Essential Utilities, Inc.: Form 10-Q for the period ended Sep 30, 2025

Forward-looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report contain, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things: the expected timing of closing of our acquisitions; the projected impact of various legal proceedings; the projected effects of recent accounting pronouncements; the proposed merger with American Water Works Company, Inc. (“American Water”); prospects, plans, objectives, expectations and beliefs of management, as well as information contained in this report where statements are preceded by, followed by or include the words “believes,” “expects,” “estimates,” “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,” “intends,” “will,” “continue,” “in the event” or the negative of such terms or similar expressions. Forward-looking statements are based on a number of assumptions concerning future events, and are subject to a number of risks, uncertainties and other factors, many of which are outside our control, which could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, among others, the effects of regulation, abnormal weather, geopolitical forces, the impact of inflation and supply chain pressures, including those resulting from changes in government fiscal policies and regulations, the imposition of tariffs, the threat of cyber-attacks and data breaches, changes in capital requirements and funding, the success of growth initiatives, including pending acquisitions, changes to the capital markets, impact of public health threats, and our ability to assimilate acquired operations, as well as those risks, uncertainties and other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in such reports. In addition to the foregoing, there are various risks and other uncertainties associated with the Company’s proposed merger with American Water, including a fixed exchange ratio that will not adjust or account for fluctuations in American Water’s or the Company’s stock price; limitations on the parties’ ability to pursue alternatives to the proposed merger; financial impacts of the proposed merger on the Company and the combined company’s earnings, earnings per share, financial condition, results of operations, cash flows and share price, and any related accounting impacts; any impact of the proposed merger on the Company’s ability to declare and pay quarterly dividends on its common stock; the amount and nature of incurred transaction costs associated with the proposed merger; as well as those risks, uncertainties and other factors discussed in Part II, Item 1A – Risk Factors. As a result, readers are cautioned not to place undue reliance on any forward-looking statements. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

General Information

Essential Utilities, Inc. (“we”, “us”, “our” or the “Company”), a Pennsylvania corporation, is the holding company for regulated utilities providing water, wastewater, or natural gas services to an estimated 5.5 million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, and Kentucky under the Aqua and Peoples brands. One of our largest operating subsidiaries, Aqua Pennsylvania, Inc. (“Aqua Pennsylvania”), provides water or wastewater services to approximately one-

(In thousands of dollars, except per share amounts)

half of the total number of water or wastewater customers we serve, who are located in the suburban areas in counties north and west of the City of Philadelphia and in 28 other counties in Pennsylvania. Our other regulated water or wastewater utility subsidiaries provide similar services in seven additional states. Our Peoples subsidiaries provide natural gas distribution services to customers in western Pennsylvania and Kentucky. Approximately 95% of the total number of natural gas utility customers we serve are in western Pennsylvania. The Company also operates market-based businesses, conducted through its non-regulated subsidiaries, that provide utility service line protection solutions and repair services to households and gas marketing and production activities. Currently, the Company seeks to acquire businesses in the U.S. regulated sector, focusing on water and wastewater utilities and to opportunistically pursue growth ventures in select market-based activities, such as infrastructure opportunities that are supplementary and complementary to our regulated water utility businesses.

In January 2024, the Company completed the sale of its interest in three non-utility local microgrid and distributed energy projects for $165,000, which resulted in a gain on sale of $91,236. The sale is consistent with the Company’s long-term strategy of focusing on its core business and will allow the Company to prioritize the growth of its utilities in states where it has scale. The Company used the proceeds from the sale to finance its capital expenditures and water and wastewater acquisitions, in place of external funding from equity and debt issuances.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes.

Recent Developments

Execution of Agreement and Plan of Merger with American Water

On October 26, 2025, American Water Works Company, Inc. (“American Water”), Alpha Merger Sub, Inc., a direct wholly owned subsidiary of American Water (“Merger Sub”), and the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of American Water. Subject to the terms and conditions of the Merger Agreement, at the time at which the Merger becomes effective (the “Effective Time”), each share of the Company’s common stock, par value $0.50 per share (“Essential Common Stock”), issued and outstanding immediately prior to the Effective Time, other than any shares of Essential Common Stock owned by American Water or Merger Sub or by the Company as treasury stock (in each case, other than restricted shares), will be converted into the right to receive 0.305 shares (the “Exchange Ratio”) of validly issued, fully paid and nonassessable common stock, par value $0.01 per share, of American Water (“American Water Common Stock”) (the aggregate number of such shares of American Water Common Stock to be issued in the Merger, the “Merger Consideration”).

Consummation of the Merger is subject to certain customary conditions, including, without limitation: approval by American Water’s shareholders of the issuance of the shares of American Water Common Stock to be issued as Merger Consideration in the Merger; approval of the Merger Agreement by the

(In thousands of dollars, except per share amounts)

Company’s shareholders; and receipt of certain governmental approvals, including (a) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and (b) the approval of certain public utility commissions, in each case on such terms and conditions that would not, individually or in the aggregate, result in a “Burdensome Effect” (as defined in the Merger Agreement). There can be no guarantee that all of the closing conditions and approvals will be satisfied, and the failure to complete the proposed merger on a timely basis or at all may adversely affect the Company’s financial condition and results of operations. The Company currently estimates that the closing of the proposed merger will occur by the end of the first quarter of 2027.

The Merger Agreement provides that American Water will retain its current name, maintain its headquarters and principal corporate office in Camden, New Jersey, and maintain substantial operations in Pennsylvania.

Macroeconomic Factors

Our business is subject to various economic factors that affect our customers and our industry. The recent changes in government fiscal policies and regulations introduced by the new administration have resulted in heightened uncertainty for businesses and consumers, as well as volatility in financial markets. We will continue to evaluate the evolving macroeconomic environment, including those impacts resulting from the recent imposition, or proposed imposition, of tariffs and potential changes to environmental regulations, and to take action to mitigate the impact on our business, consolidated results of operations, and financial condition. Timely and adequate rate relief is important to our continued profitability and in providing a fair return to our shareholders. We continue to pursue enhancements to our regulatory practices to facilitate the efficient recovery of the increased cost of providing services and infrastructure improvements in our rates and mitigate the inherent regulatory lag associated with traditional rate making processes.

Regulatory Developments

During the first nine months of 2025, we implemented, or received approval to implement, base rate increases that result in a $87,071 increase in annual revenues as summarized below.

* Base rate case - step increase for Year 3

(In thousands of dollars, except per share amounts)

On July 30, 2025, the Company’s regulated water and wastewater operating subsidiary in Virginia, Aqua Virginia, filed an application with the State Corporation Commission designed to increase revenues by $7,927 annually.

On June 30, 2025, the Company’s regulated water and wastewater operating subsidiaries in Ohio, Aqua Ohio and Aqua Ohio Wastewater, filed applications with the Public Utilities Commission of Ohio designed to increase rates in total by $14,653.

On June 20, 2025, the Company’s regulated water and wastewater operating subsidiary in Texas, Aqua Texas, filed an application with the Public Utility Commission of Texas designed to increase rates by $29,149.

On April 30, 2025, the Company’s regulated water and wastewater operating subsidiary in North Carolina, Aqua North Carolina, filed an application with the North Carolina Utilities Commission designed to increase rates by $32,847 in the first year of new rates being implemented, then an additional $5,915 and $6,000 in the second and third years, respectively.

Growth Through Acquisitions and Capital Investment

In January 2025, the Company acquired Greenville Sanitary Authority’s wastewater utility assets, which serves approximately 2,300 customers in Greenville, Pennsylvania for $18,000. In April 2025, the Company closed on its acquisition of the Village of Midvale’s water system in Ohio, which serves approximately 1,000 customers for $2,950. In July 2025, the Company acquired the wastewater utility system of the City of Beaver Falls, Pennsylvania for $37,750. The system serves approximately 3,200 customers in the City of Beaver Falls and also provides bulk transmission and treatment service for approximately 3,800 equivalent dwelling units in seven nearby municipalities. As of September 30, 2025, the Company had four signed purchase agreements for additional water and wastewater systems that are expected to serve approximately 203,000 equivalent retail customers or equivalent dwelling units and total approximately $300,000 in purchase price in two of our existing states. This includes the Company’s agreement to acquire the Delaware County Regional Water Quality Control Authority (DELCORA) for $276,500. DELCORA, a Pennsylvania sewer authority, serves approximately 198,000 equivalent dwelling units in the Philadelphia suburbs. Refer to Note 3 – Water and Wastewater Acquisitions for further discussion.

During the nine-month period ended September 30, 2025, we invested $983,089 to improve our regulated water and natural gas infrastructure system and to enhance customer service. From 2025 through 2029, the Company plans to invest approximately $7,800,000 to improve water and natural gas systems and better serve customers through improved information technology. The capital investments made to rehabilitate and expand the infrastructure of the communities the Company serves are critical to its mission of safely and reliably delivering Earth’s most essential resources.

(In thousands of dollars, except per share amounts)

Convertible Note Purchase Agreement

On August 27, 2025, the Company, through its wholly owned subsidiary, Aqua Infrastructure, entered into a convertible promissory note purchase agreement with IEP Hummingbird Energy LLC (“IEP”) whereby the Company agreed to purchase convertible notes (“Convertible Note Investment”) in the aggregate principal amount of $26,000 through January 2026. IEP, a subsidiary of International Electric Power III, LLC, shall use the proceeds for the development of a gas-fired plant to power a data center being developed Greene County, PA (the “Project”). The Convertible Note Investment bears zero interest, includes a fixed $16,500 loan fee concurrently payable to the Company at maturity with the principal amount of the notes on September 30, 2026, and contains conversion rights into equity at any time on or after maturity or upon certain triggering events, such as a project financial closing or equity financing, as defined in the agreement. The agreement also grants the Company the right of first refusal to certain water and gas business opportunities and additional equity kickers upon the occurrence of a financing event or change of control. The Convertible Note receivable is presented within Deferred charges and other assets in the accompanying condensed consolidated balance sheets. As of September 30, 2025, the fair value of the Convertible Note receivable amounts to $22,350. The Company’s involvement in this Project underscores its commitment to innovation, sustainability and regional economic development.

Multi-District Litigation Class Action Settlement

A number of the Company’s water and wastewater subsidiaries are parties to a multi-district litigation (the “MDL”) lawsuit in the United States District Court for the District of South Carolina against manufacturers of certain per- and polyfluoroalkyl substances or compounds (“PFAS”) for damages, contribution and reimbursement of costs incurred and continuing to be incurred to address the presence of such PFAS in public water supply systems. During the third quarter of 2025, the Company received $39,844 representing a portion of its share of the settlement reached with 3M, net of legal fees and settlement costs. The Company recorded $8,776 of the proceeds allocated to its North Carolina and Virginia water and wastewater subsidiaries as a regulatory liability, pursuant to regulatory orders issued by the public utility commissions from such states regarding the treatment of PFAS settlement costs. The remaining proceeds received that were allocated to the Company’s other water and wastewater subsidiaries totaling $31,068 were recorded within Deferred Credits and Other Non-current liabilities in the accompanying condensed consolidated balance sheet, pending recommendation or order from the respective public utility commissions on treatment of the amounts. The Company anticipates receiving additional settlement payments from the MDL lawsuit defendants.

Captive Insurance Subsidiary

The Company expects insurance and claims expenses to continue to be volatile over the long term. In order to mitigate a portion of increased insurance costs, on October 1, 2025, the Company established a wholly-owned captive insurance company, Utility Insurance LLC, incorporated in the State of Utah, whose principal activity at this time is to provide insurance and reinsurance coverage for a portion of the Company’s general liability, property, workers compensation, auto liability, cyber and management liability risks.

(In thousands of dollars, except per share amounts)

Liquidity and Capital Resources

Our regulated water and gas business is capital intensive and requires a significant level of capital spending. The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt and equity financing. The Company’s condensed consolidated balance sheet historically has had a negative working capital position whereby our current liabilities routinely exceed our current assets. Management believes that internally generated funds along with existing credit facilities, and the proceeds from the issuance of commercial paper notes, long-term debt and equity will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements for at least the next twelve months.

Net cash flows from operating activities were $804,347 for the first nine months of 2025, compared to $622,510 for the first nine months of 2024. Operating cash flow increased by $181,837 primarily due to an increase in operating income in 2025 resulting from additional revenues from regulatory recoveries, and an increase in gas volumes delivered due to colder weather conditions during the first quarter of 2025 as compared to 2024.

During the first nine months of 2025, we incurred $983,089 of capital expenditures, obtained net proceeds of $152,525 from our commercial paper program (the “CP Program”), issued long-term debt of $1,312,446, and repaid short-term debt and other long-term debt in aggregate of $1,236,664. The capital expenditures were related to new and replacement water, wastewater, and natural gas mains, improvements to treatment plants, tanks, hydrants, and service lines, well and booster improvements, information technology improvements, and other enhancements and improvements. Cash inflows from financing activities were higher during the first nine months of 2025 compared to 2024, primarily due to the issuance of common stock from the Company’s at-the-market equity sales program (“ATM”), partially offset by greater repayments of long-term debt.

On August 7, 2025, the Company issued $500,000 of senior notes, less expenses of $1,220, due on August 15, 2035 with an interest rate of 5.25%. The Company used the proceeds from the issuance of senior notes to repay a portion of its commercial paper borrowings and for general corporate purposes.

On June 3, 2025, Aqua Pennsylvania and Peoples Natural Gas Companies amended and restated their respective $100,000 and $300,000 revolving credit agreements, extending the maturity date by another 364-day period. The funds borrowed under these revolving credit agreements are classified as loans payable and are used to provide working capital.

On May 29, 2025, the Company’s subsidiary, Aqua Pennsylvania, issued $100,000 in aggregate principal amount of first mortgage bonds. The bonds consisted of $75,000 of 5.38% first mortgage bonds due in 2035; and $25,000 of 5.63% first mortgage bonds due in 2040. The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes.

On March 19, 2025, the Company established the CP Program that allows it to issue, through private placement, short-term, unsecured commercial paper notes (the “CP Notes”) in an aggregate principal

(In thousands of dollars, except per share amounts)

amount not to exceed $1,000,000. Maturities of CP Notes may vary, but cannot exceed 364 days from the date of issue. Amounts available under the CP Program may be borrowed, repaid, and re-borrowed from time to time. The CP Program is reinforced by the Company’s revolving credit facility, as amounts undrawn under the Company’s revolving credit facility are available to repay the CP Notes. Notes issued under the CP Program rank equally with the Company’s present and future unsecured indebtedness. The Company utilizes the proceeds from the sale of the CP Notes for general corporate purposes, which may include working capital, capital expenditures, water and wastewater utility acquisitions, and repaying outstanding indebtedness, including under the Company’s revolving credit facility or the revolving credit facilities of its subsidiaries. As of September 30, 2025, outstanding borrowings under the Company’s CP Program were $152,982, net of unamortized discount on issuance of $18.

On August 13, 2024, the Company established an ATM, under which we may issue and sell shares of our common stock up to an aggregate offering price of $1,000,000 (“2024 ATM”). During the three months ended September 30, 2025, we issued 2,379,579 shares of common stock for net proceeds of approximately $91,500 under the 2024 ATM. During the nine months ended September 30, 2025, we issued 7,671,350 shares of common stock for net proceeds of approximately $300,100 under the 2024 ATM. As of September 30, 2025, the 2024 ATM had approximately $660,700 of equity available for issuance. The Company used the net proceeds from the sales of shares through the 2024 ATM for working capital, capital expenditures, water and wastewater utility acquisitions, and repaying a portion of outstanding indebtedness.

At September 30, 2025, we had $6,397 of cash and cash equivalents compared to $9,156 at December 31, 2024. During the first nine months of 2025, we used the proceeds from long-term debt, the proceeds from the issuance of commercial paper, and the proceeds from issuance of common stock, as well as internally generated funds, for capital expenditures, repayment of existing indebtedness, payment of dividends, and general corporate purposes.

At September 30, 2025, our $1,000,000 unsecured revolving credit facility, which expires in December 2027, had $834,433 available for borrowing (net of $153,000 of capacity designated for outstanding principal borrowings under our commercial paper program and $12,567 letter of credit usage). Additionally, at September 30, 2025, we had short-term lines of credit of $400,000, primarily used for working capital, of which $303,635 was available for borrowing. Although we believe we will be able to renew these facilities, there is no assurance that they will be renewed, or what the terms of any such renewal will be.

As of September 30, 2025, our credit ratings remained at investment grade levels. During the nine months ended September 30, 2025, S&P Global Ratings (“S&P”) reaffirmed the Company, Aqua Pennsylvania, and Peoples Natural Gas Companies’ A- long-term issuer credit rating with a stable outlook. As can be noted in their report, S&P continues to assess our business risk profile as excellent, considering our low-risk and rate-regulated water and gas distribution operations in credit-supportive regulatory environments, our geographic and regulatory diversity, our large and stable residential and commercial customer base, and our solid and reliable operations. On August 27, 2025, Moody's Investors Service ("Moody's") reaffirmed the Company's senior secured notes and Peoples Natural Gas companies’ senior unsecured notes’ Baa2 credit rating with negative outlook. The Company’s ability to

(In thousands of dollars, except per share amounts)

maintain its credit rating depends, among other things, on adequate and timely rate relief, its ability to fund capital expenditures in a balanced manner using both debt and equity, and its ability to generate cash flow. A material downgrade of our credit rating may result in the imposition of additional financial and/or other covenants, impact the market prices of equity and debt securities, increase our borrowing costs, and adversely affect our liquidity, among other things. Management continues to enhance our regulatory practices to address regulatory lag and recover capital project costs and increases in operating costs efficiently and timely through various rate-making mechanisms.

Results of Operations

Consolidated Results of Operations

Consolidated financial and operational highlights for the periods ended September 30, 2025 and 2024 are presented below.

Three months ended September 30, 2025 compared with three months ended September 30, 2024

Consolidated operating revenues increased by $41,716 or 9.6% as compared to the same period in 2024. Revenues from our Regulated Water, Regulated Natural Gas, and Other segments increased by $29,578, $11,719, and $419, respectively. A detailed discussion of the factors contributing to the changes in segment revenue is included below under the section, Segment Results of Operations.

Consolidated operations and maintenance expense increased by $8,720 or 6.0%, primarily due to:

an increase in employee-related costs of $7,213, primarily resulting from annual merit increases, increases in employee medical costs, and higher stock-based compensation expense compared to prior period;

(In thousands of dollars, except per share amounts)

an increase in bad debt expense of $4,208, of which $3,100 represents a favorable adjustment made during the third quarter of 2024 related to our Pennsylvania water customer assistance program;

an increase in production costs for water and wastewater operations of $2,437;

an increase in customer assistance surcharge costs of $589 in our Regulated Natural Gas segment, which generally has an offsetting amount in revenues; offset by

a decrease in materials and supplies of $1,469

a decrease in legal expense of $1,397; and

a decrease in outside services and higher capitalization in the current period compared to the prior period in our Regulated Natural Gas segment.

Purchased gas increased by $3,411 or 17.9%. Purchased gas represents the cost of gas sold by the Company, which for the regulated natural gas business has a corresponding offset in revenue. The increase is the result of an increase in the average cost of gas of $4,496 and lower gas usage of $1,085 during the third quarter of 2025.

Depreciation and amortization expense increased by $14,465 or 15.6% principally due to continued capital expenditures to expand and improve our utility facilities, our acquisitions of new water and wastewater utility systems, and the implementation of new depreciation rates.

Interest expense, net of interest income, increased by $5,738 or 7.6%. Interest expense, net of interest income, increased by $3,139 in our Regulated Water segment and by $4,076 in our Regulated Natural Gas segment. Interest expense, net of interest income, in Other relates to our corporate operations, and this decreased by $1,477 primarily due to our revolving credit facility borrowings being replaced by commercial paper issuances at a lower interest rate, during the third quarter of 2025.

Allowance for funds used during construction (“AFUDC”) increased by $587 or 10.5% primarily due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied.

Our effective income tax rate was an expense of 4.5% and 18.6% in the third quarter of 2025 and 2024, respectively. The decrease in income tax expense in the third quarter of 2025 is primarily attributed to the net increase in tax benefit associated with the tax deduction for continued qualifying infrastructure investment, offset by decreases in both the state tax benefit and amortization of tax repairs surcredit in the Regulated Natural Gas segment based on a rate order received in September 2024.

Nine months ended September 30, 2025 compared with nine months ended September 30, 2024

Consolidated operating revenues increased by $293,774 or 19.8% as compared to the same period in 2024. Revenues from our Regulated Water, Regulated Natural Gas, and Other segments increased by $80,335, $207,318, and $6,121, respectively. A detailed discussion of the factors contributing to the changes in segment revenue is included below under the section, Segment Results of Operations.

(In thousands of dollars, except per share amounts)

Consolidated operations and maintenance expense increased by $15,642 or 3.7%, primarily due to:

an increase in employee-related costs of $18,225, primarily resulting from annual merit increases, increases in overtime pay due to outages from extreme cold weather conditions during the first quarter of 2025, increases in employee medical costs, and higher stock-based compensation expense compared to prior period;

an increase in customer assistance surcharge costs of 9,839 in our Regulated Natural Gas segment, which generally has an offsetting amount in revenues; and

an increase in production costs for water and wastewater operations of $5,497; offset by

a decrease in insurance expense of $3,652, primarily due to an insurance recovery of $5,602 during the first quarter of 2025 for a portion of expenses incurred by the Company associated with remediating an advisory for some of our Illinois water utility customers;

a decrease in bad debt expense of $1,015, of which $5,889 relates to a favorable regulatory asset adjustment in our Regulated Water segment in the first quarter of 2025;

a decrease in materials and supplies of $2,431; and

an increase in capitalization in our Regulated Natural Gas segment of $7,814 in the current period as compared with the prior period due to higher capital spend and increasing pool of eligible capitalizable costs.

Purchased gas increased by $81,384 or 44.6%. Purchased gas represents the cost of gas sold by the Company, which for the regulated natural gas business has a corresponding offset in revenue. The increase is the result of an increase in the average cost of gas of $50,375 and higher gas usage of $31,395 during the first nine months of 2025, offset by a decrease of $386 from the sale of our interest in three non-utility local microgrid and distributed energy projects in January 2024.

Depreciation and amortization expense increased by $36,911 or 13.5% principally due to continued capital expenditures to expand and improve our utility facilities, our acquisitions of new water and wastewater utility systems, and the implementation of new depreciation rates.

Taxes other than income taxes decreased by $3,068 or 4.3% during the nine months ended September 30, 2025 as compared to the prior period largely due to a favorable adjustment on sales and use tax accruals of our Regulated Natural Gas segment as a result of the closure of a sales and use tax audit during the second quarter of 2025.

Interest expense, net of interest income, increased by $22,029 or 10.0%. Interest expense, net of interest income, increased by $7,494 in our Regulated Water segment and by $9,824 in our Regulated Natural Gas segment. Interest expense, net of interest income, in Other relates to our corporate operations, and this increased by $4,711 primarily due to increased borrowings from the Company’s revolving credit facility and commercial paper issuances during the first nine months of 2025 as compared to the prior period.

(In thousands of dollars, except per share amounts)

Allowance for funds used during construction (“AFUDC”) increased by $3,536 or 22.8% primarily due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied, in our Regulated Water segment.

For the nine months ended September 30, 2025 and 2024, gain on sale of other assets totaled $669 and $92,067, respectively. During the first quarter of 2024, the Company completed the sale of its interest in three non-utility local microgrid and distributed energy projects and recognized a gain of $91,236 in its Regulated Natural Gas segment.

Our effective income tax rate was a benefit of 2.5% and an expense of 1.7% in the first nine months of 2025 and 2024, respectively. The increase in income tax benefit during the first nine months of 2025 is attributed to the release of $22,575 of income tax reserve regulatory liability in the Regulated Water segment based on the rate order received by Aqua Pennsylvania in February 2025, offset by the decreases in both the state tax benefit and amortization of tax repairs surcredit in the Regulated Natural Gas segment based on a rate order received in September 2024.

Segment Results of Operations

Regulated Water Segment

Our Regulated Water segment is comprised of eight operating segments representing its water and wastewater regulated utility companies which are organized by the states where the Company provides water and wastewater services. The Regulated Water segment is aggregated into one reportable segment.

The following tables present selected operating results and statistics for our Regulated Water segment for the periods ended September 30, 2025 and 2024:

42

(In thousands of dollars, except per share amounts)

Three months ended September 30, 2025 compared with three months ended September 30, 2024

Revenues from our Regulated Water segment increased by $29,578 or 8.8% for the third quarter of 2025 as compared to the same period in 2024, mainly due to the following:

an increase in water and wastewater rates of $27,926;

additional water and wastewater revenues of $1,370 associated with a larger customer base due to utility acquisitions and organic growth; and

an increase in volume consumption of $288.

Operations and maintenance expense increased by $9,312 or 9.7% primarily due to the following:

an increase in employee related costs of $2,705;

an increase in bad debt expense of $3,508, of which $3,100 represents a favorable adjustment made during the third quarter of 2024 related to our Pennsylvania water customer assistance program; and

an increase in production costs for water and wastewater operations of $2,437.

Depreciation and amortization increased by $7,318 or 12.6% primarily due to continued capital investment to expand and improve our utility facilities, the implementation of new depreciation rates in connection with recently completed rate cases, and our acquisitions of new utility systems.

Interest expense, net of interest income, increased by $3,139 or 8.9% for the quarter primarily due to higher push down debt borrowings and operating company debt issuances for the Regulated Water segment.

Allowance for funds used during construction (“AFUDC”) increased by $200 or 4.6% primarily due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied.

Our effective income tax rate for our Regulated Water Segment was an expense of 13.6% and 14.7% in the third quarter of 2025 and 2024, respectively. The decrease in the effective tax rate is primarily the result of increase in the income tax benefit associated with the tax deduction for qualifying infrastructure.

Nine months ended September 30, 2025 compared with nine months ended September 30, 2024

Revenues from our Regulated Water segment increased by $80,335 or 8.8% for the first nine months of 2025 as compared to the same period in 2024, mainly due to the following:

an increase in water and wastewater rates of $80,835;

additional water and wastewater revenues of $4,924 associated with a larger customer base due to utility acquisitions and organic growth; offset by

a decrease in volume consumption of $5,343.

(In thousands of dollars, except per share amounts)

Operations and maintenance expense increased by $12,621 or 4.5% primarily due to the following:

an increase in employee related costs of $5,153;

an increase in production costs for water and wastewater operations of $5,497; and

an increase in management fees of $3,492; offset by

a decrease in bad debt expense of $2,514, of which $5,889 relates to a favorable regulatory asset adjustment during the first quarter of 2025.

Depreciation and amortization increased by $17,859 or 10.3% primarily due to continued capital investment to expand and improve our utility facilities, a change in depreciation rates, and our acquisitions of new utility systems.

Interest expense, net of interest income, increased by $7,494 or 7.2% primarily due to higher push down debt borrowings and operating company debt issuances for the Regulated Water segment.

Allowance for funds used during construction (“AFUDC”) increased by $2,904 or 24.2% primarily due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied.

Our effective income tax rate for our Regulated Water Segment was an expense of 9.0% and 17.1% in the first nine months of 2025 and 2024, respectively. The decrease in the effective tax rate is largely attributed to the release of $22,575 of income tax reserve regulatory liability based on the rate order received by Aqua Pennsylvania in February 2025.

Regulated Natural Gas Segment

Our Regulated Natural Gas segment recognizes revenues by selling gas directly to customers at approved rates or by transporting gas through our pipelines at approved rates to customers that have purchased gas directly from other producers, brokers, or marketers. Natural gas sales to residential, commercial and industrial customers are seasonal, which results in higher demand for natural gas for heating purposes during the colder months. A weather normalization adjustment (“WNA”) mechanism is in place for our natural gas customers served in Kentucky, and, beginning in October 2024, for our natural gas customers in Pennsylvania. The WNA mechanism serves to minimize the effects of weather on the Company’s ability to collect revenues to cover operating expenses for its residential and small and medium commercial natural gas customers. The WNA mechanism adjusts revenues earned for the variance between actual and normal weather and can have either positive (warmer than normal) or negative (colder than normal) effects on revenues.

(In thousands of dollars, except per share amounts)

The following tables present selected operating results and statistics for our Regulated Natural Gas segment, for the periods ended September 30, 2025 and 2024:

Three months ended September 30, 2025 compared with three months ended September 30, 2024

Operating revenues from the Regulated Natural Gas segment increased by $11,719 or by 12.1% due to:

an increase in purchased gas costs of $2,362; refer to purchased gas costs discussion below for further information;

an increase of $5,741 due to higher rates and other surcharges;

an increase of $2,842 due to lower tax repair surcredit;

an increase in customer assistance surcharge of $589, which generally has an offsetting amount in operations and maintenance expense; and

a weather normalization adjustment of $155 in Pennsylvania, which had the effect of increasing revenues for the quarter ended September 30, 2025; offset by

the impact of lower volumes delivered of $389.

Operations and maintenance expense for the three months ended September 30, 2025 decreased by $1,549 or 3.2% primarily due to the following:

an increase in labor and employee benefits of $2,236;

an increase in bad debt expense of $700; and

an increase in customer assistance surcharge costs of $589, which generally has an offsetting amount in revenues; offset by

a decrease in legal expenses of $815;

a decrease in materials and supplies of $1,321; and

(In thousands of dollars, except per share amounts)

a decrease in outside services and higher capitalization as a result of greater capital expenditures in the current period compared to the prior period.

Our Regulated Natural Gas segment is affected by the cost of natural gas, which is passed through to customers using a purchased gas adjustment clause and includes commodity price, transportation and storage costs. These costs are reflected in the condensed consolidated statement of operations and comprehensive income as purchased gas expenses. Fluctuations in the cost of purchased gas impact operating revenues on a dollar-for-dollar basis. Purchased gas increased by $2,362 or 13.4% largely due to an increase in the average cost of gas of $3,989, offset by lower gas usage of $1,627 resulting from a slight shift in customer usage pattern during the third quarter of 2025.

Depreciation and amortization increased by $7,093 or 20.7% primarily due to continued capital investment, and the implementation of new depreciation rates following a recently completed rate case.

Interest expense, net, increased by $4,076 or 18.4% due to higher push down debt borrowings of the Regulated Natural Gas segment from Essential Utilities, Inc, which is primarily used to fund capital projects.

Our effective income tax rate for our Regulated Natural Gas segment was a benefit of 18.3% and an expense of 0.7% in the third quarter of 2025 and 2024, respectively. The increase in the income tax benefit is primarily attributed to the net increase in the tax benefit associated with the deduction for continued qualifying infrastructure investment, offset by decreases in both the state tax benefit and the amortization of the tax repairs surcredit based on a rate order received in September 2024.

Nine months ended September 30, 2025 compared with nine months ended September 30, 2024

Operating revenues from the Regulated Natural Gas segment increased by $207,318 or by 37.7% due to:

an increase in purchased gas costs of $74,631; refer to purchased gas costs discussion below for further information;

an increase of $65,755 due to higher rates and other surcharges;

impact of higher volumes delivered of $34,311 due to colder weather conditions during the first nine months of 2025 as compared to 2024;

an increase of $17,938 due to lower tax repair surcredit;

an increase in customer assistance surcharge of $9,839, which generally has an offsetting amount in operations and maintenance expense; and

a weather normalization adjustment of $2,717 in Pennsylvania, which had the effect of increasing revenues for the nine months ended September 30, 2025.

(In thousands of dollars, except per share amounts)

Operations and maintenance expense for the nine months ended September 30, 2025 increased by $8,286 or 5.7% primarily due to the following:

an increase in customer assistance surcharge costs of $9,839, which generally has an offsetting amount in revenues;

an increase in labor and employee benefits of $6,739;

an increase in legal expenses of $1,348; and

an increase in bad debt expense of $1,526; offset by

a decrease in materials and supplies of $2,882; and

an increase in capitalization in our Regulated Natural Gas segment of $7,814 in the current period as compared with the prior period due to higher capital spend and increasing pool of eligible capitalizable costs.

Purchased gas increased by $74,631 or 42.4% due to an increase in the average cost of gas of $49,845 and higher gas usage of $25,172 due to colder weather conditions during the first nine months of 2025, offset by a decrease of $386 from the sale of our interest in three non-utility local microgrid and distributed energy projects in January 2024. During the first nine months of September 30, 2025, we experienced 3,299 actual HDDs, which was colder by 24.9% than prior year’s 2,642 HDDs for Pittsburgh, Pennsylvania, which we use as a proxy for our western Pennsylvania service territory.

Depreciation and amortization increased by $18,688 or 18.8% primarily due to continued capital investment, and the implementation of new depreciation rates following a recently completed rate case.

Taxes other than income taxes decreased by $3,936 or 22.0% largely due to a favorable adjustment on sales and use tax accruals as a result of the closure of a sales and use tax audit during the second quarter of 2025.

Interest expense, net, increased by $9,824 or 14.4% primarily due to higher push down debt borrowings of the Regulated Natural Gas segment from Essential Utilities, Inc, which is primarily used to fund capital projects.

Gain on sale of assets was $0 and $91,581 for the nine-month period ended September 30, 2025 and 2024, respectively. During the first quarter of 2024, the Company completed the sale of its interest in three non-utility local microgrid and distributed energy projects and recognized a gain of $91,236.

Our effective income tax rate for our Regulated Natural Gas segment was a benefit of 23.4% and 27.9% in the first nine months of 2025 and 2024, respectively. The decrease in the income tax benefit is primarily attributed to decreases in both the state tax benefit and the amortization of the tax repair surcredit based on a rate order received in September 2024.

Impact of Recent Accounting Pronouncements

We describe the impact of recent accounting pronouncements in Note 17, Recent Accounting Pronouncements, to the condensed consolidated financial statements in this report.

We are subject to market risks in the normal course of business, including changes in interest rates and equity prices. Refer to Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed February 27, 2025, for additional information on market risks.

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

(b) Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended September 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Please review the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, under “Part 1, Item 1A – Risk Factors”, to which there have been no material changes except as supplemented by the following:

Risks Related to the Proposed Merger

The market price of shares of Essential Common Stock or American Water Common Stock will fluctuate and the Exchange Ratio will not be adjusted to reflect such fluctuations, and as a result, the Merger Consideration at the date of the closing of the Merger may vary significantly from the date the Merger Agreement was executed.

Upon completion of the Merger, each outstanding share of Essential Common Stock will be converted into the right to receive 0.305 shares of American Water Common Stock. The number of shares of American Water Common Stock to be issued pursuant to the Merger Agreement for each share of Essential Common Stock will not change to reflect changes in the market price of American Water Common Stock or Essential’s Common Stock. The market price of Essential Common Stock and American Water Common

Stock at the time of completion of the Merger may vary significantly from the price on the date the Merger Agreement was executed and/or the date or dates of special shareholder meetings to be held in connection with the Merger. Because we may not complete the Merger until a significant period of time has passed after these dates, the market value of American Water Common Stock issued in connection with the Merger and the Essential Common Stock surrendered in connection with the Merger may be higher or lower than the values of those shares on earlier dates. Stock price changes may result from market assessment of the likelihood that the Merger will be completed, changes in our or American Water’s business, operations or prospects prior to or following the Merger, litigation or regulatory considerations, reactions from the financial markets or analysts, general business, market, industry or economic conditions and other factors both within and beyond our and American Water’s control, including the risks, uncertainties and other factors described in “Part 1, Item 1A – Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2024, and in our other SEC filings, and those described in American Water’s SEC filings. Neither we nor American Water may terminate the Merger Agreement solely because of changes in the market price of either company’s common stock.

The Merger is subject to various closing conditions, including the receipt of consents and approvals from various governmental and regulatory entities and third parties, and a failure to obtain all such consents or approvals or to satisfy such other closing conditions could prevent or delay the completion of the Merger or impose conditions that could have a material adverse effect on us or the combined company.

We anticipate that, subject to the receipt of all required regulatory and other consents and approvals and the satisfaction or waiver of all other closing conditions, the Merger will be completed in the first quarter of 2027. Among other closing conditions, completion of the Merger is conditioned upon the receipt of such required consents, orders and approvals from various governmental and regulatory entities and other third parties, including public utility commissions in certain states in which either or both companies operate, including without limitation the Pennsylvania Public Utility Commission. The Merger is also subject to review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the expiration or earlier termination of the waiting period (and any extension of the waiting period) applicable to the Merger is a condition to closing the Merger.

Approvals by shareholders of each of American Water and the Company will also be required to complete the Merger. We and American Water cannot provide any assurance that all of the required consents, orders and approvals will be obtained or that these consents, orders or approvals will not be conditioned on terms, conditions or restrictions that would be detrimental to the combined company after the completion of the Merger, including requiring one or both companies to dispose of certain assets. One or both company’s shareholders may not approve the Merger. The Merger Agreement allows, subject to certain conditions, limitations and exclusions, each party to terminate the Merger Agreement (and generally without the payment of a termination fee to the non-terminating party) if the final terms of any of the required regulatory consents, orders or approvals would result in or require an undertaking of efforts or the taking of action that would reasonably be expected to have, individually or in the aggregate, a “Burdensome Effect” (as defined in the Merger Agreement). Any substantial delay in obtaining satisfactory consents, orders or approvals, or the imposition of any requirements, terms or conditions in connection with a party’s obtaining such consents, orders or approvals, could be on terms that we or American Water do not believe to be reasonable or could cause a material reduction in the expected benefits of the Merger and/or an impairment or deterioration in our or American Water’s relationships with their respective applicable public utility commissions. If any such delays or conditions are significant enough, one or both parties may decide to abandon the Merger and terminate the Merger Agreement, subject to its terms. If the Merger is not completed, our ongoing businesses may be adversely affected, including, as follows:

• having to pay certain significant costs relating to the Merger without receiving the benefits of the Merger, including, in certain circumstances, a payment by us to American Water of a termination fee of $370 million;
• diversion of management’s attention from day-to-day operations;
• not pursuing other strategic transactions that we may have otherwise considered had we not entered into the Merger Agreement with American Water;
• we will have been subject to certain restrictions on the conduct of our ongoing businesses, which may have prevent us from making certain acquisitions or dispositions or pursuing certain business opportunities while the Merger was pending; and
• the price of Essential Common Stock may decline to reflect assumptions by the market as to whether the Merger will be completed.

The Merger may cause suppliers, strategic partners, certain customers or others to delay or defer decisions regarding our business, and may adversely affect our ability to effectively manage our business.

The Merger will happen only if stated conditions are satisfied, including the receipt of the requisite shareholder approvals and the receipt of regulatory approvals, among other conditions. Many of the conditions are outside the parties’ control, and both parties also have certain rights to terminate the Merger Agreement. Accordingly, there may be uncertainty regarding the completion of the Merger. This uncertainty, or any disagreement with the decision to enter into the Merger Agreement, may cause our suppliers, vendors, strategic partners, certain customers or others that deal with us to delay or defer entering into contracts or make other decisions concerning us, or to seek to change or cancel existing business relationships. Any delay or deferral of those decisions or changes in existing agreements or relationships could have a material adverse effect on us and our financial condition and results of operations.

The Merger Agreement contains provisions that limit our and American Water’s ability to pursue certain alternatives to the Merger, which could discourage a potential acquirer of either American Water or us from making an alternative transaction proposal and, in certain circumstances, could require us or American Water to pay to the other party a significant termination fee.

Under the Merger Agreement, we and American Water are each restricted, subject to limited exceptions, from entering into certain alternative transactions in lieu of the Merger. In general, unless and until the Merger Agreement is terminated, we and American Water are restricted from, among other things, soliciting, initiating, knowingly encouraging or knowingly facilitating the making of a proposal that is or would reasonably be expected to lead to a competing acquisition proposal from any person. Each of our and American Water’s board of directors is limited in its ability to change its recommendation with respect to the Merger and related proposals. We and/or American Water may terminate the Merger Agreement and enter into an agreement with respect to a superior proposal only if specified conditions have been satisfied, including compliance with the non-solicitation provisions of the Merger Agreement. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of us or American Water from considering or proposing such an acquisition, even if such third party were prepared to pay consideration with a higher per share cash or market value than the consideration proposed to be received or realized in the Merger, or the competing transaction might result in a potential acquirer proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances. Under the Merger Agreement, in the event the Merger Agreement is terminated to accept a superior proposal, or under certain other circumstances, American Water would be required to pay a termination fee of $835 million to us in the case of a termination of the Merger Agreement by it, and we would be required to pay a termination fee of $370 million to American Water in the case of a termination of the Merger Agreement by us.

We may be the target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into a merger agreement. Even if these lawsuits are without merit, defending against these claims can result in substantial costs to the parties to the merger agreement and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting the completion of a merger, that injunction may delay or prevent such merger from being completed.

If completed, the Merger may not achieve its anticipated results, and American Water may not be able to integrate our operations and/or operate the combined company in the manner expected.

We and American Water entered into the Merger Agreement with the expectation that the Merger will result in various benefits, including, among other things, increased efficiencies of scale and size, increased geographic diversity, greater long-term growth opportunities for employees of the combined company, and other operating efficiencies. Achieving the anticipated benefits of the Merger is subject to a number of uncertainties, including whether our and American Water’s businesses can be integrated in an efficient, effective and timely manner.

American Water could have difficulty integrating our assets, personnel and operations with its own. We anticipate that the integration of the two companies may ultimately be complex, and expect that significant time and resources will be devoted to this integration process. Risks and uncertainties that could impact the integration and combined company negatively include:

• unforeseen or significant difficulties in integrating the two companies and their assets, operations, cultures and employees;
• the potential disruption of the ongoing businesses and distraction of our and American Water’s management;
• changes in our or American Water’s business focus and/or management;
• risks related to American Water owning, operating, maintaining and successfully managing our natural gas distribution business, including any increased risks and liabilities associated with the operation of that business;
• difficulties in establishing and/or maintaining uniform standards, systems, controls, procedures and policies, including accounting and financial reporting, across both of the integrated companies, or merging or linking disparate ones;
• the potential impairment of relationships with employees and partners as a result of any integration of new management personnel;
• the potential inability to manage an increased number of locations and employees; and
• the effect of any government regulations which relate to our business, including with respect to jurisdictions in which American Water’s regulated businesses currently do not operate.

It is possible that the integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of each company’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect the combined company’s ability to achieve the anticipated benefits of the Merger as and when expected. The combined company may have difficulty addressing possible differences in corporate cultures and management philosophies, and the various management and corporate governance constructs provided for in the Merger Agreement to govern the combined company, including with respect to the board of directors of the combined company, may not operate successfully as intended or desired. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and otherwise adversely affect the combined company’s future business, financial condition, operating results and prospects.

The companies may incur substantial and/or unexpected transaction fees and Merger-related costs in connection with the Merger.

We and American Water expect to incur substantial non-recurring expenses associated with completing the Merger, as well as expenses related to combining the operations of the two companies. The combined company may incur additional unanticipated costs in the integration of the companies’ businesses. Although we expect that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset some or all of the incremental transaction and Merger-related costs over time, the combined company may not achieve this net benefit in the near term, or at all.

Current shareholders of each company will have reduced ownership and voting interests in their respective companies after the Merger.

It is estimated that our current shareholders and American Water’s shareholders would own approximately 31% and 69% of the outstanding shares of American Water Common Stock, respectively, on a fully diluted basis immediately following the consummation of the Merger. Our and American Water’s shareholders currently have the right to vote for their respective directors and on other matters affecting their company. If the Merger occurs, each shareholder of the Company who receives shares of American Water Common Stock will become a shareholder of American Water with a percentage ownership of the combined company that will be smaller than the shareholder’s percentage ownership of the Company. Correspondingly, upon the completion of the Merger, each holder of American Water Common Stock will remain a shareholder of American Water but with a percentage ownership of the combined company that will be smaller than the shareholder’s percentage of ownership immediately prior to the Merger. As a result of these reduced ownership percentages, our former shareholders will have less voting power in the combined company than they now have with respect to the Company, and American Water’s shareholders will have less voting power in the combined company than they now have with respect to American Water.