DWR Revenue Requirement

On Friday (October 19), DWR released a revised revenue requirement. The
result was to lower the Customer Revenue Requirement by$2.4 billion from the
revenue requirement submitted on August 7th. The stated reasons for the
change are:

1. Reduction in Gas Prices. For example, the August estimate included a
fourth quarter 2001 gas price forecast of $7.68 at the Southern California
border. In the recent submittal, this was reduced to $3.54.

2. Change in Load because of Direct Access. As a result of the Commission
delaying the suspension date from July 1 to September 20th there was a
significant bump up in DA load, thus reducing the load fo which DWR must
buy. For example, the August submittal contained an estimate of 448 GWh in
the fourth quarter 2001 for direct access load. The October 19th submittal
factored in a direct access load of 6,571 Gwh for fourth quarter 2001.

3. Changes in Forecast due to DSM. DWR has decided not to engage in any
demand side and demand bidding programs and has deferred decision on whether
to reinstitute the 20/20 program next summer. The result of these decisions
was a decrease of $513 million in the revenue requirement, while also
increasing the load that DWR must buy for by 1896 Gwhs.

4. Changes to Contracted for Power. An additional 156 MW (which is
expected to be available to meet summer 2002 peak) has been contracted for
since the August 7th submittal.

5. Adjustments to the calculations of ancillary services costs.

6. Changes in Debt Dervices Costs. For example, on October 11 (the day
after the Commission rejected the rate agreement), the interest rate on the
interim financing went up from .75% to 2.75%.

7. Changes in Receipt of Funds from UDCs. Until the rate agreement between
the Commission and DWR is approved, the UDCs have been withholding on the
remittance of DWR's share the revenue receive from the sales of the UDCs own
volumes.

If any one would like a copy of DWR's entire submittal, let me know.

Jeanne Bennett