American Water, Essential Utilities biggest merger risk likely comes from PUCs

February 2, 2026, 21:37 GMT | Comment American Water Works’ acquisition of Essential Utilities will probably draw scrutiny from federal antitrust enforcers over monopsony concerns, though it is the state public utility regulators that will carry the biggest stick and are likely to require conditions be met before granting approval.

American Water, the largest and most geographically diverse publicly traded water and wastewater utility company in the US with operations in 14 states, announced it would acquire Essential, which has water, wastewater and natural gas assets in nine states, in an all-stock deal valued at about $12 billion when it was announced on Oct. 27.

Shareholders of both companies will be asked to approve the deal on Feb.10, and the companies expect the combination to be completed in the first quarter of 2027.

Key questions for federal antitrust enforcers will be how they define the relevant market; if the companies compete across the country, or in each state or municipality; and how significant the barriers to entry are for new competitors. Both issues speak to a potential monopsony concern for municipal water facilities that might want to go private in the future, but who could struggle to find a buyer other than American to bid on them.

Another monopsony concern will be the control American Water would gain over salaries and working conditions for employees with expertise in water, waste management and natural gas. The merger will eliminate a competitor for their labor, potentially giving American greater control.

Antitrust and water utility lawyers told MLex that they can’t remember a time when a water merger was challenged by the federal government, let alone blocked by a US district court.

The heavy lifting comes at the local level, where public utility commissions in at least seven states must approve the merger using a public-interest standard. Concerns are usually remedied with requirements similar to behavioral remedies, known as “commitments,” that are negotiated in federal antitrust reviews.

Major questions in these communities tend to focus on how the merger will affect water rates, what regulators will do to protect low-income consumers and how service will be impacted.

— Selling our water —

Supporters of water privatization say many municipalities have avoided raising taxes to pay for water infrastructure improvements and wastewater treatment plants to avoid the ire of voters. The result is decaying pipes and old filtration systems that need to be replaced at considerable expense.

These municipalities are increasingly selling their operations to companies like American Water, which can provide the capital needed to upgrade water and sewage systems.

Public utility commissions, or PUCs, give these companies a certificate to operate as a monopoly. There is no reason to have three competing water companies dig multiple water pipes to every house, or to build competing wastewater treatment facilities.

In return, the companies are allowed to charge customers rates that are “just and reasonable,” which includes a profit margin that water systems didn’t have to pay before, and often a persistent request to raise rates that would be a non-starter for politicians needing donations and votes.

Critics are quick to note that mergers promising capital improvements tend to be one-way relationships where rates go up, but rarely come down.

American Water said as much in its filing with the Pennsylvania Public Utility Commission.

“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,” the company said.

American’s growth strategy, it said, is to continue to acquire utilities, including those in states where it doesn’t currently operate, if they view the potential return on equity to be “acceptable.”

— Biggest battle likely in Pennsylvania —

Camden, New Jersey-based American Water employs about 6,700 workers who provide drinking water, wastewater and other services. Essential, based in Bryn Mawr, Pennsylvania, is the holding company for regulated utilities providing water, wastewater or natural gas services to an estimated 5.5 million people.

Both companies have water operations in Illinois, Indiana, Pennsylvania, New Jersey and Virginia. The geographic market could be statewide, regionally where they sit on a border, or national if it isn’t too difficult to create a subsidiary and get all the government approvals to buy an out-of-state utility.

According to company rankings from Disfold, the biggest US publicly-traded water companies by market capitalization are: American Water Works (AWK), Essential Utilities (WTRG), American States Water Company (AWR), California Water Service Group (CWT) and H2O America (HTO).

But there are also privately-owned water companies like Veolia, a global company based in Aubervilliers, France, that manages water, wastewater and energy assets, with a North American headquarters in Boston.

The companies filed for a certificate of public convenience with the Pennsylvania Public Utility Commission (Docket number A-2025-3058927) on Nov. 26. The commission must consider the potential anticompetitive effects and the impact on employees of a merger. The case has been assigned to an administrative law judge, and a litigation schedule has been set in case one is needed (see here).

Parties impacted by the merger, from state senators to unions and other public utility companies, have protested the deal. At least one commenter said the PA PUC has developed a reputation as a pushover among companies and Wall Street analysts, with some calling them a captured regulator.

— Commenters —

Pennsylvania state Senator Carolyn Comitta told the PUC she opposed the merger, which she is concerned will lead to continued rate increases for her constituents (see here).

“Pennsylvanians are already experiencing how large, private companies buy up small municipal water and wastewater systems and raise rates,” she said. “I’m concerned that as companies get bigger and bigger, access to affordable, reliable service is growing further and further out of reach.”

The notion of big companies buying up smaller ones to build scale and then gain control over horizontal and vertical markets isn’t a new concept to the federal agencies. But here, the companies are essentially being granted a monopoly. The customers are already captured and can’t jump to a competitor by themselves.

If the economies of scale American Water gains aren’t passed to customers, they have few options other than to complain to the PUC.

The Chester Water Authority, a nonprofit municipal authority, objected to the deal, providing some of the most in-depth analysis of its potential harms. The companies took issue with their protest, claiming they lack standing. The administrative law judge has ordered the authority to file a response to the companies’ preliminary objections on or before Feb. 9.

— Chester Water Authority —

The CWA serves approximately 200,000 people and businesses across 37 municipalities throughout Chester and Delaware Counties in Pennsylvania, according to its filing with the PA PUC. It also has a treatment plant and other related infrastructure in Lancaster County (see here).

CWA has pending litigation against Aqua PA — Essential’s water subsidiary — that could be jeopardized if the American-Essential merger is approved, the authority said in its filing.

CWA is also a ratepayer of the Delaware County Regional Water Quality Control Authority, or DELCORA, which is the subject of an acquisition attempt by Aqua PA Wastewater. CWA says its current rates with DELCORA are much lower than the rates Aqua PA Wastewater charges.

“American Water’s rates are even higher still,” it told the commission. “If the DELCORA sale goes through, and then the Essential-American merger is approved, CWA will eventually be moved onto American Water’s much higher rates.”

American and Essential preempted these concerns when the deal was announced, promising not to raise rates. “There will be no change in customer rates as a result of the merger, and American Water and Essential will be better able to maintain an average customer water bill that is affordable, supporting the economic prosperity of the more than 2,000 communities in which the combined company will operate,” Essential said in a press release (see here).

Critics are still skeptical.

The Philadelphia Inquirer reported on Jan. 29 that American Water’s New Jersey affiliate filed for an average 10 percent water and 8 percent sewer rate hike on Jan. 16 for 2.9 million customers in that state, saying the money would fund improvements to old water and sewer systems if approved by the Board of Public Utilities. Customers would pay an average of $18 more per month.

The state utility commission said last month that it would consider American Water’s request to boost water and sewer rates on 2.4 million customers by an average 15 percent, or $20 a month, according to the Inquirer.

CWA also expressed concerns for the many low-income families in its territory.

CWA said it has been advocating to keep water and wastewater rates affordable in Pennsylvania by sending letters to public officials, testifying in hearings of the state legislature, speaking in public speeches and rallies, commenting for numerous news articles, and through local grassroots community organizing.

The authority said if the merger is approved, PA PUC should impose conditions to protect low-income families and to ensure corporate transparency and political accountability, such as disclosures tracking political spending and lobbying.

CWA didn’t stop there. It attacked the state commission, too, saying it has a reputation for being soft when regulating private water companies.

“Investor-owned utilities and the analysts covering them frequently emphasize that Pennsylvania is a friendly regulatory environment conducive to profits,” CWA said in its filing.

“The losers in these acquisitions are the ratepayers, of course. There is often a public outcry when the investor-owned utilities quickly move to raise rates following acquisitions, with the newly acquired customers feeling duped by the “rate freeze” promises. Indeed, the local governments quickly regret their short-sighted decision to sell healthy public water and wastewater systems. But it is too late. The furious local customers are now saddled with enormous and unnecessary rate increases forever,” the authority said.

Despite CWA’s concerns, more water and wastewater systems are being privatized — and there is a lot of room for companies like American to grow.

In November 2023, Charles River Associates, a Boston-based consulting firm, published a paper titled, “Benefits of Private, PUC-Regulated Water Utilities in Pennsylvania,” in which it said the capital cost of US wastewater and drinking water infrastructure needed to meet federal water quality and safety requirements and public health objectives exceeded $744 billion over 20 years.

Privatization and consolidation is slowly making inroads. According to the Charles River Associates report, there was a 10 percent decrease in the number of US community water systems from 2006 to 2020, citing the US Environmental Protection Agency.

— Union concerns —

The Utility Workers Union of America, AFL-CIO, Local 612, wrote to the PA PUC with concerns about American’s management structure and its lack of knowledge about natural gas (see here).

American is exclusively a water and wastewater company. Essential’s subsidiary, Peoples, is a natural gas company, the union said in its letter to the commission.

The union asked the PUC whether the “operation of a natural gas utility by a water and wastewater utility with no prior natural gas utility experience [would] be in the public interest,” and by extension, whether it would be in the interest of the more than 900 employees that would work in the merged company's natural gas business.

— Recent opposition to privatization —

In May 2022, Towamencin Township voted to sell its sewer system to Florida-based NextEra Water for $115.3 million, saying the money would pay down debt, generate revenue for other projects and pass along the cost of infrastructure improvements to NextEra. But residents feared rate hikes would follow and they soon formed Neighbors Opposing Privatization Efforts, or NOPE, which led to town halls and significant community pushback from citizens across the political spectrum.

In March 2023, NextEra withdrew from the deal, saying it wanted to pursue renewable energy projects. American Water took over the contract at a lowered price of $104 million.

In September 2024, the township and PA American Water terminated the sale, saying the original deal structure no longer aligned with new PA PUC approval standards.

What the deal is remembered by, though, is the overwhelming pushback from ordinary citizens who reportedly attended town halls in the hundreds and were vocal in their opposition.

— In the public interest —

According to a December filing by American with the US Securities and Exchange Commission (see here), the companies will need state regulatory approvals from at least Illinois, Kentucky, New Jersey, North Carolina, Pennsylvania, Texas and Virginia, but they might also need approvals from California, Indiana and Ohio.

The standard applied by each state regulator may differ. Some will evaluate the merger under a “net benefits” standard, while others could apply a “no harm” standard. Some commissions will require hearings and possibly litigation as part of their review process and may impose conditions for merger approval.

Experts and intervenors alike say the merger will come down to two things at the state level: governance and rates.

Will the merger create an expensive and nonsensical bureaucracy? How will the two large companies that have developed their own cultures create a seamless environment for their customers? Is the governance adding to the rates and cluttering up a relationship that is fundamental to the communities they serve — the provision of life-sustaining and clean water supplies?

Other concerns on past deals have focused on rate increases, financing, post-merger transparency, labor deals and histories of unresolved customer complaints.

Water mergers are likely to become more common in the future as water infrastructure continues to age and local communities lack funds to make large capital investments. Federal antitrust enforcers, who have historically played a small part in policing water acquisitions, might begin taking a more active role in these mergers, especially in an election year when the administration is emphasizing lowering the costs of Americans’ basic needs.