Essential by the Numbers
OUR FOOTPRINT
OUR INVESTMENT
426+ miles of pipeline replaced or retired
1.9 million customer connections
9 States
$1.4+ billion in infrastructure improvement
5.5 million people served
3,300+ employees
OUR IMPACT
4,900 employee volunteer hours
500+ community organizations supported
$7.1+ million in charitable donations
WATER UTILITY GROWTH BY ACQUISITION
3 closed water & wastewater acquisitions
10,300 in new customers gained through acquisition
$59+ million total purchase price for acquisitions
SIGNED ACQUISITION AGREEMENTS AS OF YEAR END
4 water and wastewater systems
200,000+ total customer equivalents
~$301 million total purchase price
2 | ESSENTIAL UTILITIES
A Word From Our Chairman & CEO
Dear Shareholders, As I reflect on 2025, and my thirty-third year as an employee of the company, it is with mixed emotions that I address you. The merger with American Water marks the end of a 140-year era as an independent company. However, it also marks the beginning of a new era with expanded opportunities for shareholders to see their investment grow, for customers to realize even greater economies of scale in this era of “affordability,” and for employees to find even more opportunities to grow and develop. The combined company, post-merger, will have a stronger balance sheet, greater liquidity, lower risk (beta), and a higher growth rate. Importantly, we will join American Water in the S&P 500, which provides strong buoyancy for the stock and, when coupled with a robust growth rate, should deliver enhanced shareholder returns. It is rewarding to work alongside a management team and employee base that continues to produce excellence in operating both the water and natural gas utilities. Some companies would allow themselves to be distracted by a major transaction and lose focus on the core business. Instead, Essential Utilities has continued to post some of the strongest operating results in its history. We remain committed to excellence in operating our utilities — and we always will. It seems appropriate that our theme this year is Excellence is Essential , which reflects both our commitment and our results. “The Pursuit of Excellence” is one of our three core values, and in 2025, we didn’t just pursue it — we achieved it through meticulous execution, strategic investments, and the dedication of our 3,000+ employees. Excellence Delivers Results Our disciplined approach to operations and capital deployment produced strong financial results. We achieved earnings per share above our guidance range and increased our dividend 35 times in the last 34 years — 2025 marked the 80 th consecutive year we've paid shareholders a dividend. We invested $1.4 billion in critical infrastructure across our water, wastewater, and natural gas systems. Our capital deployment and regulatory recovery mechanisms performed with near-perfect efficiency, ensuring consistent returns and strong operational performance. Tackling Pressing Challenges We continued addressing the most pressing challenges facing our industry and communities. We advanced significant PFAS treatment projects, accelerated lead service line replacements, and modernized natural gas pipelines to reduce emissions. Our smart meter deployment enhances safety and efficiency while positioning
our natural gas business for long-term success. In 2025, we launched our Office of Continuous Improvement to empower employees at every level to identify improvements and drive consistent performance. This framework is already delivering measurable results across our operations. A Transformative Milestone In October, we announced the transformative merger with American Water Works Company, to create one of the largest, most effective utilities in the United States. This combination capitalizes on operating and financial strengths of both companies and creates a platform for enhanced long-term shareholder value through increased scale, enhanced capabilities, and expanded growth opportunities. Key to our merger with American Water is our shared mission and values. Together, the company will remain committed to sustainable growth and long-term stability— delivering value to our shareholders while ensuring future generations benefit from our operations and strategies. None of this would be possible without our dedicated team, strong partnerships with communities and regulators, and the trust of our customers.
To learn more about the specific achievements that made 2025 a year defined by excellence, I invite you to watch my video message by scanning this QR code.
To our shareholders, thank you for your continued confidence and investment. With gratitude,
Christopher H. Franklin Chairman and Chief Executive Officer Essential Utilities, Inc.
2025 ANNUAL REPORT | 5
2025 Financial Highlights
In thousands of dollars, except per-share amounts
2025
2024
% Change
$2,474,615
$2,086,113
18.6%
Operating Revenues
Regulated Segments:
$1,326,629
$1,221,880
8.6%
Regulated Water Segment Revenues
$1,117,875
$842,991
32.6%
Regulated Natural Gas Segment Revenues
$639,604
$587,250
8.9%
Operations and Maintenance Expense
$616,369
$595,314
3.5%
Net Income
$2.20
$2.17
1.4%
Diluted Net Income Per Common Share (GAAP)
Diluted Net Income Per Common Share (Incl. Non-GAAP FY 2024 EPS)
$2.20
$1.97
11.7%
$1.3704
$1.3020
5.3%
Annualized Dividend Rate Per Common Share (12/31)
$1,429,980
$1,329,747
7.5%
Capital Expenditures
$19,464,845
$18,026,554
8.0%
Total Assets
1,884,013
1,869,306
0.8%
Number of Utility Customers Served (12/31)
4 | ESSENTIAL UTILITIES
DIVIDENDS PER SHARE (Annualized)
DILUTED ADJUSTED INCOME PER COMMON SHARE
CAPITAL INVESTMENT (In Millions of Dollars)
UTILITY CUSTOMER CONNECTIONS
(1) 2024 GAAP Income per Common Share was $2.17 Please see the investor relations page of Essential.co for a reconciliation of GAAP to non-GAAP financial measures.
2025 ANNUAL REPORT | 5
Excellence in Action
Infrastructure That Strengthens Communities Strategic capital investment goes beyond pipes and pumps — it’s about protecting public health, supporting economic growth, and building resilient systems for future generations. With more than $1.4 billion invested in 2025 and plans for $1.7 billion in 2026, we are maintaining operational excellence today while investing in long-term resilience. Excellence isn’t a checklist — it’s how we work. Every day, our people make decisions that strengthen systems, protect communities, and deliver reliable service at scale. In 2025, we launched the Office of Continuous Improvement — our enterprise-wide framework that empowers employees at every level to identify improvements and drive consistent performance. This disciplined approach delivered measurable results: nearly 300 employees completed in-person training with a 4.4 out of 5-star rating, and our first initiative identified up to $3.5 million in cost-saving opportunities within the first six months.
Major 2025 projects included: North Carolina: PFAS Treatment at
Aqua New Jersey gets the lead out
Scale — Deployed over 50 treatment facilities across community well-based systems, delivering comprehensive water quality protection for thousands of families while meeting new EPA standards. New Jersey: Getting the Lead Out — Accelerated lead service line replacements in Phillipsburg and Blackwood, investing $35 million since 2022 to replace more than 2,100 lines at no cost to customers — exceeding state compliance
timelines while protecting public health. Pennsylvania: Natural Gas Pipeline
Modernization — Replaced 307 miles of aged pipelines to improve safety and reduce methane emissions, supporting reliable energy delivery while advancing environmental responsibility.
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Excellence Through Innovation
Our commitment to operational excellence extends to how we leverage technology. Smart meters, advanced monitoring systems, and AI-powered tools enable our teams to serve customers more safely, efficiently, and proactively.
100,000 NATURAL GAS SMART METERS INSTALLED
Our gas segment reached a major milestone in 2025, installing its 100,000 th Intelis smart meter. These advanced meters give customers real-time usage data and early leak detection, protecting homes and reducing environmental impact through rapid response to system abnormalities.
“ The enhanced capabilities of the Intelis meters allow us to improve customer service and safety. These meters provide advanced sensing and automatic valve closure in the event of high pressure, high flow, or high temperature — adding an extra layer of protection for our customers.”
— Ron King, Vice President of Gas Operations, Peoples Natural Gas
ADVANCED SCADA SYSTEMS Our expanded SCADA systems provide operators with 24/7 real-time monitoring of water quality and system performance. Predictive analytics enable our teams to prevent issues before they impact service — supporting proactive maintenance, rapid emergency response, and consistent reliability.
AI-ENHANCED REGULATORY PROCESS Artificial intelligence is streamlining rate case preparation, automating data-intensive analysis and allowing regulatory teams to focus on strategic work that directly improves customer service and operational performance.
2025 ANNUAL REPORT | 7
Protecting What Matters Most
Water Quality Excellence Our water operations consistently outperform national benchmarks for water quality compliance — a track record built on decades of operational discipline and proactive monitoring. Our commitment to water quality is supported by our state-of-the-art Environmental Laboratory in Bryn Mawr, Pennsylvania — one of the few utility- operated, certified, and accredited labs in the state. The facility operates 24/7, conducting over 90,000 tests annually across more than 240 water quality parameters. With advanced capabilities to detect contaminants in the parts per trillion range, our team of chemists and microbiologists ensures water quality meets and often exceeds state and federal regulations, protecting public health for millions of people.
Safety First, Always Safety isn’t a program — it’s a value embedded in every operation. Our teams work in complex environments where disciplined execution protects lives. From safety protocols that prevent incidents to water quality monitoring that exceeds regulatory standards, our commitment to protection drives measurable performance across every service territory. At Essential, protecting employees, customers, and communities is how we operate every day.
SAFETY PERFORMANCE
COMPLIANCE
15% Reduction in safety incidents year over year
99.91% Water compliance
12.8% Reduction in responsible vehicle accidents year over year
97.07% Wastewater compliance
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LEADING THE FIGHT AGAINST PFAS PFAS contamination threatens drinking water nationwide. We’re responding with proactive investment and innovative treatment solutions: Deployed over 50 advanced treatment systems across North Carolina and Pennsylvania Secured millions in state funding to mitigate customer rate impacts Introduced high-tech robotic
Water Quality Robot
Aqua North Carolina team cuts ribbon on new PFAS treatment facility
monitoring systems for real- time water quality protection
ELIMINATING LEAD EXPOSURE Lead contamination poses serious health risks. In 2025, we launched or continued major lead service line replacement programs across multiple states — all at no cost to property owners. These initiatives reflect our proactive approach to infrastructure renewal and customer safety.
New Jersey $12.4M program in Phillipsburg and Blackwood
Ohio $4.8M multi-year program in Struthers replacing 542 lines
Pennsylvania 1,356 lines replaced
Award-Winning Environmental Leadership Our commitment to environmental stewardship continues to earn national recognition. These honors reflect measurable progress toward our sustainability commitments.
A First-of-its-Kind Partnership Aqua Pennsylvania’s acquisition of the City of Beaver Falls wastewater system created the first shared services territory where Beaver County customers are served by both Aqua and Peoples — uniquely positioning Essential to deliver integrated wastewater and natural gas service. This milestone includes: $10 million committed to infrastructure improvements over the next decade $1.25 million in community investments supporting the Beaver Falls Fire Department and Carnegie Free Library A new model for how utilities can serve communities more effectively
2025 ANNUAL REPORT | 9
Rooted in Every Community We Serve
Excellence extends beyond operations — it’s about trust, compassion, and showing up for the communities and customers who depend on us. Supporting Customers in Times of Need
Access to water, wastewater, and natural gas is essential to daily life. Our Customer Assistance Programs provide income-based discounts and flexible payment plans to ensure everyone can access these vital resources. In 2025, Aqua Illinois launched its Customer Assistance Program, offering eligible customers discounts on their water and wastewater bills. Across our service territories, more than 10,000 customers received assistance through our CAP programs, helping families navigate financial challenges with dignity and support. These programs reflect who we are — neighbors helping neighbors, building lasting trust, and ensuring no one faces these challenges alone.
Essential earned recognition on the 2025 Civic 50 Greater Philadelphia list — honoring the region’s most community-minded companies. This achievement reflects what our employees demonstrate every day: when we show up with excellence, accountability, and care, we build trust that lasts for generations.
10 | ESSENTIAL UTILITIES
Investing Where It Matters Through the Essential Foundation, we invested more than $7 million in 2025 to improve lives, protect the environment, and strengthen communities across our nine-state footprint.
FALL FOR FOOD BANKS
$520,000+ donated 285 employee volunteers 1,000+ volunteer hours 55,000+ people fed 75 hunger-relief organizations supported
ESSENTIAL EARTH DAY
UNITED WAY CAMPAIGN $755,000+ raised 61% employee participation 480 organizations supported
$1.2M donated to
environmental projects and STEM education 450 employee volunteers 1,500 volunteer hours 11,000+ trees planted
2025 ANNUAL REPORT | 11
Positioned For Tomorrow
For over 140 years, our mission has remained constant: safely and reliably delivering Earth's most essential resources to the communities we serve. The operational excellence, infrastructure investments, and culture of accountability demonstrated throughout this report don't just reflect our past — they position us for a future where that mission reaches even more people. Our disciplined approach to capital deployment, technology adoption, and strategic growth creates a foundation to serve more customers, strengthen more communities, and deliver long-term value for generations to come.
Building Scale Through Strategic Growth
Excellence in operations creates opportunities for growth. In 2025, our proven track record of operational performance and regulatory credibility positioned us to expand our service footprint and strengthen communities: EXPANDING OUR REACH Acquired 3 water and wastewater systems serving 10,300 customers Appointed receiver for multiple systems by state regulators — trusted to stabilize operations and protect public health Expanded natural gas distribution
in Kentucky, bringing reliable energy to new communities
Created the first shared services territory in Beaver Falls, where customers benefit from both our water and gas expertise
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Technology Driving Customer Experience and Efficiency
ENHANCED DIGITAL EXPERIENCE
The improved Aqua ePortal and mobile app give customers control of their water service — anytime, anywhere. Customers can pay bills, track daily water usage, identify potential leaks early, and manage service requests in minutes without a phone call. By empowering customers to handle routine tasks online, the platform reduces call center volume and allows our teams to focus on complex customer needs. This digital transformation demonstrates how technology enables us to serve customers better while strengthening operational performance across our growing service footprint.
INNOVATION IN ACTION In Texas, we deployed Advanced Metering Infrastructure in the Wimberley Valley, allowing water customers to track usage in near-real-time and set alerts to identify potential leaks — promoting conservation and reducing water loss.
2025 ANNUAL REPORT | 13
Excellence Starts With People
The operational excellence, safety performance, and infrastructure investments highlighted throughout this report share one common driver: our people. Every day, more than 3,300 employees across nine states execute with discipline, solve problems proactively, and hold themselves accountable to the highest standards. This culture of excellence is built through intentional leadership, continuous development, and a shared commitment to serving our communities.
Building a Culture of Excellence
A true culture of excellence demands systems that develop people and reinforce standards. Our Office of Continuous Improvement empowers employees at every level to identify improvements and share best practices. In 2025, we trained nearly 300 employees in problem-solving methodologies that build accountability and ownership. Employees now have the tools to identify inefficiencies, propose solutions, and drive implementation — transforming how we work and reinforcing our commitment to continuous improvement across every operation.
FIVE YEARS, ONE TEAM
2025 marked five years since Aqua and Peoples Natural Gas came together as Essential Utilities. Employees across all nine states celebrated this milestone, and the integrated culture of excellence we’ve built together.
14 | ESSENTIAL UTILITIES
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (In thousands of dollars, except per share amounts)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report (the “Annual Report”) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are made based upon, among other things, our current assumptions, expectations, plans, and beliefs concerning future events and their potential effect on us. These forward-looking statements involve risks, uncertainties and other factors, many of which are outside our control that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward- looking statements. In some cases you can identify forward-looking statements 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. Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including but not limited to: our ability to operate our business successfully while the closing of our proposed merger with American Water Works Company, Inc. is pending, including operating within the restrictions imposed on our business by the merger agreement and retaining key business partners and management personnel; the success in the closing of, and the profitability of our proposed merger with American Water Works Company, Inc. and any future acquisitions; changes in general economic, political, business, credit, and financial market conditions and interest rates; our ability to control operating expenses, achieve operating efficiencies, support programs that promote affordability of our services, and manage the expansion of our business; changes in environmental conditions, including the effects of climate change; our ability to integrate and otherwise realize all of the anticipated benefits of businesses, technologies or services which we may acquire; the decisions of governmental and regulatory bodies, including decisions on regulatory filings, such as rate increase requests and decisions regarding potential acquisitions; our ability to file rate cases on a timely basis to minimize regulatory lag; the impact of inflation on our business and on our customers and potential opposition to rate increases; abnormal weather conditions and natural disasters, including those that result in water use restrictions or reduced or elevated natural gas consumption; the seasonality of our business; our ability to source, treat, and supply water, including in times of drought, or collect and treat wastewater; our ability to source sufficient natural gas to meet customer demand in a timely manner; the continuous and reliable operation of our information technology systems, including the impact of cybersecurity attacks or other cyber-related events, and risks associated with new systems implementation or integration; impacts from public health threats, including on consumption, usage, supply chain, and collections; changes in governmental laws, regulations and policies, including those dealing with taxation, the environment, health and water quality, data and consumer privacy, and public utility regulation; the extent to which we are able to develop and market new and improved services; the effect of the loss of major customers; our ability to retain the services of key personnel and to hire qualified personnel as we expand;
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (In thousands of dollars, except per share amounts)
labor disputes;
increasing difficulties in obtaining insurance and increased cost of insurance; cost overruns relating to improvements to, or the expansion of, our operations; inflation and potential impact of new or sustained changes to tariffs on the availability and costs of goods and services; the effect of natural gas price volatility, including the potential impact of high commodity prices on usage or rate case outcomes; civil disturbance or terroristic threats or acts; changes to the rules or our assumptions underlying our determination of what qualifies for an income tax deduction for qualifying utility asset improvements; changes in, or unanticipated, capital requirements; changes in our credit rating or outlook of credit rating agencies with respect to our Company and subsidiaries, or the market price of our Common Stock; changes in valuation of strategic ventures; changes in accounting pronouncements; litigation and claims; restrictions on our subsidiaries’ ability to make dividend payments and other distributions; and in addition to the foregoing, various risks and other uncertainties associated with the Company’s merger agreement with American Water Works Company, Inc. Given these risks and uncertainties, you should not place undue reliance on any forward-looking statements. You should read this Annual Report completely and with the understanding that our actual future results, performance and achievements may be materially different from what we expect. These forward-looking statements represent assumptions, expectations, plans, and beliefs only as of the date of this Annual Report. Except for our ongoing obligations to disclose certain information under the federal securities laws, we are not obligated, and assume no obligation, to update these forward-looking statements, even though our situation may change in the future. For further information or other factors which could affect our financial results and such forward-looking statements, see Item 1A – Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (In thousands of dollars, except per share amounts)
OVERVIEW
The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and accompanying Notes included in this Annual Report. This discussion contains forward-looking statements that are based on management’s current expectations, estimates, and projections about our business, operations, and financial performance. All dollar amounts are in thousands of dollars, except per share amounts.
The Company
Essential Utilities, Inc., (Essential Utilities, the Company, we, us, or our), 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-half of the total number of water or wastewater customers we serve. These customers 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 service to approximately 747,000 customers in western Pennsylvania and Kentucky. Approximately 95% of the total number of natural gas utility customers we serve are in western Pennsylvania. Lastly, the Company’s market-based activities are conducted through Aqua Resources, Inc. and certain other non-regulated subsidiaries of Peoples. Aqua Resources offers, through a third-party, water and sewer service line protection solutions and repair services to households. Other non-regulated subsidiaries of Peoples provide utility service line protection services to households and operate gas marketing and production businesses.
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 of validly issued, fully paid and nonassessable shares of 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). On February 10, 2026, at the respective special shareholder meetings of the Company and American Water, each company’s shareholders approved the merger-related proposals, satisfying certain of the conditions to closing. Consummation of the Merger is subject to certain remaining customary conditions, including the 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 remaining 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.
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (In thousands of dollars, except per share amounts)
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. 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. As of December 31, 2025, the fair value of the Convertible Note receivable amounts to $25,125. Due to a change in Project scope to focus on grid provided power, on January 20, 2026, the Company received $20,000, representing the reimbursement of the deposit paid to the gas turbine manufacturer. The Company continues to be an investor in the Project via its remaining convertible notes holdings and continues to have a right of first refusal to certain water and gas business opportunities. The Company’s involvement in this Project underscores its commitment to innovation, sustainability, and regional economic development. As of December 31, 2025, $20,000 of the Convertible Note Investment is presented within Prepayments and other current assets, and the remaining $5,125 is classified as a long-term asset in the accompanying consolidated balance sheets. 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. One such suit to which the Company is a party is a multi-district litigation (the “MDL”) lawsuit which commenced on December 7, 2018, in the United States District Court for the District of South Carolina. Several defendants in such lawsuit have agreed to settle. During the second half of 2025, the Company received a portion of the settlement payments from 3M and DuPont totaling $46,166, net of legal fees and administrative costs. The Company recorded $84 as a credit to claims expense and $9,739 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 that were allocated to the Company’s other water and wastewater subsidiaries totaling $36,343 were recorded within
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (In thousands of dollars, except per share amounts) Deferred Credits and Other Non-current liabilities in the accompanying consolidated balance sheets, 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 over the next ten years. 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.
Economic Regulation
Most of our utility operations are subject to regulation by their respective state utility commissions, which have broad administrative power and authority to regulate billing rates, determine franchise areas and conditions of service, approve acquisitions, and authorize the issuance of securities. The utility commissions also generally establish uniform systems of accounts and approve the terms of contracts with affiliates and customers, business combinations with other utility systems, and loans and other financings. The policies of the utility commissions often differ from state to state and may change over time. A small number of our operations are subject to rate regulation by county or city government. Over time, the regulatory party in a particular state may change. The profitability of our utility operations is influenced to a great extent by the timeliness and adequacy of rate allowances in the various states in which we operate. One consideration we may undertake in evaluating on which states to focus our growth and investment strategy is whether a state provides for consolidated rates, fully-projected test years, a surcharge for replacing and rehabilitating infrastructure, fair value treatment of acquired utility systems, and other regulatory policies that promote infrastructure investment and efficiency in processing rate cases. The mission of the regulated utility industry is to provide quality and reliable utility service at reasonable rates to customers, while earning a fair return for shareholders. We strive to achieve the industry’s mission by effective planning, efficient investments, and productive use of our resources. We maintain a rate case management capability to pursue timely and adequate returns on the capital investments that we make in improving our distribution system, treatment plants, information technology systems, and other infrastructure. This capital investment creates assets that are used and useful in providing utility service and is commonly referred to as rate base. In pursuing our rate case strategy, we consider the amount of net utility plant additions and replacements made since the previous rate decision, the changes in the cost of capital, changes in our capital structure, and changes in operating and other costs. Based on these assessments, our utility operations periodically file rate increase requests with their respective state utility commissions or local regulatory authorities. In general, as a regulated enterprise, our utility rates are established to provide full recovery of utility operating costs, taxes, interest on debt used to finance capital investments, and a return on equity used to finance capital investments. There may be a regulatory lag between the time when operating costs increases, customer usage changes, and capital investments occur and when those items are incorporated into rates. On occasion, our regulated utility companies may enter into rate settlement agreements, which require us to wait for a period of time to file the next base rate increase request.
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (In thousands of dollars, except per share amounts) Presented below are some of the approved constructive regulatory practices that are available in the states in which we operate:
Regulatory Mechanism Consolidated Tariff (a)
States Allowed
IL, IN, KY, NC, NJ, OH, PA, TX, VA IL, IN, KY, NC, OH, PA, TX, VA IL, IN, KY, NC, NJ, OH, PA, TX, VA
Future or Fully Projected Test Year (b) Infrastructure Surcharge Mechanism (c)
Purchased Gas Riders (d)
KY, PA
Revenue Stability Mechanism (e)
KY, PA, IL
Deferred Accounting (f)
IL, IN, KY, NC, NJ, OH, PA, TX, VA
( a) Our water and wastewater operations are comprised of 37 rate divisions, and our natural gas operations are comprised of two rate divisions. Each of our utility rate divisions requires a separate rate filing for the evaluation of the cost of service and recovery of investments in connection with the establishment of tariff rates for that rate division. When feasible and beneficial to our utility customers, we have sought approval from the applicable state utility commission to consolidate rate divisions to achieve a more even distribution of costs over a larger customer base. All of the states in which we operate permit us to file a revenue requirement for some form of consolidated rates for all, or some, of the rate divisions in that state. (b) Most of the states in which we operate allow us to use a future or fully projected test year in our rate filings, which allows current or projected revenues, expenses and capital investments to be collected on a more timely basis. In some cases, interim rate relief is allowed in the event of regulatory lag. Some states also permit our subsidiaries to use a surcharge or credit on their bills to reflect allowable changes in costs, such as changes in state tax rates, other taxes, and purchased water costs, until such time as the new costs are fully incorporated in base rates. (c) Each of the states in which we operate water, wastewater, and natural gas utilities, permit us to add an infrastructure rehabilitation surcharge to their respective bills, between rate cases, to offset the additional depreciation and capital costs associated with capital expenditures related to replacing and rehabilitating infrastructure systems. (d) Our natural gas utility business is affected by the cost of natural gas, and we are able to generally pass the cost of gas to our customers without markup under purchased gas cost adjustment mechanisms; consequently, increases in the cost of gas are offset by a corresponding increase in revenues. (e) The natural gas utility business is subject to seasonal fluctuations with the peak usage period occurring in the heating season, which generally runs from October to March. We have in place a weather-normalization adjustment (WNA) mechanism for our natural gas customers served in Kentucky, and, beginning in October 2024, for our natural gas customers in Pennsylvania. The WNA serves to minimize the effects of weather on the Company’s results for its residential and small commercial natural gas customers. This regulatory mechanism reduces the delivery charge component of customers’ bills for the additional volumes used when actual heating degree days (HDDs) exceed normalized HDDs and increases the delivery charge component of customers’ bills for the reduced volumes when actual HDDs are less than normal HDDs. For a given day, the number of HDDs is calculated by subtracting the average of the high and low temperatures for the day from 65 degrees Fahrenheit. Normal HDDs are established through rate proceedings in each of our jurisdictions. In Illinois, our operating subsidiary has a revenue stability mechanism which allows us to recognize state PUC- authorized revenue for a period which is not based upon the volume of water sold during that period, thereby reducing the impact of weather and consumption variability.
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (In thousands of dollars, except per share amounts) (f) We are permitted to apply for deferred cost accounting treatment and set up a regulatory asset for future recovery of certain costs until the next base rate case. 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.
Presented in the table below are annualized incremental revenues by state, assuming a constant sales volume and customer count, resulting from base rate case authorizations that became effective in 2025:
State
Segment
Effective Date
Annualized Revenue Increase
Ohio
Wastewater Natural Gas
7/1/2025 7/1/2025 2/22/2025 2/22/2025 1/1/2025 1/1/2025 1/1/2025
$
550
Kentucky
7,700
Pennsylvania
Water
58,400 14,600
Wastewater
North Carolina*
Water
2,821 1,310 1,690
Wastewater
Ohio**
Water
Total Base Rate Case Authorizations in 2025
$
87,071
* Base rate case - step increase for Year 3 ** Consists of 2 locally negotiated rate filings
Our operating subsidiaries received rate increases representing estimated annualized revenues of $87,071 in 2025 resulting from eight base rate decisions, $118,242 in 2024 resulting from twelve base rate decisions, and $28,426 in 2023 resulting from seven base rate decisions. Annualized revenues in aggregate from all of the rate increases realized in the year of grant were $72,790 in 2025, $34,832 in 2024, and $10,109 in 2023. Refer to Note 18 – Rate Activity in this Annual Report for further information.
Growth Through Acquisitions and Capital Investment
The Company continues to focus on rate base growth opportunities to create a resilient and sustainable future. This is achieved through (i) acquisitions to expand the Company’s service areas and increase customers, and (ii) delivering on its environmental reliability commitments through continued investment in replacing aging infrastructure, contaminant mitigation, and emissions reductions, among others. Acquisitions Part of our strategy to meet the industry challenges is to actively explore opportunities to expand our utility operations through acquisitions of water, wastewater, and other utilities either in areas adjacent to our existing service areas or in new service areas, and to explore acquiring market-based businesses that are complementary to our regulated utility operations. To complement our growth strategy, we routinely evaluate the operating performance of our individual utility systems, and in instances where limited economic growth opportunities exist or where we are unable to achieve favorable operating results or a return on equity that we consider acceptable, we will seek to sell the utility system and reinvest the proceeds in other utility systems. Consistent with this strategy, we are focusing our acquisitions and resources in states where we have critical mass of operations in an effort to achieve economies of scale and increased efficiency. Our growth-through-acquisition strategy allows us to operate more efficiently by sharing operating expenses over more utility customers and provides new locations for future earnings growth through capital investment. Another element of our growth strategy is the consideration of opportunities to expand by acquiring other utilities, including those that may be in a new state if they provide promising economic growth opportunities and a return on equity that we consider acceptable. Our ability to successfully execute this strategy historically and to meet the industry challenges has largely been due to our core
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (In thousands of dollars, except per share amounts) competencies, financial position, and our qualified and trained workforce, which we strive to retain by treating employees fairly and providing our employees with development and growth opportunities. During 2025, we completed three acquisitions of water and wastewater systems, which along with the organic growth in our existing systems, represent 12,736 new customers. During 2024, we completed two acquisitions of water and wastewater systems, which along with the organic growth in our existing systems, represent 9,391 new customers. During 2023, we completed seven acquisitions of water and wastewater systems, which along with the organic growth in our existing systems, represents 19,659 new customers. As of December 31, 2025, the Company has 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 $276,000. DELCORA, a Pennsylvania sewer authority, serves approximately 198,000 equivalent dwelling units in the Philadelphia suburbs. Refer to Note 2 – Water and Wastewater Utility Acquisitions in this Annual Report for further discussion. As of December 31, 2025, the pipeline of potential water and wastewater municipal acquisitions the company is actively pursuing represents approximately 400,000 total customers or equivalent dwelling units. The Company remains on track to, over the long term, annually increase customers between 2% and 3% through acquisitions and organic customer growth. Capital Investment In 2025, the Company invested $1,429,980 to improve its regulated water and natural gas infrastructure systems and to enhance customer service across its operations. From 2026 through 2030, the company plans to invest approximately $8,700,000 to improve water and natural gas systems and better serve customers through improved information technology. The Company’s investments include addressing PFAS with at least $450,000 in capital projects, replacing and expanding its water and wastewater utility infrastructure, and replacing and upgrading its natural gas utility infrastructure, with the latter leading to significant reductions in methane emissions that occur in aged gas pipes. 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. Rate Base Growth Since 2021, the Company’s combined rate base grew by 40%. The Company expects its regulated water and natural gas rate bases to grow at compound annual rates of around 6% and 11%, respectively, through 2029. The combined rate base is expected to grow at a compound annual rate of 8% through 2029.
As of December 31, 2025, the Company’s rate base is estimated to be $12,400,000, which is comprised of:
$7,800,000 in the Regulated Water segment; and $4,600,000 in the Regulated Natural Gas segment.
As of December 31, 2025, the regulatory status of the Company’s rate base is estimated to be as follows:
$11,200,000 filed with respective state utility commissions or local regulatory authorities; and $1,200,000 not yet filed with respective state utility commissions or local regulatory authorities.
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