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Great Oaks Water Co. v. Santa Clara Valley Water Dist.

January 28, 2009


Trial Court: Santa Clara County Superior Court No. CV067000 Trial Judge: Hon. Leslie C. Nichols.

The opinion of the court was delivered by: Duffy, J.


Great Oaks Water Company appeals from the trial court's judgment denying its petition for writ of mandate. Through its petition, Great Oaks challenged the Santa Clara Valley Water District's use of a statutory rate-setting exemption from the California Environmental Quality Act (CEQA) (Pub. Resources Code, § 21000 et seq.) as part of the District Board's 2006 adoption of a resolution that raised groundwater-charge rates within the District for fiscal year 2006-2007*fn1 The exemption, section 21080, subdivision (b)(8), removes from CEQA review a public agency's setting of rates, tolls, fares, and other charges that are, as relevant here, for the purposes of meeting operating expenses; purchasing or leasing supplies, equipment, or materials; meeting financial reserve needs and requirements; or obtaining funds for capital projects necessary to maintain service within existing service areas. The exemption requires the agency to incorporate written findings in the administrative record of any proceeding in which the exemption is claimed "setting forth with specificity the basis for the claim of exemption." (Ibid.) The exemption is not available for rate increases to fund capital projects for the "expansion of a system," which remain subject to CEQA. (Cal. Code Regs., tit. 14, § 15273, subd. (b).)*fn2

On appeal, Great Oaks reprises its contention that the District abused its discretion by failing to proceed in a manner required by law because it did not set forth with specificity the factual or evidentiary basis for its finding that its adoption of groundwater-rate increases fell within the statutory rate exemption, instead, the argument goes, only parroting the exemption language without analysis or citation to factual support. Great Oaks further contends that the District's finding of the exemption's applicability is not supported by substantial evidence in the administrative record, which shows, it urges, that the increased rates were a part of the District's groundwater management policy, a purpose not covered by the exemption, and were also partly for the purpose of funding expansion of the District's system, an aim that requires CEQA review. We reject these contentions and affirm the judgment.


I. Factual Background

The District is a public agency that was created and is governed by the Santa Clara Valley Water District Act (the Act). (Wat. Code App., § 60-1 et seq.). It operates as a special district with jurisdiction throughout Santa Clara County.*fn3 The District's mission is to promote a "healthy, safe, and enhanced quality of living in Santa Clara County through watershed stewardship and comprehensive management of water resources in a practical, cost-effective, and environmentally sensitive manner." According to the respondent's brief, the District functions as a "wholesale water supplier," providing "water to various retail water suppliers within Santa Clara County" through its management of the "groundwater basin by recharging the local aquifer[] and providing treated surface water in lieu of pumping." The District's major sources of revenue are from "the imposition of charges on groundwater and from contracts for the sale of treated surface water produced by its three treatment plants." Nearly half of the County's water supply comes from groundwater basins.

Great Oaks is a private water utility company that provides groundwater to customers from its wells in Santa Clara County. It distributes for sale water to "approximately 20,000 residential, commercial and industrial service connections or approximately 100,000 individual customers in north and south Santa Clara County."

Under powers derived from the Act, the District is authorized to "levy and collect a ground water charge for the production of water from the ground water supplies within a zone or zones of the district which will benefit from the recharge of underground water supplies or the distribution of imported water in such zone or zones." (Wat. Code App., § 60-26.) The groundwater charge is a "basic user charge" and it "is associated with the benefit of groundwater supplies. The groundwater charge is a tax applied to water extracted from the groundwater basin." The groundwater charges are "in furtherance of district activities in the protection and augmentation of the water supplies for users within a zone or zones of the district which are necessary for the public health, welfare and safety." (Id., § 60-26.3.) The charges are "authorized to be levied upon the production of ground water from all water-producing facilities, whether public or private, within said zone or zones of the district for the benefit of all who rely directly or indirectly upon the ground water supplies of such zone or zones and water imported into such zone or zones." (Ibid.) Great Oaks must pay the charges that the District imposes for extraction of groundwater from its wells.

In accordance with the Act, the District annually prepares a written report on its activities to protect and augment its water supplies. The report is to provide information on the "present and future water requirements of Santa Clara County [], the water supply available to the District, future capital improvement and maintenance and operating requirements, financing methods, and the water charges by zone for agricultural water and nonagricultural water." (Wat. Code App., § 60-26.5.) The report is to include, among other things, "a recommendation as to whether or not a groundwater charge should be levied in any zone or zones of the district during the ensuing water year and, if any groundwater charge is recommended, a proposal of a rate or rates per acre-foot for agricultural water and a rate or rates per acre-foot for all water other than agricultural water for the zone or zones . . . ."*fn4 (Id., § 60-26.5, subd. (a).) The submission of the annual report initiates a mandatory public hearing process, which provides an opportunity for interested persons to appear and submit evidence concerning the subject of the report. (Id., § 60-26.6.)

On March 28, 2006, the District submitted its annual report for the 2006-2007 fiscal year entitled "Water Utility Enterprise Report, Preliminary, March 2006" to the clerk of the Board of Supervisors under section 60-26.6 of the Act. The report contained, among other things, the District staff's recommendations and analysis concerning proposed increases to groundwater-charge rates for the fiscal year. Staff recommended increases in municipal and industrial groundwater rates in the North County (Zone W-2) from $420 to $435 per acre-foot and in the South County (Zone W-5) from $215 to $230 per acre-foot. Staff further recommended increases in agricultural groundwater charges from $42 to $43.50 in the North County and from $21.50 to $23 in the South County.

These recommended increases represented the "Low Case" scenario of a range of potential rates, each rate correlating with a different level of service to be provided by the District. The low case maintained the prior year's projections and required continued deferral of many capital projects. The "High Case" reflected water rates "necessary to fund additional operations and capital investments that would be delayed indefinitely under the Low Case, plus a small increase in discretionary reserves." Other initiatives and studies that were in progress and that would result in future capital or operations projects not yet fully defined were omitted from the range of potential water rates. The recommended low case water rate increases were intended to "support the [District's] preliminary operating and capital budget" for the 2006-2007 fiscal year. The report did not include any reference to the rate increases being exempt from CEQA or any findings or recommendations in this regard.

In addition to the groundwater charge, the District may also and does impose a surcharge on treated water delivered under contracts with retail agencies. Under the contracts, the District has discretion to make available treated water in excess of the retailers' basic contract amounts. This excess is known as "non-contract treated water." The District acknowledges that the amount of the surcharge on treated water "affects the retailers' decisions on whether to pump groundwater or purchase treated water." For fiscal year 2006-2007, and as contained in the annual report, District staff recommended an increased surcharge on treated water under the retailer contracts from $90 to $100 per acre-foot. Staff further recommended increasing the surcharge on non-contract treated water from $50 to $60 per acre-foot. Increases in these surcharges were "intended to slightly reduce the incentive to take treated water given that the groundwater basins [were then] currently full."

The 2006-2007 recommended groundwater rate increases were initially placed on the District's April 11, 2006 Board of Directors' meeting agenda and continued to the May 2, 2006 meeting.*fn5 On that date, Great Oaks submitted a formal written objection to the groundwater rate increases and contended that the adoption of such rate increases was subject to CEQA and required assessment based on an environmental impact report. A representative of Great Oaks also appeared at the public hearing and reiterated the concerns raised in its written objection. These concerns were primarily directed to the assertion that the adoption of rates was being used to affect the status of groundwater levels by encouraging or discouraging pumping through rates, which, Great Oaks contended, resulted in environmental impact. The objections did not specifically include that the District was increasing rates for the purpose of system expansion, an action not exempt from CEQA review. (Guidelines, § 15273, subd. (b).)

The matter of the proposed groundwater-charge rate increases was continued again to the District's May 30, 2006 Board of Directors' meeting. Staff again recommended to the District's Board in its agenda memo that it adopt the groundwater rate increases, this time noting that the action was statutorily exempt from CEQA under Guidelines section 15273 in that "CEQA does not apply to establishment or modification of water rates which are for the purpose of 1) meeting operating expenses, including employee wage rates and benefits, 2) purchasing or leasing supplies, equipment or materials, 3) meeting financial reserve needs and requirements, 4) obtaining funds for capital projects necessary to maintain service within existing areas."

At the District's May 30, 2006 Board of Directors' meeting, the Board's Chief Operating Officer addressed Great Oaks's objections by noting that the "adoption of groundwater charges is not a project which is subject to CEQA" and that the "District sets rates based on the projects, programs and services that will be provided by the water utility during the rate year[,] not to discourage pumping or land subsidence nor to restrict underground storage or encourage purchases of surface treated water. In fact, treated water is more expensive than groundwater because of the district costs. Water utility operations funded by groundwater charges are carried out in a manner that is consistent with the District Act and that appropriately balances use of surface and groundwater supplies."

The matter was again continued to the District's Board of Directors' June 6, 2006 meeting with the same staff recommendations. At the meeting, the Board adopted a resolution increasing the groundwater-charge rates per the recommendations. The resolution referred to portions of the annual report in its findings, which included that the charges "are for the purpose of meeting operating expenses, purchasing or leasing supplies, equipment or materials, and meeting financial reserve needs; and obtaining funds for capital projects necessary to maintain service within existing service areas." The Board made the same finding in another resolution adopting recommended rate increases in the treated-water surcharge and another for surface water charges.*fn6 On the same date, the Board Chair reported in writing to the County Board of Supervisors on the Board's adoption of a budget for the fiscal year, which incorporated the rate increases. The report noted that the budget was based on several factors and assumptions, including the "[a]doption of 'low case' water rates, which fund some capital projects, critical maintenance and repair activities, but do not fund significant longer-range planning and infrastructure reliability projects." II. Procedural Background

Great Oaks challenged the District's adoption of the increased groundwater charge by filing this action in July 2006. It proceeded in the court below by amended petition for writ of mandate. The District answered the petition and the matter was heard in July 2007 under section 21168.5, which is CEQA's equivalent of proceedings in traditional (Code Civ. Proc., § 1085), as opposed to administrative, mandamus. (Cf. Code Civ. Proc., § 1094.5.)

On July 18, 2007, the court issued its written order denying the petition. As relevant here, the order determined that the District's resolution finding that the groundwater rate increases were " 'for the purpose of meeting operating expenses, purchasing or leasing supplies, equipment or materials, and meeting financial reserve needs; and obtaining funds for capital projects necessary to maintain service within existing service areas'[] sufficiently identifie[d] the specific basis for the claimed statutory exemption from CEQA review." The order further found that portions of the administrative record referenced in the District's Board resolution adopting the groundwater rate increases "contain relevant information that a reasonable mind might accept as sufficient to support the conclusion reached by the District; that ...

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