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

• Decision Date: 28 January 2009
• Docket Number: No. H032067.,H032067.
• Citation: 170 Cal.App.4th 956,88 Cal. Rptr. 3d 506
• Court: California Court of Appeals Court of Appeals
• Parties: GREAT OAKS WATER CO., Plaintiff and Appellant, v. SANTA CLARA VALLEY WATER DIST., Defendant and Respondent.

170 Cal.App.4th 956

88 Cal. Rptr. 3d 506

GREAT OAKS WATER CO., Plaintiff and Appellant, v. SANTA CLARA VALLEY WATER DIST., Defendant and Respondent.

No. H032067.

Court of Appeals of California, Sixth District.

January 28, 2009.

Silicon Valley Law Group and Jeffrey S. Lawson for Plaintiff and Appellant.

Duane Morris, Thomas M. Berliner, Colin L. Pearce; Debra Cauble and Emily Cote for Defendant and Respondent.

OPINION

DUFFY, J.

Great Oaks Water Company (Great Oaks) 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 (the District) use of a statutory ratesetting 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 2006-2007.¹ 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).)²

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.

STATEMENT OF THE CASE

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). (71A West's Ann. Wat.-Appen. (1999 ed. & 2009 supp.) § 60-1 et seq.) It operates as a special district with jurisdiction throughout Santa Clara County.³ 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." (71A West's Ann. Wat.-Appen. (1999 ed.) § 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, and future capital improvement and maintenance and operating requirements," financing methods, and the water charges by zone for agricultural water and nonagricultural water. (71A West's Ann. Wat.-Appen. (1999 ed.) § 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 . . . ."⁴ (71A West's Ann. Wat.-Appen. (1999 ed.) § 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 "noncontract 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 noncontract 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.⁵ 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...