Rate increases added $6.6 million to 2002 revenue. Revenue from GRC decisions received in 2001 accounted for $2.7 million of the increase, $2.0 million came from step rate increases and $1.9 million from offset rate increases to recover electric costs included in expense-balancing accounts for four California districts. No new GRC decisions were authorized by the CPUC during 2002.Washington Water did receive a GRC decision in 2002.The “RATES AND REGULATION” section of this report provides a detailed discussion of regulatory activity. During 2001, revenue from usage by existing customers declined $5.7 million. A cool, wet spring, mild summer and early fall rains throughout the Company’s service territories caused water usage by existing customers to decline by 2%. Rainfall was near normal in the northern part of California, but well above normal in the south.The unusually heavy rains in southern California reduced water sales, a trend that continued all year because of the year’s weather pattern.Washington Water experienced dry conditions dur- ing the winter and spring months; however, summer rains reduced water sales in the normally high usage summer months. The December 31, 2002, customer count including the Hawthorne customers was 459,000, an increase of 2% from the 450,400 customers at the end of 2001, which was an increase of 1% from the 444,300 customers at the end of 2000.The increase in customers is due to normal growth within existing service areas and acquisitions of water systems.The acquisition in July 2002 of the Rio Grande Utility Corporation’s 4,100 customers is included in the customer count increase. Operating Income and Expenses. Total operating expenses, including those for the Hawthorne operation, were $232.9 million in 2002, $221.7 million in 2001 and $211.6 million in 2000. Water pumped from Company-owned wells provided 50.4% of water delivered to customers  in 2002.Water purchased from wholesale suppliers provided 49.0% and the remaining 0.6% was obtained from surface supplies. For 2001, the corresponding percentages were 50.6%, 48.9% and 0.5%. As a group, water production costs, which consist of purchased water, purchased power and pump taxes, comprise the largest segment of total operating costs.Water production costs accounted for 45% of total operating costs in 2002, 2001 and 2000.The rates charged for wholesale water supplies, electricity and pump taxes are established by various public agencies. As such, these rates are beyond the Company’s control.The table below provides comparative information regarding water production costs during the past three years: 24 Water production expenses vary with wholesale suppliers’ prices, the quantity of water pro- duced to supply customer water usage, and the sources of supply. In 2002, four wholesale water suppliers increased their rates charged to the Company.The increases ranged from 2% to 5%. One wholesale supplier reduced its rate by 9%. In 2001, seven wholesale water suppliers increased rates with increases ranging from 2% to 7%. In December 2001, wholesale suppliers in the Los Angeles area refunded $1.4 million for over- collection of prior period water purchases.The refunds were recorded as a reduction of purchased water costs.There were no comparable refunds in 2002. During 2003, wholesale rate increases are expected in 17 districts ranging from 1% to 47%.The 47% increase will add an estimated $1.0 million to purchased water cost.The increased costs will be tracked in regulatory memorandum accounts that the Company will include in future rate proceedings for recovery. CALIFORNIA WATER SERVICE GROUP Dollars in millions 2002 2001 2000 Purchased water $ 76.7 $ 73.2 $73.8 Purchased power 22.9 21.1 15.1 Pump taxes 6.3 5.9 6.3 Total water production costs $105.9 $100.2 $95.2 Change from prior year 6% 5% 5% Water production (billions of gallons) 132 127 128 Change from prior year 4% (1)% 3%