New CEQA Decision Provides Guidance and Caution in Agency Actions Approving Water Supply Contracts

In a decision handed down October 4, 2012, the Third District Court of Appeal has held that El Dorado Irrigation District’s approval of a water supply contract to provide increased water entitlements to the Shingle Springs Rancheria is not exempt from CEQA due solely to the size of the increase.  (Voices for Rural Living v. El Dorado Irrigation District (3d DCA No. C064280.) The decision provides guidance on the scope of CEQA categorical exemptions, what constitutes an “unusual circumstance” precluding the finding of a CEQA exemption, and what factors a public purveyor must take into account in its determination of potential effect of new water supply agreements.  It further advises public agencies that LAFCo decisions conditioning water service to annexed lands (like the Rancheria) must be obeyed to the same extent as statutory dictates.

For many years, the Shingle Springs Rancheria (“Rancheria”), 160 acres of land held in trust by the federal government for the federally recognized Shingle Springs Band of Miwok Indians (“Tribe”), had received water from the El Dorado Irrigation District (“EID”) at out-of-district water rates.  In 1987, the Tribe and EID entered into an annexation agreement to bring the Rancheria into EID’s service area.  The agreement and annexation was approved by LAFCo in 1989, conditioned on the restriction that water could be used to serve only residential and accessory uses on no more than 40 lots. 

The current litigation was triggered by EID and the Tribe entering into a Memorandum of Agreement (“MOU”) under which the Tribe would (and did) build a casino and hotel on the Rancheria, and EID would provide the Tribe water equivalent to 260.74 dwelling units.  In its CEQA review of the project, EID determined that delivery of the water was categorically exempt from CEQA review and that no exception to the exemption applied because the deliveries would not result in any significant impact to the environment or level of service to its existing customers. EID further ignored the LAFCo conditions as an unconstitutional regulation of land use and therefore void.  The trial court disagreed with EID, as did the Court of Appeal, on both the CEQA and LAFCo points.

CEQA

EID had determined that the delivery of water, which would require minor changes to pipeline linking the Rancheria’s meter to the District’s main, was exempt from CEQA under the Class 3 exemption for new construction or conversion of small structures (14 CCR 15303).  It further analyzed whether there were “unusual circumstances,” including “a substantial change in demand for municipal services” that would preclude application of the exemption.  (14 CCR 15300.2(c).)  It found that the additional demand would reduce the area’s water supply by about 10 percent, concluded that this was not a “substantial change” in available supplies, and declared the project exempt from further review. 

The Court of Appeal held that the amount of water to be provided under the MOU, by itself, disqualified the project as a Class 3 exemption.  While acknowledging that the exemption is not defined in the CEQA Guidelines, the Court then proceeded to use the examples set forth in the Guideline as a rough de facto definition.  The examples describe changes to a single-family residence, changes to a multi-family residence totaling no more than four units, and small commercial structures of less than 10,000 square feet. (14 CCR 15303 subds. (a), (b) and (c).)  By comparison, the Court noted, the project added 216 additional equivalent dwelling units to EID’s water demand.  Even though EID had concluded that the addition of the 216 EDUs would have no significant environmental effect, the Court held

The sheer amount of water to be conveyed under the MOU obviously is a fact that distinguishes the project from the type of projects contemplated by the Class 3 categorical exemption. . . . We do not look only to the project’s possible environmental effects. Rather we determine as a matter of law whether ‘the circumstances of a particular project . . . differ from the general circumstances of the projects covered by a particular categorical exemption . . . .’ [cite]. (Slip Op. at 22; emphasis in original.) 

The Court also examined whether any exemption could be used for the project in light of Guidelines section 15300.2(c), which provides that “A categorical exemption shall not be used for an activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.”  It characterized the question as

 “whether the evidence shows a possibility that EID will not have sufficient water to meet the needs of this project and its other current and planned customers, and whether providing all of the water promised under the MOU might create impacts to the physical environment. [cite].  (Slip Op. at 23.)

Comparing the maximum potential increase in water demand to the unallocated water available within EID, the Court calculated that the MOU would use 14%, not the “about 10%” that EID had calculated.  It noted as well that, based on EID’s Drought Preparedness Plan,

even without approving the project, EID will have insufficient supply to meet all of its customer and environmental protection demands – reduced as they will be on account of a drought – during a drought.  Agreeing to sell another 14 percent of its water supply under such circumstances may only exacerbate its existing shortage.  (Slip Op. at 25.)

 The Court also criticized EID’s analysis because it was based entirely on historical levels of supply and demand. 

These historic levels do not account for possible change in temperatures and levels of precipitation that climate change could produce by 2030. . . . (Slip Op. at 26.)

EID apparently did not give any consideration to [the] possibility of additional shortages of water during a drought due to climate change when it determined how much of its supply was unallocated and available for use. . . .  It thus ignored evidence in the record suggesting it already lacked sufficient water to meet its expected demand during a drought even when it delivers the reduced levels of water it plans to deliver [to existing customers during a drought].  (Slip Op. at 27.)

Finally, the Court criticized EID’s analysis because it did not take into account water availability in light of new instream flow requirements imposed on its Project 184 at Kyburz. 

In light of these failures of information and analysis, the Court of Appeals upheld the lower court’s decision that EID had not complied with CEQA.  EID’s approval of the MOU was vacated until it complies with CEQA.

LAFCO

EID’s agreement to provide water to the Rancheria in amounts that exceeded the LAFCo-imposed condition was also based on a legal opinion from the federal Office of the Solicitor that the LAFCo condition limiting water service to 40 residential properties was an unconstitutional regulation of land use. 

The Court of Appeal made short shrift of EID’s conclusion, stating that

EID exceeded its jurisdiction by approving the MOU in violation of the LAFCO conditions. . . . The Legislature has vested LAFCO with the sole and exclusive authority to approve annexations of territory into special districts . . . [which] includes the power to impose conditions of approval . . . . enforceable against any public agency designated in the condition.  (Slip Op. at 33-34.)

While noting that EID could, under proper circumstances, challenge the conditions’ legality, it was not free simply to ignore them.  “At the time of the MOU approval, the LAFCO conditions were binding on [EID], and EID had no discretion to disregard them.”

LESSONS

  • In evaluating water supply agreements or major commitments of water entitlements, a CEQA exemption is highly questionable if the project differs markedly from the scale of the examples described in the CEQA exemption being contemplated. 
  • In evaluating impact of substantial new water service requests, it is prudent to compare the amount of the increase to the amount of unallocated water, not to the entire supply. 
  • In evaluating possible effect on the environment, an agency must consider whether, as a result of the new service commitment, its drought reductions will be triggered earlier, whether drought-related reductions in deliveries to existing customers will be deeper, and whether existing instream flow requirements can still be met. 
  • Climate change cannot be ignored.  Although the Court’s decision did not specify just how the agency could factor in reduced supply and higher water temperature due to climate change, it clearly held that any analysis of new service commitments must take such climate change scenarios into account.  EID made no attempt to do so; a good faith effort may be all that is necessary (or can be done). 
  • LAFCO decisions and conditions imposed upon an agency are as binding as statutes, and cannot be ignored.  They must be complied with, or challenged properly through the courts after proper procedures before LAFCO to change them.

QUESTIONS

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Janet K. Goldsmith | 916.321.4500