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[Logo]                   RWE Acquisition Update #13

January 7, 2002

This is an update on the RWE/Thames transaction for American Water Associates.
Frequent updates will be distributed in the coming weeks via email. They are
then archived, along with other important materials, in the "RWE Acquisition
Update" database on Lotus Notes.

Frequently Asked Questions

As the transition planning moves forward, has RWE or Thames made any decisions
to change the American Water organization?

No matter if this transaction were taking place or not, there will always be
changes in the works. Like all companies, American Water will continue to make
modifications to the organization so we can evolve, adapt and take advantage
of economies of scale and best business practices. This is the only way we can
continue to achieve the highest quality, cost-effective service to customers.
When the transaction is complete, the American Water team will be responsible
for a much larger group of customers in North, Central and South America. That
means that additional organization changes are inevitable to put us in the
best position to support our customers and grow the business.

How might future changes impact American Water Works subsidiaries?

In New Jersey, and only in New Jersey, Thames and American Water currently
have separate regulated operating companies -- New Jersey-American Water and
Elizabethtown Water. Over the next few months, the transition team will be
studying the two organizations. If the team concludes that combining them
makes sense and the decision is made to take that step, it is likely that some
loss of jobs in those utilities would result. At the same time, there will be
an analysis of opportunities in other areas of our organization to minimize
job losses.

Continued . . .

Acquisition Update  -2-

These changes will not happen until the transaction has received all
regulatory approvals and a closing has taken place. Apart from this unique
situation, there are no plans for any other workforce reductions and all
collective bargaining contracts will be honored. In fact, since a primary
objective of the transaction is to grow the RWE water business in the
Americas, it is likely that, in the aggregate, more Associates will be needed,
not fewer.

We've heard the proposed transaction will offer Associates more career
opportunities. What do those opportunities look like?

The association with Thames offers the potential for international assignments
and new challenges that would not have been possible otherwise. This will come
about, in large part, through Thames Water's global resourcing program that is
designed to overlay worldwide staffing requirements against one- and
three-year business plans -- offering new possibilities where skill sets and
job requirements match.

American Water Associates will also have access to a broader spectrum of
training and development opportunities as a result of the merger. Like
American Water, Thames has a long history of equipping its employees with the
skills and tools to deliver high performance. RWE and Thames invest
substantially in training and development in all levels of management. Thames
spends approximately $6 million a year on training alone.

In addition to these new career opportunities, does the transaction offer
Associates any other benefits?

There is a very tangible benefit. As American Water Works shareholders,
Associates will benefit from the acquisition share price of $46.

Continued . . .

Acquisition Update  -3-

Are benefits plans and policies changing?

The acquisition agreement ensures that benefits plans for non-bargaining unit
Associates will be maintained as they currently are for 12 months following
the close of the transaction. For six months after that point, benefits
changes may be made but, on the whole, those changes will not cause benefits
to be any less favorable than before the transaction closed. Benefits for
Associates represented by collective bargaining agreements will be dictated by
the agreements currently in place, and may only be changed through the
collective bargaining process.

But a few changes are being made. As you know, Associates can no longer invest
ESOP dividends in the dividend reinvestment and stock purchase plan. This plan
was suspended effective September 17, the first business day after the
acquisition agreement was reached. You can still contribute to your ESOP
account and the Company will continue to match your contributions until the
transaction is complete. Once the deal is closed, American Water stock will no
longer be traded and the ESOP program, as it is known today, will end.

Another change will take place in the 401(k) plan. Until the transaction
closes, American Water Works Company, Inc. stock will continue to be one of
the plan's investment options. Dividends will continue to be reinvested within
the plan, although the stock purchased with those dividends will not be
purchased at a discount. But once the deal is closed, Associates will not have
American Water Works stock as an investment option because the company will no
longer issue common stock. Your American Water Works shares will be exchanged
for $46 per share and you will be able to move the value of your stock account
into any of the other funds in the 401(k) Plan.

Is the transaction considered closed after the shareholder vote is taken on
January 17?

No. The transaction will be closed when regulatory approvals have been
received. We remain confident that this will take place within the next 12 to
18 months.

Continued . . .

Acquisition Update  -4-

What is the Thames philosophy on management at the state or regional level?

Thames is an equal opportunity employer, fully complying with all applicable
laws regarding equal employment opportunity. Beyond that, Thames has a solid
track record in relying on experienced country nationals to run the businesses
in their countries. For example, in the U.S. at the five major Thames
operations (E'town Corp., Leopold, Ashbrook, Thames Water North America and
Puerto Rico Superacquaduct), all of the corporate presidents are U.S.
nationals. In Chile, the operations are run by a Chilean national and in
Thailand, a native Thai oversees the plants.

What will happen to the pension payments that retirees receive once the
Company has been acquired by RWE?

Retirees who currently receive payments under the "Pension Plan of American
Water Works Company, Inc. and Its Designated Subsidiaries," will continue to
receive pension payments. These benefits cannot be forfeited, reduced or
eliminated. In other words, nothing changes.

I know someone who no longer works for the American Water System but is
entitled to receive a pension from the Company pension plan at some later
date. Will he still receive his pension once the transaction is complete?

For those people vested under the American Water Works pension plan or a
pension plan under its designated subsidiaries, their right to receive the
accrued benefit in the future cannot be forfeited. This means they will
continue to receive this benefit.

Will retiree medical benefits be affected by the acquisition?

No. In recognition of the contributions by those who built American Water
Works into the industry leader it is today, the agreement will provide current
retirees with medical and life insurance benefits at the same level that
exists at the close of the transaction.

                                *   *   *

         Forward looking statements in this report, including, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions and adequacy of resources, are made
pursuant to the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These forward looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward looking statements. These factors include, among others, the
following: the success of pending applications for rate increases, inability
to obtain, or to meet conditions imposed for, regulatory approval of pending
acquisitions, weather conditions that tend to extremes of temperature or
duration; availability, terms and development of capital; business abilities
and judgment of personnel; changes in, or the failure to comply with
governmental regulations, particularly those affecting the environment and
water quality; competition; success of operating initiatives, advertising and
promotional efforts; existence of adverse publicity or litigation; changes in
business strategy or plans; quality of management; general economic and
business conditions; the ability to satisfy the conditions to closing set
forth in the definitive agreement; and other factors described in filings of
the Company with the SEC. The Company undertakes no obligation to publicly
update or revise any forward looking statement, whether as a result of new
information, future events or otherwise.