WTRG

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 Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and 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, our ability to control operating expenses 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, 2025 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; an event, change or other circumstance that could give rise to the termination of the merger agreement; a delay in the timing to consummate the proposed merger; each party’s ability to obtain required governmental and regulatory approvals required for the proposed merger (and/or that such approvals may result in the imposition of burdensome or commercially undesirable conditions, including required dispositions, that could adversely affect the combined company or the expected benefits of 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 and the combined company’s ability to declare and pay quarterly dividends on its common stock; the risk of litigation related to the proposed merger; changes in the parties’ key management and personnel; the amount and nature of incurred transaction costs associated with the proposed merger; and reduced ownership and voting interests for the Company’s and American Waters’s shareholders upon completion of the proposed merger. 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. 32 Table of Contents 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) 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-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. 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. 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). 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 33 Table of Contents 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) 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). As of the date of this report, public utility commission approvals have been received in Kentucky, Virginia, and Ohio, and a settlement in principle has been reached in Texas. 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. During the three and six months ended June 30, 2026, the Company incurred pre-merger related expenses of $1,191 and $17,521, respectively, which are included in operations and maintenance expense in the condensed consolidated statements of operations and comprehensive income. Macroeconomic Factors Our business is subject to various economic factors that affect our customers and our industry. We continue to evaluate the evolving macroeconomic environment, including those impacts resulting from potential changes to environmental regulations and geopolitical conflicts, 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 six months ended June 30, 2026, we implemented, or received approval to implement, base rate increases that result in a $37,613 increase in annual revenues, as summarized below: State Segment Effective Date Annualized Revenue Increase Ohio Water 7/22/2026 $ 9,496 Wastewater 7/22/2026 1,040 North Carolina* Water 1/1/2026 16,476 Wastewater 1/1/2026 7,764 Ohio** Water 1/1/2026 1,834 Indiana** Wastewater 1/1/2026 1,003 Total Base Rate Case Authorizations in 2026 $ 37,613 *Base rate case – step 1 increase for Year 1 **Operating divisions 34 Table of Contents 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) During the six months ended June 30, 2026, the Company implemented infrastructure rehabilitation surcharges designed to increase total operating revenues on an annual basis by $3,653 in its water and wastewater utility operating divisions in Pennsylvania, by $2,610 in its water and wastewater utility operating divisions in Illinois, by $9,804 in its natural gas operating division in Pennsylvania, and by $2,892 in its natural gas operating division in Kentucky. On June 12, 2026, the Company’s regulated water and wastewater subsidiary in Indiana filed an application with the Indiana Utility Regulatory Commission designed to increase rates by $4,813 in the first year of new rates being implemented, then by an additional $1,960 and $308 in the second and third years, respectively. On May 26, 2026, Aqua Illinois filed an application with the Illinois Commerce Commission designed to increase water and wastewater rates by $26,501 annually. On March 27, 2026, the Company’s natural gas operating subsidiary in Pennsylvania filed an application with the Pennsylvania Public Utility Commission to increase operating revenues for its natural gas distribution service by approximately $163,000 annually. On January 30, 2026, the Company’s regulated water and wastewater operating subsidiary in New Jersey, Aqua New Jersey, filed an application with the New Jersey Board of Public Utilities designed to increase revenues by $7,886 annually. 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. Interim rates were implemented on January 26, 2026 based on an estimate of the final outcome of the order, with the difference between interim and final approved rates subject to refund to customers. 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. Interim rates were implemented on March 9, 2026, with the difference between interim and final approved rates subject to refund to customers based on an estimate of the final outcome of the order. Growth Through Acquisitions and Capital Investment In May 2026, the Company acquired Integra Water Texas, LLC’s wastewater system assets in Bastrop County, Texas, which serves approximately 1,100 equivalent dwelling units for $4,877. In March 2026, the Company acquired Greenville Municipal Water Authority’s water utility system in Greenville, Pennsylvania which serves approximately 3,000 customers for $18,000. As of June 30, 2026, the Company had three signed purchase agreements for additional water and wastewater systems that are expected to serve approximately 200,000 equivalent retail customers or equivalent dwelling units and total approximately $282,000 in purchase price in three 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 35 Table of Contents 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) equivalent dwelling units in the Philadelphia suburbs. Refer to Note 3 – Water and Wastewater Acquisitions for further discussion. During the six-month period ended June 30, 2026, we invested $662,167 to improve our regulated water and natural gas infrastructure system and to enhance customer service. 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 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. 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. In 2024, the MDL court granted approval of the DuPont, 3M, Tyco Fire Products LP, and BASF Corp class action settlements. The total amount of recovery by the Company is uncertain. During the three and six months ended June 30, 2026, the Company received an additional $10,234 and 10,486, respectively, from Tyco, BASF and Dupont, net of legal fees and settlement costs. As of June 30, 2026, the Company presented $12,259 of the total settlement 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 $44,581 are included in 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 over the next ten years. On July 6, 2026, in conjunction with an approved rate order, the North Carolina Utilities Commission authorized the Company to treat $8,385 of settlement proceeds, previously recorded as a regulatory liability, as contributions in aid of construction, which will be amortized over the same period as the related PFAS mitigation plan. On July 30, 2026, the Company received another portion of the 3M settlement, net of legal fees and settlement costs, amounting to $10,542. 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. 36 Table of Contents 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) Net cash flows from operating activities were $588,980 for the first half of 2026, compared to $571,834 for the first half of 2025. Operating cash flow increased by $17,146, primarily driven by working capital changes, including the impact of new rates implemented in the current six-month period compared to the prior period. Net cash flows used in investing activities increased by $33,135, primarily due to the Company’s continued investment in replacing aging infrastructure, contaminant mitigation and emissions reductions, among others. Net cash flows from financing activities decreased by $26,070 during the six months ended June 30, 2026, compared to the prior period, primarily due to lower equity issuances and higher dividend payments, partially offset by increased net debt issuances. On June 16, 2026, the Company entered into an amendment to its $1,000,000 unsecured long-term revolving credit facility. The amendment extended the maturity date of the facility by another year, to December 2028, and removed the second sustainability performance target applicable to interest rates and commitment fees. On May 1, 2026, Aqua Pennsylvania and Peoples Natural Gas Companies amended 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 March 9, 2026, the Company issued $500,000 of senior notes, less expenses of $5,140, due on March 15, 2036, with an interest rate of 5.125%. The Company used the proceeds from the issuance of the senior notes to repay a portion of its commercial paper borrowings and for general corporate purposes. In addition to the senior notes issued by the Company, during the six months ended June 30, 2026, the Company’s regulated water subsidiaries obtained in the aggregate $27,100 of low-interest government loans to fund capital projects, with interest rates ranging from 0.00% to 1.743% and maturity dates ranging from 2030 to 2049. The Company has a commercial paper program (the “CP Program”) that allows it to issue, through private placement, short-term, unsecured commercial paper notes (the “CP Notes”) in an aggregate principal amount not to exceed $1,000,000. 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 June 30, 2026, outstanding borrowings under the Company’s CP Program were $384,723, net of unamortized discount on issuance of $455, with a weighted average interest rate of 4.07% and weighted average remaining term of 11 days. During the three months ended June 30, 2026, we issued 264,356 shares of common stock for net proceeds of approximately $10,700 under the Company’s at-the-market equity sales program (“2024 37 Table of Contents 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) ATM”). During the six months ended June 30, 2026, we issued 308,656 shares of common stock for net proceeds of approximately $12,500 under the 2024 ATM. As of June 30, 2026, the 2024 ATM had approximately $648,000 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 June 30, 2026, we had $8,634 of cash and cash equivalents compared to $34,778 at December 31, 2025. During the first six months of 2026, 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 June 30, 2026, our $1,000,000 unsecured revolving credit facility had $600,974 available for borrowing (net of $384,723 of capacity designated for outstanding principal borrowings under our commercial paper program and $14,303 letter of credit usage). Additionally, at June 30, 2026, we had short-term lines of credit of $400,000, primarily used for working capital, of which $359,000 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. Credit Risk The Company and its subsidiaries’ access to capital markets and costs of financing are influenced by its credit ratings. Below summarizes the Company and its subsidiaries’ issuer and security credit ratings as of June 30, 2026: S&P Moody's Essential Utilities, Inc. - Issuer/corporate credit rating A - / Positive Baa2 / Stable Commercial paper A - 2 P - 2 Senior unsecured debt BBB+ Baa2 Aqua Pennsylvania, Inc. - Issuer/corporate credit rating A - / Positive Not Rated Senior secured A Not Rated PNG Companies LLC - Issuer/corporate credit rating A - / Stable Baa3 / Stable Senior secured A - Baa3 The Company’s ability to 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. 38 Table of Contents 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) Results of Operations Consolidated Results of Operations Consolidated financial and operational highlights for the periods ended June 30, 2026 and 2025 are presented below. Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Operating revenues $ 530,854 $ 514,907 $ 1,392,613 $ 1,298,533 Operations and maintenance expense $ 153,635 $ 148,510 $ 329,430 $ 286,334 Purchased gas $ 46,201 $ 56,735 $ 284,816 $ 241,376 Net income $ 105,725 $ 107,827 $ 330,117 $ 391,616 Operating Statistics Selected operating results as a percentage of operating revenues: Operations and maintenance 28.9% 28.8% 23.7% 22.1% Purchased gas 8.7% 11.0% 20.5% 18.6% Depreciation and amortization 21.3% 20.1% 16.1% 15.6% Taxes other than income taxes 4.6% 4.1% 3.6% 3.4% Interest expense, net of interest income 16.7% 15.4% 12.5% 12.4% Net income 19.9% 20.9% 23.7% 30.2% Effective tax rate 3.1% 4.1% 2.9% -4.3% Three months ended June 30, 2026 compared with three months ended June 30, 2025 Consolidated operating revenues increased by $15,947 or 3.1% as compared to the same period in 2025. Revenues from our Regulated Water segment increased by $25,262, while revenues from our Regulated Natural Gas and Other segments decreased by $8,042 and $1,273, 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 $5,125 or 3.5%, primarily due to: an increase in employee-related costs of $5,864, primarily resulting from annual merit increases and higher medical claims; an increase in production costs for water and wastewater operations of $2,296; pre-merger expenses of $1,191; additional operating costs associated with pending and newly acquired water and wastewater utility systems of $814; offset by a decrease in insurance expense of $4,926, primarily due to an insurance recovery of $6,750 in the second quarter to 2026 for costs associated with remediating an advisory for some of our Illinois water utility customers; a decrease in bad debt of expense of $2,424 in our Regulated Natural Gas segment; and 39 Table of Contents 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) a decrease in customer assistance surcharge costs of $1,528 in our Regulated Natural Gas segment, which generally has an offsetting amount in revenues. Purchased gas decreased by $10,534 or 18.6%. 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 decrease is the result of a decrease in the average cost of gas of $2,847 and lower gas usage of $7,687 during the second quarter of 2026. Depreciation and amortization expense increased by $9,773 or 9.4% principally due to continued capital expenditures to expand and improve our utility facilities and our acquisitions of new water and wastewater utility systems. Taxes other than income taxes increased by $3,581 or 17.2% primarily due to the $2,709 favorable sales and use tax accrual adjustment recognized in the second quarter of 2025 upon the closure of certain tax audits in our Regulated Natural Gas segment, which did not recur in the current period. Interest expense, net of interest income, increased by $9,093 or 11.4%. Interest expense, net of interest income, increased by $2,942 in our Regulated Water segment and by $2,245 in our Regulated Natural Gas segment. Interest expense, net of interest income, in Other relates to our corporate operations, and this increased by $3,906 primarily due to the additional senior note borrowing in 2026. Other, net was an expense of $1,295 and $391 for the three months ended June 30, 2026 and 2025, respectively. The increase was primarily due to higher unrealized losses on securities held in connection with the non-qualified pension plan, partially offset by a higher non-service cost net periodic benefit credit resulting from increased amortization of actuarial gains in our other postretirement benefit plan. Our effective income tax rate was an expense of 3.1% and 4.1% in the second quarter of 2026 and 2025, respectively. The decrease in the income tax expense in the second quarter of 2026 is primarily attributed to the decrease in earnings and state jurisdictional mix. Six months ended June 30, 2026 compared with six months ended June 30, 2025 Consolidated operating revenues increased by $94,080 or 7.2% as compared to the same period in 2025. Revenues from our Regulated Water and Regulated Natural Gas segments increased by $47,389 and $50,573, respectively, while our Other segment decreased by $3,882. 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 $43,096 or 15.1%, primarily due to: pre-merger expenses of $17,521, consisting of financial advisor fees, legal expenses, communications and other professional fees, during the first half of 2026; 40 Table of Contents 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) an increase in employee-related costs of $10,183, primarily resulting from annual merit increases, higher incentive bonuses, higher medical claims, and increase in overtime pay due to higher weather-related main break activity during the first half of 2026; an increase in bad debt expense of $4,980 in our Regulated Water segment, of which $5,889 relates to a favorable regulatory asset adjustment in the first quarter of 2025; an increase in production costs for water and wastewater operations of $4,122; an increase in contractor services of $2,698 in our Regulated Water segment, primarily due to higher main break activity, frozen service lines, and snow removal costs during the first half of 2026; additional operating costs associated with pending and newly acquired water and wastewater utility systems of $1,544; an increase in insurance expense of $1,417, which is net of insurance recoveries of $5,602 in the first quarter of 2025 and $6,750 in the second quarter of 2026 of costs associated with remediating an advisory for some of our Illinois water utility customers; offset by a decrease in bad debt of expense of $4,453 in our Regulated Natural Gas segment; and a decrease in customer assistance surcharge costs of $2,431 in our Regulated Natural Gas segment, which generally has an offsetting amount in revenues. Purchased gas increased by $43,440 or 18.0%. 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 $64,313, offset by lower gas usage of $20,873 resulting from a slight shift in customer usage pattern during the first six months of 2026. Depreciation and amortization expense increased by $21,125 or 10.4% principally due to continued capital expenditures to expand and improve our utility facilities and our acquisitions of new water and wastewater utility systems. Taxes other than income taxes increased by $6,682 or 15.3% primarily due to a prior year sales and use tax accrual benefit in our Regulated Natural segment, increase in our Illinois subsidiary’s invested capital tax expense, and an increase in payroll taxes as a result of higher employee compensation expense. Interest expense, net of interest income, increased by $12,953 or 8.0%. Interest expense, net of interest income, increased by $6,260 in our Regulated Water segment and by $3,850 in our Regulated Natural Gas segment. Interest expense, net of interest income, in Other relates to our corporate operations, and this increased by $2,843 primarily due to the additional senior note borrowing in 2026. Other, net was an expense of $1,220 and $98 for the six months ended June 30, 2026 and 2025, respectively. The increase was primarily due to higher unrealized losses on securities held in connection with the non-qualified pension plan, partially offset by a higher non-service cost net periodic benefit credit resulting from increased amortization of actuarial gains in our other postretirement benefit plan. Our effective income tax rate was an expense of 2.9% in the first half of 2026, compared to a benefit of 4.3% in the first half of 2025. The increase in the income tax expense is primarily attributed to last 41 Table of Contents 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) year’s 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 not recurring in the current year. 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 June 30, 2026 and 2025: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Operating revenues $ 357,544 $ 332,282 $ 680,519 $ 633,130 Operations and maintenance expense $ 109,354 $ 100,149 $ 212,476 $ 189,567 Segment net income $ 103,482 $ 100,480 $ 184,800 $ 208,402 Operating Statistics Selected operating results as a percentage of operating revenues: Operations and maintenance 30.6% 30.1% 31.2% 29.9% Depreciation and amortization 20.1% 19.5% 20.8% 19.8% Taxes other than income taxes 5.1% 5.3% 5.4% 5.3% Interest expense, net of interest income 11.2% 11.1% 11.7% 11.6% Segment net income 28.9% 30.2% 27.2% 32.9% Effective tax rate 16.5% 15.1% 16.0% 6.0% Three months ended June 30, 2026 compared with three months ended June 30, 2025 Revenues from our Regulated Water segment increased by $25,262 or 7.6% for the second quarter of 2026 as compared to the same period in 2025, mainly due to the following: an increase in water and wastewater rates of $15,928; an increase in volume of $6,116; and additional water and wastewater revenues of $2,328 associated with a larger customer base due to utility acquisitions and organic growth. 42 Table of Contents 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) Operations and maintenance expense increased by $9,205 or 9.2% primarily due to the following: an increase in employee related costs of $4,127, primarily resulting from annual merit increases and higher medical claims during the second quarter of 2026; an increase in production costs for water and wastewater operations of $2,296, particularly purchased power and chemical costs; and additional operating costs associated with pending and newly acquired water and wastewater utility systems of $814. Depreciation and amortization increased by $7,296 or 11.3% 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 $2,942 or 7.9% for the quarter primarily due to higher push down debt borrowings. Other, net was an income of $1,882 and expense of $17 for the three months ended June 30, 2026 and 2025, respectively. The change is primarily due to higher non-service cost net periodic benefit credit resulting from increased amortization of actuarial gains in our other postretirement benefit plan. Our effective income tax rate for our Regulated Water Segment was an expense of 16.5% and 15.1% in the second quarter of 2026 and 2025, respectively. The increase in income tax expense in the second quarter of 2026 is primarily attributed to the decrease in tax benefits associated with the repairs tax deduction related to continued qualifying infrastructure investment. Six months ended June 30, 2026 compared with six months ended June 30, 2025 Revenues from our Regulated Water segment increased by $47,389 or 7.5% for the first half of 2026 as compared to the same period in 2025, mainly due to the following: an increase in water and wastewater rates of $32,478; an increase in volume of $9,485; and additional water and wastewater revenues of $4,730 associated with a larger customer base due to utility acquisitions and organic growth. Operations and maintenance expense increased by $22,909 or 12.1% primarily due to the following: an increase in employee related costs of $5,938, primarily resulting from higher medical claims, annual merit increases, and increase in overtime pay due to higher weather-related main break activity during the first half of 2026; an increase in bad debt expense of $4,980, of which $5,889 relates to a favorable regulatory asset adjustment in the prior year; 43 Table of Contents 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) an increase in production costs for water and wastewater operations of $4,122, particularly purchased water and chemical costs; an increase in contractor services of $2,698, primarily due to higher main break activity, frozen service lines, and snow removal costs during the first quarter of 2026; and additional operating costs associated with pending and newly acquired water and wastewater utility systems of $1,544. Depreciation and amortization increased by $16,358 or 13.0% 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. Taxes other than income taxes went up by $3,298 or 9.9% primarily due to an increase in our Illinois subsidiary’s invested capital tax expense and an increase in payroll taxes as a result of higher employee compensation expense in the first quarter of 2026. Interest expense, net of interest income, increased by $6,260 or 8.5% for the first half of 2026 primarily due to higher push down debt borrowings. Other, net was an income of $1,200 and expense of $44 for the six months ended June 30, 2026 and 2025, respectively. The change is primarily due to higher net periodic benefit credit resulting from increased amortization of actuarial gains in our other postretirement benefit plan. Our effective income tax rate for our Regulated Water Segment was an expense of 16.0% and 6.0% in the first half of 2026 and 2025, respectively. The increase in income tax expense is primarily attributed to last year’s 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 not recurring in the current year. 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. 44 Table of Contents 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 following tables present selected operating results and statistics for our Regulated Natural Gas segment, for the periods ended June 30, 2026 and 2025: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Operating revenues $ 169,279 $ 177,321 $ 698,691 $ 648,118 Operations and maintenance expense $ 49,944 $ 49,786 $ 106,177 $ 105,461 Purchased gas $ 44,338 $ 53,532 $ 277,640 $ 230,491 Segment net income $ 4,162 $ 17,516 $ 196,392 $ 207,021 Operating Statistics Selected operating results as a percentage of operating revenues: Operations and maintenance 29.5% 28.1% 15.2% 16.3% Purchased gas 26.2% 30.2% 39.7% 35.6% Depreciation and amortization 24.1% 21.6% 11.6% 11.8% Taxes other than income taxes 3.2% 1.4% 1.6% 1.3% Interest expense, net of interest income 16.6% 14.6% 8.0% 8.0% Segment net income 2.5% 9.9% 28.1% 31.9% Effective tax rate -70.0% -96.5% -16.1% -16.3% Three months ended June 30, 2026 compared with three months ended June 30, 2025 Operating revenues from the Regulated Natural Gas segment decreased by $8,042 or by 4.5% due to: a decrease in purchased gas costs of $9,194; refer to purchased gas costs discussion below for further information; impact of lower volumes delivered of $9,051 due to warmer weather conditions during the second quarter of 2026 as compared to 2025; and a decrease in customer assistance surcharge of $1,537, which generally has an offsetting amount in operations and maintenance expense; offset by an increase of $11,816 due to higher rates and other surcharges. Operations and maintenance expense for the three months ended June 30, 2026 increased by $158 or 0.3% primarily due to the following: an increase in labor and employee benefits of $2,731 primarily due to annual merit increases and higher medical claims; an increase in legal expenses of $1,527; offset by a decrease in bad debt expense of $2,424; and a decrease in customer assistance surcharge costs of $1,528, which generally has an offsetting amount in revenues. 45 Table of Contents 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) 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 decreased by $9,194 or 17.2% largely due to a decrease in the average cost of gas of $3,317 and lower gas usage of $5,877 resulting from a slight shift in customer usage pattern and warmer weather during the second quarter of 2026. During the quarter ended June 30, 2026, we experienced 485 actual heating degree days (HDDs), which was warmer by 6% than prior year’s 514 HDDs for Pittsburgh, Pennsylvania, which we use as a proxy for our western Pennsylvania service territory. HDDs are used in the natural gas industry to measure the relative coldness of weather and to estimate the demand for natural gas. Depreciation and amortization increased by $2,493 or 6.5% primarily due to continued capital investment. Taxes other than income taxes increased $2,995, or 120.2%, compared to the same period in the prior year, primarily due to the absence of a $2,709 favorable true-up adjustment to sales and use tax accruals recorded in the Regulated Natural Gas segment during the second quarter of 2025 for resolved sales and use tax audit periods. Interest expense, net, increased by $2,245 or 8.7% 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 income tax benefit for our Regulated Natural Gas segment decreased by $6,890 in the second quarter of 2026 compared to second quarter of 2025. The decrease in the income tax benefit is primarily attributed to the decrease in tax benefits associated with the repairs tax deduction related to continued qualifying infrastructure investment. Six months ended June 30, 2026 compared with six months ended June 30, 2025 Operating revenues from the Regulated Natural Gas segment increased by $50,573 or by 7.8% due to: an increase in purchased gas costs of $47,149; refer to purchased gas costs discussion below for further information; an increase of $19,347 due to higher rates and other surcharges; offset by impact of lower volumes delivered of $8,617 due to warmer weather conditions during the second half of 2026 as compared to 2025; an increase in the weather normalization adjustment of $4,579 in Pennsylvania, which had the effect of decreasing revenues for the six months ended June 30, 2026; and a decrease in customer assistance surcharge of $2,578, which generally has an offsetting amount in operations and maintenance expense. 46 Table of Contents 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) Operations and maintenance expense for the six months ended June 30, 2026 increased by $716 or 0.7% primarily due to the following: an increase in labor and employee benefits of $5,252 primarily due to annual merit increases, increase in incentive bonuses and increase in medical claims; an increase in legal expenses of $1,090; offset by a decrease in bad debt expense of $4,453; and a decrease in customer assistance surcharge costs of $2,431, which generally has an offsetting amount in revenues. 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 $47,149 or 20.5% largely due to an increase in the average cost of gas of $59,976, offset by lower gas usage of $12,827 resulting from a slight shift in customer usage pattern during the first six months of 2026. During the six months ended June 30, 2026, heating degree days (HDDs) in Pittsburgh, Pennsylvania, which the Company uses as a proxy for its western Pennsylvania service territory, were 3,273, or 1% higher than 3,244 HDDs in the prior-year period. HDDs are used in the natural gas industry to measure the relative coldness of weather and to estimate the demand for natural gas. Depreciation and amortization increased by $4,734 or 6.2% primarily due to continued capital investment. Taxes other than income taxes increased by $3,270 or 39.7% primarily due to the absence of a prior year benefit from favorable sales and use tax accrual adjustment amounting to $2,709 in the Regulated Natural Gas segment following the closure of a sales and use tax audit during the second quarter of 2025. Interest expense, net, increased by $3,850 or 7.4% 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 16.1% and 16.3% in the first six months of 2026 and 2025, respectively. The decrease in the income tax benefit is primarily attributed to the decrease in tax benefits associated with the repairs tax deduction related to continued qualifying infrastructure investment. 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. 47 Table of Contents