Discussion

In order to resolve the issue of the applicability of CEQA to the present proceedings, we must answer two basic questions. First, whether Valencia's application for approval of its WMP, or its AL 88 to expand its service territory, constitute a "project" under CEQA. Second, if so, whether there is an applicable exemption from CEQA. Given the interrelationship between the WMP and the advice letter discussed above, the two filings need to be considered together in the analysis that the Commission performs in answering these questions.

1. Whether the WMP or AL 88 Constitute a Project Under CEQA

CEQA generally requires consideration of three basic questions in determining whether an activity is a project. First, whether the activity requires discretionary government approval. Second, whether the activity involves the issuance of a lease, permit, license, certificate, or other entitlement. Third, whether the activity has the potential to result in a significant environmental effect.

CEQA Guidelines Section 15268 and 15369 compare ministerial vs. discretionary decisions. Ministerial projects are exempt from CEQA. The guidelines state that a ministerial decision involves only the use of fixed standards or objective measurements, with no subjective judgement by the reviewing agency. Examples of activities involving ministerial decisions include automobile registrations, building permits, and business licenses. The guidelines also state that the particular public agency can and should make the determination of what is "ministerial" based on analysis of its own laws.

Approval of a WMP or an advice letter is not simply a matter of applying a fixed set of standards or objective measurements. In making such a determination the Commission takes into account many factors, and may require certain changes if it determines it necessary to mitigate environmental impacts. ⁹ Accordingly, we conclude the WMP and AL 88 together require discretionary approval.

In addressing the second prong of the criteria by which we determine whether the WMP is a project under CEQA, the parties have properly focused upon the issue of the nature of the WMP itself. Valencia argues that the WMP does not provide Valencia with any "entitlement," and that there is no causal link between Commission approval of the WMP and any potential environmental impacts. (P. 5.) The crux of Valencia's entitlement argument is "Given that approval of a WMP does not bind the Commission, such approval cannot be said to create any entitlement." (Pp.5-6.) Valencia's causation argument is similar, albeit with a different focus: "In the present matter, the Commission's approval of the WMP does not commit the Commission to do anything." (P. 8.) In the context of a more typical application for approval of a WMP, these arguments might have some weight, but here they tend to miss the point. While Valencia is correct that the WMP, by itself, neither entitles Valencia nor commits the Commission to future expansion of Valencia's service area, Valencia cannot expand its service area (via advice letter) without prior Commission approval of the WMP. As the Commission stated in W-4154, "the remaining issues of water supply should be resolved before any additional service territory extensions occur."

The Commission has already determined that no advice letters to expand Valencia's service territory will be approved without an updated WMP, making the Commission's approval of the WMP an essential step in the approval of subsequent advice letters. If the advice letters could result in an environmental impact, then Commission approval of the Program is "an essential step in a chain of events leading to a change in the physical environment," which would require CEQA review. ¹⁰

Based upon the record before the Commission, expansion of Valencia's service area, pursuant to the WMP and AL 88 (and possible subsequent advice letters), has the potential to create a significant environmental impact. Witnesses for Ventura and Sierra Club offered testimony indicating the possibility of significant impacts upon water quality and availability as a result of Valencia's proposed increase in groundwater pumping, as well as other less direct impacts. Under CEQA, we cannot ignore the credible possibility of these significant impacts in our review of the WMP and AL 88.

In view of the relationship between the WMP and advice letters in this case, as well as the possibility of significant environmental impact, we take particular note of the policy consideration emphasized in Friends of Mammoth v. Board of Supervisors, (1972) 8 Cal. 3d 247, 263, stating that "[t]he fundamental purpose of CEQA is to ensure that environmental considerations play a significant role in governmental decision-making. Consequently, it is desirable that environmental information be furnished the decision-maker at the earliest possible stage..."

2. Whether CEQA Exemptions Apply to the WMP or AL 88

The positions of the parties address three possible CEQA exemptions. First, whether the WMP is categorically exempt as a planning and feasibility study. Second, whether the WMP is exempt as an Urban Water Management Plan under Water Code Section 10652. Third, whether the WMP is exempt because the proceeding involves ratesetting. As discussed below, we conclude that these exemptions do not apply.

3. The WMP is not Categorically Exempt From CEQA Review
Because it is Only a Planning Study for Possible Future Actions

CEQA Guidelines provide an exemption from CEQA requirements for feasibility and planning studies. Specifically, Section 15262 of the CEQA Guidelines provides as follows:

"A project involving only feasibility or planning studies for possible future actions which the agency, board, or commission has not approved, adopted, or funded does not require the preparation of an EIR or negative declaration but does require consideration of environmental factors. This section does not apply to the adoption of a plan that will have a legally binding effect on later activities."

Valencia argues that Section 15262 applies to provide a CEQA exemption for the WMP. Ventura and Sierra Club argue that testimony of Valencia's own witnesses defeats the conclusion that the WMP is merely a planning and feasibility study. For example, Ventura and Sierra Club cite the testimony of Valencia's counsel stating "[t]his proceeding [in review of Valencia's WMP] was intended to reach a resolution if our program is adequate that would allow us to go forward with serving new developments."¹¹

Indeed the WMP, and particularly in conjunction with AL 88, appears to go beyond a document projecting the mere feasibility of expanding service territory. The WMP provides analysis of long-term demand, water supply, and conservation measures for implementation to meet that demand, relative to proposed service territory expansion and specifically delineated new dwelling unit tracts. If Valencia viewed the WMP as a document simply for planning and feasibility purposes, we might not expect immediate and specific action to be the result of approval of the WMP. However, Valencia's own statements indicate precisely that intention to take action upon approval.

As already noted in this decision, implementation of the WMP and AL 88 (and possible subsequent advice letters) has the potential to create a significant environmental impact. Therefore, consistent with the reasoning in Edna Valley Assoc. v. San Luis Obispo County et al., (1977) 67 Cal.App.3d 444 and Bozung v. Local Agency Formation Comm., ¹² CEQA policy requires a consideration of environmental issues.

As described above, the Commission, in its Decisions leading up to the present proceeding, has expressly created a linkage between this WMP application and subsequent advice letters for expansion of Valencia's service territory. The WMP and advice letter at issue are more substantial than the type of feasibility and planning study contemplated by the Section 15262 exemption. This determination is based upon the unique facts before us, and we do not reach the issue of whether any other WMP to come before the Commission would qualify for this exemption. However, in the instant case we find that this exemption does not apply.

4. The WMP is not Exempt From CEQA
as an Urban Water Management Plan

The Urban Water Management Planning Act, Cal. Water Code Section 10610 et seq., originally enacted in 1983, requires every urban water supplier¹³ -- of which Valencia is one - to prepare and adopt an Urban WMP and to update its plan at lease once every five years. (Id., §§ 10620, 10621.) The adopted and amended plans must be filed with the Department of Water Resources (DWR), which must, in the succeeding year, submit a report to the Legislature summarizing the status of such plans. (Id., § 10644.)

Water Code Section 10652 provides an exemption from the application of CEQA requirements for Urban Water Programs. Specifically, Section 10652 states:

"The California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code) does not apply to the preparation and adoption of plans pursuant to this part or to the implementation of actions taken pursuant to Section 10632. ¹⁴ Nothing in this part shall be interpreted as exempting from the California Environmental Quality Act any project that would significantly affect water supplies for fish and wildlife, or any project for implementation of the plan, other than projects implementing Section 10632, or any project for expanded or additional water supplies." ¹⁵

The "part" to which Section 10652 refers is Part 2.6 of Division 6 of the Water Code - the Urban Water Management Planning Act. Part 2.6 requires water purveyors such as Valencia to include in their WMPs, inter alia, descriptions of their service areas, identification of existing and planned sources of water, description of the reliability of their water supplies, quantification of past, present and projected water use, and description of water demand management measures being implemented or planned. (Cal. Water Code, § 10631.)

Ventura and Sierra Club argue that the exemption from CEQA set forth in the Water Code applies only to Urban WMPs submitted to the DWR pursuant to that act. Furthermore, the parties state that the exemption does not apply because by its own terms, the exemption does not apply to any project for expanded or additional water supply, and that the Urban WMP serves a different purpose than the WMP.

Valencia states that it previously filed an Urban WMP with the DWR, and that it is the same report as the WMP. Except for a difference in the title of the reports and certain statistical and factual information updated to reflect different filing dates, the reports are the same. Therefore, in Valencia's view, the CEQA exemption in the Water Code for the Urban WMP also applies to provide a CEQA exemption for its WMP before the Commission.

The plain language of Water Code Section 10652, provides a CEQA exemption only for certain Urban Water Code Programs submitted to the DWR. Nothing in that section addresses a WMP before the Commission. Valencia's position appears to require reading Section 10652 together with Section 10653 to reach its conclusion. Section 10653 provides that the adoption of an Urban WMP "shall satisfy any requirements of state law, regulation, or order, including those of the State Water Resources Control Board and the Public Utilities Commission, for preparation of water management plans or conservation plans," provided that the authority of either of those agencies to require additional information to implement their existing authority shall not be limited. ¹⁶

We are not convinced of Valencia's interpretation of the relationship between Section 10652 and 10653, or that Section 10653 is intended to go further than provide for administrative efficiencies between agencies by allowing essentially the same report to be submitted to multiple agencies for similar purposes. However, even if Valencia is correct that the two sections can be linked to provide a CEQA exemption for WMPs, Section 10652 would not permit a CEQA exemption in this case.

Section 10652 expressly states that the CEQA exemption does not apply to "any project for expanded or additional water supply." Here, we ordered Valencia to submit its WMP as a prerequisite to determining whether to approve proposals for expanded service territory in conjunction with any further advice letters, and in this case AL 88. The nature of this review is to determine whether to authorize "projects for expanded or additional water supply." Therefore, even if we found that the Urban WMP and the WMP are equivalent, the WMP would not be exempt from CEQA under Section 10652. Accordingly, this exemption does not apply.

5. The WMP is not Exempt from CEQA
Because this Proceeding Involves Ratesetting

Public Resources Code Section 21080(b)(8) provides a general exemption from CEQA requirements for certain ratesetting proceedings. That section states that the division does not apply to the following activities:

"(8) The establishment, modification, structuring, restructuring, or approval of rates, tolls, fares or other charges by public agencies which the public agency finds are of for the purpose of (A) meeting operating expenses, including employee wage rates and fringe benefits, (B) purchasing or leasing supplies, equipment, or materials, (C) meeting financial reserve needs and requirements, (D) obtaining funds for projects necessary to maintain service within existing areas, or (E) obtaining funds for projects necessary to maintain those intracity transfers as are authorized by city charter."

Valencia states the WMP is exempt from CEQA under Public Resources Code Section 21080(b)(8). Ventura and Sierra Club state that there is no hard and fast rule that "ratemaking proceedings" are exempt from CEQA, and that this proceeding involves more than ratesetting. They rely on Shawn v. Golden Gate Bridge District (1976) 60 Cal. App.3d 699 to support their position.

Pursuant to Pub. Util. Code § 1701.1, the Commission is required to categorize proceedings as quasi-legislative, adjudication, or ratesetting. Quasi-legislative cases are generally defined as establishing policy, such as rulemaking and investigation proceedings. (Pub. Util. Code § 1701.1(c)((1).) Adjudication cases are generally enforcement and complaint matters. (Pub. Util. Code § 1701.1(c)(2).) Ratesetting cases are those in which rates are established for a specific company, such as general rate cases, performance-based ratemaking, and other ratesetting mechanisms. (Pub. Util. Code § 1701.1(c)(3).) Furthermore, under the Commission's Rules of Practice and Procedure, Rule 6.11(c), proceedings which do not clearly fit into one of the three categories may be categorized as ratesetting (see also Rule 5(c)). As such, ratesetting is a residual category.

Clearly this matter is not a quasi-legislative or adjudicatory proceeding. For purposes of the Commission's obligation to categorize proceedings, it is a ratesetting proceeding. However, our obligation to categorize a certain proceeding as a ratesetting proceeding for purposes of Pub. Util. Code § 1701.1 is not synonymous with the scope of the ratesetting exemption under Public Resources Code Section 21080(b)(8). We agree that the issues to be determined go beyond merely authorizing rate recovery and setting rates. It is also not convincing that the categories for exemption under Section 21080(b)(8) apply in this case. Of the activities permitting an exemption from CEQA, only Section 21080(b)(8)(D) would seem possible. However, that exemption applies to projects necessary to maintain service within existing areas. In this case, we are considering approval of the WMP and AL 88 for expanded service areas. Accordingly, we do not see that Section 21080(b)(8) applies to exempt the WMP from CEQA.

Finally, we look at Shawn v. Golden Gate Bridge District. The issue involved whether CEQA applied to the decision of Golden Gate Bridge, Highway and Transportation District to increase bus fares. The defendants cited to two Public Utilities Commission cases where the Supreme Court had denied writ of review, and argued that the denials equated to a decision on the merits. The court in Shawn instead noted that the Commission decisions "carefully avoid holding that all ratemaking determinations...are exempt from CEQA." Rather they hold only that an EIR is not required in every rate case, but that the `policy provisions' of CEQA do apply. "The Commission will consider potential environmental impact in rate matters." Accordingly, we conclude that the findings in Shawn do not support a finding that the WMP or AL 88 are exempt from CEQA.