Show Me the Water?©Dave Owen

University of Maine School of Law

North of the San Fernando Valley, the Los Angeles megalopolis gives way to a landscape of rolling hills and mountains. Some of that landscape is developed, but much of it is still covered by chaparral, grasslands, and oak woodlands. It is ecologically diverse; the Sierra Nevada, the Coast Ranges, the Central Valley, and the Mojave Desert all meet in this area, making it a biological crossroads. It also is beautiful, and it is sunny. In other words, it could be a very nice place to have a house.

Over the years, development has popped up throughout the landscape, sometimes one house at a time and sometimes in larger subdivisions. Recently, the proposals have become more ambitious. The Shady Acres1 Company’s is offering the latest and grandest development proposal. Once completed, it would include three separate but related development centers. One, tentatively named Rancho Tehachapi, will contain 12,000 housing units on approximately 10,000 acres, along with roads, schools, restaurants, small shopping centers, and other urban amenities. Most of the houses and condominiums will occupy half-acre or smaller lots, and much of the development will be clustered, leaving some of the 10,000 acre footprint as public open space. A second development, tentatively known as Carrizo Hills, will be a “resort community,” with 3,500 luxury homes spread over 25,000 acres. Finally, a major shopping mall and office complex, referred to here as “the commercial center,” will be located between the two development projects and close to Interstate 5. The commercial center will occupy approximately 1.5 million square feet. Shady Acres’ proposal is coupled with a major landscape protection effort. To mitigate the impacts of development, Shady Acres proposes to place conservation easements on 200,000 acres of land.2

1 Shady Acres is a fictional company, and the facts of this case study are hypothetical. They are inspired, however, by real development proposals for this part of California. The scale of Shady Acres’ proposed development is actually somewhat smaller than some of the real-world proposals.2 As these numbers should make clear, Shady Acres has deep pockets.

The proposed development has generated controversy. Some of that controversy has centered on Shady Acres’ ability to procure water for its development. Local water sources exist, but the rainfall in the region is variable and limited, and no one suggests that local supplies will be sufficient to sustain the development projects. That creates a need for water from some other source, and critics contend that no such source—or at least no such reliable source—is available. To some environmental advocates, that is a concern. They fear that Shady Acres will eventually get its water, but only by increasing withdrawals from, and environmental damage to, some already-overtapped source. But other opponents see Shady Acres’ water supply challenges as an opportunity. They don’t want the development at all, or at least nothing approaching the scale Shady Acres has proposed, and they see water supply as a potential source of legal leverage to stop the project in its tracks.

In class, we’ll simulate a county board of supervisors meeting, at which Kern County (in which the proposed project would be located) will consider whether to approve a zoning change and issue the subdivision approvals that would allow the project to proceed.

THE TEAMS

The Kern County Board of Supervisors is the decision-maker for purposes of this exercise. It holds the ultimate responsibility for assuring compliance with the California Environmental Quality Act and SB 221, and it will be the primary defendant in any lawsuit challenging either its approval or its denial of the project. The members of the board are elected, and they therefore must be at least somewhat responsive to the politics of the county. Kern County is generally politically conservative, and the agricultural and energy (primarily oil and gas) industries dominate the local economy, with construction also playing an important role. But, like almost every California county, Kern County is economically, ethnically, and politically diverse, and its residents have a broad range of interests.

Shady Acres owns an enormous area of land on straddling the political boundary between Kern and Los Angeles Counties. It is a privately owned, for-profit corporation with multiple owners. The company cares about its public image and does not want to be perceived as an environmental villain. Nevertheless, its core goal is to make money, and it plans to do that by developing and selling real estate.

The Center for Biological Diversity is an environmental advocacy organization. As its name suggests, its primary goal is to prevent extinction and promote strong populations of native species. It therefore is concerned by the large-scale habitat conversion proposed by Shady Acres, and the conservation easements have not eased its fears. CBD also is a particularly litigious organization. Since it emerged to national prominence in the 1990s, it has earned a reputation for uncompromising advocacy, and it is ready and willing to use the courts to advance its goals.

The National Association of Home Builders is a non-profit advocacy organization focused on advancing the interests of the construction and development industries. It therefore generally supports policies that favor home construction and other development, and is fearful of policies

that add legal uncertainties to development processes, or that increase the cost of constructing homes.

BACKGROUND

The Shady Acres controversy is just the latest iteration of a longstanding conflict over water supply and land use development, and a brief review of that conflict may help place this current controversy in context. Our story therefore begins in the far eastern suburbs of San Francisco and Oakland, another area of dry, grassy oak woodlands, rolling hills, and modest local water supplies.

A few days before Christmas 1992, the Contra Costa County Board of Supervisors (Contra Costa) approved the largest housing development in the county's history. Destined for the Dougherty Valley near the communities of Dublin and San Ramon, Shapell Industries and Windemere Ranch Partners (Shapell/Windemere) proposed a development that consisted of 11,000 new homes to house roughly 30,000 people. A $4 billion project, it would be built over a thirty-year period, and when completed would use 5.4 million gallons of water per day.

But from where would the water come? The most logical supplier was the East Bay Municipal Utility District (EBMUD), water purveyor to 1.3 million East Bay residents, but the majority of the proposed Dougherty Valley development lay outside EBMUD's service area. Ignoring EBMUD’s plea not to approve the development without securing another source of water, Contra Costa gave its go-ahead for the project by approving a general plan amendment, specific plan, and Environmental Impact Report (EIR), all listing EBMUD as the primary water provider. EBMUD responded by refusing to serve the Dougherty Valley development, citing insufficient supply to accommodate projected demand in its existing service area, let alone providing service to Doughtery Valley. It also quickly filed suit to overturn Contra Costa's approval of the project's EIR, alleging that Contra Costa had not complied with the California Environmental Quality Act (CEQA).

The fight got ugly fast… [The author explains the political and legal maneuvers launched by both sides, culminating in a successful election campaign against the EBMUD board members who had opposed supplying the development. After that election, the parties reached a settlement, which required the developers to seek alternative water sources but obligated EBMUD to serve as a backup].

Ryan Waterman, Comment, Addressing California’s Uncertain Water Future by Coordinating Long-Term Land Use and Water Planning: Is a Water Element in the General Plan the Next Step?, 31 ECOLOGY L.Q. 117, 125-28 (2004).

Recent development near San Ramon, California (calacademy.org/exhibits/california_hotspot/issues.htm).

The Dougherty Valley battle revealed some potentially significant problems, though perceptions of those problems depended a bit on perspective. To some water suppliers and many environmentalists, the battle highlighted the need for laws tying development to water supplies. The apparent unavailability of water had proved no impediment to local approval of the Dougherty Valley development; the developers and local planners seemed to have simply assumed that if houses were built, water would follow. That meant EBMUD faced the threat of additional strains on its supplies and potential challenges to its ability to serve existing customers. Environmentalists, meanwhile, worried that the developers’ assumptions would ultimately prove correct, and that the water would follow, even if the environmental costs would be great. They feared that houses, once built, would inevitably be supplied, even at the cost of draining rivers dry. EBMUD staff and environmental advocates therefore argued that the battle revealed the need for laws tying development approvals to the demonstrated availability of specific water sources.

Developers heard a different warning. Prior to Dougherty Valley, the prevailing ethos among most California water agencies emphasized the need to find water for customers. Hardly ever did water agencies tell cities they could not grow because of a lack of water supplies, for the water agencies believed their job was to find those supplies, not to dictate growth patterns. EBMUD’s intransigence—not only had it threatened to deny service, but it had also filed suit—therefore was startling.3 To make matters worse, EBMUD had found a law—CEQA—to give its objections some teeth.

Following the Dougherty Valley battle, the California legislature took a series of steps to tie water supply and land use planning more closely together. Waterman’s comment explains how it started:

3 While EBMUD actively supported enactment of assured supply statutes, the Association of California Water Agencies opposed SB 221 and SB 610.

The first response to prevent a future Dougherty Valley-type conflict was legislative. …Senate Bill 901 attempted to ensure that cities and counties collaborate with water agencies early in the planning process. The bill required cities and counties to obtain a water supply assessment from the water supplier for large projects requiring a general plan amendment or specific plan. Cities and counties also had to include this information in the EIR prepared for the project. While the land use jurisdiction retained the ultimate decision-making power to approve or reject the proposed development regardless of the information provided by the water supplier, SB 901 was one of the first laws that required land use and water agencies to communicate with each other.

Unfortunately, jurisdictions found SB 901 easy to avoid. A study by EBMUD in 2000 found that of the 119 large-scale developments subject to SB 901 between 1996 and 2000, only 2% complied with all five of its requirements. In fact, 24% failed to comply with the law at all, 36% only complied with the first provision by identifying the water supply to be relied upon, and 38% identified the water supply and at least one of SB 901's four other elements: 1) proving water supplies, 2) assessing drought conditions, 3) analyzing third-party impacts, and 4) developing additional supplies. In the opinion of one observer, SB 901 was “more often than not honored only in the breach” of its provisions.

Waterman, supra, at 129.

Six years later (and after further developments in the courts, which we’ll consider in a bit), the Legislature tried again. This time, it passed two bills, SB 221 and SB 610, designed to more closely link water supply and land use planning. The bills are dense, and to read them straight through and glean their meaning is difficult, so part of Waterman’s summary appears below. A longer set of excerpts from the statutory text appears as Exhibit 1.

… SB 221 breaks entirely new ground by requiring land use agencies to condition approval of some types of residential development on a showing that a sufficient water supply is in place to serve both the proposed project, as well as other existing and planned future uses...

Both bills address large-scale development proposals, which they describe in very similar terms. SB 221 applies to “subdivisions,” which it defines as a residential development of more than 500 units. For public water systems with less than 5,000 connections, however, a subdivision means any development that would increase the number of connections by 10% or more. SB 610 applies to “projects,” which are defined more broadly than subdivisions in SB 221, but uses a similar measure of size. A “project” is defined as a residential development of more than 500 units, a shopping center employing more than 1,000 persons or including more than 500,000 square feet of floor area, a commercial development employing more than 1,000 persons or including more than 250,000 square feet of floor area, a motel or hotel with over 500 rooms, an industrial, manufacturing, or processing plant housing more than 1,000 persons or including more than 650,000

square feet of floor area, a mixed use project with one or more segments that match any of the previously listed components, or a project that would demand as much water as a 500 dwelling unit project. For water suppliers that have less than 5,000 connections, “project” is amended to mean any development that would result in a 10% or greater increase in its number of connections.

…Both bills attempt to link the land use and water planning processes at multiple levels in the land use process. SB 610 requires a water assessment for any “project” (as defined supra) that is subject to CEQA. The assessment must be prepared by the relevant water agency as soon as the land use agency determines the project is subject to CEQA. For example, the Dougherty Valley case described in Section I.A, supra, would have triggered a water supply assessment under SB 610. Contra Costa County approved a general plan amendment and adopted a specific plan to accommodate the project, and the project was subject to CEQA. Under SB 610, Contra Costa County would have been required to seek a water supply assessment from EBMUD before it could have made any of the legislative approvals that led to EBMUD's litigation. SB 221, on the other hand, inserts a check on development at the discretionary subdivision approval stage in the planning process. Before a city or county can approve a tentative subdivision map, it must receive a water supply verification from the public water agency that will supply the subdivision. The verification must state that there is a sufficient source of water.

Water Supply Assessment Under SB 610: A water assessment under SB 610 is a document evaluating the ability of the designated water agency to serve the project for the next twenty years. The assessment looks at ability to meet the project's estimated demand, as well as other existing and planned future uses (including agricultural and manufacturing uses), in normal, single-dry, and multiple-dry water years. This assessment must be supported by evidence showing the water entitlements, rights, or contracts designated for the project, and the amount of water received historically. If no water has been received historically with the aforementioned entitlements, rights, or contracts, the assessment must identify the other water agencies using the source of supply. If groundwater is the source of supply, additional detail about the status of the groundwater basin is required, including: (1) whether it has been adjudicated; (2) whether the basin is in overdraft conditions; (3) description of groundwater pumping for the past five years; (4) projected groundwater pumping in the future; and (5) a sufficiency analysis of the groundwater basin as a source of supply.

Water Verification Under SB 221: Similar to the SB 610 assessment, verification under SB 221 requires the designated water agency to provide “total water supplies available during normal, single-dry, and multiple-dry years within a 20-year projection that will meet the projected demand associated with the proposed subdivision, in addition to existing and planned future uses, including, but not limited to, agricultural and industrial uses.” This verification must be supported by substantial evidence, which may be provided by a water assessment, the most

recent Urban Water Management Plan (UWMP), or recitation of the water entitlements, rights, and contracts detailed in the water assessment section. If the water supply noted in the verification is a future source of supply that is not currently available, the verification requires proof of water contracts to serve the subdivision; documentation of a capital outlay program for financing the delivery of water; secured federal, state, and local permits to serve the subdivision; and any other necessary regulatory approvals. If the project will rely on groundwater, the verification should assess the landowner's right to withdraw the groundwater. In addition, the verification must make a statement about the reasonably foreseeable impacts of the subdivision on the availability of water for agricultural and industrial users that access the same source of supply as the water agency.

Subsequent research suggests that “[o]verall compliance with [SB 221 and SB 610] appears good, and local governments are reviewing many projects smaller than required by law.” ELLEN HANAK, WATER FOR GROWTH: CALIFORNIA’S NEW FRONTIER viii (2005). Compared to the abundant litigation under the California Environmental Quality Act (see below), relatively few cases have been filed challenging such compliance. Some environmental advocates, however, fear that compliance has been somewhat hollow, and that planners are offering overly optimistic estimates of supply availability. Conversely, many developers worry that the new legislation demands the impossible and will unjustifiably raise the costs of new home construction.

While the California legislature was passing this new legislation, its courts were using an older statute to compel consideration of the consequences of supplying developments with water. CEQA requires government agencies to consider and disclose the environmental consequences of projects those agencies sponsor, fund, or approve. In a series of cases, the courts held that those requirements could not be satisfied without some disclosure of a project’s planned water sources. Their reasoning was straightforward: projects inevitably require water supply, and supplying water almost always creates environmental impacts, so, therefore, the impacts of supplying water are project impacts, and those impacts must be disclosed. In a recent decision, the California Supreme Court fleshed out those requirements:

First, CEQA’s informational purposes are not satisfied by an EIR[4] that simply ignores or assumes a solution to the problem of supplying water to a proposed land use project. Decision makers must, under the law, be presented with sufficient facts to “evaluate the pros and cons of supplying the amount of water that the [project] will need.”

…Second, an adequate environmental impact analysis for a large project, to be built and occupied over a number of years, cannot be limited to the water supply for the first stage or the first few years. While proper tiering of environmental review allows an agency to defer analysis of certain details of later phases of long-term linked or complex projects until those phases are up for approval, CEQA's demand for meaningful information “is not satisfied by simply stating information will be provided in the future.”

4 Unlike NEPA, which uses the term “environmental impact statement,” CEQA uses the term “environmental impact report.” For that reason, the acronym is EIR rather than EIS. The nature of the report is nevertheless very similar.

…Third, the future water supplies identified and analyzed must bear a likelihood of actually proving available; speculative sources and unrealistic allocations (“paper water”) are insufficient bases for decisionmaking under CEQA. An EIR for a land use project must address the impacts of likely future water sources, and the EIR's discussion must include a reasoned analysis of the circumstances affecting the likelihood of the water's availability.

…Finally, where, despite a full discussion, it is impossible to confidently determine that anticipated future water sources will be available, CEQA requires some discussion of possible replacement sources or alternatives to use of the anticipated water, and of the environmental consequences of those contingencies.

Vineyard Area Citizens for Responsible Growth v. City of Rancho Cordova, 150 P.3d 709, 720 (2007) (citations omitted). The Vineyard decision built on a long line of authority from California’s intermediate appellate courts, which had set aside many project approvals because of inadequate water supply analyses. In fact, until several years ago, there were no published California decisions in which a court upheld an EIR’s analysis of water supply; the defendants had lost every time. That litigation record prompted fears from developers that CEQA was becoming an overly powerful club that environmental advocates could use at their discretion to block growth. A more sophisticated version of this argument claimed that the court decisions were demanding the impossible—that in a state with many water suppliers and fluctuating supplies, providing a clear, certain long-term supply plan was simply not feasible, and that the best agencies could do was to promise to obtain supplies through a portfolio of approaches. Finally, critics argued that the CEQA cases overlooked the fact that water permitting decisions themselves were already now subject to CEQA review, meaning that even if development increased water demand, additional environmental review might occur before that demand could be fulfilled.

In several other western states, legal development has followed similar trajectories. Few of those states have environmental assessment laws analogous to CEQA, NEPA, and MEPA, but most now have assured supply laws. Some of those supply laws are in some ways more extensive than California’s, and apply to projects even smaller in scale. Others, including laws in Washington, Arizona, and Florida, require cities and counties engaged in long-range planning to include water supply analyses in their plans. See Hanak, supra, at 53.

THE WATER SUPPLY AND CEQA ANALYSES

To comply with these requirements, Shady Acres has identified several different water supply sources, and has worked with water suppliers and with Kern County staff to prepare water supply analyses. It also has worked to prepare the water supply component of Kern County’s environmental impact report (EIR) for the project. For purposes of discussion, please assume that in preparing those analyses, Kern County and the water suppliers have taken all the steps required by law, and that the only remaining questions are (a) whether the analyses adequately assess water supply sources, and the impacts of exploiting those sources; (b) whether the

analyses demonstrate legally adequate water supplies; and (c) even if the analyses do demonstrate legally adequate supplies, whether Kern County should approve the project.

The actual analyses are quite detailed, and the paragraphs below provide a synopsis of their content.

A. Water Needs

The first key component of the water supply analysis is an identification of the water needs associated with the projects. Shady Acres anticipates that at buildout, Rancho Tehachapi will require between 3,800 and 4,200 acre-feet of water each year, which translates to approximately one third of an acre-foot per household per year. That per-household number is somewhat lower than the 0.5 acre-foot/household year figure traditionally used by water supply planners, but the water supply analysis explains that every house will be built with binary-flush, ultra-low-flow toilets and low-flow showers. Shady Acres also will sponsor an extensive xeriscaping education program. The combined effect of these measures, Shady Acres anticipates, will be to reduce demand below traditional per-household levels.

For Carrizo Hills, Shady Acres anticipates that water demand at buildout will be approximately 2,800 to 3,000 acre-feet per year. Shady Acres again plans to install low flow showers and toilets, but for several reasons it anticipates higher water use. First, because Carrizo Hills will be a resort community, it will contain many swimming pools. Second, lots in Carrizo Hills will be larger, and outdoor landscaping is likely to be more extensive (though Shady Acres anticipates that its xeriscaping education program still will reduce outdoor demand). Third, Shady Acres anticipates that many residents of Carrizo Hills may think that low-flow appliances don’t provide the level of comfort requisite for a high-end resort development and therefore may have them replaced.

For the shopping and office complex, Shady Acres anticipates water needs of approximately 1,200-1,400 acre-feet per year.

To sum up, the water supply analysis anticipates the following needs:

Rancho Tehachapi Carrizo Hills Commercial/Office Total3,800 - 4,200 afy 2,800 - 3,000 afy 1,200 - 1,400 afy 7,800 – 8,600 afy

B. Water Supplies

Shady Acres anticipates obtaining its water from several sources.

State Water Project Supplies. Some of Shady Acres’ water would come from California’s State Water Project. The Grapevine Water District,5 which will supply water to Shady Acres, is one of the State Water Project Contractors, and its contractual entitlement is 22,000 acre-feet of water per year. Of that amount, 14,000 acre-feet are contracted to other users within the district, but

5 The Grapevine Water District also is a fictional entity.

8,000 acre-feet currently are not under contract.6 Pending development project approval, Grapevine and Shady Acres have entered into a contract for those 8,000 acre-feet.

In addition, Shady Acres and Grapevine Water District are working together to negotiate a transfer of 5,000 acre-feet per year from the Kern County Water Agency,7 which also obtains its water through the State Water Project. Contracts for the transfer have been signed, and once CEQA compliance is complete, the transfer will be legally finalized.8

While these amounts may sound sufficient to supply the project, there is a catch, which CBD and others have pointed out in letters to the county. In total, California’s State Water Project contracts allocate approximately 4.17 million acre-feet of water. See CALIFORNIA DEPARTMENT OF WATER RESOURCES, THE STATE WATER PROJECT FINAL DELIVERY RELIABILITY REPORT 2011 19 (2012). But, as one California appellate court put it, that total “represents the unfulfilled dreams of those who, steeped in the water culture of the 1960’s, created the expectation that 4.23 [million acre-feet] of water could be delivered by a SWP built to capacity,”9 which would have meant damming the major rivers on California’s north coast and diverting their waters into the State Water Project’s Central Valley facilities. Planning & Conservation League v. Department of Water Resources, 83 Cal.App.4th 892, 914 n. 7 (2000). That never happened, and while the SWP contracts oblige the state to make reasonable efforts to deliver as much as it can, they also excuse the state from any obligation to deliver the full contractual amount. When full contractual amounts cannot be delivered, each individual contractor’s share is reduced by the same proportion.

The chart below, which comes from the Department of Water Resources’ most recent delivery reliability report, shows delivery amounts for the ten-year period between 2001 and 2010. In 2014, the State Water Project does not anticipate making any deliveries at all.

6 All of Grapevine Water District’s contracts contain shortage provisions that allow Grapevine to reduce deliveries when it receives less than its full Table A amount of State Water Project water. Those contract provisions state that the shortfall will be shared equally by every entity receiving water from Grapevine—in other words, that each entity will have its water deliveries reduced by the same percentage.7 The Kern County Water Agency is a real entity. Though it is a governmental entity operating within Kern County, it is not managed by the County, and instead has a separately elected board of directors.8 The California Aqueduct passes through land owned by Shady Acres, and conveying SWP water to Shady Acres’ developments therefore does not present a challenge, so long as Shady Acres can obtain water rights.9 As part of a deal leading to the creation of the Kern Water Bank, water contractors retired a small portion of the overall SWP entitlements. That explains the difference between the 4.17 maf number provided in the text and the 4.23 maf number used by the court.

As part of its reliability report, the Department of Water Resources identifies factors that might affect future reliability and also offers delivery projections. Among the many potentially interfering factors are anticipated long-term declines in Sierra Nevada snowpacks, potentially increased demand by appropriators with rights that are senior to those of the Department, and potential regulatory restrictions on water deliveries through the Bay-Delta. Deliveries also could conceivably increase, particularly if regulatory restrictions are relaxed or if the construction of new through-Delta conveyance systems allows increased pumping. Considering these factors (and many others; the Department uses a complex modeling program called CalSim to address the many factors involved in projecting future deliveries), the Department has produced the following projections for future deliveries.

The Kern Water Bank. In addition to obtaining water from the State Water Project, Shady Acres also anticipates obtaining water from a large conjunctive use project known as the Kern Water Bank.10 Conjunctive use involves infiltrating surface water into aquifers during periods when surface water is readily abundant and then extracting the water in times of need. The Kern Water Bank has an ideal location for this practice; it owns large quantities of land where the Kern River exits the Sierra Nevada and flows into what once was a major lake and wetland area. The lakes and wetlands are mostly gone (except where the Kern Water Bank has constructed its infiltration ponds), and the aquifers below the ground have been depleted, creating extensive subsurface storage space in which water could be banked for later use.

Shady Acres anticipates drawing upon the Kern Water Bank in two ways. First, it owns a one percent share of the bank,11 and it anticipates using that share to store its own SWP water in years in which supply exceeds demand. It estimates that its share, if fully filled, would contain approximately 10,000 acre-

feet of water. That water would then be available for withdrawal in later years. Second, most of the agencies that hold larger shares of the Kern Water Bank anticipate selling some of the banked water during dry years (on its website, the Kern Water Bank Authority claims that its water shares would be worth as much as $5,000/acre-foot, and values that high can only be realized by selling water to municipal or industrial users). Because of its relationship with the Kern Water Bank agencies, and because its developments will be located relatively near the physical bank, Shady Acres anticipates that it will be particularly well-positioned to strike deals to secure additional water in times of need.

None of these deals has been finalized yet. But the overall storage capacity of the Kern Water Bank is enormous, and the Kern Water Bank Authority anticipates that it could withdraw approximately 200,000 afy throughout the duration of a severe five-year drought. That capacity, in Shady Acres’ view, provides an important insurance policy against year-to-year fluctuations in SWP surface water supplies.

Other Purchases. In addition to obtaining water from the Kern Water Bank, Shady Acres also anticipates that it will be able to acquire water from other willing sellers within the Central Valley. It has not signed any contracts for such purchases—it anticipates signing them on an as-needed basis—but its analysis points to a basic economic reality of California water: agricultural users still utilize the lion’s share of the water, but urban users are willing to pay much higher prices. According to Shady Acres, that reality explains the historic and increasing prevalence of 10 The Kern Water Bank also is a real entity.11 In practical terms, that means that Shady Acres owns one percent of the storage space in the Kern Water Bank. It can use that space by adding excess water—presumably from its SWP supplies or from transfers—into the bank, and it can withdraw as much water as it has accumulated within its bank storage space.

water transfers, and it also explains why water will continue to be available, even in times of drought, to urban developments.

Shady Acres also has taken concrete steps to ensure that it will be a viable purchaser on the water market. It has created a water acquisition trust, and Grapevine Water District will serve as the trustee. The beneficiaries of the trust will be the residential and commercial occupants of Shady Acres’ development sites. The trust endowment is sufficient to provide $250,000 in liquid assets during an average year.12 Of course, Shady Acres does not anticipate that trust funds will be needed every year, and unspent funds can be rolled over and spent in later years (if the trust accumulates more than a 5 million dollar reserve, the excess income will be returned to Shady Acres’ investors). Shady Acres argues that this financial reserve will ensure its ability to meet its developments’ water supply needs.

Water Recycling. Shady Acres’ last key source of water will be water recycling—that is, returning treated wastewater into the water supply system. Shady Acres intends to construct a water recycling facility at the commercial complex, and that facility would draw water from the commercial complex and from Rancho Tehachapi. If necessary, Shady Acres also could connect wastewater from Carrizo Hills into the Rancho Tehachapi wastewater system. If the water recycling system operates at capacity, Shady Acres anticipates that it could return approximately one third of the development’s water consumption back into the system. In other words, in a year in which the development as a whole uses 6,000 afy, the recycling system could effectively supply an additional 2,000 acre-feet.

There are, however, two catches with the water recycling system. First, it must be built. Shady Acres has identified a site, completed engineering studies, and produced detailed plans for the construction and operation of such a system. Nevertheless, it has clearly stated that the system will be constructed when and if it is needed. It clearly will not be constructed during the initial phases of development, for until water use scales up toward full capacity, there will not be enough wastewater coming out of the developments to make construction and operation of the treatment system economically worthwhile.

The second potential catch is community acceptance of the recycling system. Such systems have become increasingly prevalent ways of providing water supplies for landscaping. Introducing recycled water into drinking water systems—what critics derogatively call “toilet to tap”—still sometimes meets resistance. If the people who move into Shady Acres strongly oppose the water recycling program, or if people are unwilling to move to Shady Acres because of the possibility of that program, there is some chance that it will not be built.

C. The CEQA Analysis

12 I am not aware of any comprehensive study of water transfer prices in California, and anecdotal evidence suggests that they are quite variable and volatile. Government agencies purchasing water for environmental uses have paid prices in the $100-$200/acre foot range (though those numbers may be dated), but some water users have asserted that their water rights are worth as much as $5,000/acre foot. Of course, price is largely a function of supply and demand, and in a dry year, when demand is high and supply is low, prices are likely to go up.

In its Environmental Impact Report, Kern County has endeavored to analyze the environmental consequences of meeting Shady Acres’ water needs. The water supply analysis is detailed—it occupies approximately 60 pages of the EIR—and what follows again is a short synopsis.

Impacts of Diversion. The EIR begins by analyzing the impacts of diverting water for the project. That analysis involves analyzing both the likely quantity of diversions and the impacts associated with those diversions.

In analyzing the quantity of diversions, the analysis notes that some of Shady Acres’ water would come from transfers, and thus would not increase the amount of water diverted from the Bay-Delta. Shady Acres’ other SWP supplies would represent a very small percentage of SWP diversions—approximately 0.25 percent—and those SWP diversions are only part of the overall diversions from the Bay-Delta. The EIR notes that the overall environmental impacts of diverting water from the Bay-Delta are significant, but it also notes that those impacts have been addressed in multiple previous environmental studies. The project’s incremental contribution to those impacts, it argues, would be less than significant.

Impacts of Transporting and Delivering Water. The EIR also analyzes the impacts of transporting water to the project sites. Those impacts primarily involve energy consumption. According to figures cited by both the state and EPA, moving, treating, delivering, heating, and re-treating water consume approximately twenty percent of the state’s electricity,13 and the EIR concedes that the creation of a new residential development will increase energy demand, perpetuating or extending the environmental impacts associated with energy generation. That impact would be mitigated, however, by installation of rooftop solar facilities throughout the new project. The EIR concludes that any net increase in energy consumption would be such a small contribution to the overall energy needs of the state that the associated impacts would be less than significant.

13 See CALIFORNIA ENERGY COMMISSION, CALIFORNIA’S WATER – ENERGY RELATIONSHIP 1 (2005).

EXHIBIT 1: SELECTED WATER CODE LANGUAGE

(The language excerpted below was inserted by SB 221 and SB 610.)

California Government Code § 66473.7. Water supply; availability; conditions for map approval; verification; exception(a) For the purposes of this section, the following definitions apply:

(1) “Subdivision” means a proposed residential development of more than 500 dwelling units… …

(2) “Sufficient water supply” means the total water supplies available during normal, single-dry, and multiple-dry years within a 20-year projection that will meet the projected demand associated with the proposed subdivision, in addition to existing and planned future uses, including, but not limited to, agricultural and industrial uses. In determining “sufficient water supply,” all of the following factors shall be considered:

(A) The availability of water supplies over a historical record of at least 20 years.

…(D) The amount of water that the water supplier can reasonably rely on receiving from other water supply projects, such as conjunctive use, reclaimed water, water conservation, and water transfer, including programs identified under federal, state, and local water initiatives…

(b)

(1) The legislative body of a city or county or the advisory agency, to the extent that it is authorized by local ordinance to approve, conditionally approve, or disapprove the tentative map,[14] shall include as a condition in any tentative map that includes a subdivision a requirement that a sufficient water supply shall be available. Proof of the availability of a sufficient water supply shall be requested by the subdivision applicant or local agency, at the discretion of the local agency, and shall be based on written verification from the applicable public water system within 90 days of a request.

(2) If the public water system fails to deliver the written verification as required by this section, the local agency or any other interested party may seek a writ of mandamus to compel the public water system to comply.

(3) If the written verification provided by the applicable public water system indicates that

14 Under California law, local approval of a “tentative map” is a prerequisite to approval of most development projects.

the public water system is unable to provide a sufficient water supply that will meet the projected demand associated with the proposed subdivision, then the local agency may make a finding, after consideration of the written verification by the applicable public water system, that additional water supplies not accounted for by the public water system are, or will be, available prior to completion of the subdivision that will satisfy the requirements of this section. This finding shall be made on the record and supported by substantial evidence.

(4) If the written verification is not provided by the public water system, notwithstanding the local agency or other interested party securing a writ of mandamus to compel compliance with this section, then the local agency may make a finding that sufficient water supplies are, or will be, available prior to completion of the subdivision that will satisfy the requirements of this section. This finding shall be made on the record and supported by substantial evidence.

(c) The applicable public water system's written verification of its ability or inability to provide a sufficient water supply that will meet the projected demand associated with the proposed subdivision as required by subdivision (b) shall be supported by substantial evidence…

(d) When the written verification pursuant to subdivision (b) relies on projected water supplies that are not currently available to the public water system, to provide a sufficient water supply to the subdivision, the written verification as to those projected water supplies shall be based on all of the following elements, to the extent each is applicable:

(1) Written contracts or other proof of valid rights to the identified water supply that identify the terms and conditions under which the water will be available to serve the proposed subdivision.

(2) Copies of a capital outlay program for financing the delivery of a sufficient water supply that has been adopted by the applicable governing body.

(3) Securing of applicable federal, state, and local permits for construction of necessary infrastructure associated with supplying a sufficient water supply.

(4) Any necessary regulatory approvals that are required in order to be able to convey or deliver a sufficient water supply to the subdivision.

(e) If there is no public water system, the local agency shall make a written finding of sufficient water supply based on the evidentiary requirements of subdivisions (c) and (d) and identify the mechanism for providing water to the subdivision.

(f) In making any findings or determinations under this section, a local agency, or designated

advisory agency, may work in conjunction with the project applicant and the public water system to secure water supplies sufficient to satisfy the demands of the proposed subdivision. If the local agency secures water supplies pursuant to this subdivision, which supplies are acceptable to and approved by the governing body of the public water system as suitable for delivery to customers, it shall work in conjunction with the public water system to implement a plan to deliver that water supply to satisfy the long-term demands of the proposed subdivision.

(g) The written verification prepared under this section shall also include a description, to the extent that data is reasonably available based on published records maintained by federal and state agencies, and public records of local agencies, of the reasonably foreseeable impacts of the proposed subdivision on the availability of water resources for agricultural and industrial uses within the public water system's service area that are not currently receiving water from the public water system but are utilizing the same sources of water. To the extent that those reasonably foreseeable impacts have previously been evaluated in a document prepared pursuant to the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code) or the National Environmental Policy Act (Public Law 91-190) for the proposed subdivision, the public water system may utilize that information in preparing the written verification.

(h) Where a water supply for a proposed subdivision includes groundwater, the public water system serving the proposed subdivision shall evaluate, based on substantial evidence, the extent to which it or the landowner has the right to extract the additional groundwater needed to supply the proposed subdivision. Nothing in this subdivision is intended to modify state law with regard to groundwater rights.

(i) This section shall not apply to any residential project proposed for a site that is within an urbanized area and has been previously developed for urban uses, or where the immediate contiguous properties surrounding the residential project site are, or previously have been, developed for urban uses, or housing projects that are exclusively for very low and low-income households.

(j) The determinations made pursuant to this section shall be consistent with the obligation of a public water system to grant a priority for the provision of available and future water resources or services to proposed housing developments that help meet the city's or county's share of the regional housing needs for lower income households, pursuant to Section 65589.7.

(m) Nothing in this section shall be construed to create a right or entitlement to water service or any specific level of water service.

(n) Nothing in this section is intended to change existing law concerning a public water system's obligation to provide water service to its existing customers or to any potential future customers.

California Water Code section 10910: Water supply and demand assessment; requirements

(a) Any city or county that determines that a project, as defined in Section 10912, is subject to the California Environmental Quality Act [] shall comply with this part.

(b) The city or county, at the time that it [makes a decision completing its environmental review of a project], shall identify any (public) water system …, as defined in Section 10912, that may supply water for the project. If the city or county is not able to identify any public water system that may supply water for the project, the city or county shall prepare the water assessment required by this part after consulting with any entity serving domestic water supplies whose service area includes the project site, the local agency formation commission, and any public water system adjacent to the project site.

(c)

(1) The city or county… shall request each public water system identified pursuant to subdivision (b) to determine whether the projected water demand associated with a proposed project was included as part of the most recently adopted urban water management plan…

(2) If the projected water demand associated with the proposed project was accounted for in the most recently adopted urban water management plan, the public water system may incorporate the requested information from the urban water management plan in preparing the elements of the assessment required to comply with subdivisions (d), (e), (f), and (g).

(3) If the projected water demand associated with the proposed project was not accounted for in the most recently adopted urban water management plan, or the public water system has no urban water management plan, the water supply assessment for the project shall include a discussion with regard to whether the public water system's total projected water supplies available during normal, single dry, and multiple dry water years during a 20-year projection will meet the projected water demand associated with the proposed project, in addition to the public water system's existing and planned future uses, including agricultural and manufacturing uses.

(4) If the city or county is required to comply with this part pursuant to subdivision (b), the water supply assessment for the project shall include a discussion with regard to whether the total projected water supplies, determined to be available by the city or county for the project during normal, single dry, and multiple dry water years during a 20-year projection, will meet the projected water demand associated with the proposed project, in addition to existing and planned future uses, including agricultural and manufacturing uses.

(d)

(1) The assessment required by this section shall include an identification of any existing water supply entitlements, water rights, or water service contracts relevant to the identified water supply for the proposed project, and a description of the quantities of water received in prior years by the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), under the existing water supply entitlements, water rights, or water service contracts.

(2) An identification of existing water supply entitlements, water rights, or water service contracts held by the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), shall be demonstrated by providing information related to all of the following:

(A) Written contracts or other proof of entitlement to an identified water supply.

(B) Copies of a capital outlay program for financing the delivery of a water supply that has been adopted by the public water system.

(C) Federal, state, and local permits for construction of necessary infrastructure associated with delivering the water supply.

(D) Any necessary regulatory approvals that are required in order to be able to convey or deliver the water supply.

(e) If no water has been received in prior years by the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), under the existing water supply entitlements, water rights, or water service contracts, the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), shall also include in its water supply assessment pursuant to subdivision (c), an identification of the other public water systems or water service contractholders that receive a water supply or have existing water supply entitlements, water rights, or water service contracts, to the same source of water as the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), has identified as a source of water supply within its water supply assessments.

(f) If a water supply for a proposed project includes groundwater, the following additional information shall be included in the water supply assessment:

(1) A review of any information contained in the urban water management plan relevant to the identified water supply for the proposed project.

(2) A description of any groundwater basin or basins from which the proposed project will be supplied. For those basins for which a court or the board has adjudicated the rights to pump groundwater, a copy of the order or decree adopted by the court or the board and a description of the amount of groundwater the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), has the legal right to pump under the order or decree. For basins that have not been adjudicated, information as to whether the department has identified the basin or basins as overdrafted or has projected that the basin will become overdrafted if present management conditions continue, in the most current bulletin of the department that characterizes the condition of the groundwater basin, and a detailed description by the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), of the efforts being undertaken in the basin or basins to eliminate the long-term overdraft condition.

(3) A detailed description and analysis of the amount and location of groundwater pumped by the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), for the past five years from any groundwater basin from which the proposed project will be supplied. The description and analysis shall be based on information that is reasonably available, including, but not limited to, historic use records.

(4) A detailed description and analysis of the amount and location of groundwater that is projected to be pumped by the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), from any basin from which the proposed project will be supplied. The description and analysis shall be based on information that is reasonably available, including, but not limited to, historic use records.

(5) An analysis of the sufficiency of the groundwater from the basin or basins from which the proposed project will be supplied to meet the projected water demand associated with the proposed project. A water supply assessment shall not be required to include the information required by this paragraph if the public water system determines, as part of the review required by paragraph (1), that the sufficiency of groundwater necessary to meet the initial and projected water demand associated with the project was addressed in the description and analysis required by paragraph (4) of subdivision (b) of Section 10631.

(g)

(1) Subject to paragraph (2), the governing body of each public water system shall submit the assessment to the city or county not later than 90 days from the date on which the request was received. The governing body of each public water system, or the city or county if either is required to comply with this act pursuant to subdivision (b), shall approve the assessment prepared pursuant to this section at a regular or special meeting.

(2) Prior to the expiration of the 90-day period, if the public water system intends to request an extension of time to prepare and adopt the assessment, the public water system shall meet with the city or county to request an extension of time, which shall not exceed 30 days, to prepare and adopt the assessment.

(3) If the public water system fails to request an extension of time, or fails to submit the assessment notwithstanding the extension of time granted pursuant to paragraph (2), the city or county may seek a writ of mandamus to compel the governing body of the public water system to comply with the requirements of this part relating to the submission of the water supply assessment.

(h) Notwithstanding any other provision of this part, if a project has been the subject of a water supply assessment that complies with the requirements of this part, no additional water supply assessment shall be required for subsequent projects that were part of a larger project for which a water supply assessment was completed and that has complied with the requirements of this part and for which the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), has concluded that its water supplies are sufficient to meet the projected water demand associated with the proposed project, in addition to the existing and planned future uses, including, but not limited to, agricultural and industrial uses, unless one or more of the following changes occurs:

(1) Changes in the project that result in a substantial increase in water demand for the project.

(2) Changes in the circumstances or conditions substantially affecting the ability of the public water system, or the city or county if either is required to comply with this part pursuant to subdivision (b), to provide a sufficient supply of water for the project.

(3) Significant new information becomes available which was not known and could not have been known at the time when the assessment was prepared.

California Water Code section 10912:

For the purposes of this part, the following terms have the following meanings:

(a) “Project” means any of the following:

(1) A proposed residential development of more than 500 dwelling units.

(2) A proposed shopping center or business establishment employing more than 1,000 persons or having more than 500,000 square feet of floor space.

(3) A proposed commercial office building employing more than 1,000 persons or having more than 250,000 square feet of floor space.

(4) A proposed hotel or motel, or both, having more than 500 rooms.

(5) A proposed industrial, manufacturing, or processing plant, or industrial park planned to house more than 1,000 persons, occupying more than 40 acres of land, or having more than 650,000 square feet of floor area.

(6) A mixed-use project that includes one or more of the projects specified in this subdivision.

(7) A project that would demand an amount of water equivalent to, or greater than, the amount of water required by a 500 dwelling unit project…