Archives: August 2022

California Supreme Court Holds that CEQA is Not Preempted by the Federal Power Act When Used to Make Decisions that are Outside Federal Jurisdiction or Compatible with the Federal Government’s Licensing Authority

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In County of Butte v. Department of Water Resources (2022) 13 Cal.5th 612, the California Supreme Court partially reversed an opinion from the Third District Court of Appeal that CEQA is completely preempted by the Federal Power Act (FPA), finding instead that CEQA is only partly preempted. Specifically, the Supreme Court held the FPA preempts an agency’s application of CEQA to the extent that it interferes with the federally established licensing process, but not when CEQA is used to make decisions concerning matters outside federal jurisdiction or those compatible with the federal government’s exclusive licensing authority.

Background

This consolidated litigation addresses a license renewal for the Oroville Facilities, a collection of public works projects, including hydroelectric facilities, in Butte County. As part of the renewal process, the California Department of Water Resources (DWR) engaged the alternative licensing process (ALP) authorized by the Federal Energy Regulatory Commission (FERC) prior to applying for relicensing. The ALP process allowed DWR to engage with stakeholders and develop a settlement agreement addressing their concerns, which effectively functions as a first draft of the FERC license. Following five years of negotiations, all but two of the stakeholders signed on to the settlement agreement, which DWR submitted to FERC. The Counties of Butte and Plumas did not sign the agreement. Following submission of the settlement agreement and licensing application by DWR, FERC prepared an Environmental Impact Statement (EIS) pursuant to NEPA, which considered several alternatives, including a “staff alternative” with modifications from the FERC staff. The EIS concluded the “staff alternative” was the preferred alternative.

Also following submittal of the relicensing application, DWR prepared an EIR pursuant to CEQA, analyzing implementation of the settlement agreement and continued operation of the Oroville Facilities as the “project” under CEQA and the same alternatives considered by FERC. DWR prepared the EIR to comply with additional permitting requirements under the Clean Water Act, for which the State Water Resources Control Board was the lead agency, and to help DWR determine whether to accept a license containing the original terms or the “staff alternative.”

Procedural History

Butte County and Plumas County separately filed petitions for writ of mandate, each challenging DWR’s compliance with CEQA in connection with the relicensing of Oroville Facilities. The cases were later consolidated.

The trial court found DWR’s EIR adequate, and the Counties appealed. On appeal, the Third District declined to reach the merits of the case, holding that the Counties’ CEQA claims were entirely preempted by the FPA, the purpose of which is to “facilitate the development of the nation’s hydropower resources” by centralizing regulatory authority over dams, reservoirs, and hydroelectric power plants in the federal government. The California Supreme Court granted the Counties’ petition for review but subsequently transferred the matter back to the Court of Appeal for reconsideration in light of Friends of the Eel River v. North Coast Railroad Authority (2017) 3 Cal.5th 677 (Friends), which held that the Interstate Commerce Commission Termination Act (ICCTA) does not necessarily preempt a State agency’ compliance with CEQA for a new railroad project, and that State, as a railroad operator, could voluntarily subject itself to compliance with CEQA without conflicting with the ICCTA. On remand, the Third District affirmed its earlier holding that CEQA was preempted by the FPA.

The California Supreme Court again granted the Counties’ petition for review to determine whether the FPA preempts CEQA when the state is acting on its own behalf and exercising discretion in relicensing a hydroelectric dam.

The California Supreme Court’s Decision on Preemption

A five justice majority of the California Supreme Court held that CEQA claims are preempted insofar as they conflict with the FPA’s licensing scheme, but not where CEQA is used to make decisions concerning matters outside federal jurisdiction or those compatible with the federal government’s exclusive licensing authority. Specifically, the court determined that any CEQA challenge to the ALP and the terms of the settlement agreement and license being considered by FERC were preempted by the FPA. However, because DWR’s compliance with CEQA was not limited to the FERC relicensing, the Counties’ broader challenges to the adequacy of DWR’s EIR were not preempted. The Court concluded that DWR could use the environmental conclusions reached through the CEQA process to aid its decision whether to accept FERC’s “staff alternative” or request modification to the terms of the license issued by FERC, which the FPA allows.

The Court discussed the federal and state law principles applicable to the case before it, including the presumption against preemption for a state-owned, or state-operated project. The FPA does not include an “express” preemption clause, so the issue was whether “conflict” or “field” preemption applied. The Court concluded that the distinction between the two types of preemption was not meaningful here, particularly considering the presumption that, absent a clear statement of Congressional intent that state regulation is preempted, federal law will not be interpreted as interfering with state-owned or state-operated projects. The Court also found federal caselaw applying “field” preemption to state regulatory schemes related to the FPA distinguishable because those cases addressed state attempts to regulate private actors seeking licensing under the FPA. The Court stated that CEQA, in the context of a state agency applying for a federal license, constitutes “self-governance” rather than traditional state regulation of private actors that has been held preempted in the past.

The Court acknowledged that state courts could not require a CEQA remedy inconsistent with federal law, including the FPA, but noted that the Counties had dropped their previous request to enjoin FERC’s licensing process pending DWR’s compliance with CEQA. The Court reasoned, however, that DWR’s compliance with both CEQA and the FPA was possible without creating any conflict. Specifically, DWR used CEQA analysis, in part, to determine whether it should accept a license from FERC containing the proposed terms or those modified by FERC staff. Similarly, the FPA allows applicants to amend their licensing applications or request that FERC modify the terms of the license. DWR could thus use the environmental conclusions reached in the CEQA process to make its own decisions and then make appropriate requests to FERC without intruding on FERC’s jurisdiction. Just as FERC was not required to issue a license wholly consistent with the terms of the settlement agreement, FERC retained jurisdiction to consider, but in no way be bound by, any subsequent requests from DWR. For these reason, environmental review at both levels of government did not overlap to invoke conflict preemption.

The Court also concluded that any preemption issues related to DWR’s adoption of specific mitigation measures demanded by the Counties were premature, as no court had ruled that any additional mitigation was required. The question before the Court was whether any CEQA challenge to DWR’s EIR was preempted by the FPA, the Court ruled such a challenge, in the abstract, was not inherently preempted. Additionally, the Court noted that it may be possible for DWR to adopt mitigation measures that are either outside of FERC’s jurisdiction or compatible with FERC’s licensing authority. Again, FERC could simply deny any request from DWR that conflicted with the FPA or FERC’s licensing authority.

In sum, where the Counties’ CEQA challenges seek to undermine a FERC license or associated terms, they are preempted by the federal government’s exclusive licensing authority under the FPA. However, Counties’ CEQA claims which implicate the sufficiency of an EIR to inform state self-governance and decision-making are not preempted.

The Concurring and Dissenting Opinion

Notably, the Chief Justice, and author of the Friends decision, filed a concurring and dissenting opinion. The Chief Justice agreed that any CEQA challenge to FERC’s licensing process including the settlement agreement was preempted but disagreed that broader CEQA challenges were not similarly preempted. The dissent reasoned that, in addition to “field” and “conflict” preemption, state law that constitutes an “obstacle” to the purposes and objectives of federal law would be similarly preempted. Here, given the history of federal caselaw concluding that state regulation of hydroelectric facilities is preempted by the FPA, and the express “savings clause” in the FPA reserving regulation of water rights to the states, the Chief Justice concluded that CEQA is an “obstacle” to the objectives and purpose of the FPA, particularly where the FPA licensing process included multiple equivalents of CEQA through the ALP and FERC’s compliance with NEPA and does not contemplate delays caused by state court review of CEQA compliance.

The dissent also concluded that CEQA was subject to “field” preemption because CEQA did not involve state regulation of water rights. The Chief Justice also noted that, while none of the federal FPA preemption cases addressed state-operated projects, the concept of “field” preemption (i.e., where Congress truly intends to “occupy the field”) is broad enough to preempt all state regulation, regardless of who the operator is.

Turning to Friends, the Chief Justice characterized her decision in that case as concluding that CEQA is exempt from preemption under the ICCTA as an example of “self-governance” by the State. Given the purpose of the ICCTA was to deregulate railroads, and thereby allow greater “self-governance” by railroad operators, the State’s voluntary compliance with CEQA was not preempted. In contrast, the dissent concluded that the FPA’s purpose and objectives is to vest exclusive regulation of hydroelectric facilities in FERC and to exclude all state regulation, with the exception of water rights. The Chief Justice concluded that, unlike the ICCTA, the FPA (including the federal caselaw interpreting the FPA) made it “unmistakably clear” that all state regulation of hydroelectricity facilities, except regulation of water rights, is preempted.

Lastly, the dissent concluded that finding CEQA only partially preempted was unworkable because a ruling that DWR’s CEQA compliance deficient would not impact FERC’s decision on whether to issue the license. Forcing DWR to perform additional analysis or consider additional mitigation or alternatives would be an exercise in generating paper, without any practical effect. As the Majority Opinion acknowledges, FERC has complete discretion to deny any request to alter the terms of the license, regardless of whether DWR believes such changes to be necessary to comply with CEQA. The dissent also found that requiring CEQA compliance in this case, where multiple environmental studies have been prepared for FERC’s consideration during the licensing process, would be redundant and have little practical benefit.

By Jordan Wright and Nathan George

FIRST DISTRICT HOLDS CITY’S CURTAILMENT OF WATER DELIVERY TO LEASED PROPERTIES WAS NOT A NEW PROJECT SUBJECT TO CEQA REVIEW

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In County of Mono v. City of Los Angeles (2022) 81 Cal.App.5th 657, the First District Court of Appeal held that the city’s 2018 water allocation to lessees was not a change in water use policy, but merely an exercise of the city’s discretion to curtail water deliveries for the purposes of increasing water deliveries to city residents, which was allowed subject to the terms of a lease agreement approved in 2010.

Background

In 2010, the city approved leases (2010 Leases) governing approximately 6,100 acres of city-owned land to petitioner and others. Relevant here, the 2010 Leases provide for the delivery of no more than 5 acre-feet of water per acre (AF/acre) per irrigation season subject to certain conditions. These conditions made clear that the city’s water use was paramount to rights under the 2010 Leases and that the actual amount of water delivered in any given year is to be determined solely by the city and may be reduced in dry years based on water availability. The 2010 Leases further provided that the supply of water could be discontinued at any time and that lessee has no claim against the city should the city exercise its right to withhold water for its own residents. The initial lease term ran from January 2009 to the end of 2013 after which the leases allow the lessees to holdover as tenant at will. Accordingly, the city and the lessees have proceeded under the 2010 Leases in holdover status since 2013.

In March 2018, the city sent copies of a new form of leases (Proposed Dry Leases), which provided that the city would no longer provide irrigation water to the lessee, but rather from time to time the city may spread water on the leased properties. The Proposed Dry Leases included similar provisions reserving the city’s rights to discontinue water delivery. The city issued a Notice of Preparation (NOP) that it would prepare an environmental impact report for the Proposed Dry Leases in August 2018.

In May 2018 correspondence between the city and petitioner, the city indicated that it was evaluating the impacts of reducing water on the leased ranch land, but that based on the snowpack and anticipated runoff it determined that the city could provide lessees 0.71 AF/acre of water, which was consistent with what it had provided two years earlier when the runoff was 82 percent of normal.

Petitioner challenged the city’s decision to curtail water deliveries in 2018 alleging it violated CEQA in that it committed to the Proposed Dry Leases without environmental review.

Court of Appeal’s Decision

The appellate court initially discussed the propriety of considering a declaration filed by the city which asserted that in 2019 and 2020 the city had delivered 6.6 AF/acre and 3 AF/acre of water, respectively. The trial court denied the city’s request to augment the record with the declaration because it was untimely (filed after the court had issued its tentative order granting the writ petition) yet the trial court relied on the 2019 and 2020 water allocations for purposes of setting the historical baseline and fashioning the remedy. The appellate court found that while the declaration was admissible extra-record evidence under Western States Petroleum Assn. v. Super. Ct. (29915) 9 Cal.4th 559, 576 because the 2018 water allocation is an informal or ministerial administrative action, it agreed with the trial court that the declaration was untimely. Nevertheless, the appellate court held that the trial court’s reliance on the contents of the declaration for purposes of the scope of the remedy was inappropriate given that the trial court had not considered the declaration for purposes of the merits.  Accordingly, the appellate court held that it would consider the declaration.

Next the court considered whether the 2018 water allocation was a new reduced water project or part of either the 2010 leases or the Proposed Dry Leases. In doing so, the court noted that the definition of a CEQA “project” involves three distinct components: “agency involvement, physical change to the environment, and whole of an action including multiple discretionary approvals.” Based on the terms of the 2010 Leases, the history of water allocations under them, and the city’s post-2018 water allocations set forth in the declaration, the court found that the 2018 water allocation was merely a “string of water allocations that the 2010 Leases” allowed the city to make. It was therefore not a new project subject to CEQA.

The court rejected petitioner’s contention that the terms of the 2010 Leases did not allow it to curtail water deliveries. Rather, based on the discussion of water supplies in the 2010 Leases, which expressly provided that lessee understood and acknowledged that any water supplied to leased land was “subject to the paramount rights” of the city and that the city could discontinue water deliveries in whole or in part at any time, the court held that the 2010 Leases reserve the city’s right to curtail water deliveries.

Petitioner argued that the court’s interpretation would allow the city to end all water deliveries under the 2010 Leases. However, the city agreed that eliminating water deliveries would require environmental review. Based on this concession, the court of appeal concluded that the 2010 Leases reserved the city’s rights to reduce water allocations subject to changing water availability so long as such reductions did not convert the 2010 Leases into dry leases.

The court further rejected petitioner’s reliance on Communities for a Better Environment v. South Coast Air Quality Management Dist. (2010) 48 Cal.4th 310. While that case establishes that the city would need to consider the actual amounts of irrigation water provided in the past, rather than a hypothetical right to eliminate water deliveries, it further establishes that doing so does not prevent the city from exercising its right under the 2010 Leases to curtail or reduce water deliveries.

The court also found that the city’s past practices did not support petitioner’s claim that the 2018 allocation was an implementation of a new low- or zero-water delivery policy. While petitioner claimed that the city historically provided up to 5 AF/acre of water reduced proportionally based on deviations in snowpack and anticipated runoff, the court found that the actual water deliveries under the 2010 Leases did not have a linear relationship with runoff. In considering the declaration previously excluded by the trial court as evidence, the court also found that the higher allocations in 2019 and 2020 demonstrate that the 2018 water allocation was an implementation of the 2010 Leases, not a new project.

Finally, the court held that without some evidence beyond the simply the timing of correspondence between the city and petitioner and the city’s issuance of an NOP for the Proposed Dry Leases, it could not find that the NOP meant that the city’s reliance on the 2010 Leases for the 2018 allocation was a pretext for implementing that project.

Because the court found that the 2018 water allocation was within the scope of the 2010 Leases, it held that petitioner’s lawsuit effectively challenged the 2018 implementation of a project approved in 2010 and was therefore barred by CEQA’s statute of limitations.

By Christina L. Berglund