7. Discussion

7.1. Project Considerations

SCWC proposes to extend its West Orange County System's service territory to include the noncontiguous territory of the Developer's Mesa project, construct an interconnecting 6.75-mile, 18-inch water transmission pipeline (A.99-11-003), and provide wastewater services to the Mesa project (A.99-11-015). Public Utilities Code Section 1001 provides that before making such an extension or beginning such construction, or providing such services, SCWC must first obtain from the Commission a Certificate of Public Convenience and Necessity (CPCN).

In order for the Commission to grant a CPCN, it must be reasonably assured that there is a public need for the services or facility; that the applicant possesses the resources, technical competence, and operational experience to provide the service and to construct the facility required; and that granting a CPCN would be in the public interest.¹¹ In addition, where a claim is made that better alternative service is available, it is incumbent upon an applicant to rebut that claim or otherwise respond to it.¹²

That there would be a need for water and sewer services when the Developer's Mesa project is started is obvious. However, the question before this Commission is whether SCWC - as opposed to another water and sewer provider - should be granted a CPCN to meet that need and whether SCWC satisfactorily rebuts the claim that a better alternative service provider is available. SCWC claims that it has an adequate and reliable water supply available, sound plans for the design and construction of the interconnecting pipeline, the proven resources, technical competence, and operational experience to manage, operate, and maintain the water and sewer systems proposed for the Developer's Mesa project. In addition SCWC asserts that it proposes fair and reasonable rates. SCWC also asserts that the record in this consolidated proceeding demonstrates that SCWC is the only provider presently "ready, willing and able" to provide the services.

On the other hand, the City asserts that it is the logical and natural service provider for the Mesa project. The City also contends that the Mesa, while located in the unincorporated part of the County, is also within the City's sphere of influence. The City's evidence shows that the City has adequate and reliable water sources as well as the technical competence and operational experience to provide water and sewer services to the Mesa project. Were it to provide the water service, only 0.5 miles of paved roads would be temporarily disrupted, rather than the 7.5 miles if SCWC serves. As the City does not charge for sewer service, its total rate package charge would be about 6/7^ths of the SCWC's average proposed rates for the combined services.¹³ The City asks that SCWC'S application be denied.

The Developer does not deny that the City is both "ready and able" to provide both water and sewer services to its Mesa project. Indeed, earlier it sought to contract with the City for these services. Subsequently, the Developer and the City's staff work toward a mutually acceptable pre-annexation proposal, including $12 to $15 million in public benefits for the City, and including mutually agreed upon "deal points." The City Council in June 1999 rejected the proposal and ordered additional negotiations. The Council wanted to keep its options open with regard to the Appeal Court-ordered remand of the LCP back to the Coastal Commission.

Nevertheless the Developer advances the theory that the City is motivated by a desire to see no development and is acting to delay the commencement of construction. The Developer asserts these actions have jeopardized the Developer's land entitlements obtained from the county. Because it is suspicious of the City, the Developer is especially hesitant to consider annexation, which the City had included as part of its proposal to supply water in Bolsa Chica. Under annexation, the City would assume the lead role in regulating development and permit issuance, which the Developer maintains is a powerful mechanism and ultimately determines whether a project gets built. If the City did not support the development, the Developer asserts that the City could delay processing, and approvals could be overly conditioned. Accordingly, the Developer has insisted on obtaining enforceable guarantees from the City, without which the Developer contends it will not assume the risk of annexation. The Developer concludes from this line of reasoning that while the City is "able" it is neither "ready nor willing" to provide service or facilitate the Mesa project. Thus, the Developer asserts SCWC is the only viable alternative.

If we grant SCWC a CPCN, we will effectively determine who serves water in the development. Thus, the Applicant and the Developer are effectively urging us to intervene in ongoing negotiations and to intervene in processes principally under local government jurisdiction. While the Commission has the authority to intervene in local governmental processes¹⁴ , we do not do so lightly. Issues of land use and development are intrinsically local issues. Questions of public utility infrastructure fall under the Commission's jurisdiction. This case represents the nexus between land use and utility infrastructure. At face value, our decision to deny or approve the Applicant's project affects only the Developer's ability to proceed, but in reality our decision also affects the City's ability to negotiate an appropriate agreement regarding water service and an annexation agreement which reflects the interests of neighboring residents.

Given the surrounding circumstances and the strong sentiments expressed by local residents, local elected officials, the Applicant and the Developer, and protestors, we believe that three criteria should be applied to this specific case to determine if it is appropriate for the Commission to issue a CPCN the clear effect of which will be to deny the City the opportunity to pursue its goals. In this light it must be remembered that SCWC is not the only potential source of water and that a claim has been made by the City that it is a better alternative source of water. First, the Applicant must demonstrate that the other party in the negotiation process has either refused to negotiate or the other party has stalled sufficiently to be equivalent to a refusal to negotiate. Second, the Commission's intervention must be shown to further the public interest. Third, the Commission must be shown to have jurisdiction to intervene, as requested by the applicant. These criteria are not intended to be broadly applied to other requests for intervention; rather the criteria are developed based on the facts specific to this case. Once these criteria are met, the Commission will have a sufficient factual record to determine if intervention in local governmental processes promotes the public interest in this specific case. However, it is entirely possible that all the facts suggest that the Commission should intervene in local governmental process, but based on public interest factors unrelated to intervention, the Commission could decide to reject a CPCN request.

We address these criteria in order. The Applicant and the Developer assert that while the City is able to provide water and sewer services, it is not willing or ready to provide those services. According to the Developer substantial evidence exists to demonstrate the City's unwillingness. The Developer's case relies heavily upon opinions expressed by individual city council members that the project should not be constructed. As with our own Commission, views expressed by individual council members are neither binding nor reflective of the whole city council or of the City. Rather, the opinions expressed by individual council members are a natural result of a process that is open to public scrutiny and a process in which any individual may take part. On June 28, 1999, the City Council unanimously voted to have staff continue to negotiate a pre-annexation agreement. We take this as evidence of the City's desire to provide water and sewer services to the development.

The Developer asserts that the city council's failure to adopt a resolution stating an unequivocal willingness to provide water and sewer services is evidence of the City's desire not to serve the Developer or is evidence that the City is unable to serve due to political pressure. In our opinion, the city council's actions reflect an ongoing negotiation process over an extremely controversial development.

At the core of the Developer's argument is an assumption that demonstrating the City's unwillingness to agree to terms in a negotiation is the equivalent to the City refusing to provide water or is equivalent to the City stating its unwillingness to serve. It is the extremely rare commercial negotiation in which a party asserts unequivocally that it will enter into a contract with another party. In most negotiations, parties express an interest in contracting, but always reserve the right to refuse terms offered by the other party. The Developer also asserts that its repeated attempts over several years to reach agreement with the City demonstrate an unwillingness to serve by the City. Similar to its desire to have the City unequivocally offer service, the Developer may be unrealistic about either the time it takes to negotiate a pre-annexation agreement or may have unrealistic expectations about the terms of that agreement. The Developer has not presented evidence that satisfies us that the City is, in fact, stalling.

Therefore, this Commission determines that it would be premature to conclude that the City of Huntington Beach is not "ready, willing and able" to provide water and sewer services to the Developer. And the Applicant has not satisfactorily responded to the claim that better alternative service is available. As explained more fully below, we will allow the applicant to submit another CPCN request if the facts merit it.

The second criterion requires the applicant to demonstrate that approving the request is in the public interest. In its application, SCWC asserts that the public interest is best served by providing water to the project and by having SCWC provide the services. SCWC premises its assertion upon the fact that it is the only entity "ready, willing and able" to provide the water and sewer services requested. Our analysis indicates it is premature to reach conclusions about the City's ability and willingness to serve Bolsa Chica. Therefore, the Commission cannot evaluate whether it would be in the public interest for this Commission to intervene in the ongoing negotiations between the Developer and the City.

The third criterion requires that the requested actions be within our jurisdictional authority. The Commission as a matter of regular business approves CPCN requests to serve new or planned communities. We determine that SCWC's request, if it meets the other two criteria, could be granted within the jurisdictional authority provided to us by the state legislature.

At this time, we do not conclude that the City of Huntington Beach is unwilling to provide the requested services. The evidence presented by the Developer and SCWC demonstrate the tough decisions faced by the City, but do not demonstrate a failure of the negotiation process that the City and the Developer have entered into. We do not find sufficient evidence for us to interfere with the legitimate governmental processes of the City of Huntington Beach. Likewise, if all other things are equal between SCWC and the City as potential providers, we not only have an interest in promoting the environmentally superior option identified in our environmental review, but we are obligated to do so. It would be inconsistent with Section 21002 of the Public Resources Code for the Commission to approve the proposed project "if there are feasible alternatives or feasible mitigation measures available which would substantially lessen the significant environment effects" of the project. (See also CEQA Guidelines §§15002(a)(3); 15021(a)(2).

We do understand that in a relatively short time, the Developer needs to secure a water source for the project to be built. Therefore, we will dismiss the application without prejudice. This will allow SCWC to file another application to provide water and sewer services to Bolsa Chica. In any subsequent application, we expect SCWC and/or the Developer to provide substantial evidence that demonstrates the City's unwillingness to serve, that it is in the public interest to approve the project, and that the project is within our authority. The evidence submitted should not be primarily based upon opinions expressed by elected officials nor should it be primarily based on implied motives or actions of the City.

7.2. Environmental Considerations

7.2.1. Draft SEIR

The first step in the process of preparing a Final SEIR is the preparation of a Draft SEIR. The Draft SEIR in this instance was prepared by an independent environmental consultant under the supervision and direction of the Energy Division, and was distributed on December 6, 1999, for public review. It includes the analysis of four alternatives (plus the No Project Alternative) to the proponent's Proposed Project and identifies over 30 mitigation measures to avoid or minimize impacts.

7.2.1.1. Public Comments and Input

Public comments on the Draft SEIR were solicited through its distribution, as well as through an Informational Meeting held on January 6, 2000, and a PPH conducted on January 21, 2000. The latter two meetings were held in Huntington Beach. Written comments were accepted through January 20, 2000. The Commission received 19 sets of written comments and 10 people commented verbally at the PPH.

7.2.2. Final SEIR

The Final SEIR was filed with the Commission's Docket Office on February 11, 2000. The Final SEIR consists of the Draft SEIR, with minor revisions in response to comments and other information received by the Commission, plus the actual comments received on the Draft SEIR along with responses to these comments.

7.2.2.1. Alternatives Screening Process

CEQA requires an EIR to evaluate alternatives to a proposed project (Guidelines § 15126(d)). As part of the preparation of the SEIR, a number of alternatives were studied that could meet most of SCWC's project objectives. The alternatives evaluation process focused on finding alternatives that (1) were feasible, (2) would substantially avoid or lessen the Proposed Project's significant environmental effects, and (3) would attain most of SCWC's basic project objectives. The assessment of feasibility was directed toward reverse reason, that is, an attempt was made to identify anything about the alternative that would not be feasible on technical or regulatory grounds. The alternatives analysis addresses two types of alternate projects: (1) alternate pipeline routes for the SCWC water transmission line; and (2) possible alternative water providers.

7.2.2.2. Alternatives Eliminated from Full Consideration

Five alternatives were evaluated and determined to be either infeasible or not having environmental benefits over the Proposed Project. The eliminated alternatives included a variety of other pipeline routes as well as the installation of new groundwater wells on Bolsa Chica Mesa. The rationale for eliminating each of these alternatives is explained in detail in Section D.1.4 of the Final SEIR.

7.2.2.3. Alternatives Evaluated in the SEIR

Four alternatives were described and evaluated in the SIER that were judged to be capable of satisfying SCWC's basic project objectives and having some potential to reduce the impacts of the Proposed Project. Two of these alternatives involved alternate pipeline routes; two involved alternative water providers. In addition to the No Project Alternative, the following alternatives were evaluated in the Final SEIR: (1) Connection to the City of Huntington Beach Water System; (2) Anaheim-Barber City Channel Diagonal (Rancho Road); (3) Springdale Street/Graham Street; and (4) North Seal Beach Wellfields.

7.2.2.4. Environmentally Superior Alternative

The Final SEIR identifies Connection to the City of Huntington Beach Water System as the environmentally superior alternative. This alternative was selected because it would have substantially reduced environmental impacts compared to both the Proposed Project and the other project alternatives, which each involve construction of a significantly longer water transmission line. The environmentally superior alternative would involve construction of an underground pipeline connection to the City's water main in Warner Avenue, approximately one-third of a mile from the proposed reservoir on the Bolsa Chica Planned Community site.

With respect to the other two project alternatives, the types of environmental impacts associated with these alternatives are largely similar to each other and to the Proposed Project, although the impacts differ slightly in magnitude. The basic impacts shared by these alternatives include disruption of local traffic due to construction activities in public streets, air quality and noise impacts, and various other construction-related impacts. As the Proposed Project is more direct and offers the least amount of construction in public street rights-of-way and has relatively fewer sensitive land uses along its route, the Proposed Project is preferred over the two remaining "non-superior" alternatives.

Notwithstanding the Proposed Project's advantages over the two remaining "non-superior" alternatives, we have identified connection to the City of Huntington Beach as the environmentally superior alternative. The SEIR, in subsection D.2.1, found the connection to the City of Huntington to be feasible "from a technical and regulatory standpoint." As the Commission stated in response to comments on the draft SEIR submitted by O'Melveny & Myers on behalf of SCWC, "[T]he scoping memorandum prepared by the CPUC Administrative Law Judge (dated March 16, 1999.) specifically identified the prospect of the City providing water service as an issue to be addressed in the CPCN proceeding." (SEIR, p. J-144.) The issues has now been addressed, and with the significantly more developed administrative record before us, we find that the alternative of connection to the City of Huntington Beach cannot be considered to be infeasible at this time, as further explained in Section 7.1 above.

7.2.3. Environmental Analysis of the Proposed Project

The Proposed Project and each of the various alternatives have potentially significant adverse impacts that vary in severity and in the ability of mitigation measures to reduce their impacts. Section C of the Final SEIR describes and examines the environmental impacts associated with the Proposed Project. The detailed significant environmental impacts of the environmentally superior alternative and the other alternatives considered are presented in Section D of the Final SEIR. Tables D.5-1 and D.5-2 in the Final SEIR compare the major environmental issues of the alternatives with the Proposed Project. The mitigation measures for the Proposed Project are discussed in Section C of the Final SEIR. The Final SEIR includes a Mitigation Monitoring, Compliance, and Reporting Program for the mitigation measures proposed for the project in Section K. The roles and responsibilities of governmental agencies in implementing and enforcing the adopted mitigation measures are discussed therein.

As described in Sections 7.2.2.1-7.2.2.4, several alternative projects were considered in the SEIR, one of which was found to be environmentally superior to the project proposed by SCWC: connection to the City of Huntington Beach water system. Because the Commission is bound by CEQA to select the environmentally superior feasible alternative, and because the Commission believes that the case for "infeasibility" has not yet been made by the Applicant as described in Section 7.1 above, we reject the Proposed Project without prejudice and certify the results of our environmental review pursuant to CEQA.

7.2.4. Adequacy and Certification of the Final SEIR

7.2.4.1. Adequacy of the Final SEIR

The Final SEIR must contain specific information according to CEQA Guidelines, Sections 15122 through 15131. The various elements of the Final SEIR satisfy these CEQA requirements. The Final SEIR consists of the Draft SEIR with minor revisions in response to comments and other information received. Section J of the Final SEIR contains the comments received on the Draft SEIR along with responses to these comments. (Guidelines, Section 15132.)

7.2.4.2. Certification of the Final EIR

The Commission must conclude that the Final SEIR is in compliance with CEQA before finally approving the applications. The basic purpose is to insure that the environmental document is a comprehensive, accurate, and unbiased tool to be used by the lead agency and other decisionmakers in addressing the merits of the project. The document should embody "an interdisciplinary approach that will ensure the integrated use of the natural and social sciences and the consideration of qualitative as well as quantitative factors." (CEQA Guidelines, Section 15142.) It must be prepared in a clear format and in plain language. (CEQA Guidelines Sections 15006 (q) and (r); 15120; 15140.) It must be analytical rather than encyclopedic, and emphasize alternatives over unnecessary description of the project. (CEQA Guidelines, Sections 15006, 15141; Pub. Res. Code Section 21003(c).) Most importantly, it must be "organized and written on such a manner that [it] will be meaningful and useful to decisionmakers and the public." (Pub. Res. Code Section 21003(b).)

We believe that the Final SEIR meets these tests. It is a comprehensive, detailed, and complete document that clearly discusses the advantages and disadvantages of the various alternatives compared to the Proposed Project. We find that the Final SEIR is the competent and comprehensive informational tool that CEQA requires it to be. The quality of the information therein is such that we are confident of its accuracy.

Although we deny the application, we do not do so on the basis of the adequacy of the EIR. The EIR has been completed in compliance with CEQA. The EIR reflects the Commission's independent judgment and analysis on the issues addressed by the EIR, and the Commission has reviewed and considered the information on the EIR before issuing this decision on the project. We will certify the EIR.

Comments on the Proposed Decision

Findings of Fact

1. SCWC is a Class A California public utility within the jurisdiction of the Commission, and provides water and sewer services to communities and governmental entities in the State.

2. Hearthside is the Developer for Signal Landmark, owner of the Mesa segment of the Bolsa Chica which is located in the unincorporated area of Orange County and subject to County and Coastal Commission jurisdiction as to land uses.

3. Hearthside holds entitlements to develop a 1,235 unit planned residential community on the approximate 220 acres of the Mesa pursuant to a 1995 County Bolsa Chica Local Coastal Plan approved by the Coastal Commission in 1996.

4. While the County provides various other services in the unincorporated areas, it does not provide water or sewer services, and Developers in these areas must turn to adjoining cities, districts or public utilities for these services.

5. Local interest groups want the entire Bolsa Chica for open space.

6. State law provides that a city cannot annex unincorporated areas without the consent of the landowners of the area it would annex.

7. Fearing that by annexation before its project is completed, it would suffer loss or diminishment of its County entitlements and administrative delays through City use of its police and permitting powers, thereby further endangering the owner's considerable financial investment in the project, Hearthside will participate and accept annexation only after the project is built.

8. Hearthside contracted with SCWC for the latter to incorporate the Mesa development project into SCWC's West Orange County District; construct a 7.5 mile, 18-inch interconnecting water transmission pipeline to the Mesa project, and provide sewer services to the Mesa project.

9. The Mesa project is not contiguous to SCWC's local district. SCWC filed the present applications, seeking CPCN authorization for the utility to perform its contracts with the Developer.

10. The City, the Bolsa Chica Land Trust and the RRB filed timely protests to the SCWC applications.

11. Except for the disruptions that would attend construction of an SCWC length of pipeline which could substantially be avoided by City source, there is little difference between the two as service providers. Both have adequate water available; both would be competent to operate the relatively basic and simple on-site water and sewer systems contemplated; and the rates of both over a term are generally comparable when the City's lack of a monthly sewer charge is offset by its considerable sewer connection fee.

12. The application is protested by the City of Huntington Beach, which alleges that it is the logical and natural service provider for the Mesa project.

13. The City has adequate and reliable water sources as well as the technical competence and operational experience to provide water and sewer services to the Mesa project.

14. Since the City does not charge for sewer service, its total rate package charge would be about 6/7^th of the SCWC's average proposed rates for the combined services.

15. The Developer does not deny that the City is both "ready and able" to provide both water and sewer services to its Mesa project.

16. Although the Developer and the City's staff developed a mutually acceptable pre-annexation proposal, the City Council in June 1999, rejected the proposal and ordered additional negotiations.

17. The city council's actions reflect an ongoing negotiation process over an extremely controversial development.

18. It is unreasonable to expect that in complex negotiations on a controversial issue that a party will promise unequivocally to enter into a contract with another party.

19. The Developer has not presented evidence that satisfies the Commission that the City is, in fact, stalling.

20. It is premature to conclude that the City of Huntington Beach is not "ready, willing and able" to provide water and sewer services to the Developer.

21. The Commission is the lead agency under CEQA with respect to the environmental review of the Project and preparation of the Final SEIR.

22. The Commission has conducted an environmental review of the Project pursuant to CEQA.

23. The Final SEIR consists of the Draft SEIR, revised to incorporate comments received by the Commission from the proponent, agencies, and the public, and the responses to comments.

24. The Final SEIR has been completed in accordance with CEQA Guidelines, Sections 15120 through 15132.

25. The Commission has reviewed and considered the information in the Final SEIR before considering the Project.

26. The Final SEIR identifies connection to the City of Huntington Beach as the environmentally superior alternative to the Proposed Project.

Conclusions of Law

1. In order for the Commission to grant a CPCN, it must be reasonably assured that there is a public need for the services or facility; that the applicant possesses the resources, technical competence, and operational experience to provide the service and to construct the facility required; and that granting a CPCN would be in the public interest.

2. Where a claim is made that better alternative service is available, it is incumbent upon an applicant to rebut that claim or otherwise respond to it.

3. Issues of land use and development are intrinsically local issues.

4. Questions of public utility infrastructure fall under the Commission's jurisdiction.

5. Views expressed by individual council members are neither binding nor reflective of the whole city council or of the City.

6. The Commission cannot evaluate whether it would be in the public interest for this Commission to intervene in the ongoing negotiations between the Developer and the City.

7. SCWC's request, if it meets our articulated criteria, could be granted within the jurisdictional authority provided to us by the state legislature.

8. We do not find that this case presents us with sufficient grounds to interfere with the legitimate governmental processes of Huntington Beach.

9. We not only have an interest in promoting the environmentally superior option identified in our environmental review; indeed, we are precluded from approving a project for which an environmentally superior alternative is feasible.

10. The processing of the SEIR in this proceeding complies with the requirements of CEQA.

11. The contents of the Final SEIR comply with the requirements of CEQA and represent the Commission's independent judgement.

12. The Final SEIR should be certified in accordance with CEQA.

ORDER

IT IS ORDERED that:

1. The application is denied without prejudice, so that Southern California Water Company may file a new application for the authority sought, as long as the new application addresses each of the criteria set forth in the body of this decision. Although the Final Supplemental EIR is certified by this decision, any new application shall provide updated environmental information if conditions evaluated in the Final Supplemental EIR change.

2. The Final Supplemental Environmental Impact Report (SEIR) is certified as the EIR for the Project which is the subject of the applications and is certified for use by responsible agencies in considering subsequent approvals for the Project, or for portions thereof.

3. The Executive Director shall file a Notice of Determination for the Project as required by the California Environmental Quality Act and the regulations promulgated pursuant thereto.

4. Application (A.) 98-11-003 and A.98-11-015 are closed.

This order is effective today.

Dated , at San Francisco, California.

APPENDIX A

The Final Supplemental Environmental Review is available for public inspection at any of the following locations:

Huntington Beach Library

7111 Talbert Avenue

Huntington Beach, CA 92648

Westminster Library

8180 13th Street

Westminster, CA 92683

California Public Utilities Commission

Central Files

505 Van Ness Avenue

San Francisco, CA 94102

General Information: (415) 703-2782

California Pubic Utilities Commission (Los Angeles Office)

320 West 4th Street - Suite 500

Los Angeles, CA 90013

General Information: (213) 576-7000

An electronic version of the review is available online at the Commission's Website ( http://www.cpuc.ca.gov/Environment/info/aspen/bolsachica/bolsa.htm)

APPENDIX B

SOUTHERN CALIFORNIA WATER COMPANY

GENERAL METERED TO RESIDENTS' SEWER

APPLICABILITY

Applicable to all Planned Community sewer collection service.

TERRITORY

The Planned Community, Bolsa Chica Mesa, Orange County, California.

RATES

Per Month

For all water used

Per 100 cubic feet $0.267

Minimum charge $6.00

SPECIAL CONDITIONS:

All bills are subject to the Public Utilities Commission Reimbursement Fee.

(END OF APPENDIX B)