated	guidance	include	debt	arrangements,	other	contractual	obligations	and	settled	litigation	and	judicial	rulings.	The	update	requires	an	entity	to	measure	obligations resulting	from	joint	and	several	liability	arrangements	for	which	the	total	amount	of	the	obligation	is	fixed	at	the	reporting	date	as	the	sum	of	the	following:	(a)	the amount	the	reporting	entity	agreed	to	pay	on	the	basis	of	its	arrangement	among	its	co-obligors	and	(b)	any	additional	amount	the	reporting	entity	expects	to	pay	on behalf	of	its	co-obligors.	The	updated	guidance	also	includes	additional	disclosures	regarding	the	nature	and	amount	of	the	obligation,	as	well	as	other	information	about those	obligations.	The	update	was	effective	on	a	retrospective	basis	for	interim	and	annual	periods	beginning	after	December	15,	2013,	which	for	the	Company	was January	1,	2014.	The	adoption	of	this	updated	guidance	did	not	have	an	impact	on	the	Company's	results	of	operations,	financial	position	or	cash	flows.

In	January	2014,	the	FASB	issued	guidance	for	an	operating	entity	that	enters	into	a	service	concession	arrangement	with	a	public	sector	grantor	who	controls	or has	the	ability	to	modify	or	approve	the	services	that	the	operating	entity	must	provide	with	the	infrastructure,	to	whom	it	must	provide	the	services	and	at	what	price. The	grantor	also	controls,	through	ownership	or	otherwise,	any	residual	interest	in	the	infrastructure	at	the	end	of	the	term	of	the	arrangement.	The	guidance	specifies	that an	operating	entity	should	not	account	for	the	service	concession	arrangement	as	a	lease.	The	operating	entity	should	refer	instead	to	other	accounting	guidance	to account	for	the	various	aspects	of	the	arrangement.	The	guidance	also	specifies	that	the	infrastructure	used	in	the	arrangement	should	not	be	recognized	as	property,	plant and	equipment	of	the	operating	entity.	This	update	should	be	applied	on	a	modified	retrospective	basis	to	service	concession	arrangements	that	exist	at	the	beginning	of an	entity's	fiscal	year	of	adoption.	This	requires	the	cumulative	effect	of	applying	the	update	to	be	recognized	as	an	adjustment	to	the	opening	retained	earnings	balance for	the	annual	period	of	adoption.	The	update	is	effective	for	interim	and	annual	periods	beginning	after	December	15,	2014,	which	for	the	Company	is	January	1,	2015. The	adoption	of	this	updated	guidance	resulted	in	a	decrease	to	nonutility	property	and	opening	retained	earnings	of	approximately	$12,000	on	January	1,	2015.

In	May	2014,	the	FASB	issued	a	comprehensive	new	revenue	recognition	standard	that	supersedes	most	current	revenue	recognition	guidance,	including industry-specific	guidance.	The	core	principle	of	the	new	guidance	is	that	a	company	will	recognize	revenue	when	it	transfers	promised	goods	or	services	to	customers	in an	amount	that	reflects	the	consideration	to	which	the	company	expects	to	be	entitled	in	exchange	for	those	goods	or	services.	The	guidance	is	effective	for	annual	and interim	periods	beginning	December	15,	2016,	which	for	the	Company	is	January	1,	2017.	Early	adoption	is	not	permitted.	The	new	guidance	allows	for	either	full retrospective	adoption,	meaning	the	guidance	is	applied	to	all	of	the	periods	presented,	or	modified	retrospective	adoption,	meaning	the	standard	is	applied	only	to	the most	current	period	presented	in	the	financial	statements.	The	Company	is	evaluating	the	new	guidance,	the	best	transition	method	and	the	impact	the	new	standard	will have	on	its	results	of	operations,	financial	position	or	cash	flows.

# Reclassifications

In	2014	the	Company	reclassified	previously	reported	data	to	conform	to	the	current	presentation	for	discontinued	operations.	See	Note	3	for	additional	details	on the	Company's	discontinued	operations.

In	2014	the	Company	revised	its	2013	balance	sheet	to	properly	reclassify	$17,722	of	deferred	income	taxes	from	current	liabilities	to	current	assets.	This reclassification	was	not	material	to	the	previously	issued	financial	statements.

# Note	3:	Acquisitions	and	Divestitures

# Acquisitions

During	2014,	the	Company	closed	on	13	acquisitions	of	various	regulated	water	and	wastewater	systems	for	a	total	aggregate	purchase	price	of	$8,935.	Assets acquired,	principally	plant,	totaled	$16,592	including	$354	of	goodwill	and	liabilities	assumed	totaled	$7,745,	including	$4,741	of	contributions	in	aid	of	construction and	assumed	debt	of	$1,683.

During	2013,	the	Company	closed	on	15	acquisitions	of	various	regulated	water	and	wastewater	systems	for	a	total	aggregate	net	purchase	price	of	$23,658. Assets	acquired	(primarily	utility	plant)	totaled	$67,403,	and	liabilities	assumed	totaled	$43,745,	including	$25,654	of	contributions	in	aid	of	construction	and	assumed debt	of	$12,673.	Included	in	these	totals	was	the	Company's	November	14,	2013	acquisition	of	all	of	the	capital	stock	of	Dale	Service	Corporation	("Dale"),	a	regulated wastewater	utility	company,	for	a	total	cash	purchase	price	of	$5,090	(net	of	cash	acquired	of	$6,910),	plus	assumed	liabilities.	The	Dale	acquisition	added	approximately twenty	thousand	wastewater	customers	to	the	Company's	existing	water	services	footprint	in	Northern	Virginia.	The	Dale	acquisition	was	accounted	for	as	a	business combination;	accordingly,	operating	results	from	November	14,	2013	were	included	in	the	Company's	results	of	operations.	The	purchase	price	was	allocated	to	the	net tangible	and	intangible	assets	based	upon	their	estimated	fair	values	at	the	date	of	acquisition.	The	Company's	regulatory	practice	has	been	followed	whereby	property, plant	and	equipment	(rate	base)	is	considered	fair	value	for	business	combination	purposes.	Similarly,	regulatory	assets	and	liabilities	acquired	have	been	recorded	at book	value	and	are	subject	to	regulatory	approval	where	applicable.	The	acquired	debt	was	valued	in	a	manner	consistent	with	the	Company's	Level	3	debt.	(See	Note 16)	Non-cash	assets	acquired	in	the	Dale	acquisition	(primarily	utility	plant)	totaled	$40,999;	liabilities	assumed	totaled	$35,909,	including	debt	assumed	of	$12,570	and contributions	of	$19,163.

During	2012,	the	Company	closed	on	10	acquisitions	of	various	regulated	water	and	wastewater	systems	for	a	total	aggregate	purchase	price	of	$44,560.	Included in	this	total	was	the	Company's	May	1,	2012	acquisition	of	all	of	the	capital	stock	of	Aqua	New	York,	Inc.	for	a	total	cash	purchase	price	of	$36,688	plus	assumed liabilities.	Assets	acquired	in	the	Aqua	New	York	acquisition	totaled	$102,727,	including	$59,139	of	plant,	$27,400	of	regulatory	assets,	and	$12,181	of	goodwill; liabilities	assumed	totaled	$66,039,	including	long-term	debt	of	$25,215,	$11,885	of	regulatory	liabilities,	$15,424	of	deferred	taxes,	$1,708	of	other	liabilities,	$1,060 of	contributions	in	aid	of	construction	and	$9,710	of	pension	and	postretirement	welfare	liabilities.	Assets	acquired	(primarily	utility	plant)	in	the	other	nine	acquisitions during	2012	totaled	$12,514;	liabilities	assumed	totaled	$4,642.

# Divestitures

In	November	2014,	the	Company	completed	the	sale	of	Terratec,	previously	included	in	the	Market-Based	Operations	segment.	After	post-close	adjustments,	net proceeds	from	the	sale	totaled	$1,455,	and	the	Company	recorded	a	pretax	loss	on	sale	of	$1,454.

In	January	2012,	the	Company	completed	the	sale	of	its	Arizona	and	New	Mexico	subsidiaries.	After	post-close	adjustments,	net	proceeds	from	the	sale	totaled $458,860,	and	the	Company	recorded	a	pretax	loss	on	sale	of	$2,198.

In	May	2012,	the	Company	completed	the	sale	of	its	Ohio	subsidiary.	After	post-close	adjustments,	net	proceeds	from	the	sale	totaled	$102,154,	and	the Company	recorded	a	pretax	loss	on	sale	of	$4,095.

A	summary	of	discontinued	operations	presented	in	the	Consolidated	Statements	of	Operations	and	Comprehensive	Income	follows:

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
| Operating\trevenues | $13,614 | $22,922 | $42,341 |
| Total\toperating\texpenses,\tnet | 19,482 | 25,389 | 49,726 |
| Operating\tloss | (5,868) | (2,467) | (7,385) |
| Other\tincome\t(expenses),\tnet | — | — | (167) |
| Income\t(loss)\tfrom\tdiscontinued\toperations\tbefore |  |  |  |
| \t\t\t\t\tincome\ttaxes | (5,868) | (2,467) | (7,552) |
| Provision\t(benefit)\tfor\tincome\ttaxes | 865 | (887) | 7,980 |
| Income\t(loss)\tfrom\tdiscontinued\toperations | $(6,733) | $(1,580) | $(15,532) |

The	provision	for	income	taxes	of	discontinued	operations	includes	the	recognition	of	tax	expense	related	to	the	difference	between	the	tax	basis	and	book	basis of	assets	upon	the	sales	of	Terratec,	Arizona,	New	Mexico	and	Ohio	that	resulted	in	taxable	gains,	since	an	election	was	made	under	Section	338(h)(10)	of	the	Internal Revenue	Code	to	treat	the	sales	as	asset	sales.

Assets	and	liabilities	of	discontinued	operations	at	December	31,	2013	relate	to	the	discontinued	Terratec	business	that	was	sold	in	November	2014.	The classification	for	the	year	ended	December	31,	2013	was	as	follows:

|  | 2013 |
| :--- | :--- |
| ASSETS |  |
| Total\tproperty,\tplant\tand\tequipment | $2,808 |
| Current\tassets | 4,953 |
| Total\tassets\tof\tdiscontinued\toperations | $7,761 |
| LIABILITIES |  |
| Current\tliabilities | $3,824 |
| Total\tliabilities\tof\tdiscontinued\toperations | $3,824 |

There	were	no	assets	or	liabilities	of	discontinued	operations	in	the	accompanying	Consolidated	Balance	Sheet	at	December	31,	2014.

# Note	4:	Utility	Plant

The	major	classes	of	utility	plant	by	category	at	December	31	are	as	follows:

|  | Range	of	Remaining<br>Useful	Lives | 2014 | 2013 |
| :--- | :--- | :--- | :--- |
| Water\tplant |  |  |  |
| Land\tand\tother\tnon-depreciable\tassets |  | $137,199 | $132,295 |
| Sources\tof\tsupply | 11\tto\t127\tYears | 680,623 | 659,249 |
| Treatment\tand\tpumping\tfacilities | 3\tto\t101\tYears | 2,969,411 | 3,006,140 |
| Transmission\tand\tdistribution\tfacilities | 9\tto\t156\tYears | 7,962,759 | 7,489,208 |
| Services,\tmeters\tand\tfire\thydrants | 9\tto\t122\tYears | 3,062,568 | 2,898,293 |
| General\tstructures\tand\tequipment | 1\tto\t154\tYears | 1,035,857 | 995,186 |
| Wastewater\tplant | 2\tto\t115\tYears | 739,963 | 683,112 |
| Construction\twork\tin\tprogress |  | 303,004 | 275,202 |
|  |  | 16,891,384 | 16,138,685 |
| Less\taccumulated\tdepreciation |  | 3,991,680 | 3,894,326 |
|  |  | $12,899,704 | $12,244,359 |

Utility	plant	depreciation	expense	of	continuing	operations	amounted	to	$356,952	in	2014,	$337,653	in	2013	and	$314,639	in	2012.	The	Company's	regulated utility	subsidiaries	record	depreciation	in	conformity	with	amounts	approved	by	state	regulators	after	regulatory	review	of	information	the	Company	submits	to	support its	estimates	of	the	assets'	remaining	useful	lives.

The	provision	for	depreciation	expressed	as	a	percentage	of	the	aggregate	average	depreciable	asset	balances	was	2.94%	in	2014,	2013	and	2012.

# Note	5:	Allowance	for	Uncollectible	Accounts

The	following	table	summarizes	the	changes	in	the	Company's	allowances	for	uncollectible	accounts:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1 | $(33,823) | $(26,744) | $(18,902) |
| Amounts\tcharged\tto\texpense | (36,717) | (26,953) | (26,701) |
| Amounts\twritten\toff | 42,886 | 23,914 | 22,607 |
| Recoveries\tof\tamounts\twritten\toff | (7,287) | (4,040) | (3,748) |
| Balance\tat\tDecember\t31 | $(34,941) | $(33,823) | $(26,744) |

# Note	6:	Regulatory	Assets	and	Liabilities

The	regulatory	assets	represent	costs	that	are	expected	to	be	fully	recovered	from	customers	in	future	rates.	Except	for	income	taxes,	regulatory	assets	are excluded	from	the	Company's	rate	base	and	generally	do	not	earn	a	return.	The	components	of	regulatory	assets	at	December	31	are	as	follows:

|  | 2014 | 2013 |
| :--- | :--- | :--- |
| Income\ttaxes\trecoverable\tthrough\trates | $228,601 | $242,902 |
| Debt\tand\tpreferred\tstock\texpense | 71,403 | 72,349 |
| Deferred\tpension\texpense | 263,486 | 109,799 |
| Deferred\tother\tpostretirement\tbenefit\texpense | 106,792 | 3,653 |
| Deferred\tbusiness\tservices\tproject\texpense | 7,530 | 7,763 |
| Deferred\ttank\tpainting\tcosts | 37,207 | 33,519 |
| Deferred\trate\tcase\texpense | 6,785 | 9,407 |
| Purchase\tpremium\trecoverable\tthrough\trates | 60,412 | 60,787 |
| Environmental\tremediation\trecoverable\tthrough\trates | 7,791 | 8,027 |
| Coastal\twater\tproject\tcosts | 8,386 | 16,826 |
| San\tClemente\tDam\tproject\tcosts | 71,891 | 44,404 |
| Removal\tcosts\trecoverable\tthrough\trates | 163,123 | 126,771 |
| Regulatory\tbalancing\taccounts | 60,043 | 63,083 |
| Other | 59,979 | 59,175 |
|  | $1,153,429 | $858,465 |

The	Company	has	recorded	a	regulatory	asset	for	the	additional	revenues	expected	to	be	realized	as	the	tax	effects	of	temporary	differences	previously	flowed through	to	customers	reverse.	These	temporary	differences	are	primarily	related	to	the	difference	between	book	and	tax	depreciation	on	property	placed	in	service	before the	adoption	by	the	regulatory	authorities	of	full	normalization	for	rate	making	purposes.	Full	normalization	requires	no	flow	through	of	tax	benefits	to	customers.	The regulatory	asset	for	income	taxes	recoverable	through	rates	is	net	of	the	reduction	expected	in	future	revenues	as	deferred	taxes	previously	provided,	attributable	to	the difference	between	the	state	and	federal	income	tax	rates	under	prior	law	and	the	current	statutory	rates,	reverse	over	the	average	remaining	service	lives	of	the	related assets.

Debt	expense	is	amortized	over	the	lives	of	the	respective	issues.	Call	premiums	on	the	redemption	of	long-term	debt,	as	well	as	unamortized	debt	expense,	are deferred	and	amortized	to	the	extent	they	will	be	recovered	through	future	service	rates.	Expenses	of	preferred	stock	issues	without	sinking	fund	provisions	are	amortized over	approximately	30	years	from	date	of	issue;	expenses	of	issues	with	sinking	fund	provisions	are	charged	to	operations	as	shares	are	retired.

Pension	expense	in	excess	of	the	amount	contributed	to	the	pension	plans	is	deferred	by	certain	subsidiaries.	These	costs	will	be	recovered	in	future	service	rates as	contributions	are	made	to	the	pension	plan.	The	Company	also	has	a	regulatory	asset	of	$248,641	and	$90,380	at	December	31,	2014	and	2013,	respectively,	which	is the	portion	of	the	underfunded	status	that	is	probable	of	recovery	through	rates	in	future	periods.

Postretirement	benefit	expense	in	excess	of	the	amount	recovered	in	rates	through	1997	has	been	deferred	by	certain	subsidiaries.	These	costs	are	recognized	in the	rates	charged	for	water	service	and	will	be	recovered	as	authorized	by	the	Company's	regulatory	authorities.	The	Company	also	has	a	regulatory	asset	of	$107,236 and	$3,113	at	December	31,	2014	and	2013,	respectively,	which	is	the	portion	of	the	underfunded	status	that	is	probable	of	recovery	through	rates	in	future	periods.

Business	services	project	expenses	consist	of	reengineering	and	start-up	activities	for	consolidated	customer	and	shared	administrative	service	centers	that	began operations	in	2001.	These	costs	are	recognized	in	the	rates	charged	for	water	service	by	certain	subsidiaries.

Tank	painting	costs	are	generally	deferred	and	amortized	to	current	operations	on	a	straight-line	basis	over	periods	ranging	from	five	to	15	years,	as	authorized	by the	regulatory	authorities	in	their	determination	of	rates	charged	for	service.

The	Company	amortizes	rate	case	expenditures	over	regulatory	approved	amortization	periods,	typically	three	years.	Rate	case	proceeding	expenditures	probable of	future	recovery	are	deferred.

Purchase	premium	recoverable	through	rates	is	primarily	the	recovery	of	the	acquisition	premiums	related	to	an	asset	acquisition	by	the	Company's	California subsidiary	during	2002,	and	acquisitions	in	2007	by	the	Company's	New	Jersey	subsidiary.	As	authorized	for	recovery	by	the	California	and	New	Jersey	PUCs,	these costs	are	being	amortized	to	operations	through	November	2048.

Environmental	remediation	recoverable	through	rates	is	the	recovery	of	costs	incurred	by	the	Company's	California	subsidiary	under	a	settlement	agreement entered	into	with	NOAA	to	improve	habitat	conditions	in	the	Carmel	River	Watershed.

Coastal	water	project	costs	include	preliminary	costs	associated	with	the	studying,	testing	and	design	of	alternatives	to	help	solve	water	supply	shortages	in Monterey,	California.	Coastal	water	project	costs	incurred	through	December	31,	2010	have	been	reviewed	and	approved	for	recovery	through	a	surcharge.	Costs deferred	during	2014,	2013	and	2012	totaled	$1,923,	$1,299	and	$1,987,	respectively.	The	Company	believes	it	is	probable	that	the	costs	incurred	since	the	last	rate review	will	also	be	recoverable.

San	Clemente	Dam	project	costs	represent	costs	incurred	and	deferred	by	the	Company's	California	subsidiary	pursuant	to	its	efforts	to	investigate	alternatives	to strengthen	or	remove	the	dam	due	to	potential	earthquake	and	flood	safety	concerns.	In	June	2012,	the	California	Public	Utility	Commission	("CPUC")	issued	a	decision authorizing	implementation	of	a	project	to	reroute	the	Carmel	River	and	remove	the	San	Clemente	Dam.	The	project	includes	the	Company's	California	subsidiary,	the California	State	Conservancy	and	the	National	Marine	Fisheries	Services.	Under	the	order's	terms,	the	CPUC	has	authorized	recovery	of	all	previous	pre-construction costs	incurred	by	the	Company's	subsidiary,	and	has	authorized	additional	expenditures	to	be	capped	at	$49,000	for	the	reroute	and	dam	removal	efforts	and	$2,500	for estimated	interim	dam	safety	measures.	All	pre-construction	costs,	totaling	$24,303,	are	to	be	recovered	via	a	surcharge	over	a	20-year	period	beginning	October	2012; surcharge	collections	in	2014	and	2013	totaled	$4,531	and	$3,753,	respectively.	Costs	deferred	in	addition	to	the	pre-construction	costs	totaled	$26,023	and	$12,394	as of	December	31,	2014	and	2013,	respectively.

Regulatory	balancing	accounts	accumulate	differences	between	revenues	and	authorized	revenue	requirements	until	they	are	collected	from	customers	or	are refunded.	Regulatory	balancing	accounts	include	low	income	programs	and	purchased	power	and	water	accounts.

Other	regulatory	assets	include	certain	deferred	employee	benefit	costs	which	are	deferred	because	the	amounts	are	being	recovered	in	rates	or	are	probable	of recovery	through	rates	in	future	periods.

The	components	of	regulatory	liabilities	at	December	31	are	as	follows:

|  | 2014 | 2013 |
| :--- | :--- | :--- |
| Removal\tcosts\trecovered\tthrough\trates | $300,635 | $301,537 |
| Pension\tand\tother\tpostretirement\tbenefit |  |  |
| \t\t\t\t\tbalancing\taccounts | 53,734 | 40,837 |
| Other | 37,413 | 30,945 |
|  | $391,782 | $373,319 |

Removal	costs	recovered	through	rates	are	retirement	costs	recovered	during	the	life	of	the	associated	assets.	In	December	2008,	the	Company's	subsidiary	in New	Jersey,	at	the	direction	of	the	New	Jersey	PUC,	began	to	amortize	$48,000	of	the	total	balance	into	operations	via	straight	line	amortization	through	November 2048.

Pension	and	other	postretirement	benefit	balancing	accounts	represent	the	difference	between	costs	incurred	and	costs	authorized	by	the	PUC's.

Other	regulatory	liabilities	include	legal	settlement	proceeds,	deferred	gains,	future	customer	refunds,	and	various	regulatory	balancing	accounts.

# Note	7:	Goodwill

The	Company's	annual	impairment	test	is	performed	as	of	November	30	of	each	year,	in	conjunction	with	the	completion	of	the	Company's	annual	strategic business	plan.	The	Company	assesses	qualitative	factors	to	determine	whether	it	is	necessary	to	perform	the	two-step	quantitative	goodwill	impairment	test.	The Company	also	undertakes	interim	reviews	when	the	Company	determines	that	a	triggering	event	that	would	more	likely	than	not	reduce	the	fair	value	of	a	reporting	unit below	its	carrying	value	has	occurred.

There	can	be	no	assurances	that	the	Company	will	not	be	required	to	recognize	an	impairment	of	goodwill	in	the	future	due	to	market	conditions	or	other	factors related	to	the	Company's	performance.	These	market	events	could	include	a	decline	over	a	period	of	time	of	the	Company's	stock	price,	a	decline	over	a	period	of	time	in valuation	multiples	of	comparable	water	utilities,	the	lack	of	an	increase	in	the	Company's	market	price	consistent	with	its	peer	companies	or	decreases	in	control premiums.	A	decline	in	the	forecasted	results	in	the	Company's	business	plan,	such	as	changes	in	rate	case	results	or	capital	investment	budgets	or	changes	in	the Company's	interest	rates,	could	also	result	in	an	impairment	charge.

The	changes	in	the	Company's	carrying	value	of	goodwill	by	reporting	unit	are	as	follows:

|  | Regulated	Unit | Regulated	Unit | Market-Based	Operations | Market-Based	Operations |  | Consolidated |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Cost | Accumulated\nImpairment | Cost | Accumulated\nImpairment | Cost | Accumulated\nImpairment | Total\tNet |
| Balance\tat\tJanuary\t1,\t2013 | $3,411,549 | $(2,332,670) | $235,990 | $(107,619) | $3,647,539 | $(2,440,289) | $1,207,250 |
| Goodwill\tfrom\tacquisitions | 428 | — | — | — | 428 | — | 428 |
| Reclassifications\tand\tother |  |  |  |  |  |  |  |
| \t\t\t\t\tactivity | 86 | — | — | — | 86 | — | 86 |
| Balance\tat\tDecember\t31,\t2013 | $3,412,063 | $(2,332,670) | $235,990 | $(107,619) | $3,648,053 | $(2,440,289) | $1,207,764 |
| Goodwill\tfrom\tacquisitions | 354 | — | — | — | 354 | — | 354 |
| Reclassifications\tand\tother |  |  |  |  |  |  |  |
| \t\t\t\t\tactivity | (75) | — | — | — | (75) | — | (75) |
| Balance\tat\tDecember\t31,\t2014 | $3,412,342 | $(2,332,670) | $235,990 | $(107,619) | $3,648,332 | $(2,440,289) | $1,208,043 |

For	further	information	on	goodwill	from	acquisitions,	refer	to	Note	3	of	the	Consolidated	Financial	Statements.

# Note	8:	Stockholders'	Equity

# Common	Stock

Under	American	Water	Stock	Direct,	a	dividend	reinvestment	and	direct	stock	purchase	plan	(the	"DRIP"),	stockholders	may	reinvest	cash	dividends	and purchase	additional	Company	common	stock,	up	to	certain	limits,	through	the	plan	administrator	without	commission	fees.	The	Company's	plan	administrator	may	buy newly	issued	shares	directly	from	the	Company	or	shares	held	in	the	Company's	treasury.	The	plan	administrator	may	also	buy	shares	in	the	public	markets	or	in privately	negotiated	transactions.	Purchases	generally	will	be	made	and	credited	to	DRIP	accounts	once	each	week.	As	of	December	31,	2014,	there	were	4,611	shares available	for	future	issuance	under	the	DRIP.	The	following	table	summarizes	information	regarding	issuances	under	the	DRIP	for	the	years	ended	December	31,	2014 and	2013:

Cash	dividend	payments	made	during	2014	and	2013	were	as	follows:

|  | 2014 | 2013 |
| :--- | :--- | :--- |
| Dividends\tper\tshare,\tthree\tmonths\tended: |  |  |
| March\t31 | $0.28 | $— |
| June\t30 | 0.31 | 0.28 |
| September\t30 | 0.31 | 0.28 |
| December\t31 | 0.31 | 0.28 |
| Total\tdividends\tpaid,\tthree\tmonths\tended: |  |  |
| March\t31 | $49,968 | $— |
| June\t30 | 55,422 | 49,744 |
| September\t30 | 55,458 | 49,810 |
| December\t31 | 55,506 | 49,896 |

On	December	12,	2014,	the	Company	declared	a	quarterly	cash	dividend	of	$0.31	per	share,	payable	on	March	2,	2015	to	shareholders	of	record	as	of February	9,	2015.	As	of	December	31,	2014,	the	Company	had	accrued	dividends	totaling	$55,552	included	in	other	current	liabilities	on	the	accompanying Consolidated	Balance	Sheets.

# Accumulated	Other	Comprehensive	Loss

The	following	table	presents	changes	in	accumulated	other	comprehensive	loss	by	component,	net	of	tax:

|  |  | Defined	Benefit	Plans |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Employee\nBenefit\tPlan\nFunded\tStatus | Amortization\tof\nPrior\tService\nCost | Amortization\nof\tActuarial\n(Gain)\tLoss | Foreign\nCurrency\nTranslation | Loss\ton\tCash\nFlow\tHedge | Total\tAccumulated\nOther\nComprehensive\tLoss |
| Beginning\tbalance\tat\tJanuary\t1,\t2013 | $(143,183) | $539 | $22,239 | $4,214 | $— | $(116,191) |
| Other\tcomprehensive\tincome\t(loss)\tbefore |  |  |  |  |  |  |
| \t\t\t\t\t\t\t\treclassifications | 73,472 | — | — | (1,001) | — | 72,471 |
| Amounts\treclassified\tfrom\taccumulated |  |  |  |  |  |  |
| \t\t\t\t\t\t\t\tother\tcomprehensive\tincome\t(loss) | — | 174 | 8,911 | — | — | 9,085 |
| Net\tcomprehensive\tincome\t(loss)\tfor\tthe |  |  |  |  |  |  |
| \t\t\t\t\t\t\t\tperiod | 73,472 | 174 | 8,911 | (1,001) | — | 81,556 |
| Ending\tbalance\tat\tDecember\t31,\t\t2013 | $(69,711) | $713 | $31,150 | $3,213 | $— | $(34,635) |
| Other\tcomprehensive\tincome\t(loss)\tbefore |  |  |  |  |  |  |
| \t\t\t\t\t\t\t\treclassifications | (46,119) | — | — | (458) | (820) | (47,397) |
| Amounts\treclassified\tfrom\taccumulated |  |  |  |  |  |  |
| \t\t\t\t\t\t\t\tother\tcomprehensive\tincome\t(loss) | — | 166 | (31) | — | 29 | 164 |
| Net\tcomprehensive\tincome\t(loss)\tfor\tthe |  |  |  |  |  |  |
| \t\t\t\t\t\t\t\tperiod | (46,119) | 166 | (31) | (458) | (791) | (47,233) |
| Ending\tbalance\tat\tDecember\t31,\t2014 | $(115,830) | $879 | $31,119 | $2,755 | $(791) | $(81,868) |

The	Company	does	not	reclassify	the	amortization	of	defined	benefit	pension	cost	components	from	accumulated	other	comprehensive	income	(loss)	directly	to net	income	in	its	entirety.	These	accumulated	other	comprehensive	income	(loss)	components	are	included	in	the	computation	of	net	periodic	pension	cost.	(See	Note 13)

The	amortization	of	the	loss	on	cash	flow	hedge	is	included	in	interest,	net	in	the	accompanying	Consolidated	Statements	of	Operations	and	Comprehensive

# Income.

# Stock	Based	Compensation

The	Company	has	granted	stock	option	and	restricted	stock	unit	awards	to	non-employee	directors,	officers	and	other	key	employees	of	the	Company	pursuant	to the	terms	of	its	2007	Omnibus	Equity	Compensation	Plan	(the	"Plan").	The	total	aggregate	number	of	shares	of	common	stock	that	may	be	issued	under	the	Plan	is 15,500.	As	of	December	31,	2014,	a	total	of	8,869	shares	were	available	for	grant	under	the	Plan.	Shares	issued	under	the	Plan	may	be	authorized-but-unissued	shares	of Company	stock	or	reacquired	shares	of	Company	stock,	including	shares	purchased	by	the	Company	on	the	open	market	for	purposes	of	the	Plan.

The	Company	recognizes	compensation	expense	for	stock	awards	over	the	vesting	period	of	the	award.	The	following	table	presents	stock-based	compensation expense	recorded	in	operation	and	maintenance	expense	in	the	accompanying	Consolidated	Statements	of	Operations	and	Comprehensive	Income	for	the	years	ended December	31,	2014,	2013	and	2012:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Stock\toptions | $2,602 | $3,170 | $3,282 |
| Restricted\tstock\tunits | 9,848 | 8,718 | 7,658 |
| Employee\tstock\tpurchase\tplan | 593 | 586 | 530 |
| Stock-based\tcompensation\tin\toperation\tand |  |  |  |
| \t\t\t\t\tmaintenance\texpense | 13,043 | 12,474 | 11,470 |
| Income\ttax\tbenefit | (5,087) | (4,865) | (4,473) |
| After-tax\tstock-based\tcompensation\texpense | $7,956 | $7,609 | $6,997 |

There	were	no	significant	stock-based	compensation	costs	capitalized	during	the	years	ended	December	31,	2014,	2013	and	2012.

The	cost	of	services	received	from	employees	in	exchange	for	the	issuance	of	stock	options	and	restricted	stock	awards	is	measured	based	on	the	grant	date	fair value	of	the	awards	issued.	The	value	of	stock	options	and	restricted	stock	unit	awards	at	the

date	of	the	grant	is	amortized	through	expense	over	the	three-year	service	period.	All	awards	granted	in	2014,	2013	and	2012	are	classified	as	equity.

The	Company	receives	a	tax	deduction	based	on	the	intrinsic	value	of	the	award	at	the	exercise	date	for	stock	options	and	the	distribution	date	for	restricted	stock units.	For	each	award,	throughout	the	requisite	service	period,	the	Company	recognizes	the	tax	benefits,	which	have	been	included	in	deferred	tax	assets,	related	to compensation	costs.	The	tax	deductions	in	excess	of	the	benefits	recorded	throughout	the	requisite	service	period	are	recorded	to	shareholders'	equity	or	the	income statement	and	are	included	in	the	financing	section	of	the	statement	of	cash	flows.

The	Company	stratified	its	grant	populations	and	used	historic	employee	turnover	rates	to	estimate	employee	forfeitures.	The	estimated	rate	is	compared	to	the actual	forfeitures	at	the	end	of	the	period	and	adjusted	as	necessary.

# Stock	Options

In	2014,	2013	and	2012,	the	Company	granted	non-qualified	stock	options	to	certain	employees	under	the	Plan.	The	stock	options	vest	ratably	over	the	three- year	service	period	beginning	on	January	1	of	the	year	of	grant.	These	awards	have	no	performance	vesting	conditions	and	the	grant	date	fair	value	is	amortized	through expense	over	the	requisite	service	period	using	the	straight-line	method.

The	following	table	presents	the	weighted-average	assumptions	used	in	the	Black-Scholes	option-pricing	model	for	grants	and	the	resulting	weighted-average grant	date	fair	value	per	share	of	stock	options	granted	in	the	years	ended	December	31,	2014,	2013	and	2012:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Dividend\tyield | 2.55% | 2.52% | 2.70% |
| Expected\tvolatility | 17.75% | 23.50% | 28.35% |
| Risk-free\tinterest\trate | 1.06% | 0.70% | 0.78% |
| Expected\tlife\t(years) | 3.6 | 4.3 | 4.4 |
| Exercise\tprice | $44.29 | $39.60 | $34.14 |
| Grant\tdate\tfair\tvalue\tper\tshare | $4.57 | $5.78 | $6.11 |

	The	Company	utilized	the	"simplified	method"	to	determine	the	expected	stock	option	life	due	to	insufficient	historical	experience	to	estimate	the	exercise patterns	of	the	stock	options	granted.	The	Company	began	granting	stock	options	at	the	time	of	its	initial	public	offering	in	April	2008.	Expected	volatility	is	based	on	a weighted	average	of	historic	volatilities	of	traded	common	stock	of	peer	companies	(regulated	water	companies)	over	the	expected	term	of	the	stock	options	and	historic volatilities	of	the	Company's	common	stock	during	the	period	it	has	been	publicly	traded.	The	dividend	yield	is	based	on	the	Company's	expected	dividend	payments and	the	stock	price	on	the	date	of	grant.	The	risk-free	interest	rate	is	the	market	yield	on	U.S.	Treasury	strips	with	maturities	similar	to	the	expected	term	of	the	stock options.	The	exercise	price	of	the	stock	options	is	equal	to	the	fair	market	value	of	the	underlying	stock	on	the	date	of	option	grant.	Stock	options	vest	over	periods ranging	from	one	to	three	years	and	expire	seven	years	from	the	effective	date	of	the	grant.	The	fair	value	of	each	option	is	estimated	on	the	date	of	grant	using	the Black-Scholes	option-pricing	model.

The	value	of	stock	options	at	the	date	of	the	grant	is	amortized	through	expense	over	the	requisite	service	period	using	the	straight-line	method.	As	of December	31,	2014,	$1,545	of	total	unrecognized	compensation	cost	related	to	nonvested	stock	options	is	expected	to	be	recognized	over	the	remaining	weighted- average	period	of	1.7	years.	The	total	grant	date	fair	value	of	stock	options	vested	during	the	years	ended	December	31,	2014,	2013	and	2012	was	$2,728,	$3,512	and $3,219,	respectively.

The	table	below	summarizes	stock	option	activity	for	the	year	ended	December	31,	2014:

|  | Shares | Weighted-<br>Average<br>Exercise	Price<br>(per	share) | Weighted-<br>Average<br>Remaining	Life<br>(years) | Aggregate<br>Intrinsic	Value |
| :--- | :--- | :--- | :--- | :--- |
| Options\toutstanding\tat\tJanuary\t1,\t2014 | 2,055 | \t $28.80 |  |  |
| Granted | 491 | 44.29 |  |  |
| Forfeited\tor\texpired | (62) | 39.23 |  |  |
| Exercised | (574) | 25.40 |  |  |
| Options\toutstanding\tat\tDecember\t31,\t2014 | 1,910 | \t $33.47 | 3.9 | \t $37,881 |
| Exercisable\tat\tDecember\t31,\t2014 | 1,094 | \t $27.68 | 2.8 | \t $28,022 |

The	following	table	summarizes	additional	information	regarding	stock	options	exercised	during	the	years	ended	December	31,	2014,	2013	and	2012:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Intrinsic\tvalue | $12,689 | \t $15,102 | \t $14,515 |
| Exercise\tproceeds | 14,582 | 20,211 | 22,112 |
| Income\ttax\tbenefit | 3,885 | 4,383 | 4,017 |

# Restricted	Stock	Units

During	2011,	the	Company	granted	selected	employees	189	restricted	stock	units	with	internal	performance	measures	and,	separately,	certain	market	thresholds. These	awards	vested	in	January	2014.	The	terms	of	the	grants	specified	that	if	certain	performance	on	internal	measures	and	market	thresholds	was	achieved,	the restricted	stock	units	would	vest;	if	performance	was	surpassed,	up	to	175%	of	the	target	awards	would	be	distributed;	and	if	performance	thresholds	were	not	met, awards	would	be	cancelled.	In	January	2014,	an	additional	113	restricted	stock	units	were	granted	and	distributed	because	performance	thresholds	were	exceeded.

In	2014,	2013	and	2012,	the	Company	granted	restricted	stock	units,	both	with	and	without	performance	conditions,	to	certain	employees	under	the	Plan.	The restricted	stock	units	without	performance	conditions	vest	ratably	over	the	three-year	service	period	beginning	January	1	of	the	year	of	the	grant	and	the	restricted	stock units	with	performance	conditions	vest	ratably	over	the	three-year	performance	period	beginning	January	1	of	the	year	of	grant	(the	"Performance	Period").	Distribution of	the	performance	shares	is	contingent	upon	the	achievement	of	internal	performance	measures	and,	separately,	certain	market	thresholds	over	the	Performance	Period.

During	2014,	2013	and	2012,	the	Company	granted	restricted	stock	units	to	non-employee	directors	under	the	Plan.	The	restricted	stock	units	vested	on	the	date of	grant;	however,	distribution	of	the	shares	will	be	made	within	30	days	of	the	earlier	of	(a)	15	months	after	grant	date	or	(b)	the	participant's	separation	from	service. Because	these	restricted	stock	units	vested	on	grant	date,	the	total	grant	date	fair	value	was	recorded	in	operation	and	maintenance	expense	included	in	the	expense	table above	on	the	grant	date.

Restricted	stock	units	generally	vest	over	periods	ranging	from	one	to	three	years.	Restricted	stock	units	granted	with	service-only	conditions	and	those	with internal	performance	measures	are	valued	at	the	market	value	of	the	Company's	common	stock	on	the	date	of	grant.	Restricted	stock	units	granted	with	market conditions	are	valued	using	a	Monte	Carlo	model.	Expected	volatility	is	based	on	historical	volatilities	of	traded	common	stock	of	the	Company	and	comparative companies	using	daily	stock	prices	over	the	past	three	years.	The	expected	term	is	three	years	and	the	risk-free	interest	rate	is	based	on	the	three-year	U.S.	Treasury	rate in	effect	as	of	the	measurement	date.	The	following	table	presents	the	weighted-average	assumptions	used	in	the	Monte	Carlo	simulation	and	the	weighted-average	grant date	fair	values	of	restricted	stock	units	granted	during	the	years	ended	December	31,	2014,	2013	and	2012:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Expected\tvolatility | 17.78% | 19.37% | 22.47% |
| Risk-free\tinterest\trate | 0.75% | 0.40% | 0.43% |
| Expected\tlife\t(years) | 3 | 3 | 3 |
| Grant\tdate\tfair\tvalue\tper\tshare | $45.45 | \t $40.13 | \t $37.40 |

The	grant	date	fair	value	of	restricted	stock	awards	that	vest	ratably	and	have	market	and/or	performance	and	service	conditions	is	amortized	through	expense over	the	requisite	service	period	using	the	graded-vesting	method.	Restricted	stock	units	that	have	no	performance	conditions	are	amortized	through	expense	over	the requisite	service	period	using	the	straight-line	method.	As	of	December	31,	2014,	$4,634	of	total	unrecognized	compensation	cost	related	to	the	nonvested	restricted stock	units	is	expected	to	be	recognized	over	the	weighted-average	remaining	life	of	1.4	years.	The	total	grant	date	fair	value	of	restricted	stock	units	vested	during	the years	ended	December	31,	2014,	2013	and	2012	was	$10,829,	$8,891	and	$4,191,	respectively.

The	table	below	summarizes	restricted	stock	unit	activity	for	the	year	ended	December	31,	2014:

|  | Shares | Weighted-Average<br>Grant	Date	Fair<br>Value	(per	share) |
| :--- | :--- | :--- |
| Non-vested\ttotal\tat\tJanuary\t1,\t2014 | 539 | \t $36.27 |
| Granted | 228 | 45.45 |
| Performance\tshare\tadjustment | 113 | 30.34 |
| Vested | (337) | 32.13 |
| Forfeited | (27) | 41.61 |
| Non-vested\ttotal\tat\tDecember\t31,\t2014 | 516 | \t $41.46 |

The	following	table	summarizes	additional	information	regarding	restricted	stock	units	distributed	during	the	years	ended	December	31,	2014,	2013	and	2012:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Intrinsic\tvalue | $15,539 | \t $13,983 | \t $6,159 |
| Income\ttax\tbenefit | 1,625 | 2,049 | 799 |

If	dividends	are	paid	with	respect	to	shares	of	the	Company's	common	stock	before	the	restricted	stock	units	are	distributed,	the	Company	credits	a	liability	for the	value	of	the	dividends	that	would	have	been	paid	if	the	restricted	stock	units	were	shares	of	Company	common	stock.	When	the	restricted	stock	units	are	distributed, the	Company	pays	the	participant	a	lump	sum	cash	payment	equal	to	the	value	of	the	dividend	equivalents	accrued.	The	Company	accrued	dividend	equivalents	totaling $962,	$648	and	$1,168	to	retained	earnings	during	the	years	ended	December	31,	2014,	2013	and	2012,	respectively.

# Employee	Stock	Purchase	Plan

Under	the	Nonqualified	Employee	Stock	Purchase	Plan	("ESPP"),	employees	can	use	payroll	deductions	to	acquire	Company	stock	at	the	lesser	of	90%	of	the fair	market	value	of	(a)	the	beginning	or	(b)	the	end	of	each	three-month	purchase	period.	As	of	December	31,	2014,	there	were	1,261	shares	of	common	stock	reserved for	issuance	under	the	ESPP.	The	Company's	ESPP	is	considered	compensatory.	During	the	years	ended	December	31,	2014,	2013	and	2012,	the	Company	issued	102, 111	and	118	shares,	respectively,	under	the	ESPP.

# Note	9:	Long-Term	Debt

The	Company	primarily	incurs	long-term	debt	to	fund	capital	expenditures	of	the	regulated	subsidiaries.	The	components	of	long-term	at	December	31	are:

|  | Rate | Weighted	Average<br>Rate | Maturity | 2014 | 2013 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Long-term\tdebt\tof\tAmerican\tWater\tCapital\tCorp. |  |  |  |  |  |
| \t\t\t\t\t\t\t\t\t\t("AWCC")\t(a) |  |  |  |  |  |
| Private\tactivity\tbonds\tand\tgovernment\tfunded |  |  |  |  |  |
| \t\t\t\t\tdebt |  |  |  |  |  |
| Fixed\trate | 1.79%-6.25% | 5.33% | 2021-2040 | $231,330 | $330,732 |
| Senior\tnotes |  |  |  |  |  |
| Fixed\trate | 3.40%-8.27% | 5.43% | 2016-2042 | 3,753,200 | 3,312,761 |
| Long-term\tdebt\tof\tother\tsubsidiaries |  |  |  |  |  |
| Private\tactivity\tbonds\tand\tgovernment\tfunded |  |  |  |  |  |
| \t\t\t\t\tdebt |  |  |  |  |  |
| Fixed\trate\t(b) | 0.00%-6.20% | 4.73% | 2015-2041 | 795,472 | 863,716 |
| Mortgage\tbonds |  |  |  |  |  |
| Fixed\trate | 4.29%-9.71% | 7.41% | 2015-2039 | 676,500 | 676,500 |
| Mandatorily\tredeemable\tpreferred\tstock | 8.47%-9.75% | 8.60% | 2019-2036 | 17,252 | 18,902 |
| Capital\tlease\tobligations | 12.17% | 12.17% | 2026 | 885 | 913 |
| Long-term\tdebt |  |  |  | 5,474,639 | 5,203,524 |
| Unamortized\tdebt,\tnet\t(c) |  |  |  | 31,168 | 35,984 |
| Interest\trate\tswap\tfair\tvalue\tadjustment |  |  |  | 3,570 | 4,724 |
| Total\tlong-term\tdebt |  |  |  | $5,509,377 | $5,244,232 |

(a) AWCC,	which	is	a	wholly-owned	subsidiary	of	the	Company,	has	a	strong	support	agreement	with	its	parent	that,	under	certain	circumstances,	is	the	functional equivalent	of	a	guarantee.

(c) Primarily	fair	value	adjustments	previously	recognized	in	acquisition	purchase	accounting.

All	$676,500	of	the	subsidiaries'	mortgage	bonds	and	$729,170	of	the	$795,472	total	subsidiaries'	private	activity	bonds	and	government	funded	debt	at December	31,	2014	are	collateralized	by	utility	plant.

Long-term	debt	indentures	contain	a	number	of	covenants	that,	among	other	things,	limit,	subject	to	certain	exceptions,	the	Company	from	issuing	debt	secured by	the	Company's	assets.	Certain	long	term	notes	require	the	Company	to	maintain	a	ratio	of	consolidated	total	indebtedness	to	consolidated	total	capitalization	of	not more	than	0.70	to	1.00.	The	ratio	at	December	31,	2014	was	0.55	to	1.00.	In	addition,	the	Company	has	$1,044,990	of	notes	which	include	the	right	to	redeem	the	notes at	par	in	whole	or	in	part	from	time	to	time	subject	to	certain	restrictions.

The	future	sinking	fund	payments	and	maturities	are	as	follows:

| Year | Amount |
| :--- | :--- |
| 2015 | \t$61,132 |
| 2016 | 53,353 |
| 2017 | 572,775 |
| 2018 | 455,861 |
| 2019 | 164,909 |
| Thereafter | 4,166,609 |

| Company | Type | Rate | Maturity | Amount |
| :--- | :--- | :--- | :--- | :--- |
| AWCC | Senior\tnotes—fixed\trate | 3.40%-4.30% | 2025-2042 | $500,000 |
| Other\tsubsidiaries\t(1) | Private\tactivity\tbonds\tand\tgovernment\t\tfunded |  |  |  |
|  | debt—fixed\trate | 0.00%-5.00% | 2031-2033 | 10,474 |
| Total\tissuances |  |  |  | $510,474 |

(1) Included	in	the	issuance	amounts	for	other	subsidiaries	private	activity	bonds	and	government	funded	debt	above	was	$9,977,	which	was	initially	kept	in	Trust pending	the	Company's	certification	that	it	has	incurred	qualifying	capital	expenditures.	These	issuances	have	been	presented	as	non-cash	in	the	accompanying Consolidated	Statements	of	Cash	Flows.	Subsequent	releases	of	all	or	a	lesser	portion	of	these	funds	by	the	applicable	Trust	are	reflected	as	the	release	of restricted	funds	and	are	included	in	investing	activities	in	the	accompanying	Consolidated	Statements	of	Cash	Flows.

The	Company	incurred	debt	issuance	costs	of	$4,593	related	to	the	above	issuances.	The	Company	also	assumed	debt	of	$1,683	via	an	acquisition	during	2014.

| Company | Type | Rate | Maturity | Amount |
| :--- | :--- | :--- | :--- | :--- |
| AWCC | Private\tactivity\tbonds\tand\tgovernment |  |  |  |
|  | funded\tdebt—fixed\trate | 6.00%-6.75% | 2018-2032 | $101,085 |
| AWCC | Senior\tnotes—fixed\trate | 6.00% | 2039 | 59,561 |
| Other\tsubsidiaries\t(1) | Private\tactivity\tbonds\tand\tgovernment |  |  |  |
|  | funded\tdebt—fixed\trate | 0.00%-5.25% | 2014-2041 | 78,718 |
| Other\tsubsidiaries | Mandatorily\tredeemable\tpreferred\tstock | 8.49%-9.18% | 2031-2036 | 1,650 |
| Other\tsubsidiaries | Capital\tlease\tpayments |  |  | 28 |
| Total\tretirements\tand\tredemptions |  |  |  | $241,042 |

(1) Includes	$1,021	of	non-cash	defeasance	via	the	use	of	restricted	funds.

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	swaps.	The	Company	reduces	exposure	to	interest	rates	by	managing	commercial paper	and	debt	maturities.	The	Company	does	not	enter	into	derivative	contracts	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	Company	minimizes	the	counterparty	credit	risk	on	these	transactions	by	dealing	only	with	leading,	credit-worthy	financial institutions	having	long-term	credit	ratings	of	"A"	or	better.

The	Company	has	an	interest-rate	swap	to	hedge	$100,000	of	its	6.085%	fixed-rate	debt	maturing	2017.	The	Company	pays	variable	interest	of	six-month LIBOR	plus	3.422%.	The	swap	is	accounted	for	as	a	fair-value	hedge	and	matures	with	the	fixed-rate	debt	in	2017.	The	following	table	provides	a	summary	of	the derivative	and	fixed	rate	debt	fair	value	balances	recorded	by	the	Company	as	of	December	31,	2014	and	2013,	and	the	line	items	in	the	Consolidated	Balance	Sheets	in which	such	amounts	are	recorded:

| Balance	sheet	classification | 2014 | 2013 |
| :--- | :--- | :--- |
| Regulatory\tand\tother\tlong-term\tassets |  |  |
| Other | $3,636 | $4,776 |
| Long-term\tdebt |  |  |
| Long-term\tdebt | 3,570 | 4,724 |

For	derivative	instruments	that	are	designated	and	qualify	as	fair-value	hedges,	the	gain	or	loss	on	the	hedge	instrument	as	well	as	the	offsetting	gain	or	loss	on the	hedged	item	attributable	to	the	hedged	risk	are	recognized	in	current	net	income.	The	Company	includes	the	gain	or	loss	on	the	derivative	instrument	and	the offsetting	gain	or	loss	on	the	hedged	item	in	interest	expense	for	the	years	ended	December	31	as	follows:

| Income	statement	classification | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Interest,\tnet |  |  |  |
| Gain\t(loss)\ton\tswap | $(1,140) | $(3,133) | $2,085 |
| Gain\t(loss)\ton\tborrowing | 1,154 | 2,991 | (1,604) |
| Hedge\tineffectiveness | 14 | (142) | 481 |

# Note	10:	Short-Term	Debt

Short-term	debt	consists	of	commercial	paper	borrowings	totaling	$449,959	(net	of	discount	of	$41)	and	$630,307	(net	of	discount	of	$193)	at	December	31, 2014	and	2013,	respectively.	At	December	31,	2014	there	were	no	borrowings	outstanding	with	maturities	greater	than	three	months.

On	September	9,	2013,	AWCC	and	its	lenders	agreed	to	increase	total	commitments	under	AWCC's	revolving	credit	facility	from	$1,000,000	to	$1,250,000.	In addition,	$1,180,000	of	the	credit	facility	was	extended	from	its	original	termination	date	of	October	2017	to	October	2018.	Other	terms	and	conditions	of	the	existing facility	remained	unchanged.	The	Company	incurred	$1,126	of	issuance	costs	in	connection	with	the	increased	lending	commitments;	these	costs	will	be	amortized	over the	remaining	extended	life	of	the	credit	facility.

At	the	same	time,	the	Company	also	announced	an	increase	in	the	maximum	borrowing	capability	of	its	commercial	paper	program	from	$700,000	to $1,000,000.

AWCC	had	the	following	available	capacity	under	its	commercial	paper	program	at	December	31:

|  | 2014 | 2013 |
| :--- | :--- | :--- |
| Commercial\tpaper\tprogram | $1,000,000 | \t $1,000,000 |
| Commercial\tpaper\tprogram\tavailable\tcapacity | 550,000 | 369,500 |

At	December	31,	AWCC	had	the	following	sub-limits	and	available	capacity	under	each	applicable	credit	facility:

|  | 2014 | 2013 |
| :--- | :--- | :--- |
| Letter\tof\tcredit\tsublimit | $150,000 | \t $150,000 |
| Letter\tof\tcredit\tavailable\tcapacity | 112,104 | 108,215 |

At	December	31,	2014	and	2013,	the	Company	had	$37,896	and	$41,785	of	outstanding	letters	of	credit,	respectively,	all	of	which	were	issued	under	the revolving	credit	facility	noted	above.

The	following	table	presents	the	short-term	borrowing	activity	for	AWCC	for	the	years	ended	December	31,	2014	and	2013:

|  | 2014 | 2013(1) |
| :--- | :--- | :--- |
| Average\tborrowings | $548,530 | $370,420 |
| Maximum\tborrowings\toutstanding | 745,000 | 829,250 |
| Weighted\taverage\tinterest\trates,\tcomputed\ton\tdaily\tbasis | 0.31% | 0.43% |
| Weighted\taverage\tinterest\trates,\tat\tDec\t31 | 0.42% | 0.36% |

(1)	2013	average	borrowings,	maximum	borrowings	outstanding,	and	weighted	average	interest	rates,	computed	on	daily	basis	have	been	revised	by	immaterial	amounts.

The	credit	facility	requires	the	Company	to	maintain	a	ratio	of	consolidated	debt	to	consolidated	capitalization	of	not	more	than	0.70	to	1.00.	The	ratio	at December	31,	2014	was	0.55	to	1.00.

None	of	the	Company's	borrowings	are	subject	to	default	or	prepayment	as	a	result	of	a	downgrading	of	securities,	although	such	a	downgrading	could	increase fees	and	interest	charges	under	the	Company's	credit	facility.

As	part	of	the	normal	course	of	business,	the	Company	routinely	enters	contracts	for	the	purchase	and	sale	of	water,	energy,	fuels	and	other	services.	These contracts	either	contain	express	provisions	or	otherwise	permit	the	Company	and	its	counterparties	to	demand	adequate	assurance	of	future	performance	when	there	are reasonable	grounds	for	doing	so.	In	accordance	with	the	contracts	and	applicable	contract	law,	if	the	Company	is	downgraded	by	a	credit	rating	agency,	especially	if such	downgrade	is	to	a	level	below	investment	grade,	it	is	possible	that	a	counterparty	would	attempt	to	rely	on	such	a	downgrade	as	a	basis	for	making	a	demand	for adequate	assurance	of	future	performance.	Depending	on	the	Company's	net	position	with	the	counterparty,	the	demand	could	be	for	the	posting	of	collateral.	In	the absence	of	expressly	agreed	provisions	that	specify	the	collateral	that	must	be	provided,	the	obligation	to	supply	the	collateral	requested	will	be	a	function	of	the	facts and	circumstances	of	the	Company's	situation	at	the	time	of	the	demand.	If	the	Company	can	reasonably	claim	that	it	is	willing	and	financially	able	to	perform	its obligations,	it	may	be	possible	to	successfully	argue	that	no	collateral	should	be	posted	or	that	only	an	amount	equal	to	two	or	three	months	of	future	payments	should be	sufficient.	The	Company	does	not	expect	to	post	any	collateral	which	will	have	a	material	adverse	impact	on	the	Company's	results	of	operations,	financial	position or	cash	flows.

# Note	11:	General	Taxes

Components	of	general	tax	expense	from	continuing	operations	for	the	years	ended	December	31	are	as	follows:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Gross\treceipts\tand\tfranchise | $96,014 | $96,044 | $92,612 |
| Property\tand\tcapital\tstock | 95,651 | 94,394 | 84,448 |
| Payroll | 30,698 | 30,985 | 32,335 |
| Other\tgeneral | 14,369 | 12,775 | 11,363 |
|  | $236,732 | $234,198 | $220,758 |

# Note	12:	Income	Taxes

Components	of	income	tax	expense	from	continuing	operations	for	the	years	ended	December	31	are	as	follows:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| State\tincome\ttaxes |  |  |  |
| Current | $11,055 | $7,202 | $26,604 |
| Deferred |  |  |  |
| Current | (287) | (405) | (280) |
| Non-current | 30,788 | 26,821 | 24,256 |
|  | $41,556 | $33,618 | $50,580 |
| Federal\tincome\ttaxes |  |  |  |
| Current | $14,767 | $(19,995) | $31,482 |
| Deferred |  |  |  |
| Current | (1,528) | (1,324) | (2,031) |
| Non-current | 226,572 | 226,295 | 178,274 |
| Amortization\tof\tdeferred\tinvestment\ttax\tcredits | (1,394) | (1,501) | (1,518) |
|  | 238,417 | 203,475 | 206,207 |
|  | $279,973 | $237,093 | $256,787 |

A	reconciliation	of	income	tax	expense	from	continuing	operations	at	the	statutory	federal	income	tax	rate	to	actual	income	tax	expense	for	the	years	ended December	31	is	as	follows:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Income\ttax\tat\tstatutory\trate | $248,424 | $212,777 | $220,636 |
| Increases\t(decreases)\tresulting\tfrom: |  |  |  |
| State\ttaxes,\tnet\tof\tfederal\ttaxes | 27,011 | 21,852 | 32,877 |
| Change\tin\tvaluation\tallowance | (2) | (455) | 143 |
| Flow\tthrough\tdifferences | 3,467 | 3,217 | 3,032 |
| Amortization\tof\tdeferred\tinvestment\ttax\tcredits | (1,394) | (1,501) | (1,518) |
| Subsidiary\tpreferred\tdividends | 532 | 584 | 634 |
| Sec\t162(m)\tAdjustment | 980 | — | — |
| Other,\tnet | 955 | 619 | 983 |
| Actual\tincome\ttax\texpense | $279,973 | $237,093 | $256,787 |

The	following	table	provides	the	components	of	the	net	deferred	tax	liability	from	continuing	operations	at	December	31:

|  | 2014 | 2013 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets: |  |  |
| Advances\tand\tcontributions | $502,069 | $510,122 |
| Deferred\tinvestment\ttax\tcredits | 9,452 | 10,027 |
| Other\tpostretirement\tbenefits | 104,723 | 107,773 |
| Tax\tlosses\tand\tcredits | 197,288 | 265,640 |
| Pension\tbenefits | 124,985 | 122,143 |
| Unamortized\tdebt\tdiscount,\tnet | 20,249 | 20,249 |
| Other | 32,159 | 23,001 |
|  | 990,925 | 1,058,955 |
| Valuation\tallowance | (10,379) | (13,555) |
|  | $980,546 | $1,045,400 |
| Deferred\ttax\tliabilities: |  |  |
| Utility\tplant,\tprincipally\tdue\tto\tdepreciation\tdifferences | $2,676,574 | $2,478,617 |
| Income\ttaxes\trecoverable\tthrough\trates | 75,538 | 81,135 |
| Deferred\tbusiness\tservices\tproject\texpenses | 4,584 | 4,584 |
| Deferred\tother\tpostretirement\tbenefits | 65,157 | 65,071 |
| Deferred\tpension\tbenefits | 121,317 | 169,336 |
| Other | 71,514 | 69,632 |
|  | 3,014,684 | 2,868,375 |
|  | $(2,034,138) | $(1,822,975) |

At	December	31,	2014	and	2013,	the	Company	recorded	federal	net	operating	loss	("NOL")	carryforwards	of	$1,004,705	and	$1,182,075,	respectively.	The	2014 balance	does	not	include	$14,325	of	windfall	tax	benefits	on	stock-based	compensation	that	will	not	be	recorded	to	equity	until	the	benefit	is	realized.	The	Company believes	the	federal	NOL	carryforwards	are	more	likely	than	not	to	be	recovered	and	require	no	valuation	allowance.	The	Company	evaluated	its	ability	to	fully	utilize the	existing	federal	NOL	carryforwards	in	light	of	the	RWE	divestiture	in	November	2009.	Under	Internal	Revenue	Code	("I.R.C.")	Section	382,	an	ownership	change occurs	if	there	is	a	greater	than	fifty	percent	(50%)	change	in	equity	ownership	of	a	company	over	a	three-year	period	determined	by	reference	to	the	ownership	of persons	holding	five	percent	(5%)	or	more	of	that	company's	equity	securities.	If	a	company	undergoes	an	ownership	change	as	defined	by	I.R.C.	Section	382,	the company's	ability	to	utilize	its	pre-change	NOL	carryforwards	to	offset	post-change	income	may	be	limited.

The	Company	believes	that	the	limitation	imposed	by	I.R.C.	Section	382	generally	should	not	preclude	use	of	its	federal	NOL	carryforwards,	assuming	the Company	has	sufficient	taxable	income	in	future	carryforward	periods	to	utilize	those	NOL	carryforwards.	The	Company's	federal	NOL	carryforwards	do	not	begin expiring	until	2028.

At	December	31,	2014	and	2013,	the	Company	had	state	NOLs	of	$542,705	and	$628,049,	respectively,	a	portion	of	which	are	offset	by	a	valuation	allowance because	the	Company	does	not	believe	these	NOLs	are	more	likely	than	not	to	be	realized.	The	state	NOL	carryforwards	will	expire	between	2015	and	2033.

At	December	31,	2014	and	2013,	the	Company	had	Canadian	NOL	carryforwards	of	$6,498	and	$6,323,	respectively.	The	majority	of	these	carryforwards	are offset	by	a	valuation	allowance	because	the	Company	does	not	believe	these	NOLs	are	more	likely	than	not	to	be	realized.	The	Canadian	NOL	carryforwards	will	expire between	2015	and	2033.

The	Company	had	capital	loss	carryforwards	for	federal	income	tax	purposes	of	$3,844	at	December	31,	2014	and	2013.	The	Company	has	recognized	a	full valuation	allowance	for	the	capital	loss	carryforwards	because	the	Company	does	not	believe	these	losses	are	more	likely	than	not	to	be	recovered.

The	Company	files	income	tax	returns	in	the	United	States	federal	jurisdiction	and	various	state	and	foreign	jurisdictions.	With	few	exceptions,	the	Company	is no	longer	subject	to	U.S.	federal,	state	or	local	or	non-U.S.	income	tax	examinations	by	tax	authorities	for	years	before	2008.	For	U.S.	federal,	tax	year	2011	is	also closed.

The	Company	has	state	income	tax	examinations	in	progress	and	does	not	expect	material	adjustments	to	result.

The	Patient	Protection	and	Affordable	Care	Act	(the	"PPACA")	became	law	on	March	23,	2010,	and	the	Health	Care	and	Education	Reconciliation	Act	of	2010 became	law	on	March	30,	2010,	which	makes	various	amendments	to	certain	aspects	of	the	PPACA	(together,	the	"Acts").	The	PPACA	effectively	changes	the	tax treatment	of	federal	subsidies	paid	to	sponsors	of	retiree	health	benefit	plans	that	provide	a	benefit	that	is	at	least	actuarially	equivalent	to	the	benefits	under	Medicare Part	D.	The	Acts	effectively	make	the	subsidy	payments	taxable	in	tax	years	beginning	after	December	31,	2012	and	as	a	result,	the	Company	followed	its	original accounting	for	the	underfunded	status	of	the	other	postretirement	benefits	for	the	Medicare	Part	D	adjustment	and	recorded	a	reduction	in	deferred	tax	assets	and	an increase	in	its	regulatory	assets	amounting	to	$6,348	and	$6,241	at	December	31,	2014	and	2013,	respectively.

The	following	table	summarizes	the	changes	in	the	Company's	gross	liability,	excluding	interest	and	penalties,	for	unrecognized	tax	benefits:

| Balance	at	January	1,	2013 | $180,993 |
| :--- | :--- |
| Increases\tin\tcurrent\tperiod\ttax\tpositions | 27,229 |
| Decreases\tin\tprior\tperiod\tmeasurement\tof\ttax\tpositions | (30,275) |
| Balance\tat\tDecember\t31,\t2013 | $177,947 |
| Increases\tin\tcurrent\tperiod\ttax\tpositions | 53,818 |
| Decreases\tin\tprior\tperiod\tmeasurement\tof\ttax\tpositions | (36,528) |
| Balance\tat\tDecember\t31,\t2014 | $195,237 |

The	total	balance	in	the	table	above	does	not	include	interest	and	penalties	of	$157	and	$242	as	of	December	31,	2014	and	2013,	respectively,	which	is	recorded as	a	component	of	income	tax	expense.	The	majority	of	the	increased	tax	position	is	attributable	to	temporary	differences.	The	increase	in	2014	current	period	tax positions	related	primarily	to	the	Company's	change	in	tax	accounting	method	filed	in	2008	for	repair	and	maintenance	costs	on	its	utility	plant.	The	Company	does	not anticipate	material	changes	to	its	unrecognized	tax	benefits	within	the	next	year.	If	the	Company	sustains	all	of	its	positions	at	December	31,	2014	and	2013,	an unrecognized	tax	benefit	of	$9,444	and	$7,439,	respectively,	excluding	interest	and	penalties,	would	impact	the	Company's	effective	tax	rate.

The	following	table	summarizes	the	changes	in	the	Company's	valuation	allowance:

| Balance	at	January	1,	2012 | $21,579 |
| :--- | :--- |
| Increases\tin\tcurrent\tperiod\ttax\tpositions | — |
| Decreases\tin\tcurrent\tperiod\ttax\tpositions | (2,059) |
| Balance\tat\tDecember\t31,\t2012 | $19,520 |
| Increases\tin\tcurrent\tperiod\ttax\tpositions | — |
| Decreases\tin\tcurrent\tperiod\ttax\tpositions | (5,965) |
| Balance\tat\tDecember\t31,\t2013 | $13,555 |
| Increases\tin\tcurrent\tperiod\ttax\tpositions | — |
| Decreases\tin\tcurrent\tperiod\ttax\tpositions | (3,176) |
| Balance\tat\tDecember\t31,\t2014 | $10,379 |

Included	in	2013	is	a	discrete	tax	benefit	totaling	$2,979	associated	with	an	entity	re-organization	within	the	Company's	Market-Based	Operations	segment	that allowed	for	the	utilization	of	state	net	operating	loss	carryforwards	and	the	release	of	an	associated	valuation	allowance.

# Note	13:	Employee	Benefits

# Pension	and	Other	Postretirement	Benefits

The	Company	maintains	noncontributory	defined	benefit	pension	plans	covering	eligible	employees	of	its	regulated	utility	and	shared	services	operations. Benefits	under	the	plans	are	based	on	the	employee's	years	of	service	and	compensation.	The	pension	plans	have	been	closed	for	all	employees.	The	pension	plans	were closed	for	most	employees	hired	on	or	after	January	1,	2006.	Union	employees	hired	on	or	after	January	1,	2001	had	their	accrued	benefit	frozen	and	will	be	able	to receive	this	benefit	as	a	lump	sum	upon	termination	or	retirement.	Union	employees	hired	on	or	after	January	1,	2001	and	non-union	employees	hired	on	or	after January	1,	2006	are	provided	with	a	5.25%	of	base	pay	defined	contribution	plan.	The	Company	does	not	participate	in	a	multiemployer	plan.

The	Company's	pension	funding	practice	is	to	contribute	at	least	the	greater	of	the	minimum	amount	required	by	the	Employee	Retirement	Income	Security	Act of	1974	or	the	normal	cost.	Further,	the	Company	will	consider	additional	contributions	if	needed	to	avoid	"at	risk"	status	and	benefit	restrictions	under	the	Pension Protection	Act	of	2006.	The	Company	may	also	consider	increased	contributions,	based	on	other	financial	requirements	and	the	plans'	funded	position.	Pension	plan assets	are	invested	in	a	number	of	actively	managed	and	commingled	funds	including	equity	and	bond	funds,	fixed	income	securities,	guaranteed	interest	contracts	with insurance	companies,	real	estate	funds	and	real	estate	investment	trusts	("REITs").

Pension	expense	in	excess	of	the	amount	contributed	to	the	pension	plans	is	deferred	by	certain	regulated	subsidiaries	pending	future	recovery	in	rates	charged for	utility	services	as	contributions	are	made	to	the	plans.	(See	Note	6)

The	Company	also	has	unfunded	noncontributory	supplemental	non-qualified	pension	plans	that	provide	additional	retirement	benefits	to	certain	employees.

The	Company	maintains	other	postretirement	benefit	plans	providing	varying	levels	of	medical	and	life	insurance	to	eligible	retirees.	The	retiree	welfare	plans are	closed	for	union	employees	hired	on	or	after	January	1,	2006.	The	plans	had	previously	closed	for	non-union	employees	hired	on	or	after	January	1,	2002.

The	Company's	policy	is	to	fund	other	postretirement	benefit	costs	up	to	the	amount	recoverable	through	rates.	Assets	of	the	plans	are	invested	in	a	number	of actively	managed	commingled	funds	including	equity	and	bond	funds	and	fixed	income	securities.

The	obligations	of	the	pension	and	postretirement	benefit	plans	are	dominated	by	obligations	for	active	employees.	Because	the	timing	of	expected	benefit payments	is	so	far	in	the	future,	the	investment	strategy	is	to	allocate	a	significant	percentage	of	assets	to	equities,	which	the	Company	believes	will	provide	the	highest return	over	the	long-term	period.	The	fixed	income	assets	are	invested	in	intermediate	and	long	duration	debt	securities	and	may	be	invested	in	fixed	income instruments,	such	as	futures	and	options,	in	order	to	better	match	the	duration	of	the	plan	liability.

The	Company	periodically	conducts	asset	liability	studies	to	ensure	the	investment	strategies	are	aligned	with	the	profile	of	the	plans'	obligations.

None	of	the	Company's	securities	are	included	in	pension	or	other	postretirement	benefit	plan	assets.

The	Company	uses	fair	value	for	all	classes	of	assets	in	the	calculation	of	market-related	value	of	plan	assets.

The	investment	policy	guidelines	of	the	pension	plan	require	that	the	fixed	income	portfolio	has	an	overall	weighted-average	credit	rating	of	A	or	better	by Standard	&	Poor's.

The	investment	policies'	objectives	are	focused	on	reducing	the	volatility	of	the	plans'	funding	status	over	a	long	term	horizon.

The	fair	values	and	asset	allocations	of	pension	plan	assets	at	December	31,	2014,	by	asset	category,	follow:

|  |  |  | Quoted	Prices |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | in\tActive | Significant | Significant |  |
|  | Target |  | Markets\tfor | Observable | Unobservable | Percentage\tof\tPlan |
|  | Allocation |  | Identical\tAssets | Inputs | Inputs | Assets\tat |
| Asset\tCategory | 2015 | Total | (Level\t1) | (Level\t2) | (Level\t3) | December\t31,\t2014 |
| Cash | — | $8,370 | $8,370 | $— | $— | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 24% | 342,081 | 342,081 | — | — | 24% |
| U.S.\tsmall\tcap\t\tvalue | 8% | 116,503 | 116,503 | — | — | 8% |
| International | 20% | 274,143 | — | 274,143 | — | 19% |
| Fixed\tincome\tsecurities: | 40% |  |  |  |  | 41% |
| U.S.\tTreasury\tand\tgovernment |  |  |  |  |  |  |
| bonds | — | 140,057 | 121,351 | 18,706 | — | — |
| Corporate\tbonds | — | 376,939 | — | 376,939 | — | — |
| Mortgage-backed\t\tsecurities | — | 4,285 | — | 4,285 | — | — |
| Long\tduration\tbond\tfund | — | 6,555 | 6,555 | — | — | — |
| Guaranteed\tannuity\tcontracts | — | 51,517 | — | 8,987 | 42,530 | — |
| Real\testate | 6% | 84,821 | — | — | 84,821 | 6% |
| REITs | 2% | 22,889 | — | 22,889 | — | 2% |
| Total | 100% | $1,428,160 | $594,860 | $705,949 | $127,351 | 100% |

The	following	table	presents	a	reconciliation	of	the	beginning	and	ending	balances	of	the	fair	value	measurements	using	significant	unobservable	inputs	(Level

|  | Level	3 |
| :--- | :--- |
| Balance,\tJanuary\t1,\t2014 | $43,825 |
| Actual\treturn\ton\tassets | 7,053 |
| Purchases,\tissuances\tand\tsettlements,\tnet | 76,473 |
| Balance,\tDecember\t31,\t2014 | $127,351 |

|  |  |  | Quoted	Prices |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | in\tActive | Significant | Significant |  |
|  | Target |  | Markets\tfor | Observable | Unobservable | Percentage\tof\tPlan |
|  | Allocation |  | Identical\tAssets | Inputs | Inputs | Assets\tat |
| Asset\tCategory | 2014 | Total | (Level\t1) | (Level\t2) | (Level\t3) | December\t31,\t2013 |
| Cash | — | $12,844 | $12,844 | $— | $— | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 24% | 455,068 | 455,068 | — | — | 33% |
| U.S.\tsmall\tcap\tvalue | 8% | 139,571 | 139,571 | — | — | 10% |
| International | 20% | 295,226 | 615 | 294,611 | — | 21% |
| Fixed\tincome\tsecurities: | 40% |  |  |  |  | 35% |
| U.S.\tTreasury\tand\tgovernment |  |  |  |  |  |  |
| bonds | — | 81,200 | 76,222 | 4,978 | — | — |
| Corporate\tbonds | — | 209,500 | — | 209,500 | — | — |
| Mortgage-backed\t\tsecurities | — | 116,956 | — | 116,956 | — | — |
| Long\tduration\tbond\tfund | — | 5,177 | 5,177 | — | — | — |
| Guaranteed\tannuity\tcontracts | — | 52,772 | — | 8,947 | 43,825 | — |
| Real\testate | 6% | — | — | — | — | — |
| REITs | 2% | 15,307 | — | 15,307 | — | 1% |
| Total | 100% | $1,383,621 | $689,497 | $650,299 | $43,825 | 100% |

| 3): |  |
| :--- | :--- |
|  | Level\t3 |
| Balance,\tJanuary\t1,\t2013 | $173,625 |
| Actual\treturn\ton\tassets | 10,384 |
| Purchases,\tissuances\tand\tsettlements,\tnet | (140,184) |
| Balance,\tDecember\t31,\t2013 | $43,825 |

The	Company's	other	postretirement	benefit	plans	are	partially	funded	and	the	assets	are	held	under	various	trusts.	The	investments	and	risk	mitigation	strategies for	the	plans	are	tailored	specifically	for	each	trust.	In	setting	new	strategic	asset	mixes,	consideration	is	given	to	the	likelihood	that	the	selected	asset	allocation	will effectively	fund	the	projected	plan	liabilities	and	the	risk	tolerance	of	the	Company.	The	Company	periodically	updates	the	long-term,	strategic	asset	allocations	and uses	various	analytics	to	determine	the	optimal	asset	allocation.	Considerations	include	plan	liability	characteristics,	liquidity	characteristics,	funding	requirements, expected	rates	of	return	and	the	distribution	of	returns.

In	June	2012,	the	Company	implemented	a	de-risking	strategy	for	the	medical	bargaining	trust	within	the	plan	to	minimize	volatility.	As	part	of	the	de-risking strategy,	the	Company	revised	the	asset	allocations	to	increase	the	matching	characteristics	of	assets	relative	to	liabilities.	The	initial	de-risking	asset	allocation	for	the plan	was	60%	return-generating	assets	and	40%	liability-driven	assets.	The	investment	strategies	and	policies	for	the	plan	reflect	a	balance	of	liability	driven	and	return- generating	considerations.	The	objective	of	minimizing	the	volatility	of	assets	relative	to	liabilities	is	addressed	primarily	through	asset—liability	matching,	asset diversification	and	hedging.	The	fixed	income	target	asset	allocation	matches	the	bond-like	and	long-dated	nature	of	the	postretirement	liabilities.	Assets	are	broadly diversified	within	asset	classes	to	achieve	risk-adjusted	returns	that	in	total	lower	asset	volatility	relative	to	the	liabilities.	The	Company	assesses	the	investment	strategy regularly	to	ensure	actual	allocations	are	in	line	with	target	allocations	as	appropriate.	Strategies	to	address	the	goal	of	ensuring	sufficient	assets	to	pay	benefits	include target	allocations	to	a	broad	array	of	asset	classes	and,	within	asset	classes	strategies	are	employed	to	provide	adequate	returns,	diversification	and	liquidity.

The	assets	of	the	Company's	other	trusts,	within	the	other	postretirement	benefit	plans,	have	been	primarily	invested	in	equities	and	fixed	income	funds.	The assets	under	the	various	other	postretirement	benefit	trusts	are	invested	differently	based	on	the	assets	and	liabilities	of	each	trust.	The	obligations	of	the	other postretirement	benefit	plans	are	dominated	by	obligations	for	the	medical	bargaining	trust.	Thirty-nine	percent	and	four	percent	of	the	total	postretirement	plan	benefit obligations	are	related	to	the	medical	non-bargaining	and	life	insurance	trusts,	respectively.	Because	expected	benefit	payments	related	to	the	benefit	obligations	are	so far	into	the	future,	and	the	size	of	the	medical	non-bargaining	and	life	insurance	trusts'	obligations	are	large	compared	to	each	trusts'

assets,	the	investment	strategy	is	to	allocate	a	significant	portion	of	the	assets'	investment	to	equities,	which	the	Company	believes	will	provide	the	highest	long-term return	and	improve	the	funding	ratio.

The	Company	engages	third	party	investment	managers	for	all	invested	assets.	Managers	are	not	permitted	to	invest	outside	of	the	asset	class	(e.g.,	fixed	income, equity,	alternatives)	or	strategy	for	which	they	have	been	appointed.	Investment	management	agreements	and	recurring	performance	and	attribution	analysis	are	used	as tools	to	ensure	investment	managers	invest	solely	within	the	investment	strategy	they	have	been	provided.	Futures	and	options	may	be	used	to	adjust	portfolio	duration to	align	with	a	plan's	targeted	investment	policy.

In	order	to	minimize	asset	volatility	relative	to	the	liabilities,	a	portion	of	plan	assets	is	allocated	to	fixed	income	investments	that	are	exposed	to	interest	rate	risk. Increases	in	interest	rates	generally	will	result	in	a	decline	in	the	value	of	fixed	income	assets	while	reducing	the	present	value	of	the	liabilities.	Conversely,	rate decreases	will	increase	fixed	income	assets,	partially	offsetting	the	related	increase	in	the	liabilities.	Within	equities,	risk	is	mitigated	by	constructing	a	portfolio	that	is broadly	diversified	by	geography,	market	capitalization,	manager	mandate	size,	investment	style	and	process.

Actual	allocations	to	each	asset	class	vary	from	target	allocations	due	to	periodic	investment	strategy	updates,	market	value	fluctuations,	the	length	of	time	it takes	to	fully	implement	investment	allocation,	and	the	timing	of	benefit	payments	and	contributions.	The	asset	allocation	is	rebalanced	on	a	quarterly	basis,	if	necessary.

The	fair	values	and	asset	allocations	of	postretirement	benefit	plan	assets	at	December	31,	2014,	by	asset	category,	follow:

|  |  |  | Quoted	Prices |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | in\tActive | Significant | Significant |  |
|  | Target |  | Markets\tfor | Observable | Unobservable | Percentage\tof\tPlan |
|  | Allocation |  | Identical\tAssets | Inputs | Inputs | Assets\tat |
| Asset\tCategory | 2015 | Total | (Level\t1) | (Level\t2) | (Level\t3) | December\t31,\t2014 |
| Bargain\tVEBA: |  |  |  |  |  |  |
| Cash | — | $189 | $189 | $— | — | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 9% | 34,168 | 34,168 | — | — | 9% |
| U.S.\tsmall\tcap\tvalue | — | — | — | — | — | — |
| International | 11% | 40,232 | 40,232 | — | — | 10% |
| Fixed\tincome\tsecurities: | 80% |  |  |  |  | 81% |
| U.S.\tTreasury\tsecurities\tand |  |  |  |  |  |  |
| government\tbonds | — | 155,087 | 155,087 | — | — | — |
| Corporate\tbonds | — | 168,317 | — | 168,317 | — | — |
| Long\tduration\tbond\tfund | — | 3,245 | 3,245 | — | — | — |
| Future\tand\toption\tcontracts\t(a) | — | 387 | 387 | — | — | — |
| Total\tbargain\tVEBA | 100% | $401,625 | $233,308 | $168,317 | — | 100% |
| Non-bargain\tVEBA: |  |  |  |  |  |  |
| Cash | — | $636 | $636 | $— | — | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 21% | 21,966 | 21,966 | — | — | 21% |
| U.S.\tsmall\tcap\tvalue | 21% | 21,123 | 21,122 | 1 | — | 21% |
| International | 28% | 28,611 | 28,611 | — | — | 28% |
| Fixed\tincome\tsecurities: | 30% |  |  |  |  | 30% |
| Core\tfixed\tincome\tbond\tfund | — | 30,762 | 30,762 | — | — | — |
| Total\tnon-bargain\tVEBA | 100% | $103,098 | $103,097 | $1 | — | 100% |
| Life\tVEBA: |  |  |  |  |  |  |
| Cash | — | $65 | $65 | $— | — | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 70% | 4,924 | 4,924 | — | — | 67% |
| Fixed\tincome\tsecurities: | 30% |  |  |  |  | 33% |
| Core\tfixed\tincome\tbond\tfund | — | 2,336 | 2,336 | — | — | — |
| Total\tlife\tVEBA | 100% | $7,325 | $7,325 | $— | — | 100% |
| Total | 100% | $512,048 | $343,730 | $168,318 | — | 100% |

(a) Includes	cash	for	margin	requirements.

|  |  |  | Quoted	Prices |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | in\tActive | Significant | Significant |  |
|  | Target |  | Markets\tfor | Observable | Unobservable | Percentage\tof\tPlan |
|  | Allocation |  | Identical\tAssets | Inputs | Inputs | Assets\tat |
| Asset\tCategory | 2014 | Total | (Level\t1) | (Level\t2) | (Level\t3) | December\t31,\t2013 |
| Bargain\tVeba: |  |  |  |  |  |  |
| Cash | — | $689 | $689 | $— | — | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 18% | 72,108 | 72,108 | — | — | 19% |
| U.S.\tsmall\tcap\tvalue | 7% | 26,574 | 26,574 | — | — | 7% |
| International | 15% | 55,888 | 55,888 | — | — | 15% |
| Fixed\tincome\tsecurities: | 60% |  |  |  |  | 59% |
| U.S.\tTreasury\tsecurities\tand |  |  |  |  |  |  |
| government\tbonds | — | 95,010 | 91,578 | 3,432 | — | — |
| Corporate\tbonds | — | 117,843 | — | 117,843 | — | — |
| Long\tduration\tbond\tfund | — | 2,043 | 2,043 | — | — | — |
| Future\tand\toption\tcontracts\t(a) | — | 620 | 620 | — | — | — |
| Total\tbargain\tVEBA | 100% | $370,775 | $249,500 | $121,275 | — | 100% |
| Non-bargain\tVEBA: |  |  |  |  |  |  |
| Cash | — | $3,451 | $3,451 | $— | — | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 21% | 41,430 | 41,430 | — | — | 43% |
| \t\t\t\t\t\t\t\t\t\tU.S.\tsmall\tcap\tvalue | 21% | — | — | — | — | 0% |
| \t\t\t\t\t\t\t\t\t\tInternational | 28% | 27,739 | 27,739 | — | — | 29% |
| Fixed\tincome\tsecurities: | 30 % |  |  |  |  | 28% |
| Core\tfixed\tincome\tbond\tfund | — | 23,563 | 23,563 | — | — | — |
| Total\tnon-bargain\tVEBA | 100% | $96,183 | $96,183 | $— | — | 100% |
| Life\tVEBA: |  |  |  |  |  |  |
| Cash | — | $27 | $27 | $— | — | — |
| Equity\tsecurities: |  |  |  |  |  |  |
| U.S.\tlarge\tcap | 70% | 5,527 | 5,527 | — | — | 71% |
| Fixed\tincome\tsecurities: | 30% |  |  |  |  | 29% |
| Core\tfixed\tincome\tbond\tfund | — | 2,206 | 2,206 | — | — | — |
| Total\tLife\tVEBA | 100% | $7,760 | $7,760 | $— | — | 100% |
| Total | 100% | $474,718 | $353,443 | $121,275 | — | 100% |

# Valuation	Techniques	Used	to	Determine	Fair	Value

Cash—Cash	and	investments	with	maturities	of	three	months	or	less	when	purchased,	including	certain	short-term	fixed-income	securities,	are	considered	cash and	are	included	in	the	recurring	fair	value	measurements	hierarchy	as	Level	1.

Equity	securities—For	equity	securities,	the	trustees	obtain	prices	from	pricing	services,	whose	prices	are	obtained	from	direct	feeds	from	market	exchanges,	that the	Company	is	able	to	independently	corroborate.	Equity	securities	are	valued	based	on	quoted	prices	in	active	markets	and	categorized	as	Level	1.	Certain	equities, such	as	international	securities	held	in	the	pension	plan	are	invested	in	commingled	funds.	These	funds	are	valued	to	reflect	the	plan	fund's	interest	in	the	fund	based	on the	reported	year-end	net	asset	value.	Since	net	asset	value	is	not	directly	observable	or	not	available	on	a	nationally	recognized	securities	exchange	for	the	commingled funds,	they	are	categorized	as	Level	2.

Fixed-income	securities—The	majority	of	U.S.	Treasury	securities	and	government	bonds	have	been	categorized	as	Level	1	because	they	trade	in	highly-liquid and	transparent	markets	that	the	Company	can	corroborate.	The	fair	values	of	corporate	bonds,	mortgage	backed	securities,	certain	government	bonds	and	a	guaranteed annuity	contract	are	based	on	evaluated	prices	that	reflect	observable	market	information,	such	as	actual	trade	information	of	similar	securities,	and	have	been categorized	as	Level	2	because	the	valuations	are	calculated	using	models	which	utilize	actively	traded	market	data	that	the	Company	can	corroborate.	Certain	other guaranteed	annuity	contracts	are	categorized	as	Level	3	because	the	investments	are	not	publicly	quoted.	The	fund	administrator	values	the	fund	using	the	net	asset	value per	fund	share,	derived	from	the	quoted	prices	in	active	markets	of	the	underlying	securities.	Since	these	valuation	inputs	are	not	highly	observable,	these	contracts	have been	categorized	as	Level	3.	Exchange-traded	future	and	option	positions	are	reported	in	accordance	with	changes	in	daily	variation	margins	that	are	settled	daily. Exchange-traded	options	and	futures,	for	which	market	quotations	are	readily	available,	are	valued	at	the	last	reported	sale	price	or	official	closing	price	on	the	primary market	or	exchange	on	which	they	are	traded	and	are	classified	as	Level	1.

Real	estate	fund—Real	estate	fund	is	valued	using	the	net	asset	value	based	on	valuation	models	of	underlying	securities	which	generally	include	significant unobservable	inputs	that	cannot	be	corroborated	using	verifiable	observable	market	data.	Real	estate	fund	is	categorized	as	Level	3	as	the	fund	uses	significant unobservable	inputs	for	fair	value	measurement.

REITs—REITs	are	invested	in	commingled	funds.	Commingled	funds	are	valued	to	reflect	the	plan	fund's	interest	in	the	fund	based	on	the	reported	year-end	net asset	value.	Since	the	net	asset	value	is	not	directly	observable	for	the	commingled	funds,	they	are	categorized	as	Level	2.

The	following	table	provides	a	rollforward	of	the	changes	in	the	benefit	obligation	and	plan	assets	for	the	most	recent	two	years	for	all	plans	combined:

|  | Pension	Benefits<br>2014 | 2013 | Other	Benefits<br>2014 | 2013 |
| :--- | :--- | :--- | :--- | :--- |
| Change\tin\tbenefit\tobligation |  |  |  |  |
| Benefit\tobligation\tat\tJanuary\t1 | $1,494,132 | $1,621,244 | $561,923 | $687,082 |
| Service\tcost | 31,773 | 37,872 | 11,058 | 15,282 |
| Interest\tcost | 76,652 | 68,096 | 28,605 | 28,700 |
| Plan\tparticipants'\tcontributions | — | — | 2,625 | 2,514 |
| Actuarial\t(gain)\tloss | 255,762 | (180,688) | 123,342 | (148,410) |
| Gross\tbenefits\tpaid | (111,863) | (52,392) | (26,440) | (25,263) |
| Federal\tsubsidy | — | — | 2,159 | 2,018 |
| Benefit\tobligation\tat\tDecember\t31 | $1,746,456 | $1,494,132 | $703,272 | $561,923 |
| Change\tin\tPlan\tAssets |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tJanuary\t1 | $1,383,621 | $1,157,697 | $474,718 | $433,260 |
| Actual\treturn\ton\tplan\tassets | 116,363 | 208,821 | 48,989 | 36,202 |
| Employer\tcontributions | 40,039 | 69,495 | 12,156 | 28,005 |
| Plan\tparticipants'\tcontributions | — | — | 2,625 | 2,514 |
| Benefits\tpaid | (111,863) | (52,392) | (26,440) | (25,263) |
| Fair\tvalue\tof\tplan\tassets\tat\tDecember\t31 | $1,428,160 | $1,383,621 | $512,048 | $474,718 |
| Funded\tstatus\tat\tDecember\t31 | $(318,296) | $(110,511) | $(191,224) | $(87,205) |
| Amounts\trecognized\tin\tthe\tbalance\tsheet\tconsist\tof: |  |  |  |  |
| Noncurrent\tasset | $— | $— | $1,326 | $1,271 |
| Current\tliability | (1,928) | (1,969) | (48) | (57) |
| Noncurrent\tliability | (316,368) | (108,542) | (192,502) | (88,419) |
| Net\tamount\trecognized | $(318,296) | $(110,511) | $(191,224) | $(87,205) |

Benefits	paid	in	2014	includes	$55,579	from	a	one-time	lump	sum	window	offering	to	retired	vested	participants.

The	following	table	provides	the	components	of	the	Company's	accumulated	other	comprehensive	income	and	regulatory	assets	that	have	not	been	recognized	as components	of	periodic	benefit	costs	as	of	December	31:

|  | Pension	Benefits<br>2014 | 2013 | Other	Benefits<br>2014 | 2013 |
| :--- | :--- | :--- | :--- | :--- |
| Net\tactuarial\tloss | $379,743 | $145,376 | $119,566 | $17,632 |
| Prior\tservice\tcost\t(credit) | 3,694 | 4,418 | (12,330) | (14,519) |
| Net\tamount\trecognized | $383,437 | $149,794 | $107,236 | $3,113 |
| Regulatory\tassets | $248,641 | $90,380 | $107,236 | $3,113 |
| Accumulated\tother\tcomprehensive\tincome | 134,796 | 59,414 | — | — |
|  | $383,437 | $149,794 | $107,236 | $3,113 |

At	December	31,	2014	and	2013,	the	projected	benefit	obligation,	accumulated	benefit	obligation	and	fair	value	of	plan	assets	for	pension	plans	with	a	projected obligation	in	excess	of	plan	assets	were	as	follows:

The	accumulated	postretirement	benefit	obligation	exceeds	plan	assets	for	all	of	the	Company's	other	postretirement	benefit	plans.

In	August	2006,	the	Pension	Protection	Act	("PPA")	was	signed	into	law	in	the	U.S.	The	PPA	replaces	the	funding	requirements	for	defined	benefit	pension	plans by	requiring	that	defined	benefit	plans	contribute	to	100%	of	the	current	liability	funding	target	over	seven	years.	Defined	benefit	plans	with	a	funding	status	of	less	than 80%	of	the	current	liability	are	defined	as	being	"at	risk"	and	additional	funding	requirements	and	benefit	restrictions	may	apply.	The	PPA	was	effective	for	the	2008 plan	year	with	short-term	phase-in	provisions	for	both	the	funding	target	and	at-risk	determination.	The	Company's	qualified	defined	benefit	plan	is	currently	funded above	the	at-risk	threshold,	and	therefore	the	Company	expects	that	the	plans	will	not	be	subject	to	the	"at	risk"	funding	requirements	of	the	PPA.	The	Company	is proactively	monitoring	the	plan's	funded	status	and	projected	contributions	under	the	law	to	appropriately	manage	the	potential	impact	on	cash	requirements.

Minimum	funding	requirements	for	the	qualified	defined	benefit	pension	plan	are	determined	by	government	regulations	and	not	by	accounting	pronouncements. The	Company	plans	to	contribute	amounts	at	least	equal	to	the	greater	of	the	minimum	required	contributions	or	the	normal	cost	in	2015	to	the	qualified	pension	plans. The	Company	plans	to	contribute	to	its	2015	other	postretirement	benefit	cost	for	rate-making	purposes.

Information	about	the	expected	cash	flows	for	the	pension	and	postretirement	benefit	plans	is	as	follows:

|  | Pension<br>Benefits | Other<br>Benefits |
| :--- | :--- | :--- |
| 2015\texpected\temployer\tcontributions |  |  |
| \t\tTo\tplan\ttrusts | \t $28,000 | \t $26,500 |
| \t\tTo\tplan\tparticipants | 1,929 | 104 |

The	Company	made	2015	contributions	to	fund	pension	benefits	and	other	benefits	of	$6,100	and	$6,632,	respectively,	through	February	2015.

The	following	table	reflects	the	net	benefits	expected	to	be	paid	from	the	plan	assets	or	the	Company's	assets:

|  | Expected	Benefit	Payments | Expected	Benefit	Payments | Payments |
| :--- | :--- | :--- | :--- |
| 2015 | \t$63,355 | \t$27,897 | \t$2,113 |
| 2016 | 69,673 | 30,672 | 2,295 |
| 2017 | 75,894 | 33,518 | 2,486 |
| 2018 | 82,063 | 36,502 | 2,678 |
| 2019 | 88,635 | 39,172 | 2,892 |
| 2020—2024 | 528,913 | 226,602 | 18,220 |

Because	the	above	amounts	are	net	benefits,	plan	participants'	contributions	have	been	excluded	from	the	expected	benefits.

Accounting	for	pensions	and	other	postretirement	benefits	requires	an	extensive	use	of	assumptions	about	the	discount	rate,	expected	return	on	plan	assets,	the rate	of	future	compensation	increases	received	by	the	Company's	employees,	mortality,	turnover	and	medical	costs.	Each	assumption	is	reviewed	annually.	The assumptions	are	selected	to	represent	the	average	expected	experience	over	time	and	may	differ	in	any	one	year	from	actual	experience	due	to	changes	in	capital	markets and	the	overall	economy.	These	differences	will	impact	the	amount	of	pension	and	other	postretirement	benefit	expense	that	the	Company	recognizes.

The	significant	assumptions	related	to	the	Company's	pension	and	other	postretirement	benefit	plans	are	as	follows:

|  | 2014 | Pension	Benefits<br>2013 | 2012 | 2014 | Other	Benefits<br>2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Weighted-average |  |  |  |  |  |  |
| \t\t\tassumptions\tused\tto |  |  |  |  |  |  |
| \t\t\tdetermine\tDecember\t31 |  |  |  |  |  |  |
| \t\t\tbenefit\tobligations |  |  |  |  |  |  |
| Discount\trate | 4.24% | 5.12% | 4.17% | 4.24% | 5.10% | 4.16% |
| Rate\tof\tcompensation\tincrease | 3.12% | 3.15% | 3.19% | N/A | N/A | N/A |
| Medical\ttrend | N/A | N/A | N/A | graded\tfrom | graded\tfrom | graded\tfrom |
|  |  |  |  | 6.75%\tin\t2014 | 7.00%\tin\t2013 | 7.25%\tin\t2012 |
|  |  |  |  | to\t5.00%\tin\t2021+ | to\t5.00%\tin\t2019+ | to\t5.00%\tin\t2019+ |
| Weighted-average |  |  |  |  |  |  |
| \t\t\tassumptions\tused\tto |  |  |  |  |  |  |
| \t\t\tdetermine\tnet\tperiodic\tcost |  |  |  |  |  |  |
| Discount\trate | 5.12% | 4.17% | 5.02% | 5.10% | 4.16% | 5.05% |
| Expected\treturn\ton\tplan\tassets | 6.91% | 7.49% | 7.75% | 5.87% | 6.99% | 7.41% |
| Rate\tof\tcompensation\tincrease | 3.15% | 3.19% | 3.25% | N/A | N/A | N/A |
| Medical\ttrend | N/A | N/A | N/A | graded\tfrom | graded\tfrom | graded\tfrom |
|  |  |  |  | 7.00%\t\tin\t2014 | 7.25%\t\tin\t2013 | 7.50%\t\tin\t2012 |
|  |  |  |  | to\t5.00%\tin\t2019+ | to\t5.00%\tin\t2019+ | to\t5.00%\tin\t2019+ |

N/A	-	Assumption	is	not	applicable.

The	discount	rate	assumption	was	determined	for	the	pension	and	postretirement	benefit	plans	independently.	At	year-end	2011,	the	Company	began	using	an approach	that	approximates	the	process	of	settlement	of	obligations	tailored	to	the	plans'	expected	cash	flows	by	matching	the	plans'	cash	flows	to	the	coupons	and expected	maturity	values	of	individually	selected	bonds.	The	yield	curve	was	developed	for	a	universe	containing	the	majority	of	U.S.-issued	AA-graded	corporate bonds,	all	of	which	were	non	callable	(or	callable	with	make-whole	provisions).	Historically,	for	each	plan,	the	discount	rate	was	developed	as	the	level	equivalent	rate that	would	produce	the	same	present	value	as	that	using	spot	rates	aligned	with	the	projected	benefit	payments.

The	expected	long-term	rate	of	return	on	plan	assets	is	based	on	historical	and	projected	rates	of	return,	prior	to	administrative	and	investment	management	fees, for	current	and	planned	asset	classes	in	the	plans'	investment	portfolios.	Assumed	projected	rates	of	return	for	each	of	the	plans'	projected	asset	classes	were	selected after	analyzing	historical	experience	and	future	expectations	of	the	returns	and	volatility	of	the	various	asset	classes.	Based	on	the	target	asset	allocation	for	each	asset class,	the	overall	expected	rate	of	return	for	the	portfolio	was	developed,	adjusted	for	historical	and	expected	experience	of	active	portfolio	management	results

compared	to	the	benchmark	returns	and	for	the	effect	of	expenses	paid	from	plan	assets.	The	Company's	pension	expense	increases	as	the	expected	return	on	assets decreases.

In	the	determination	of	year	end	2014	projected	benefit	plan	obligations,	the	Company	adopted	a	new	table	based	on	the	Society	of	Actuaries	RP	2014	mortality table	including	a	generational	BB-2D	projection	scale.	The	adoption	resulted	in	a	significant	increase	to	pension	and	other	postretirement	benefit	plans'	projected	benefit obligations.

|  | One-Percentage-<br>Point	Increase | One-Percentage-<br>Point	Decrease |
| :--- | :--- | :--- |
| Effect\ton\ttotal\tof\tservice\tand\tinterest\tcost\tcomponents | \t $5,943 | \t$(4,887) |
| Effect\ton\tother\tpostretirement\tbenefit\tobligation | \t $105,967 | \t$(86,179) |

The	following	table	provides	the	components	of	net	periodic	benefit	costs	for	the	years	ended	December	31:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Components\tof\tnet\tperiodic\tpension\tbenefit\tcost |  |  |  |
| Service\tcost | $31,773 | $37,872 | $34,209 |
| Interest\tcost | 76,652 | 68,096 | 70,866 |
| Expected\treturn\ton\tplan\tassets | (94,838) | (88,429) | (79,272) |
| Amortization\tof: |  |  |  |
| \t\t\tPrior\tservice\tcost\t(credit) | 724 | 724 | 723 |
| \t\t\tActuarial\t(gain)\tloss | (131) | 37,170 | 29,636 |
| Settlement\tloss | — | — | 7,135 |
| Net\tperiodic\tpension\tbenefit\tcost | $14,180 | $55,433 | $63,297 |
| Other\tchanges\tin\tplan\tassets\tand\tbenefit\tobligations\trecognized\tin\tother |  |  |  |
| \t\t\tcomprehensive\tincome |  |  |  |
| Amortization\tof\tprior\tservice\tcredit\t(cost) | $(166) | $(174) | $(176) |
| Current\tyear\tactuarial\t(gain)\tloss | 46,119 | (73,472) | 26,425 |
| Amortization\tof\tactuarial\tgain\t(loss) | 31 | (8,911) | (7,301) |
| Total\trecognized\tin\tother\tcomprehensive\tincome | $45,984 | $(82,557) | $18,948 |
| Total\trecognized\tin\tnet\tperiodic\tbenefit\tcost\tand\tcomprehensive\tincome | $60,164 | $(27,124) | $82,245 |
| Components\tof\tnet\tperiodic\tother\tpostretirement\tbenefit\tcost |  |  |  |
| Service\tcost | $11,058 | $15,282 | $14,207 |
| Interest\tcost | 28,605 | 28,700 | 31,570 |
| Expected\treturn\ton\tplan\tassets | (27,500) | (30,285) | (28,711) |
| Amortization\tof: |  |  |  |
| \t\t\tPrior\tservice\tcost\t(credit) | (81) | (2,189) | (1,915) |
|  | (2,189) | 11,128 | 9,537 |
| \t\t\tActuarial\t(gain)\tloss |  |  |  |
| Other | — | — | (696) |
| Net\tperiodic\tother\tpostretirement\tbenefit\tcost | $9,893 | $22,636 | $23,992 |

The	Company's	policy	is	to	recognize	curtailments	when	the	total	expected	future	service	of	plan	participants	is	reduced	by	greater	than	10%	due	to	an	event	that results	in	terminations	and/or	retirements.

Cumulative	gains	and	losses	that	are	in	excess	of	10%	of	the	greater	of	either	the	projected	benefit	obligation	or	the	fair	value	of	plan	assets	are	amortized	over the	expected	average	remaining	future	service	of	the	current	active	membership	for	the	plans.

The	estimated	amounts	that	will	be	amortized	from	accumulated	other	comprehensive	income	and	regulatory	assets	into	net	periodic	benefit	cost	in	2015	are	as

follows:

|  | Pension	Benefits | Other	Benefits |
| :--- | :--- | :--- |
| Actuarial\t(gain)\tloss | $25,108 | \t $5,009 |
| Prior\tservice\tcost\t(credit) | 754 | (2,189) |
| Total | $25,862 | \t $2,820 |

# Savings	Plans	for	Employees

The	Company	maintains	401(k)	savings	plans	that	allow	employees	to	save	for	retirement	on	a	tax-deferred	basis.	Employees	can	make	contributions	that	are invested	at	their	direction	in	one	or	more	funds.	The	Company	makes	matching	contributions	based	on	a	percentage	of	an	employee's	contribution,	subject	to	certain limitations.	Due	to	the	Company's	discontinuing	new	entrants	into	the	defined	benefit	pension	plan,	on	January	1,	2006	the	Company	began	providing	an	additional 5.25%	of	base	pay	defined	contribution	benefit	for	union	employees	hired	on	or	after	January	1,	2001	and	non-union	employees	hired	on	or	after	January	1,	2006.	Plan expenses	totaled	$7,595	for	2014,	$7,926	for	2013	and	$7,990	for	2012.	All	of	the	Company's	contributions	are	invested	in	one	or	more	funds	at	the	direction	of	the employee.

# Note	14:	Commitments	and	Contingencies

# Commitments

Commitments	have	been	made	in	connection	with	certain	construction	programs.	The	estimated	capital	expenditures	required	under	legal	and	binding	contractual obligations	amounted	to	$217,082	at	December	31,	2014.

The	Company	enters	into	agreements	for	the	provision	of	services	to	water	and	wastewater	facilities	for	the	United	States	military,	municipalities	and	other customers.	The	Company's	military	services	agreements	expire	between	2051	and	2064	and	have	remaining	performance	commitments	as	measured	by	estimated remaining	contract	revenue	of	$2,543,778	at	December	31,	2014.	The	military	contracts	are	subject	to	customary	termination	provisions	held	by	the	U.S.	Federal Government	prior	to	the	agreed	upon	contract	expiration.	The	Company's	Operations	and	Maintenance	agreements	with	municipalities	and	other	customers	expire between	2015	and	2048	and	have	remaining	performance	commitments	as	measured	by	estimated	remaining	contract	revenue	of	$865,803	at	December	31,	2014.	Some of	the	Company's	long-term	contracts	to	operate	and	maintain	a	municipality's,	federal	government's	or	other	party's	water	or	wastewater	treatment	and	delivery facilities	include	responsibility	for	certain	maintenance	for	some	of	those	facilities,	in	exchange	for	an	annual	fee.	Unless	specifically	required	to	perform	certain maintenance	activities,	the	maintenance	costs	are	recognized	when	the	maintenance	is	performed.

# Contingencies

The	Company	is	routinely	involved	in	legal	actions	incident	to	the	normal	conduct	of	its	business.	At	December	31,	2014,	the	Company	has	accrued approximately	$5,000	as	probable	costs	and	it	is	reasonably	possible	that	additional	losses	could	range	up	to	$30,100	for	these	matters.	For	certain	matters,	the	Company is	unable	to	estimate	possible	losses.	The	Company	believes	that	damages	or	settlements,	if	any,	recovered	by	plaintiffs	in	such	claims	or	actions	will	not	have	a	material adverse	effect	on	the	Company's	results	of	operations,	financial	position	or	cash	flows.

On	October	13,	2014,	we	entered	into	a	settlement	agreement	with	the	Utility	Workers	Union	of	America	("UWUA")	designed	to	resolve	a	dispute	between	our company	and	the	labor	unions	representing	employees	in	the	Regulated	Businesses	("the	Unions").		Among	other	things,	the	settlement	agreement	provides	for	a	new 2014-2018	National	Benefits	Agreement	that	will	be	in	effect	generally	until	July	31,	2018.	In	addition,	we	agreed	to	make	a	$10	million	lump-sum	payment,	to	be distributed	in	accordance	with	procedures	set	forth	in	the	settlement	agreement	among	eligible	employees	represented	by	the	Unions	and	affected	by	implementation	of our	last,	best	and	final	offer.	The	majority	of	the	distributions	are	expected	to	be	used	to	reimburse	employees	for	medical	claims	which	were	incurred	during	the	relevant period	and	will	be	funded	by	the	Group	Insurance	Plan	for	American	Water	Works	Company,	Inc.	and	Its	Designated	Subsidiaries	and	Affiliates	–	Active	Employees VEBA	(the	"VEBA	Trust"),	to	which	we	previously	have	made	contributions.

# Note	15:	Earnings	per	Common	Share

Earnings	per	share	is	calculated	using	the	two-class	method.	The	two-class	method	is	an	earnings	allocation	formula	that	determines	earnings	per	share	for	each class	of	common	stock	and	participating	security.	The	Company	has	participating	securities	related	to	restricted	stock	units,	granted	under	the	Company's	2007 Omnibus	Equity	Compensation	Plan,	that	earn	dividend	equivalents	on	an	equal	basis	with	common	shares.	In	applying	the	two-class	method,	undistributed	earnings	are allocated	to	both	common	shares	and	participating	securities.

The	following	is	a	reconciliation	of	the	Company's	income	from	continuing	operations,	loss	from	discontinued	operations	and	net	income	and	weighted-average common	shares	outstanding	for	calculating	basic	earnings	per	share:

|  |  | Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| Basic | 2014 | 2013 | 2012 |
| Income\tfrom\tcontinuing\toperations | $429,841 | $370,844 | $373,602 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | (6,733) | (1,580) | (15,532) |
| Net\tincome | 423,108 | 369,264 | 358,070 |
| Less:\tDistributed\tearnings\tto\tcommon\tshareholders | 217,253 | 150,038 | 214,541 |
| Less:\tDistributed\tearnings\tto\tparticipating\tsecurities | 63 | 60 | 86 |
| Undistributed\tearnings | 205,792 | 219,166 | 143,443 |
| Undistributed\tearnings\tallocated\tto\tcommon\tshareholders | 205,735 | 219,082 | 143,385 |
| Undistributed\tearnings\tallocated\tto\tparticipating\tsecurities | 57 | 84 | 58 |
| Total\tincome\tfrom\tcontinuing\toperations\tavailable\tto |  |  |  |
| \t\t\t\t\t\t\tcommon\tshareholders,\tbasic | $429,721 | $370,700 | $373,458 |
| Total\tincome\tavailable\tto\tcommon\tshareholders,\tbasic | $422,988 | $369,120 | $357,926 |
| Weighted-average\tcommon\tshares\toutstanding,\tbasic | 178,888 | 177,814 | 176,445 |
| Basic\tearnings\tper\tshare:\t(a) |  |  |  |
| Income\tfrom\tcontinuing\toperations | $2.40 | $2.08 | $2.12 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $(0.04) | $(0.01) | $(0.09) |
| Net\tincome | $2.36 | $2.08 | $2.03 |

(a) Earnings	per	share	amounts	are	computed	independently	for	income	from	continuing	operations,	loss	from	discontinued	operations	and	net	income.	As	a	result, the	sum	of	per-share	amounts	from	continuing	operations	and	discontinued	operations	may	not	equal	the	total	per-share	amount	for	net	income.

Diluted	earnings	per	common	share	is	based	on	the	weighted-average	number	of	common	shares	outstanding	adjusted	for	the	dilutive	effect	of	common	stock equivalents	related	to	the	restricted	stock	units,	stock	options,	and	employee	stock	purchase	plan.	The	dilutive	effect	of	the	common	stock	equivalents	is	calculated	using the	treasury	stock	method	and	expected	proceeds	on	vesting	of	the	restricted	stock	units,	exercise	of	the	stock	options	and	purchases	under	the	employee	stock	purchase plan.

The	following	is	a	reconciliation	of	the	Company's	income	from	continuing	operations,	loss	from	discontinued	operations	and	net	income	and	weighted-average common	shares	outstanding	for	calculating	diluted	earnings	per	share:

| Diluted | 2014 | Years	Ended	December	31,<br>2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Total\tincome\tfrom\tcontinuing\toperations\tavailable\tto |  |  |  |
| \t\t\t\t\t\t\tcommon\tshareholders,\tbasic | $429,721 | \t$370,700 | \t $373,458 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | (6,733) | (1,580) | (15,532) |
| Total\tincome\tavailable\tto\tcommon\tshareholders,\tbasic | 422,988 | 369,120 | 357,926 |
| Undistributed\tearnings\tfor\tparticipating\tsecurities | 57 | 84 | 58 |
| Total\tincome\tfrom\tcontinuing\toperations\tavailable\tto\n\t\t\t\t\t\t\tcommon\tshareholders,\tdiluted | $429,778 | $370,784 | \t $373,516 |
| Total\tincome\tavailable\tto\tcommon\tshareholders,\tdiluted | $423,045 | $369,204 | \t $357,984 |
| Weighted-average\tcommon\tshares\toutstanding,\tbasic | 178,888 | 177,814 | 176,445 |
| Common\tstock\tequivalents: |  |  |  |
| Restricted\tstock\tunits | 454 | 510 | 618 |
| Stock\toptions | 463 | 730 | 607 |
| Employee\tstock\tpurchase\tplan | 1 | 2 | 1 |
| Weighted-average\tcommon\tshares\toutstanding,\tdiluted | 179,806 | 179,056 | 177,671 |
| Diluted\tearnings\tper\tshare\t(a) |  |  |  |
| Income\tfrom\tcontinuing\toperations | $2.39 | $2.07 | \t $2.10 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $(0.04) | $(0.01) | \t $(0.09) |
| Net\tincome | $2.35 | $2.06 | \t $2.01 |

The	following	potentially	dilutive	common	stock	equivalents	were	not	included	in	the	earnings	per	share	calculations	for	the	years	ended	December	31	because they	were	anti-dilutive:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Stock\toptions | 323 | 327 | 619 |
| Restricted\tstock\tunits\twhere\tcertain\tperformance |  |  |  |
| \t\t\t\t\t\t\tconditions\twere\tnot\tmet | — | 20 | 19 |

# Note	16:	Fair	Values	of	Financial	Instruments

The	following	methods	and	assumptions	were	used	by	the	Company	in	estimating	its	fair	value	disclosures	for	financial	instruments:

Current	assets	and	current	liabilities—The	carrying	amounts	reported	in	the	Consolidated	Balance	Sheets	for	current	assets	and	current	liabilities,	including revolving	credit	debt,	due	to	the	short-term	maturities	and	variable	interest	rates,	approximate	their	fair	values.

Preferred	stock	with	mandatory	redemption	requirements	and	long-term	debt—The	fair	values	of	preferred	stock	with	mandatory	redemption	requirements	and long-term	debt	are	categorized	within	the	fair	value	hierarchy	based	on	the	inputs	that	are	used	to	value	each	instrument.	The	fair	value	of	long-term	debt	classified	as Level	1	is	calculated	using	quoted	prices	in	active	markets.	Level	2	instruments	are	valued	using	observable	inputs	and	Level	3	instruments	are	valued	using	observable and	unobservable	inputs.	The	fair	values	of	instruments	classified	as	Level	2	and	3	are	determined	by	a	valuation	model	that	is	based	on	a	conventional	discounted	cash flow	methodology	and	utilizes	assumptions	of	current	market	rates.	As	a	majority	of	the	Company's	debts	do	not	trade	in	active	markets,	the	Company	calculated	a	base yield	curve	using	a	risk-free	rate	(a	U.S.	Treasury	securities	yield	curve)	plus	a	credit	spread	that	is	based	on	the	following	two	factors:	an	average	of	the	Company's own	publicly-traded	debt	securities	and	the	current	market	rates	for	U.S.	Utility	A-	debt	securities.	The	Company	used	these	yield	curve	assumptions	to	derive	a	base yield	for	the	Level	2	and	Level	3	securities.	Additionally,	the	Company	adjusted	the	base	yield	for	specific	features	of	the	debt	securities	including	call	features,	coupon tax	treatment	and	collateral	for	the	Level	3	instruments.

The	carrying	amounts,	including	fair	value	adjustments	previously	recognized	in	acquisition	purchase	accounting	and	a	fair	value	adjustment	related	to	the Company's	interest	rate	swap	fair	value	hedge	(which	is	classified	as	Level	2	in	the	fair	value	hierarchy),	and	fair	values	of	the	financial	instruments	are	as	follows:

# Fair	Value	Measurements

To	increase	consistency	and	comparability	in	fair	value	measurements,	FASB	guidance	establishes	a	fair	value	hierarchy	that	prioritizes	the	inputs	to	valuation techniques	used	to	measure	fair	value	into	three	levels	as	follows:

· Level	1—quoted	prices	(unadjusted)	in	active	markets	for	identical	assets	or	liabilities	that	the	Company	has	the	ability	to	access	as	of	the	reporting	date. Financial	assets	and	liabilities	utilizing	Level	1	inputs	include	active	exchange-traded	equity	securities,	exchange-based	derivatives,	mutual	funds	and money	market	funds.

· Level	2—inputs	other	than	quoted	prices	included	within	Level	1	that	are	directly	observable	for	the	asset	or	liability	or	indirectly	observable	through corroboration	with	observable	market	data.	Financial	assets	and	liabilities	utilizing	Level	2	inputs	include	fixed	income	securities,	non-exchange-based derivatives,	commingled	investment	funds	not	subject	to	purchase	and	sale	restrictions	and	fair-value	hedges.

· Level	3—unobservable	inputs,	such	as	internally-developed	pricing	models	for	the	asset	or	liability	due	to	little	or	no	market	activity	for	the	asset	or liability.	Financial	assets	and	liabilities	utilizing	Level	3	inputs	include	infrequently-traded	non-exchange-based	derivatives	and	commingled	investment funds	subject	to	purchase	and	sale	restrictions.

# Recurring	Fair	Value	Measurements

The	following	table	presents	assets	and	liabilities	measured	and	recorded	at	fair	value	on	a	recurring	basis	and	their	level	within	the	fair	value	hierarchy	as	of December	31,	2014	and	2013,	respectively:

| Recurring	Fair	Value	Measures |  | At	Fair	Value	as	of	December	31,	2014 |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Level\t1 | Level\t2 | Level\t3 | Total |
| Assets: |  |  |  |  |
| Restricted\tfunds | $45,182 | $\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t— | $\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t— | $45,182 |
| Rabbi\ttrust\tinvestments | — | 11,751 | — | 11,751 |
| Deposits | 4,158 | — | — | 4,158 |
| Mark-to-market\tderivative\tasset | — | 3,636 | — | 3,636 |
| \t\t\t\t\tTotal\tassets | 49,340 | 15,387 | — | 64,727 |
| Liabilities: |  |  |  |  |
| Deferred\tcompensation\tobligation | — | 11,765 | — | 11,765 |
| Mark-to-market\tderivative\tliability | — | 1,012 | — | 1,012 |
| \t\t\t\t\tTotal\tliabilities | — | 12,777 | — | 12,777 |
| Total\tnet\tassets | $49,340 | $2,610 | $\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t— | $51,950 |

| Recurring	Fair	Value	Measures |  | At	Fair	Value	as	of	December	31,	2013 |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Level\t1 | Level\t2 | Level\t3 | Total |
| Assets: |  |  |  |  |
| Restricted\tfunds | $29,259 | $\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t— | $\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t— | $29,259 |
| Rabbi\ttrust\tinvestments | — | 444 | — | 444 |
| Deposits | 1,901 | — | — | 1,901 |
| Mark-to-market\tderivative\tasset | — | 4,776 | — | 4,776 |
| \t\t\t\t\tTotal\tassets | 31,160 | 5,220 | — | 36,380 |
| Liabilities: |  |  |  |  |
| Deferred\tcompensation\tobligation | — | 11,928 | — | 11,928 |
| Mark-to-market\tderivative\tliability | — | 1,276 | — | 1,276 |
| \t\t\t\t\tTotal\tliabilities | — | 13,204 | — | 13,204 |
| Total\tnet\tassets\t(liabilities) | $31,160 | $(7,984) | $\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t— | $23,176 |

Restricted	funds—The	Company's	restricted	funds	primarily	represent	proceeds	received	from	financings	for	the	construction	and	capital	improvement	of facilities	and	from	customers	for	future	services	under	operations	and	maintenance	projects.	The	proceeds	of	these	financings	are	held	in	escrow	until	the	designated expenditures	are	incurred.	Restricted	funds	expected	to	be	released	within	twelve	months	subsequent	to	year	end	are	classified	as	current.	Also	included	in	the	above restricted	funds	in	2014	is	$22,366	of	money	market	funds	held	in	trust	for	active	employee	benefits.

Rabbi	trust	investments—The	Company's	rabbi	trust	investments	consist	primarily	of	fixed	income	investments	and	mutual	funds	from	which	supplemental executive	retirement	plan	benefits	and	deferred	compensation	obligations	can	be	paid.	The	Company	includes	these	assets	in	other	long-term	assets.

Deposits—Deposits	include	escrow	funds	and	certain	other	deposits	held	in	trust.	The	Company	includes	cash	deposits	in	other	current	assets.

Deferred	compensation	obligations—The	Company's	deferred	compensation	plans	allow	participants	to	defer	certain	cash	compensation	into	notional	investment accounts.	The	Company	includes	such	plans	in	other	long-term	liabilities.	The	value	of	the	Company's	deferred	compensation	obligations	is	based	on	the	market	value of	the	participants'	notional	investment	accounts.	The	notional	investments	are	comprised	primarily	of	mutual	funds,	which	are	based	on	observable	market	prices.

Mark-to-market	derivative	asset	and	liability—The	Company	utilizes	fixed-to-floating	interest-rate	swaps,	typically	designated	as	fair-value	hedges,	to	achieve	a targeted	level	of	variable-rate	debt	as	a	percentage	of	total	debt.	The	Company	also	employs	derivative	financial	instruments	in	the	form	of	variable-to-fixed	interest	rate swaps,	classified	as	economic	hedges,	in	order	to	fix	the	interest	cost	on	some	of	its	variable-rate	debt.	The	Company	uses	a	calculation	of	future	cash	inflows	and estimated	future	outflows,	which	are	discounted,	to	determine	the	current	fair	value.	Additional	inputs	to	the	present	value	calculation	include	the	contract	terms, counterparty	credit	risk,	interest	rates	and	market	volatility.

See	Note	13	for	the	Company's	fair	value	of	qualified	pension	and	postretirement	welfare	plans'	assets.

# Non-recurring	Fair	Value	Measurements

As	discussed	in	Note	7,	the	Company	recognized	continuing	operations	goodwill	impairment	charges	of	$0	for	each	of	the	years	ended	December	31,	2014,	2013 and	2012,	respectively.	The	Company's	goodwill	valuation	model	includes	significant	unobservable	inputs	and	falls	within	Level	3	of	the	fair	value	hierarchy.

# Note	17:	Leases

The	Company	has	entered	into	operating	leases	involving	certain	facilities	and	equipment.	Rental	expenses	under	operating	leases	were	$21,885	for	2014, $23,351	for	2013	and	$27,945	for	2012.	The	operating	leases	for	facilities	will	expire	over	the	next	20	years	and	the	operating	leases	for	equipment	will	expire	over	the next	five	years.	Certain	operating	leases	have	renewal	options	ranging	from	one	to	five	years.

The	Company	has	a	series	of	agreements	with	various	public	entities	(the	"Partners")	to	establish	certain	joint	ventures,	commonly	referred	to	as	"public-private partnerships."	Under	the	public-private	partnerships,	the	Company	constructed	utility	plant,	financed	by	the	Company	and	the	Partners	constructed	utility	plant (connected	to	the	Company's	property),	financed	by	the	Partners.	The	Company	agreed	to	transfer	and	convey	some	of	its	real	and	personal	property	to	the	Partners	in exchange	for	an	equal	principal	amount	of	Industrial	Development	Bonds	("IDBs"),	issued	by	the	Partners	under	a	state	Industrial	Development	Bond	and	Commercial Development	Act.	The	Company	leased	back	the	total	facilities,	including	portions	funded	by	both	the	Company	and	the	Partners,	under	leases	for	a	period	of	40	years.

The	leases	related	to	the	portion	of	the	facilities	funded	by	the	Company	have	required	payments	from	the	Company	to	the	Partners	that	approximate	the payments	required	by	the	terms	of	the	IDBs	from	the	Partners	to	the	Company	(as	the	holder	of	the	IDBs).	As	the	ownership	of	the	portion	of	the	facilities	constructed	by the	Company	will	revert	back	to	the	Company	at	the	end	of	the	lease,	the	Company	has	recorded	these	as	capital	leases.	The	lease	obligation	and	the	receivable	for	the principal	amount	of	the	IDBs	are	presented	by	the	Company	on	a	net	basis.	The	gross	cost	of	the	facilities	funded	by	the	Company	recognized	as	a	capital	lease	asset	was $156,819	and	$158,115	at	December	31,	2014	and	2013,	respectively,	which	is	presented	within	utility	plant.	The	future	payments	under	the	lease	obligations	are	equal to	and	offset	by	the	payments	receivable	under	the	IDBs.

At	December	31,	2014,	the	minimum	annual	future	rental	commitment	under	the	operating	leases	for	the	portion	of	the	facilities	funded	by	the	Partners	that	have initial	or	remaining	non-cancelable	lease	terms	in	excess	of	one	year	included	in	the	preceding	minimum	annual	rental	commitments	are	$3,755	in	2015	through	2019, and	$73,318	thereafter.

# Note	18:	Segment	Information

The	Company	has	two	operating	segments	referred	to	as	the	Regulated	Businesses	and	Market-Based	Operations	segments.	The	Company's	chief	operating decision	maker	regularly	reviews	the	operating	results	of	the	Regulated	Businesses	and	Market-Based	Operations	segments	to	assess	segment	performance	and	allocate resources.	The	evaluation	of	segment	performance	and	the	allocation	of	resources	are	based	on	several	measures.	The	measure	that	is	most	consistent	with	that	used	by management	is	income	from	continuing	operations	before	income	tax.

The	Regulated	Businesses	segment	includes	the	Company's	18	utility	subsidiaries	in	continuing	operations	that	provide	water	and	wastewater	services	to customers	in	16	U.S.	states.	The	Market-Based	Operations	segment	is	comprised	of	market-based	businesses	that	provide	a	broad	range	of	water	and	wastewater	services and	products	including	homeowner	water	and	sewer	line	maintenance	services	and	water	and	wastewater	facility	operations	and	maintenance	services.

The	accounting	policies	of	the	segments	are	the	same	as	those	described	in	the	summary	of	significant	accounting	policies.	(See	Note	2)	The	Regulated Businesses	and	Market-Based	Operations	segment	information	includes	intercompany	costs	that	are	allocated	by	American	Water	Works	Service	Company,	Inc.	and intercompany	interest	that	is	charged	by	AWCC,	which	are	eliminated	to	reconcile	to	the	consolidated	results	of	operations.	Inter-segment	revenues,	which	are	primarily recorded	at	cost	plus	mark-up	that	approximates	current	market	prices,	includes	leased	office	space,	furniture	and	equipment	provided	by	the	Company's	market-based subsidiaries	to	its	regulated	subsidiaries.	Other	includes	corporate	costs	that	are	not	allocated	to	the	Company's	subsidiaries,	eliminations	of	inter-segment	transactions, fair	value	adjustments	and	associated	income	and	deductions	related	to	the	Acquisitions	that	have	not	been	allocated	to	the	segments	for	evaluation	of	segment performance	and	allocation	of	resource	purposes.	The	adjustments	related	to	the	Acquisitions	are	reported	in	Other	as	they	are	excluded	from	segment	performance measures	evaluated	by	management.	The	following	table	includes	the	Company's	summarized	segment	information:

|  | Regulated	Businesses | Market-Based<br>Operations | Other | Consolidated |
| :--- | :--- | :--- | :--- | :--- |
| Net\toperating\trevenues\t(1) | $2,564,434 | $307,366 | $(17,874) | $2,853,926 |
| Depreciation\tand\tamortization\t(1) | 349,629 | 5,560 | 25,213 | 380,402 |
| Total\toperating\texpenses,\tnet\t(1) | 1,685,734 | 266,005 | (21,917) | 1,929,822 |
| Income\tfrom\tcontinuing\toperations\tbefore |  |  |  |  |
| \t\t\t\t\tincome\ttaxes\t(1) | 649,117 | 44,948 | (63,676) | 630,389 |
| Total\tassets | 12,680,856 | 260,255 | 1,777,865 | 14,718,976 |
| Assets\tof\tdiscontinued\toperations\t(included |  |  |  |  |
| \t\t\t\t\tin\ttotal\tassets\tabove) | — | 7,646 | — | 7,646 |
| Capital\texpenditures | 921,500 | 7,074 | — | 928,574 |
| Capital\texpenditures\tof\tdiscontinued\toperations |  |  |  |  |
| \t\t\t\t\t(included\tin\tcapital\texpenditures\tabove) | 2,884 | 705 | — | 3,589 |

(1)	The	information	has	been	restated	to	reflect	the	impact	of	discontinued	operations,	as	applicable.	See	Note	3	for	additional	details	on	the	Company's discontinued	operations.

# Note	19:	Unaudited	Quarterly	Data

The	following	table	sets	forth	certain	supplemental	unaudited	consolidated	quarterly	financial	data	for	each	of	the	four	quarters	in	the	years	ended	December	31, 2014	and	2013,	respectively.	The	operating	results	for	any	quarter	are	not	indicative	of	results	that	may	be	expected	for	a	full	year	or	any	future	periods:

# ITEM	9. CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS	ON	ACCOUNTING	AND	FINANCIAL	DISCLOSURE

# ITEM	9A. CONTROLS	AND	PROCEDURES

# Disclosure	Controls	and	Procedures

American	Water	Works	Company,	Inc.	maintains	disclosure	controls	and	procedures	that	are	designed	to	ensure	that	information	required	to	be	disclosed	in	its reports	filed	or	submitted	under	the	Exchange	Act	is	recorded,	processed,	summarized	and	reported,	within	the	time	periods	specified	in	the	SEC's	rules	and	forms,	and that	such	information	is	accumulated	and	communicated	to	management,	including	the	Chief	Executive	Officer	and	the	Chief	Financial	Officer,	to	allow	timely decisions	regarding	required	disclosure.

Our	management,	including	the	Chief	Executive	Officer	and	the	Chief	Financial	Officer,	conducted	an	evaluation	of	the	effectiveness	of	our	disclosure	controls and	procedures	(as	defined	in	Rules	13a-15(e)	of	the	Exchange	Act)	as	of	December	31,	2014	pursuant	to	Rule15d-15(e)	under	the	Exchange	Act.

Based	on	that	evaluation,	our	Chief	Executive	Officer	and	Chief	Financial	Officer	have	concluded	that,	as	of	December	31,	2014,	our	disclosure	controls	and procedures	were	effective	at	a	reasonable	level	of	assurance.	Our	disclosure	controls	and	procedures	are	designed	to	provide	reasonable	assurance	that	the	information required	to	be	disclosed	by	us	in	the	reports	we	file	or	submit	under	the	Exchange	Act	is	recorded,	processed,	summarized	and	reported	within	the	time	periods	specified in	the	SEC's	rules	and	forms,	and	that	such	information	is	accumulated	and	communicated	to	management,	including	the	Chief	Executive	Officer	and	the	Chief Financial	Officer,	to	allow	timely	decisions	regarding	required	disclosure.

# Management's	Report	on	Internal	Control	over	Financial	Reporting

Our	management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting,	as	such	term	is	defined	in	Exchange	Act Rule	13a-15(f).	Our	internal	control	over	financial	reporting	is	a	process	designed	by	or	under	the	supervision	of	our	Chief	Executive	Officer	and	Chief	Financial	Officer to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with generally	accepted	accounting	principles.	Our	internal	control	over	financial	reporting	includes	those	policies	and	procedures	that:	(1)	pertain	to	the	maintenance	of records	that	in	reasonable	detail	accurately	and	fairly	reflect	our	transactions	and	dispositions	of	our	assets;	(2)	provide	reasonable	assurance	that	transactions	are recorded	as	necessary	to	permit	preparation	of	the	financial	statements	in	accordance	with	generally	accepted	accounting	principles,	and	that	our	receipts	and expenditures	are	being	made	only	in	accordance	with	authorizations	of	our	management	and	our	directors;	(3)	provide	reasonable	assurance	regarding	prevention	or timely	detection	of	unauthorized	acquisition,	use	or	disposition	of	our	assets	that	could	have	a	material	effect	on	the	financial	statements.

Our	management,	including	our	Chief	Executive	Officer	and	the	Chief	Financial	Officer,	assessed	the	effectiveness	of	our	internal	control	over	financial reporting,	as	of	December	31,	2014,	using	the	criteria	described	in	Internal	Control—Integrated	Framework	(2013)	issued	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission	(COSO).

Based	on	our	evaluation	under	the	framework	in	Internal	Control—Integrated	Framework	(2013)	issued	by	COSO,	our	management	concluded	that	our	internal control	over	financial	reporting	was	effective	as	of	December	31,	2014.

The	effectiveness	of	our	internal	control	over	financial	reporting	as	of	December	31,	2014	has	been	audited	by	PricewaterhouseCoopers	LLP,	an	independent registered	public	accounting	firm,	as	stated	in	their	report	appearing	in	Part	II,	Item	8	of	this	Annual	Report	on	Form	10-K.

# Changes	in	Internal	Controls

We	maintain	a	system	of	internal	control	over	financial	reporting	that	is	designed	to	provide	reasonable	assurance	that	our	books	and	records	accurately	reflect our	transactions	and	that	our	established	policies	and	procedures	are	followed.	There	were	no	changes	to	our	internal	control	over	financial	reporting	during	our	last fiscal	quarter	that	have	materially	affected,	or	are	reasonably	likely	to	materially	affect,	our	internal	control	over	financial	reporting.

# ITEM		9B. OTHER	INFORMATION

In	February	2015,	our	Board	of	Directors	authorized	a	common	stock	repurchase	program	for	the	specific	purpose	of	providing	a	vehicle	to	minimize	share dilution	that	occurs	through	its	dividend	reinvestment,	employee	stock	purchase	and	executive	compensation	programs.	The	program	will	allow	the	Company	to purchase	up	to	10	million	shares	of	its	outstanding	common	stock	over	an	unrestricted	period	of	time	to	manage	dilution.	Under	the	program,	the	Company	may repurchase	its	common	stock	in	the	open	market	or	through	privately	negotiated	transactions.		The	Program	will	be	conducted	in	accordance	with	Rule	10b-18	of	the Exchange	Act,	as	amended,	and,	to	facilitate	repurchases,	the	Company	has	also	entered	into	with	a	broker	a	Rule	10b5-1	share	repurchase	plan.		By	having	the	Program administered	through	a	Rule	10b5-1	plan,	the	Company	will	be	able	to	repurchase	its	shares	at	times	when	it	otherwise	might	be	prevented	from	doing	so	under	insider trading	laws	or	because	of	self-imposed	trading	blackout	periods.		Subject	to	applicable	regulations,	the	Company	may	elect	to	amend	or	cancel	the	program	or	the	Rule 10b5-1	parameters	at	its	discretion.

# PART	III

# ITEM	10. DIRECTORS,	EXECUTIVE	OFFICERS	OF	THE	REGISTRANT	AND	CORPORATE	GOVERNANCE

The	information	required	by	this	item	and	not	given	below,	is	incorporated	by	reference	in	the	Company's	Proxy	Statement	for	the	2015	Annual	Meeting	of Stockholders,	to	be	filed	with	the	Securities	and	Exchange	Commission	within	120	days	following	the	end	of	the	fiscal	year	covered	by	this	report,	under	the	captions entitled	"Nominees	for	Election	as	Directors,"	"Information	Relative	to	the	Board	of	Directors	and	Committees	of	the	Board	of	Directors,"	"Section	16(a)	Beneficial Ownership	Reporting	Compliance,"	and	"Code	of	Ethics	and	Corporate	Governance	Guidelines."

We	have	adopted	a	Code	of	Ethics,	which	applies	to	directors	and	employees.	The	full	text	of	the	Code	of	Ethics	is	publicly	available	on	our	website	at http://www.amwater.com.	We	intend	to	post	on	our	website	any	amendments	to	certain	provisions	of	our	Code	of	Ethics	and	any	waivers	of	such	provisions	granted	to principal	officers.

Name Age Office	and	Employment	During	Last	Ten	Years Susan	N.	Story 55 Ms.	Story	was	elected	President	and	Chief	Executive	Officer	(CEO)	on	May	9,	2014.	Prior	to	that	she	served	as	Senior	Vice	President and	Chief	Financial	Officer	from	April	2013	until	May	2014.	She	was	previously	employed	for	over	30	years	by	Southern	Company, which	owns	and	operates	electric	utilities	in	four	states,	and	also	is	engaged	in	electric	wholesale	generation	and	telecommunications, including	both	wireless	and	wireline,	fiber	optic	communications.	Ms.	Story	was	an	executive	officer	of	Southern	Company	from 2003	until	she	joined	the	Company.	In	addition,	from	January	2011	until	she	joined	the	Company,	she	served	as	the	President	and Chief	Executive	Officer	of	Southern	Company	Services,	which	provides	shared	services	for	all	of	Southern	Company's	subsidiaries, including	information	technology	and	cyber	security	efforts,	human	resources,	procurement	and	supply	chain	management,	marketing services,	customer	research	and	system	transportation	functions.	From	2003	to	December	2010,	she	was	the	President	and	Chief Executive	Officer	of	Gulf	Power	Company,	an	electric	utility	serving	the	northwestern	portion	of	Florida.	Ms.	Story	is	an	independent board	member	of	Raymond	James	Financial	and	serves	on	the	boards	of	the	Bipartisan	Policy	Center	in	Washington,	DC	and	the Moffitt	Cancer	Center	in	Tampa,	FL. John	R.	Bigelow 60 Mr.	Bigelow	has	been	our	Senior	Vice	President	of	Business	Services	since	November	2011and	became	the	Chair	of	the	Board	of Directors	for	American	Water	Works	Service	Company	in	January	2012.	From	2007	until	his	new	appointment	in	November	2011, Mr.	Bigelow	was	President	of	New	Jersey	American	Water	(NJAWC).	Mr.	Bigelow	joined	American	Water	in	1994	and	held	a number	of	senior	management	positions	during	his	tenure,	including	American	Water's	Senior	Vice	President	of	Regulatory	Programs and	Enterprise	Risk	Management.	From	December	2003	to	February	2006,	Mr.	Bigelow	served	as	American	Water's	Chief	Financial Officer,	Vice	President	and	Treasurer	of	NJAWC,	and	Director,	Vice	President	and	Treasurer	of	New	Jersey	American	Resources	Co. Mr.	Bigelow	began	his	career	with	GPU	System	Companies,	where	he	spent	18	years	in	various	leadership	roles	in	the	finance	area. Sharon	Cameron 58 Ms.	Cameron	has	been	President	of	American	Water	Enterprises,	our	Market-Based	Operations,	since	September	2010.	She	also serves	as	President	of	American	Water	Resources,	Inc.,	a	business	she	has	been	leading	since	2002.	Prior	to	joining	American	Water, Ms.	Cameron	was	Principal	of	Marketing	Solutions,	a	marketing	consulting	firm	she	launched	in	1998,	and	was	a	consultant	to American	Water	on	the	Homeowner	Services	business.	Previously,	Ms.	Cameron	served	as	Vice	President	of	Marketing	and	Sales	at Comcast	Corporation	(New	Jersey),	Senior	Marketing	Manager	at	Menley	&	James	Laboratories,	and	Marketing	Manager	at Campbell	Soup	Company. Mark	Chesla 55 Mr.	Chesla	has	been	our	Vice	President	and	Controller	since	November	2007.	From	2001	to	November	2007,	Mr.	Chesla	was	Vice President	and	Controller	of	Oglethorpe	Power	Corporation,	in	Atlanta,	Georgia,	where	he	served	as	that	company's	chief	accounting officer.	In	this	capacity	he	was	responsible	for	all	aspects	of	the	accounting,	internal	financial	management,	regulatory	and	SEC reporting	functions.	Mr.	Chesla	was	Vice	President,	Administration/Controller	of	SouthStar	Energy	Services	LLC,	in	Atlanta, Georgia,	from	1998	to	2001.	Earlier,	he	held	management	positions	with	several	other	companies,	including	Piedmont	Natural	Gas Co.,	Inc.,	Aegis	Technologies,	Inc.,	Deloitte	&	Touche	LLP	and	Carolina	Power	&	Light	Company.

Name Age Office	and	Employment	During	Last	Ten	Years Deborah	Degillio 43 Ms.	Degillio	has	been	our	Vice	President	and	Treasurer	since	January	1,	2015.	From	2013	until	her	new	appointment	in	December 2014,	Ms.	Degillio	served	as	VP	of	Finance	of	American	Water	Enterprises,	our	Market-Based	Operations.	Ms.	Degillio	joined American	Water	in	2007	as	Director	of	Financial	Planning	and	Analysis,	supporting	California,	Arizona,	New	Mexico	and	Hawaii and	was	named	Vice	President	of	the	Eastern	Division	Finance	team	in	2009.	As	Vice	President	of	the	Eastern	Division,	Ms.	Degillio managed	a	team	of	over	30	professionals	and	was	responsible	for	financial	analysis	and	planning,	as	well	as	rates	strategy	and execution	for	nine	states	in	American	Water's	regulated	operations.	Prior	to	joining	American	Water,	Ms.	Degillio	held	a	number	of roles	at	MCR	Performance	Solutions,	a	consulting	firm	in	the	energy	sector,	managing	enterprise	risk	management	and	regulatory matters	and	providing	financial	management	consulting	for	a	number	of	large	utilities.	She	began	her	career	at	CSC	Planmetrics,	a strategic	consulting	firm	serving	the	utilities	industry,	where	she	supported	electric	and	gas	utilities	through	mergers	and	acquisitions, marketing	plans	and	projects	focused	on	process	change. Maureen	Duffy 45 Ms.	Duffy	has	been	our	Vice	President	of	Corporate	Communications	and	External	Affairs	since	September	2011.	From	June	2011	to September	2011,	Ms.	Duffy	served	as	the	Executive	Director	of	Corporate	Communications	and	External	Affairs.	From	September 2008	to	June	2011,	Ms.	Duffy	served	as	Director	of	External	Communications,	and	from	July	2006	until	September	2008,	she	served as	Director	of	Internal	Communications.	From	November	1999	to	July	2006,	she	held	various	positions	with	New	Jersey	American Water,	which	included	Government	Affairs/Media	Specialist,	Communications	Manager	and	Director	of	Corporate	Communications. Prior	to	joining	American	Water,	Ms.	Duffy	reported	and	produced	news	for	WNJN/WNET-TV.

Walter	J.	Lynch 52 Mr.	Lynch	has	served	as	our	President	and	Chief	Operating	Officer	of	Regulated	Operations	since	March	2010,	and	President	of Regulated	Operations	since	July	2008.	Prior	to	that	date,	he	served	as	Executive	Vice	President,	Eastern	Division.	He	also	served	as President	of	New	Jersey	American	Water,	Long	Island	American	Water	and	our	Northeast	Region.	Mr.	Lynch	joined	us	in	2001	and served	as	President	of	our	Products	and	Services	Group,	where	he	was	responsible	for	overseeing	our	Market-Based	Operations.	Prior to	this,	he	was	President	of	the	Southwest	Region	of	American	Water	Services.	Mr.	Lynch	has	more	than	20	years	of	experience	in engineering,	sales	and	marketing,	operations	and	business	development.	Before	joining	us,	he	was	involved	with	various	start-up	and growth	organizations	in	the	environmental	industry.	Mr.	Lynch	worked	for	Mobil	Oil	Corporation	following	his	departure	from	the United	States	Army	where	he	attained	the	rank	of	Captain.	In	addition,	Mr.	Lynch	is	on	the	Board	of	Directors	of	the	National Association	of	Water	Companies	and	serves	on	its	Executive	Committee.

Kathy	L.	Pape 62 Ms.	Pape	has	been	our	Senior	Vice	President,	Mid-Atlantic	Division	since	November	2011,	and	President	of	Pennsylvania	American Water	since	July	2007.	From	1999	to	2007,	Ms.	Pape	served	as	Senior	Vice	President,	Treasurer	and	Rate	Counsel	for	Aqua	America, Inc.	and	was	part	of	the	team	that	grew	the	company	from	one	state	to	fourteen.	From	1994	to	1999,	Ms.	Pape	was	employed	by	us	as Regional	Counsel	and	Finance	Manager,	where	her	responsibilities	included	rates	and	regulatory	affairs,	finance,	budgeting	and customer	service	for	10	states.	Prior	to	1994,	Ms.	Pape	was	Vice	President-Rates	for	General	Waterworks	Management	and	Service Co.,	Assistant	Counsel	to	the	Pennsylvania	Public	Utility	Commission	and	Assistant	Consumer	Advocate	for	the	Pennsylvania	Office of	Consumer	Advocate.	Ms.	Pape	chairs	the	Pennsylvania	Business	Council	and	its	Policy	Roundtable,	is	on	the	Board	of	the	PA Chamber	and	numerous	non-profit	boards.	Ms.	Pape	holds	a	bachelor	of	arts	in	political	science	from	Edinboro	University,	a	JD	from the	Dickinson	School	of	Law	and	an	LLM	in	Taxation	from	Villanova	University	School	of	Law.

Nick	O.	Rowe 57 Mr.	Rowe	has	been	the	Senior	Vice	President	of	our	Central	Division	since	November	2011.	From	January	2009	until	his	new appointment	in	November	2011,	Mr.	Rowe	was	Senior	Vice	President	of	our	Eastern	Division,	and	from	2006	to	January	2011,	he was	President	of	Kentucky	American	Water.	From	2005	to	2006,	he	served	as	Vice	President	of	Service	Delivery	Operations	for	the Southeast	Region	of	American	Water.	From	2003	to	2005,	he	served	as	Vice	President,	Business	Change	for	American	Water	in	New Jersey,	and	from	1998	to	2003,	Mr.	Rowe	was	Vice	President	of	Operations	for	Kentucky	American	Water.	From	1987	to	1998,	he served	in	various	management	positions	with	responsibility	for	the	day-to-day	operations	of	American	Water	facilities	in	several	states including	Virginia,	West	Virginia,	and	Pennsylvania.	Mr.	Rowe	is	involved	with	various	regulatory	agencies	and	civic	and professional	organizations.	He	is	also	a	member	of	the	American	Water	Works	Association	and	the	National	Association	of	Water Companies.

Linda	G.	Sullivan 51 Ms.	Sullivan	has	been	our	Senior	Vice	President	and	Chief	Financial	Officer	since	May	9,	2014.	Prior	to	joining	our	company,	she was	employed	for	22	years	with	Edison	International	companies.	Beginning	in	July	2009,	she	served	as	the	Senior	Vice	President	and Chief	Financial	Officer	("CFO")	of	Southern	California	Edison	Company,	one	of	the	nation's	largest	electric	utilities	and	a	subsidiary of	Edison	International,	where	she	led	all	aspects	of	finance	including	strategy,	planning,	treasury,	accounting,	risk	management	and control	functions,	as	well	as	operational	services	including	supply	chain	functions,	transportation	services	and	facilities	management. Prior	to	becoming	CFO,	Ms.	Sullivan	was	Vice	President	and	Controller	of	both	Edison	International	and	Southern	California	Edison for	five	years.	She	also	held	a	variety	of	financial	leadership	roles	at	a	number	of	Edison	International's	competitive	businesses, including	retail	subsidiaries	providing	home	security,	energy	efficiency	and	operations	and	maintenance	service;	and	a	research	and development	start-up	focused	on	distributed	generation,	smart	grid	technologies	solar	rooftop	installations	and	electric	vehicle charging	stations.	From	1991	to	1996,	she	performed	finance	and	accounting	functions	at	the	corporate	level	and	within	an	operating business	unit	at	the	utility.	Before	starting	her	career	at	Edison	International,	Ms.	Sullivan	was	senior	auditor	with	Arthur	Andersen, LLP	for	three	years.	She	is	a	Certified	Public	Accountant	(inactive)	and	Certified	Management	Accountant.

Edward	Vallejo 55 Mr.	Vallejo	has	been	our	Vice	President	of	Financial	Strategy,	Planning	and	Decision	Support	since	December	2014.		Prior	to	his current	role,	he	served	as	Vice	President	of	Investor	Relations.	Prior	to	that	he	held	various	positions	with	increasing	responsibility with	us	including	chief	financial	officer	of	Thames	Water	Chile,	Vice	President	of	Mergers	&	Acquisitions	and	Treasurer.		He	began his	career	in	the	utilities	sector	in	1994	as	an	investment	banker	for	PaineWebber.

Sawyer	as	resident	and	design	engineer	for	large	wastewater	treatment	plant	upgrades.	Mr.	Varley	holds	a	bachelors	of	science	in	civil engineering	technology	from	Rochester	Institute	of	Technology.

Loyd	"Aldie"	Warnock 55 Mr.	Warnock	has	been	our	Senior	Vice	President	of	External	Affairs,	Communications	and	Public	Policy	since	April	28,	2014.	Prior to	joining	American	Water,	he	was	the	Senior	Vice	President	of	External	Affairs	at	Midwest	Independent	System	Operator	Inc.,	a nonprofit,	self-governing	organization,	where	he	directed	policy	development	for	regulatory	and	legislative	matters,	oversaw	state	and federal	regulatory	and	legislative	activities,	client	relations,	stakeholder	support	and	corporate	communications	for	this	regional transmission	organization.	Other	previous	experience	includes	serving	as	Vice	President	of	External	Affairs	for	Allegheny	Energy, Senior	Vice	President	of	Governmental	and	Regulatory	Affairs	at	Mirant	Corporation	and	Vice	President	of	Regulatory	Affairs	at Reliant	Energy.	Mr.	Warnock	currently	serves	on	the	Board	of	Directors	for	the	National	Association	of	Water	Companies	and	on	its Executive	Committee.

# ITEM	11. EXECUTIVE	COMPENSATION

Information	required	by	this	item	is	incorporated	by	reference	in	the	Company's	Proxy	Statement	for	the	2015	Annual	Meeting	of	Stockholders,	under	the captions	entitled	"Executive	Compensation,"	"Compensation	Discussion	and	Analysis,"	"Compensation	Committee	Report"	and	"Director	Compensation."

# ITEM	12. SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL	OWNERS	AND	MANAGEMENT	AND	RELATED	STOCKHOLDER	MATTERS

Information	required	by	this	item	setting	forth	the	security	ownership	of	certain	beneficial	owners	and	management	is	incorporated	by	reference	in	the Company's	Proxy	Statement	for	the	2015	Annual	Meeting	of	Stockholders,	under	the	caption	entitled	"Security	Ownership	of	Principal	Stockholders	and	Management" and	the	"Equity	Compensation	Plan"	table	appearing	under	the	caption	"Long-Term	Equity	Incentive	Compensation."

# ITEM	13. CERTAIN	RELATIONSHIPS	AND	RELATED	TRANSACTIONS	AND	DIRECTOR	INDEPENDENCE

Information	required	by	this	item	is	incorporated	by	reference	in	the	Company's	Proxy	Statement	for	the	2015	Annual	Meeting	of	Stockholders,	under	the captions	entitled	"Certain	Relationships	and	Related	Transactions"	and	"Director	Independence."

# ITEM	14. PRINCIPAL	ACCOUNTANT	FEES	AND	SERVICES

Information	required	by	this	item	is	incorporated	by	reference	in	the	Company's	Proxy	Statement	for	the	2015	Annual	Meeting	of	Stockholders,	under	the caption	entitled	"Independent	Registered	Public	Accounting	Fees	and	Services."

# PART	IV

# ITEM	15. EXHIBITS	AND	FINANCIAL	STATEMENT	SCHEDULES

Financial	statement	schedules	have	been	omitted	since	they	are	either	not	required	or	are	not	applicable	as	the	information	is	otherwise	included	in	the	financial statements	or	notes	thereto.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	Registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf by	the	undersigned,	thereunto	duly	authorized,	on	the	24th	day	of	February,	2015.

# Susan	N.	Story

# President	and	Chief	Executive	Officer

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	Annual	Report	on	Form	10-K	has	been	signed	on	the	24th	day	of	February,	2015	by	the following	persons	in	the	capacities	indicated.

/s/	SUSAN	N.	STORY

President	and	Chief	Executive	Officer (Principal	Executive	Officer	and	Director)

/s/	LINDA	G.	SULLIVAN Linda	G.	Sullivan Senior	Vice	President	and	Chief	Financial	Officer

/s/	MARK	CHESLA Mark	Chesla Vice	President,	Controller

/s/	GEORGE	MACKENZIE George	MacKenzie (Director)

/s/	MARTHA	CLARK	GOSS

Martha	Clark	Goss (Director)

/s/	JULIE	A.	DOBSON

Julie	A.	Dobson

(Director)

/s/	RICHARD	R.	GRIGG

# Richard	R.	Grigg

/s/	JULIA	L.	JOHNSON Julia	L.	Johnson (Director)

/s/	WILLIAM	J.	MARRAZZO William	J.	Marrazzo (Director)

/s/	PAUL	J.	EVANSON Paul	J.	Evanson (Director)

Karl	F.	Kurz (Director)

# EXHIBIT	INDEX

3.2 Amended	and	Restated	Bylaws	of	American	Water	Works	Company,	Inc.	(incorporated	by	reference	to	Exhibit	3.2	to	American	Water	Works	Company,	Inc.'s	Form	8-K,	File	No. 001-34028,	filed	January	5,	2010).

4.1 Indenture,	dated	as	of	October	22,	2007	between	American	Water	Capital	Corp.	and	Wells	Fargo	Bank,	National	Association	(incorporated	by	reference	to	Exhibit	4.4	to	American Water	Capital	Corp.'s	Registration	Statement	on	Form	S-4,	File	No.	333-148284,	and	American	Water	Works	Company,	Inc.'s	Registration	Statement	on	Form	S-4,	File	No.	333- 148284-01,	filed	December	21,	2007).

4.2 Indenture,	dated	as	of	November	26,	2008,	between	American	Water	Capital	Corp.	and	Wells	Fargo	Bank,	National	Association	(incorporated	by	reference	to	Exhibit	4.1	to American	Water	Works	Company,	Inc.'s	Form	8-K,	File	No.	001-34028,	filed	December	3,	2008).

4.3 Indenture,	dated	as	of	December	4,	2009,	between	American	Water	Capital	Corp.	and	Wells	Fargo	Bank,	National	Association	(incorporated	by	reference	to	Exhibit	4.1	to American	Water	Works	Company,	Inc.'s	Form	8-K,	File	No.	001-34028,	filed	December	3,	2010).

4.9 Note	Purchase	Agreement,	as	amended,	dated	December	21,	2006,	between	American	Water	Capital	Corp.	and	the	purchasers	party	thereto	(incorporated	by	reference	to	Exhibit 4.2	to	American	Water	Capital	Corp.'s	Registration	Statement	on	Form	S-1,	File	No.	333-145757-01,	and	American	Water	Works	Company,	Inc.'s	Registration	Statement	on	Form S-1,	File	No.	333-145757,	filed	October	11,	2007)	with	respect	to	the	5.52%	Series	B	Senior	Notes	due	December	21,	2016,	5.62%	Series	C	Senior	Notes	due	December	21,	2018 and	5.77%	Series	D	Senior	Notes	due	December	21,	2021.

4.10 Note	Purchase	Agreement,	as	amended,	dated	March	29,	2007,	between	American	Water	Capital	Corp.	and	the	purchasers	party	thereto	(incorporated	by	reference	to	Exhibit	4.3	to American	Water	Capital	Corp.'s	Registration	Statement	on	Form	S-1,	File	No.	333-145757-01,	and	American	Water	Works	Company,	Inc.'s	Registration	Statement	on	Form	S-1, File	No.	333-145757,	filed	October	11,	2007)	with	respect	to	5.62%	Series	E	Senior	Notes	due	March	29,	2019	and	5.77%	Series	F	Senior	Notes	due	March29,	2022.

10.1 Credit	Agreement,	dated	as	of	October	29,	2012,	between	American	Water	Capital	Corp.,	each	of	the	lenders	party	thereto,	Wells	Fargo	Bank,	National	Association	[written	out	for indenture	&	on	credit	agreement],	as	administrative	agent,	and	JPMorgan	Chase	Bank,	N.A.,	as	syndication	agent.	(incorporated	by	reference	to	Exhibit	10.4	to	American	Water Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	on	May	7,	2013).

10.2 Amendment,	dated	as	of	September	6,	2013,	to	the	Credit	Agreement,	dated	as	of	October	29,	2012,	between	American	Water	Capital	Corp.,	each	of	the	lenders	party	thereto,	Wells Fargo	Bank,	National	Association,	as	administrative	agent,	and	JPMorgan	Chase	Bank,	N.A.,	as	syndication	agent.

10.3 Lender	Consent,	dated	as	of	September	9,	2013	to	the	Credit	Agreement,	dated	as	of	October	29,	2012,	as	amended,	between	American	Water	Capital	Corp.,	each	of	the	lenders party	thereto,	Wells	Fargo	Bank,	National	Association,	as	administrative	agent,	and	JPMorgan	Chase	Bank,	N.A.,	as	syndication	agent.

10.4 Support	Agreement,	dated	June	22,	2000,	together	with	First	Amendment	to	Support	Agreement,	dated	July	26,	2000,	by	and	between	American	Water	Works	Company,	Inc.	and American	Water	Capital	Corp.	(incorporated	by	reference	to	Exhibit	10.3	to	American	Water	Capital	Corp.'s	Registration	Statement	on	Form	S-1,	File	No.	333-145757-01,	and American	Water	Works	Company,	Inc.'s	Registration	Statement	on	Form	S-1,	File	No.	333-145757,	filed	October	11,	2007).

10.5.1 Agreement	and	General	Release	between	Ellen	C.	Wolf	and	American	Water	Works	Company,	Inc.,	dated	March	25,	2013	(incorporated	by	reference	to	Exhibit	10.2	to	American Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2013).

10.5.2 First	Amendment	to	the	Agreement	and	General	Release	between	Ellen	C.	Wolf	and	American	Water	Works	Company,	Inc.,	dated	March	27,	2013	(incorporated	by	reference	to Exhibit	10.2A	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2013).

10.6.1 Employment	Agreement	between	Jeffry	E.	Sterba	and	American	Water	Works	Company,	Inc.,	dated	March	26,	2012	(incorporated	by	reference	to	Exhibit	99.1	to	American	Water Works	Company,	Inc.'s	Form	8-K,	File	No.	001-34028,	filed	March	30,	2012).

10.14.4 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2011	Performance	Stock	Unit	Grant	Form	B	for	ML1	–	L5	(incorporated	by	reference	to	Exhibit 10.5	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	4,	2011).

10.14.5 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2012	Nonqualified	Stock	Option	Grant	for	ML1	–	L5	Employees	(incorporated	by	reference	to Exhibit	10.2	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	2,	2012).

10.14.6 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2012	Performance	Stock	Unit	Grant	Form	A	for	ML1	–	L5	(incorporated	by	reference	to	Exhibit 10.3	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	2,	2012).

10.14.8 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2013	Initial	Restricted	Stock	Unit	Grant	Form	for	Susan	N.	Story	(incorporated	by	reference	to Exhibit	10.5	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2013).

10.14.9 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2013	Restricted	Stock	Unit	Grant	Form	for	Jeffry	E.	Sterba	(incorporated	by	reference	to	Exhibit 10.6	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2013).

10.14.10 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2014	Restricted	Stock	Unit	Grant	Form	for	ML2	–	L5	(incorporated	by	reference	to	Exhibit	10.3 to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2014)

10.14.11 Amendment	to	the	American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2014	Restricted	Stock	Unit	Grant	Form	for	ML2	–	L5	(incorporated	by reference	to	Exhibit	10.3A	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2014)

10.14.13 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	May	2014	Restricted	Stock	Unit	Grant	Form	for	Susan	N.	Story	(incorporated	by	reference	to Exhibit	10.4	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	August	6,	2014)

10.14.14 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2013	Performance	Stock	Unit	Grant	Form	A	for	Jeffry	E.	Sterba	(incorporated	by	reference	to Exhibit	10.7	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2013).

10.14.15 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2013	Performance	Stock	Unit	Grant	Form	B	for	Jeffry	E.	Sterba	(incorporated	by	reference	to Exhibit	10.8	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2013).

10.14.17 Amendment	to	the	American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2014	Performance	Stock	Unit	Grant	Form	A	for	ML2	–	L5	(incorporated	by reference	to	Exhibit	10.4A	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	May	7,	2014)

10.14.33 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2011	Form	of	Stock	Unit	Grant	Agreement	for	Non-Employee	Directors	(incorporated	by reference	to	Exhibit	10.3	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001-34028,	filed	August	3,	2011).

10.14.35 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	2013	Stock	Unit	Grant	Form	for	Non-Employee	Directors	(incorporated	by	reference	to	Exhibit 10.1	to	American	Water	Works	Company,	Inc.'s	Quarterly	Report	on	Form	10-Q,	File	No.	001-34028,	filed	August	7,	2013).

10.14.36 American	Water	Works	Company,	Inc.	2007	Omnibus	Equity	Compensation	Plan	May	2014	Stock	Unit	Grant	Form	for		Non-Employee	Directors	(incorporated	by	reference	to Exhibit	10.5	to	American	Water	Works	Company,	Inc.'s	Quarterly	Report	on	Form	10-Q,	File	No.	001-34028,	filed	August	6,	2014).

10.15 2011	American	Water	Annual	Incentive	Plan	Highlights	Brochure	(incorporated	by	reference	to	Exhibit	10.1	to	American	Water	Works	Company,	Inc.'s	Form	10-Q,	File	No.	001- 34028,	filed	May	4,	2011).

*10.19 2015	American	Water	Annual	Incentive	Plan 10.20 Nonqualified	Savings	and	Deferred	Compensation	Plan	for	Employees	of	American	Water	Works	Company,	Inc.	and	Its	Designated	Subsidiaries,	as	amended	and	restated, effective	as	of	January	1,	2009	(incorporated	by	reference	to	Exhibit	10.37	to	American	Water	Works	Company,	Inc.'s	Registration	Statement	on	Form	S-1,	File	No.	333-155245, filed	November	18,	2008).

# Exhibit

# Number Exhibit	Description

10.21 Nonqualified	Deferred	Compensation	Plan	for	Non-Employee	Directors	of	American	Water	Works	Company,	Inc.,	as	amended	and	restated,	effective	as	of	January	1,	2009 (incorporated	by	reference	to	Exhibit	10.38	to	American	Water	Works	Company,	Inc.'s	Registration	Statement	on	Form	S-1,	File No.	333-155245,	filed	November	18,	2008).

*21.1 Subsidiaries	of	American	Water	Works	Company,	Inc.

*23.1 Consent	of	PricewaterhouseCoopers	LLP.

*31.1 Certification	of	Susan	N.	Story,	President	and	Chief	Executive	Officer,	pursuant	to	Section	302	of	the	Sarbanes-Oxley	Act.

*31.2 Certification	of	Linda	G.	Sullivan,	Senior	Vice	President	and	Chief	Financial	Officer,	pursuant	to	Section302	of	the	Sarbanes-Oxley	Act.

*101 The	following	financial	statements	from	American	Water	Works	Company,	Inc.'s	Annual	Report	on	Form	10-K	for	the	period	ended	December31,	2014,	formatted	in	XBRL (eXtensible	Business	Reporting	Language):	(i)	the	Consolidated	Balance	Sheets;	(ii)	the	Consolidated	Statements	of	Operations	and	Comprehensive	Income;	(iii)	the	Consolidated Statements	of	Cash	Flows;	(iv)	the	Consolidated	Statements	of	Changes	in	Stockholders'	Equity;	and	(v)	the	Notes	to	Consolidated	Financial	Statements.

# * filed	herewith

Instruments	defining	the	rights	of	holders	of	certain	issues	of	long-term	debt	of	the	Company	and	certain	of	its	consolidated	subsidiaries	have	not	been	filed	as	exhibits to	this	report	because	the	authorized	principal	amount	of	any	one	of	such	issues	does	not	exceed	10%	of	the	consolidated	total	assets	of	the	Company's	consolidated	total assets.	The	Company	agrees	to	furnish	a	copy	of	each	of	such	instrument	to	the	Securities	and	Exchange	Commission	upon	request.


what was the percentage change in deferred tax assets and regulatory assets from 2013 to 2014
deferred_tax_assets_2014 = 6348
deferred_tax_assets_2013 = 6241
change = deferred_tax_assets_2014 - deferred_tax_assets_2013
percent_change = change / deferred_tax_assets_2013
answer = percent_change * 100