In an opinion originally filed on September 8, and subsequently modified and certified for partial publication on October 4, 2023, the Sixth District Court of Appeal reversed the trial court’s judgment granting a writ setting aside Monterey County’s issuance of a permit to investor-owned public utility/water supplier California-American Water Company (“Cal-Am”) to construct a desalination plant and related facilities needed as one component of Cal-Am’s Water Supply Project. Marina Coast Water District v. County of Monterey (California-American Water Company, Real Party in Interest) (2023) ___ Cal.App.5th ___. On Cal-Am’s appeal, the Court held the trial court erred in finding the County’s statement of overriding considerations prejudicially inadequate for not addressing the uncertainty created by the City of Marina’s (“City”) denial of a coastal development permit (“CDP”) – later granted with conditions by the Coastal Commission on appeal – for the drilling of intake wells in coastal zone aquifers to supply the plant. On project opponent Marina Coast Water District’s (“MCWD”) cross-appeal, the Court held that County’s decision not to require a subsequent EIR and its statement of overriding considerations were both supported by substantial evidence and (in an unpublished portion of its opinion not further discussed here) that County’s approval did not violate its own general plan.

Cal-Am’s Multi-Component, Cross-Jurisdictional Water Supply Project

Cal-Am is a CPUC-regulated investor-owned water utility that supplies water to much of the Monterey Peninsula, a semi-arid area prone to frequent drought conditions that is heavily reliant on historically over drafted groundwater aquifers for its water supply. Under compulsion of State Water Resources Control Board (Water Board) orders to cease and remediate its decades-long overuse of other water sources (including the Carmel River system and Seaside Basin), ultimately by the end of 2021, Cal-Am began pursuing its Water Supply Project in 2012. As proposed in CEQA lead agency CPUC’s 2018 FEIR, the Water Supply Project would include: (1) 10 subsurface slant wells to intake brackish water primarily comprised of seawater at the western edge of the Salinas Basin, requiring a CDP initially within the City’s permitting jurisdiction; and (2) a 9.6-million gallons per day (mgd) desalination plant and related facilities on unincorporated County lands. Necessary facilities for Cal-Am’s Water Supply Project included a water conveyance pipeline connecting the wells to the desalination plant, treated water storage tanks, and brine storage and conveyance facilities.

As a distinct “back up” effort to create needed new reliable water supply sources for the Monterey Peninsula, Monterey One Water, in partnership with the Monterey Peninsula Water Management District, was also pursuing a recycled water project known as “Pure Water Monterey.” The Pure Water Monterey project contemplated recharging the Seaside Basin with 4 mgd of purified recycled water, which Cal-Am could purchase and extract from its existing wells. But even if Pure Water Monterey came to fruition, it alone would not nearly satisfy Cal-Am’s demand, as analyzed under the CPUC’s EIR, so as to eliminate the need for the Water Supply Project.

The Multiple Agency Proceedings and Litigations Related to the Water Supply Project

The Water Supply Project was opposed by MCWD and the City of Marina. They attacked County’s permit approval on the grounds that, inter alia, the CPUC’s EIR inadequately analyzed effects on seawater intrusion into relevant aquifers and alternatives to the project, such that a subsequent or supplemental EIR was required; they also argued that County’s statement of overriding considerations was unsupported by substantial evidence and improperly based on water supply benefits that were uncertain to occur in light of the City’s denial of the CDP needed for the project’s wells.

There were obviously a lot of “moving parts” associated with the Water Supply Project’s numerous components subject to approvals by various agencies with different jurisdictions, and the timing of certain key events is important to keep in mind to understand the parties’ arguments: at the time the CPUC certified the Water Supply Project EIR, Cal-Am was seeking, but the City had not yet granted or denied, the CDP; at the time County approved the desalination plant permit and when the trial court granted the writ, the City had denied the CDP, but Cal-Am had appealed that denial to the Coastal Commission, which had not yet acted on the appeal; and by the time the Court of Appeal decided the appeals of the trial court’s judgment granting the writ, the California Supreme Court had denied writ review of the CPUC’s decisions approving the Water Supply Project and certifying the EIR, and the Coastal Commission had conditionally granted the CDP for the slant wells after its de novo review (an approval that was then challenged by MCWD and others in a new Superior Court Writ of mandate action).

The Court of Appeal’s Opinion

The Court of Appeal rejected MCWD’s contentions that the County violated CEQA by relying on the CPUC’s EIR and not undertaking subsequent review, and by determining that overriding water-related benefits supported the Water Supply Project.

County’s Decision Not to Require A Subsequent EIR Was Supported By Substantial Evidence

MCWD argued that five instances of new issues or evidence arising after the CPUCs’ EIR certification triggered County’s obligation to conduct subsequent environmental review under CEQA for its consideration of the desalination plant permit component of the Water Supply Project: (1) City’s denial of the CDP for the slant well permits; (2) County’s adoption of a permit condition (Condition 22) which addressed options in the event contingencies affected the plant’s ability to operate as part of the Water Supply Project; (3) new information and regulatory actions regarding the relevant aquifers’ groundwater gradient; (4) new developments regarding the status of Pure Water Monterey; and (5) new information regarding unused aquifer storage capacity.

After reciting the legal principles and substantial evidence standard of review governing CEQA subsequent review following certification of an EIR for a project, the Court examined in detail and rejected each of MCWD’s arguments.

First, it rejected the argument that City’s denial of the CDP for the wells was a substantial change with respect to the circumstances under which the desalination plant was being undertaken. MCWD argued the denial meant Cal-Am had no water supply to desalinate, such that the plant would need a different water supply source, and that supplemental review was required through a new EIR analyzing alternate water sources and the impacts they would cause, or else County would be required to condition its approval on Cal-Am obtaining the necessary CDP. The Court of Appeal viewed the matter quite differently, holding that “[t]he City’s denial of permitting, as a practical matter, changed neither the plan for the Water Supply Project nor the circumstances under which the project was being undertaken.” The City’s denial was not the final word on the matter of CDP issuance and, just as was the case when the CPUC issued its approval, “the slant wells continued to require approval by a responsible agency other than the County” – i.e., the Coastal Commission, which retains jurisdiction on appeal to review de novo local agency CDP determinations made under an LCP. Thus, per the Court, “neither the fact of the City’s denial nor any factual findings the City made in reaching its decision materially altered the uncertainty as to whether the wells would ultimately be approved” and “when the County rendered its decision, it was premature to say that the desalination plant would need a different water source.”

Second, the Court rejected MCWD’s argument regarding County’s Condition 22, which addressed the possibility that desalination plant operation might “become permanently infeasible due to a lack of water supply source” or that construction might cease for at least 5 years due to factors beyond Cal-Am’s control (such as lengthy administrative proceedings or litigation affecting the Water Supply Project). Condition 22 provided that if such circumstances occurred, Cal-Am would apply to County to extend the idle period, obtain a new use permit for adaptive re-use of the site, restore the site to the extent feasible, and/or implement a feasible alternative for site use and/or restoration.

MCWD contended that Condition 22 required future action if triggered, and that County was required to analyze the environmental impacts of such action before granting the approval imposing it. The Court of Appeal disagreed, holding that Condition 22 did “not compel future development or preclude Cal-Am from doing nothing with the site should the Water Supply Project stall or fail. Instead, if triggered, it provides a mechanism by which the County is empowered to compel further action, including restoration of the site to status quo ante, or to permit the site to remain idle for some further period.”

Nor was further environmental review of reasonably foreseeable future expansion required under the holding of Laurel Heights Improvement Assn. v. Regents of the University of California (1988) 47 Cal.3d 376, 396. Laurel Heights held such analysis is required if “future expansion or other action” (1) “is a reasonably foreseeable consequence of the initial project,” and (2) it “will be significant in that it will likely change the scope or nature of the initial project or its environmental effects.” The Court of Appeal found Laurel Heights inapplicable because, unlike the facts in that case, where the Regents intended to ultimately occupy and use an additional 254,000 square feet of an existing building when it became available, “the project proponents intend for the Water Supply Project to be completed, such that Condition 22 is never triggered. … [T]his is not a case where the project proponent intends to pursue a larger project – that is, a project that requires Condition 22 to be completed – but failed to analyze the environmental impacts of that piece of the project.”

The Court noted the California Supreme Court has declined to extend Laurel Heights to situations where opponents claim not that the project will lead to additional development, but that it cannot be carried out as approved and will require additional work that may have significant effects. (Citing Berkeley Hillside Preservation v. City of Berkeley (2015) 60 Cal.4th 1086, 1119-1120.) Further, even if Laurel Heights’ two-step inquiry applied, the second prong would not be met because Condition 22 does not call for “action [that] will be significant in that it will likely change the scope or nature of the initial project or its environmental effects.” (Citing Laurel Heights, 47 Cal.3d at 396 (cleaned up).) The Court observed that “guessing at what may happen if Condition 22 is triggered is inherently speculative, [that] the County may just as likely choose to keep the plant idle in the hope that a water supply will one day be secured[,]” and that, given the EIR’s consideration and rejection of several alternative water sources, “[i]t is by no means a foregone conclusion, as MCWD would have it, that [if] Condition 22 is triggered Cal-Am will have to repurpose the desalination plant or tear it down.”

Third, substantial evidence supported the County’s determination that post-EIR certification data and related exert opinions concerning the relevant aquifer’s ground water gradient and amounts of fresh water in the intake walls’ capture zones, and the adoption of a Groundwater Sustainability Plan for the Salinas Basin, did not constitute new information triggering the need to prepare a new EIR. While County’s experts and those pointed to by MCWD disagreed on such technical and factual issues, the Court noted that its “deferential review [under the applicable substantial evidence standard]… turns not on the existence of substantial evidence in support of MCWD’s concerns but on the existence of substantial evidence in support of the County’s findings.” The County was entitled to credit the findings of its own experts who opined that the historical and continuing trend – despite recent beyond-normal rainfall events – was a landward or inland groundwater gradient with increasing seawater intrusion into aquifers and consequently less fresh water intake in the planned wells’ capture zones, producing a net benefit rather than a detriment to the groundwater basin of concern to MCWD and the City. While MCWD disagreed with County’s experts and their conclusions, it did not establish that its information was new or of substantial importance relative to the information before the CPUC.

Fourth, no new information or changed circumstances showed County erred in relying on the CPUC’s estimated 14,000 acre-feet per year (afy) water demand assessment for the Water Supply Project or in determining Pure Water Monterey expansion was not a legally feasible alternative when County rendered its decision. In short, the additional exploratory steps made between the CPUC and County decisions toward Pure Water Monterey, which was always described as a “back up” to Cal-Am’s Water Supply Project, did not preclude County’s determination that it wasn’t a feasible alternative to the desalination plant; nor would it ever supply enough water to Cal-Am to obviate the desalination plant component of the Water Supply Project, thus underscoring that it could not meet project objectives and that circumstances had not substantially changed so as to require major revisions in the EIR. (Pub. Resources Code, § 21166.)

Finally, the Court rejected MCWD’s argument that the December 2018 Seaside Basin Management Plan, which revealed the basin’s loss of 43,500 acre-feet of groundwater storage over the last 30 years, constituted new information showing an alternative water supply not considered in the EIR. MCWD’s argument was speculative because it presumed excess supply from Pure Water Monterey would be available for banking in the unused storage capacity. While the “quantification of available storage capacity may technically be novel, the fact of excess capacity is not… [and] merely confirms the historical inadequacy of existing supply; it adds nothing to the County’s evaluation of the desalination plant as a new source of potable water.”

County’s Statement of Overriding Considerations Was Adequate

County’s statement of overriding considerations identified six benefits of the proposed project. Five were water-related and the sixth cited local and regional economic benefits from construction of the desal plant. The water-related benefits included: (1) Cal-Am’s cessation of illegal diversions and compliance with Water Board orders; (2) elimination of Cal-Am’s need to extract water from the Seaside Basin to meet demand; (3) improvement of long-term water supply, reliability, and infrastructure in the Monterey Peninsula; (4) reduced Carmel River pumping and associated environmental benefits; and (5) fulfillment of Cal-Am’s remedial obligations to make water available to other suppliers that rely on the Salinas Basin.

MCWD argued the County could not rely on the water-related benefits in its statement of overriding considerations because they depended on access to source water that may never be secured by Cal-Am, particularly in light of the City’s denial of the CDP for the slant wells, which MCWD argued limited the County to considering the benefits of the Water Supply Project without a water source. While the Court of Appeal rejected the County’s and Cal-Am’s contentions that the Coastal Commission’s subsequent conditional CDP approval mooted this aspect of the appeal, it rejected MCWD’s challenges to the statement of overriding considerations on their merits.

First, as a matter of statutory interpretation, the Court held that the “benefits of the project” that a public agency may consider as outweighing its significant environmental effects under CEQA (see, Pub. Resources Code, § 21081; CEQA Guidelines, §§ 15043, 15093, 15096 (b)) include the effects of the entire “project” for which the EIR was certified, consistent with the CEQA Guidelines’ broad definition of “project” as “the whole of an action” – “the activity which is being approved and which may be subject to several discretionary approvals by governmental agencies” – not “each separate government approval.” (Guidelines, § 15378(a), (c).) In other words, “project” is used in Public Resources Code section 21081 in the same broad sense as the Guidelines define it, and thus “the benefits that a public agency may consider in deciding whether to approve a part of a larger project as a responsible agency include the benefits of the project as a whole.” Per the Court: “A contrary interpretation would lead to the absurd result that multijurisdictional projects such as this one – where the constituent parts must be built in separate jurisdictions to secure the intended benefit – will be stymied by the multiplicity of responsible agencies, each one prevented from acting until the others had. Mutually beneficial projects would be made impossible by the mere fact that it crossed jurisdictional borders.” Accordingly, the Court held “that the County was permitted to consider the water-related benefits that would be generated by the project as a whole, even though the County was responsible for only a portion of the project that would not, by itself, produce water.” Based on this legal conclusion, MCWD’s substantial evidence challenge to the County’s statement of overriding considerations failed because it did not contend the record lacked substantial evidence that the Water Supply Project as a whole would produce the water-related benefits identified.

The Court also rejected MCWD’s argument that the statement was misleading and legally deficient for failing to adequately discuss the need for – and uncertainty regarding Cal-Am’s efforts to secure – the proposed and CPUC-approved water source needed to achieve the water-related benefits. Even assuming the statement was, in a good faith effort to inform the public, required to account for the uncertainty and the County Board’s reason for approval in spite of it, its failure to provide such a discussion was not prejudicial error under CEQA’s applicable standards. (See, Pub. Resources Code, § 21005(a), (b); Neighbors for Smart Rail v. Exposition Metro Line Construction Authority (2013) 57 Cal.4th 439, 463; Banning Ranch Conservancy v. City of Newport Beach (2017) 57 Cal.5th 918, 942; Federation of Hillside & Canyons Assns. v. City of Los Angeles (2004) 126 Cal.App.4th 1180, 1207.) On the record in this case, the County’s Supervisors and the public were well aware of MCWD’s concerns and positions regarding the possible futility and environmental risks of building a desalination plant without a secure water source. The statement of overriding considerations’ omission of an express acknowledgment regarding the same did not dampen informed public participation in the process or preclude an informed decision by the Board, nor did it impact the public’s ability to hold the Board’s members accountable for their votes.

Conclusion and Implications

The published portion of the Court’s opinion applies many well-established CEQA principles governing subsequent review and the substantial evidence standard in the unique context of a CEQA writ action involving one component part – County’s desalination plant approval – of a much larger, controversial, multi-component, and multi-jurisdictional Water Supply Project that has spawned multiple litigations by its dedicated opponents. The opinion contains helpful analyses and guidance regarding how “uncertainty” regarding the future relevant permitting actions of other agencies should be treated in a public agency’s CEQA analysis. It also renders an important legal interpretation of the CEQA statute in holding that CEQA’s broad definition of “project” as the “whole of an action” equally governs the scope of project benefits a responsible agency may rely on in adopting a statement of overriding considerations – even though the project component within that agency’s area of approval authority could not alone achieve those benefits, and despite uncertainty that all the other project components needed to achieve them would be approved.

While the project’s opponents have mounted multiple litigation challenges, none have thus far succeeded, and the Court correctly rejected their “paralysis by analysis” CEQA attack on the County’s approval here. This type of CEQA litigation provides a good example of why it costs so much and takes so long to get much-needed projects approved in California, and underscores the need for further legislative CEQA reforms.