Even though the renewal contracts have expired, and thus the case was moot, the Court of Appeal nevertheless resolved the case, finding the renewal contracts both statutorily and categorically exempt from CEQA. In North Coast Rivers Alliance v. Westlands Water District, Case No. F067383 (July 3, 2014), the Fifth District Court of Appeal upheld the Westlands Water District’s interim renewal contracts with the United States Bureau of Reclamation, which continued the existing terms for water delivery from the Central Valley Project (CVP.) The court upheld the District’s findings that the interim contracts fell under the statutory exemption for ongoing pre-CEQA projects as well as the categorical exemption for the continued operation of existing facilities.

Westlands Water District and its related distribution districts serve more than 600,000 acres of farmland in San Joaquin Valley, and have a right to receive over one million acre-feet of water per year from the CVP, due to water service contracts that have been in place with the Bureau of Reclamation since the 1960s. In 2012, the Bureau and the water districts entered into two-year contracts to renew the districts’ contractual rights to receive CVP water, during which time the Bureau was set to complete the environmental review required for 25-year renewal contracts.

The water districts found that the renewals were statutorily and categorically exempt from CEQA because they involved ongoing receipt and delivery of water on identical terms as the prior water service contracts, with no expansion of service and no new facilities, and any changes related solely to minor administrative matters.

The court first rejected the water districts’ assertion that the renewal contracts were statutorily exempt under the statutory exemption for rate-setting activities under Public Resources Code section 21080, subdivision (b)(8). The court found no evidence that the renewal contracts involved any rate-setting activity.

But the court did uphold the water districts’ conclusion that the renewal contracts were statutorily exempt as ongoing projects approved before CEQA was enacted. (See CEQA Guidelines, § 15261 subd. (a).) The court found that the original contracts and construction of facilities predated CEQA’s enactment in November of 1970. Any assignment agreements and renewals entered into after CEQA’s enactment, the court found, did not result in an expansion or material modification of the underlying activity that was initially approved; rather, the agreements merely facilitated the districts’ ability to receive a stable and adequate water supply within the scope of the original project.

The court found that the renewal projects also came within the categorical exemption for operation of existing facilities. (CEQA Guidelines, § 15301.) Categorical exemptions, unlike statutory exemptions, are subject to exceptions. While the courts of appeal disagree on whether a fair argument standard or substantial evidence standard applies to exceptions, the court here found the disagreement irrelevant because it would reach the same conclusion under either standard.

Petitioners first argued that “unusual circumstances” exception applied. The court, however, agreed with the water districts that the project did not involve unusual circumstances because it was not uncommon for utility-type public agencies to have large-scale facilities operating at a large volume and to impact the environment to some extent simply by existing and functioning as utilities. The court noted that even if the large scale of the water diversion at issue constituted unusual circumstances, as petitioners argued, petitioners would still have to establish that there was a reasonable possibility the activity will have a significant effect on the environment due to such circumstances. Using the established levels of operations as the baseline, the court concluded there was insufficient evidence that there would be a substantial adverse change from the environmental baseline, and thus the exception did not apply. The court also rejected petitioners claim that the renewal contracts fell within cumulative impacts exception to the exemption. The court stated that the present litigation was not the proper time for petitioners to raise the cumulative-impact claim because the short-term interim renewal contracts did not constitute “successive projects of the same type” and therefore did not fit within the definition of the exception.