4. Scope of Issues in Phase 2

The focus of Phase 2 is the selection of a long-term water supply solution to address the water shortfall for the Monterey District in order to meet the needs of Cal-Am's customers, and to explore a regional alternative to Cal-Am's Coastal Water Project, as directed in D.03-09-022.¹¹ Phase 2 has considered how the widely-recognized need may best be met by various water supply alternatives, as evaluated according to the statutory framework established by Pub. Util. Code § 1001 et seq.

Cal-Am may not proceed with the Coastal Water Project absent certification by the Commission that the present or future public convenience and necessity require it. As a basis for granting such certification, the Commission must consider the need for the project, as well as community values, recreational and park areas, historical and aesthetic values, and the influence on the environment. (Pub. Util. Code § 1002(a).)

The review process established by CEQA is the primary vehicle for the environmental review. CEQA requires the lead agency (the Commission in this case, as determined in D.03-09-022) to conduct a review to identify environmental impacts of the project, and ways to avoid or reduce environmental damage (through mitigation measures or project alternatives), for consideration in the determination of whether to approve the project or a project alternative. CEQA precludes the lead agency from approving a proposed project or project alternative unless that agency requires changes or alternatives in the project to eliminate or substantially lessen all significant effects on the environment where feasible, and determines that any unavoidable remaining significant effects are acceptable due to overriding considerations.

An environmental impact report (EIR) is an informational document to inform the Commission, responsible and trustee agencies, and the public in general, of the environmental impacts of the proposed project and alternatives, design a recommended mitigation program to reduce any potentially significant impacts, and identify, from an environmental perspective, the preferred alternative. CEQA requires that, prior to approving the project or a project alternative, the lead agency must certify that the EIR was completed in compliance with CEQA, that it reviewed and considered the EIR prior to approving the project or a project alternative, and that the EIR reflects the agency's independent judgment. (Pub. Res. Code § 21082.1(c)(3), CEQA Guidelines § 15090.) Here, the final EIR was certified by the Commission in D.09-12-017.

In Phase 2, we also address accounting and ratemaking issues associated with Construction Work in Progress and Allowance for Funds Used during Construction, as well as a review of the need for the Special Request 2 Surcharge described in D.06-12-040.¹² We have considered various approaches to financing and ownership of the proposed Project and alternatives. Finally, we have considered the timeline for the Project and the alternatives. Since Cal-Am must comply with SWRCB Order 95-10, the SWRCB Cease and Desist Order, and the Seaside Groundwater Adjudication guidelines, it is important to understand the timing for permitting and construction of the Project and alternatives.

The Commission does not have jurisdiction over water rights, and we certainly do not intend to interfere with the various state or local agencies' jurisdiction. However, to the extent that information on water rights and jurisdiction can inform our understanding of the proposed Project and alternatives, and how ownership and financing might be implemented, then we have appropriately considered these issues. As the assigned Commissioner and ALJ have determined, any other consideration of water rights and jurisdictional issues is properly outside the scope of Phase 2.

¹¹ D.03-09-022, at 12.

¹² We recognize that D.06-12-040 may be modified as a result of this review. The Scoping Memo Ruling issued on March 26, 2009 provided notice to the parties of this possibility. Cal-Am filed its petition for modification on April 22, 2010, and DRA timely filed its response on May 24, 2010. That petition for modification will be addressed in a separate decision.