Second District Holds CEQA’s Existing Facilities Categorical Exemption Applies To State Lands Commission/PG&E Lease Extension For Operation Of California’s Last Active Nuclear Power Plant Until 2025 Closure

by Miller Starr Regalia

In a published opinion filed June 13, 2018, the Second District Court of Appeal (Div. 4) affirmed a judgment denying a writ of mandate and declaratory relief in an action challenging the California State Lands Commission’s (“Commission”) determination that CEQA Guidelines § 15301’s categorical exemption for “existing facilities” applied to its renewal of PG&E’s leases of state-owned lands needed to operate the Diablo Canyon nuclear power plant until federal licensures expire in 2025. World Business Academy v. California State Lands Commission (Pacific Gas & Electric Company, Real Party in Interest) (2018) ____ Cal.App.5th _____.  The Court rejected petitioner/appellant World Business Academy’s arguments that the consolidated lease replacement, which maintains the status quo at the plant until 2025, did not fall within the exemption, or was subject to the “unusual circumstances” exception, and also rejected arguments that it violated the public trust doctrine.

PG&E owns and operates the Diablo Canyon plant, a two-unit nuclear power plant on 750-acres of land also owned by PG&E near Avila Beach in San Luis Obispo County. The plant is the only active nuclear plant in California, and supplies nearly 10% of the State’s electricity generation.  It was completed in 1973, began operations in 1985, and is licensed by the federal Nuclear Regulatory Commission (“NRC”) to continue operations until November 2, 2024 (Unit 1) and August 26, 2025 (Unit 2).  The plant’s intake cove, breakwaters, intake structure, and discharge channel which are used for its cooling system are located on state-owned tidal and submerged lands under leases from the Commission that were to expire on August 27, 2018 and May 31, 2019, about seven years before expiration of the plant’s federal licensure.  The cooling system, without which the plant cannot operate, draws more than two billion gallons of seawater daily, which is heated by about 20 degrees Fahrenheit during its five-minute journey through the plant before being discharged back into the Pacific Ocean.

During the Commission’s proceedings on PG&E’s lease replacement application, concerns were expressed that the original leases (which predated CEQA’s 1970 enactment) were never reviewed under CEQA, and also regarding the seismic risks posed by the Shoreline and Hosgri fault lines near the plant possibly exceeding the plant’s magnitude 7.5 earthquake design capacity. Petitioner also attributed adverse public health outcomes, such as increased incidences of certain types of cancers and infant mortality in areas of Santa Barbara County closest to the plant, to the plant’s operation.  PG&E entered into an agreement with a number of major environmental and labor groups that had previously opposed the lease replacement application whereby PG&E agreed to retire the plant at the expiration of its NRC operating licenses and all parties agreed to support its orderly replacement with GHG-free power sources.  Petitioner did not sign the settlement document.

The Commission ultimately approved the lease replacement and filed a notice of exemption (“NOE”) citing the existing facilities exemption and stating it “will not cause a physical change in the environment and will not change existing activities in the area” and that “[t]here is no reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.” The Commission also found the lease replacement would not significantly interfere with the trusts upon which public lands are held or substantially interfere with public rights to navigation, fisheries or other relevant needs and values.

Key points and takeaways from the Court of Appeal’s published opinion include:

  • “Unlike statutory exemptions, categorical exemptions such as the “existing facilities” exemption are subject to exceptions enumerated in Guidelines section 15300.2. [citation] An agency may not apply a categorical exemption without considering whether it is foreclosed by an exception. (Berkeley Hillside Preservation v. City of Berkeley (2015) 60 Cal.4th 1086, 1103. . . .) The most commonly raised exception is the “unusual circumstances” exception at issue here. (See Fairbank v. City of Mill Valley (1999) 75 Cal.App.4th 1243, 1259.) That exception provides that a categorical exemption may not be used “where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.” (Guidelines § 15300.2, subd. (c).)”
  • “The party advocating for the application of the unusual circumstances exception bears the burden of demonstrating that the project falls within the exception. [citation] If the agency determines that an exemption applies, and no exception forecloses its application, the project is exempt from CEQA and no further environmental review is required.” (Citing Fairbank, at 1259, Tomlinson v. County of Alameda (2012) 54 Cal.4th 281, 286.)
  • On appeal in a CEQA writ of mandate case, the Court reviews the agency’s decision de novo, rather than the trial court’s, to determine whether it prejudicially abused its discretion by failing to proceed in a manner required by law or by rendering a decision that is not supported by substantial evidence. (Citing North Coast Rivers Alliance v. Westlands Water District (2014) 227 Cal.App.4th 832, 849-850.) “To the extent the question presented turns on an interpretation of CEQA, the Guidelines, or the scope of a particular exemption, it is one of law that [the Court] review[s] de novo.” (Citing Walters v. City of Redondo Beach (2016) 1 Cal.App.5th 809, 817.)
  • Appellant failed to comply with California Rules of Court 8.120(a), 8.121(b) and 8.123(b), which required it to include or designate for inclusion in the record on appeal the administrative record of the Commission’s proceedings; the parties cited to pages of that record which were not even included in the joint appendix, which itself was not sufficient to facilitate the Court’s review. The Court noted it “has no obligation to perfect an inadequate record” and that “the general rule is that “[f]ailure to provide an adequate record concerning an issue challenged on appeal requires that the issue be resolved against the appellant.”” (Quoting Eureka Citizens For Responsible Government v. City of Eureka (2007) 147 Cal.App.4th 357, 366.) Because petitioner/appellant belatedly lodged the administrative record about one and one-half months prior to issuance of its opinion, however, the Court exercised its discretion in favor of not applying the general rule here.
  • In creating the “existing facilities” categorical exemption, “the Secretary [of the Natural Resources Agency] has found that existing facilities do not create substantial, adverse changes in their surrounding environments.” The exempt class of activities “consists of the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of use beyond that existing at the time of the lead agency’s determination.” (Guidelines, § 15301.) “The key consideration is whether the project involves negligible or no expansion of an existing use” (ibid.) and the Guideline’s non-exclusive list of types of projects that might fall within it expressly includes “[e]xisting facilities of both investor and publicly-owned utilities used to provide electric power, natural gas, sewerage, or other public utility services.”
  • The Court rejected petitioner’s arguments that the exemption applies only to transmission facilities, and does not apply to electric power generating facilities, or to nuclear power plants, as inconsistent with the regulation’s plain language, which the Court held reasonably includes all such facilities, and all types of existing facilities where there is “negligible or no expansion of [existing] use[.]”
  • The Court rejected petitioner’s arguments that the Commission failed to make proper findings regarding the exemption when it adopted its staff’s report and issued a one-page NOE. An administrative agency’s findings can be informal so long as they allow a reviewing court to determine the basis for a decision, and they may consist of adopting a staff report’s recommendations. Here, the detailed project descriptions in the record supported the Commission’s key finding that the lease replacement would not expand the plant’s existing use; per the Court, the record also supported “the Commission’s [relevant] implied [factual] finding that there were no unusual circumstances” and “[t]he Commission was not obligated to make specific findings as to each proffered unusual circumstance it rejected, or its basis for doing so.” In sum, more detailed findings were not required.
  • The “unusual circumstances” exception applies “where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances” (Guidelines, § 15300.2(c)), a determination that requires reference to an “existing conditions” environmental “baseline.” Whether a project presents “unusual circumstances” distinguishing it from other projects in the exempt class is an “essentially factual inquiry.” The party challenging the agency’s exemption finding bears the burden of producing evidence supporting that claim, which typically requires a two-part showing that (1) the project has some feature (such as size or location) distinguishing it from others in the exempt class, and (2) there is a reasonable possibility of a significant environmental effect due to that unusual circumstance. (Citing Berkeley Hillside, at 1105; Respect Life South San Francisco v. City of South San Francisco (2017) 15 Cal.App.5th 449, 456.) An agency’s factual determination under the first prong is reviewed deferentially for substantial evidence support, while the “fair argument” standard is used in reviewing a determination as to whether there is a reasonably possibility that an unusual circumstance will produce a significant environmental effect.
  • Alternatively, a party arguing the unusual circumstance exception applies “may make a heightened, one-element showing that the project will have a significant environmental effect[,]” based on the rationale that “[i]f a project certainly will have a significant environmental effect, [it] necessarily presents unusual circumstances[.]” “[Courts] apply the deferential substantial evidence standard of review when reviewing this one-step alternative for proving the exception.” (Citing Berkeley Hillside, at 1105, 1115-1116.)
  • The Commission made no explicit findings on either of the two alternatives for establishing the unusual circumstances exception. It essentially applied the “fair argument” standard to assess whether there was a reasonable possibility that the project would cause a significant effect on the environment. The Court of Appeal assumed without deciding that the lease replacement project presented one or more unusual circumstances, and nevertheless concluded the Commission properly applied the fair argument standard in finding the exception inapplicable. (While the trial court found that various characteristics of the plant (e.g., size, location, nuclear fuel storage) constituted unusual circumstances, and PG&E did not appeal those findings, the Court of Appeal again noted its proper role is to review the Commission’s findings, not those of the trial court.)
  • Treating the plant’s current operations as the existing environmental baseline, the Court followed existing law holding that a “proposal to continue existing operations without change would generally have no cognizable impact under CEQA.” (Quoting North Coast, at 872-873.) As in North Coast, which the Court found “particularly instructive,” proof of potential adverse impacts resulting from a change in the existing conditions baseline was lacking – “all of the purported environmental effects to which appellant points are incident to and part of the plant’s current baseline operations.”
  • Petitioner’s speculative assertions that disastrous health effects and an earthquake-caused reactor meltdown and radioactive release could occur during the seven-year lease extension were likewise unavailing. Neither the existing facilities exemption nor the unusual circumstances exception “include a time limit” and the degree of potential harm is irrelevant because existing operations and their effects are considered a part of the baseline “without regard to their magnitude.” Per the Court: “The lease replacement is intended to maintain the current status quo at the plant. Appellant has not pointed to any evidence showing that the project will increase either the intensity or rate of use of the cooling system infrastructure.”
  • The Court proceeded to separately consider and reject all of petitioner’s specific arguments as to the alleged unusual circumstances (size, location) and their alleged significant environmental impacts (e.g., on human health, marine life, soil and ground water), concluding in each instance that the asserted circumstances and impacts are part of the existing baseline that would not be altered by the lease replacement. Petitioner’s concerns about plant “embrittlement” and vulnerability to seismic risks and terrorist attacks were unsupported and unconnected to the lease replacement at issue. The fact that Diablo Canyon has been California’s sole operating nuclear plant since June 2013 is also part of the existing conditions baseline that is unchanged by the 2016 lease replacement approval. Further, Petitioner’s “ad hominem, extra-record attack on PG&E [was not linked] to the lease replacement” or to “any effect on the environment surrounding the plant.” Accordingly, none of petitioner’s proffered evidence was substantial evidence supporting the requisite fair argument under CEQA.
  • Finally, the Court rejected petitioner’s argument that the Commission committed public trust doctrine violations. The Court noted that the staff report adopted by the Commission explicitly analyzed the doctrine and ultimately concluded the lease replacement “will not significantly interfere with the trusts upon which [public] lands are held or substantially impair the public rights to navigation, fisheries or other public trust needs and values at this time, at this location, and for the limited term lease. . . .” Applying a deferential standard of review, “limited to determining whether the Commission’s ruling was arbitrary, capricious, or entirely lacking in evidentiary support, or whether it failed to follow appropriate procedures[,]” the Court held the Commission’s public trust doctrine analysis to be “facially adequate,” stating: “The Commission considered the facts before it, citing record evidence while balancing the public trust rights to navigation, fisheries, and environmental protection against the public need for efficient electrical production. This review was not arbitrary, capricious, or procedurally irregular.”

While this case is obviously of public interest because of the controversial nature of the project and claims involved, the Court’s decision ultimately turned on a simple principle that is both embodied in CEQA’s operative statutory provisions and recognized in the “existing facilities” exemption: CEQA is concerned only with changes in the existing environment, i.e., changes in the existing physical conditions in the area affected by the project.  Where the project is, as here, nothing more than a continuation of existing operations – no matter what their nature, magnitude, or how they came to be – those operations are considered to be a part of the existing environment, such that unless they are proposed to be altered in some way there will be no significant environmental effects cognizable under CEQA.

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