We are persuaded that we should conduct a review of our restructuring proceeding under the California Environmental Quality Act (CEQA ) (Pub. Res. Code 21000-21178.1). The restructuring effort represents a policy shift of great scope for the Commission; there is no harm, and abundant good, in moving forth with analysis under CEQA at this time. The magnitude of our proposed electric policy favors reviewing the possible environmental impacts of a new industry structure. Furthermore, the delay which could result from erroneously failing to undertake the CEQA review process could severely hamper restructuring efforts which we deem vital to California's economy.
CEQA requires state agencies to evaluate the environmental impacts of any discretionary project they approve, unless the project is exempt. When an agency determines that a project may have a significant effect on the environment, it must prepare an Environmental Impact Report (EIR). If the project will not have a significant effect on the environment, the agency may prepare a negative declaration rather than an EIR.
On June 20, 1994, the Natural Resources Defense Council (NRDC) filed a Motion for Determination of CEQA Applicability under Rule 17.2 of the Commission's Rules of Practice and Procedure. In its motion, the NRDC argues that CEQA is applicable to the actions we are considering taking in this proceeding. In D.94-12-027, we responded to the NRDC's motion and committed to determine the applicability of CEQA once we were in a position to frame our policy decision (Ordering Paragraph No. 8). In offering two policy proposals for comment in D.95-05-045, we solicited the views of interested parties on this question. Nine parties filed comments on this issue, with two stating that CEQA is not applicable to the actions recommended in the May proposals, six concluding that CEQA is applicable and one which did not take a position but urged a quick resolution of the issue.
Whether CEQA applies to our electric restructuring rulemaking and investigation turns on whether the restructuring fits within the CEQA definition of a project. The State CEQA Guidelines (14 Cal. Code of Regs. 15000-15387) define "project," in relevant part, as:
". . . the whole of an action which has the potential for resulting in a physical change in the environment, directly or ultimately, and . . . is . . . (1) An activity directly undertaken by any public agency." (CEQA Guidelines 15378.)
As noted, parties to this proceeding differ in their view as to whether CEQA applies and, if it does, differ on the required compliance procedures. We have turned to decisional law to resolve these issues. It is clear that our Supreme Court has interpreted the Guidelines' definition of a project in a manner that does not require a finding of a direct physical effect on the environment. Bozung v. Local Agency Formation Commission (1975) 13 Cal.3d 263. At the same time, the courts have not been completely clear about whether policy actions without clearly identifiable and direct environmental effects are CEQA projects. (See, e.g., City of Agoura Hills v. Local Agency Formation Commission (1988) 198 Cal. App.3d 480, 494.)
We cannot make a finding at this time about whether electric restructuring constitutes a CEQA project. However, we can anticipate that there is no harm, and abundant good, in moving forth with analysis under CEQA at this time. We find preparation of an EIR, as opposed to a negative declaration, is appropriate in the instant proceeding. CEQA requires the preparation of an EIR whenever "it can be fairly argued on the basis of substantial evidence that the project may have a significant effect on the environment . . . ." No Oil v. City of Los Angeles (1975) 13 Cal.3d 68, 75. Often this determination is made after an agency conducts an initial study of the project. However, "[i]f the lead agency can determine that an EIR will clearly be required for the project, an initial study is not required. . . ." (CEQA Guidelines 15063 (a).)
The restructuring proceeding may potentially impact the environment in a number of ways. In its motion and comments, the NRDC cites, among other factors, the potential impact of reduced opportunities for energy efficiency incentives and restoration of a linkage between utilities' profits and sales volumes. More generally, PG&E refers to resulting shifts in energy production and argues, "These shifts have the potential to create environmental impacts since the mix of energy resources cumulatively creates a different set of environmental and related socioeconomic impacts." (Comments of PG&E, July 24, 1995, at p. 14.)
Having concluded that we will prepare an EIR, we agree with PG&E that we should "proceed with the EIR process to avoid potential delay, rather than focus its efforts on changes to the proposals which might avoid the need for CEQA review." (Id.) For this reason we will dispense with the preparation of an initial study and prepare an EIR on the restructuring policy described in this decision. (Fn. 1)
Within 100 days of the effective date of this decision, CACD shall issue a Notice of Preparation of an EIR (NOP) and retain the services of a qualified professional environmental consultant who will be approved by the Commissioners. This consultant will work with the Commission to prepare an EIR which will present the analysis of the environmental impacts of the policy adopted in this decision, compare environmental effects of the alternatives and, if necessary, identify mitigation measures for any potentially significant impacts. Due to the general nature of our policy, the scope of this EIR will be more conceptual than a site-specific EIR would be. This EIR will attempt to anticipate likely future scenarios that could develop under our policy, and will therefore contain a more general discussion of impacts, alternatives, and mitigations than is typical for discrete, site-specific projects. Additionally, the EIR may incorporate or refer to the Environmental Impact Statement (EIS) being prepared by FERC under the National Environmental Policy Act on its MegaNOPR. The Commission is committed to complying with all relevant CEQA requirements. Further details on the EIR preparation process will be issued in our forthcoming NOP.
1. Each of the electric utilities shall reimburse the Commission for CACD's costs in preparing this EIR, and shall share and recover these costs in the manner employed to allocate and recover the Public Utilities Commission Reimbursement Account fees. We further direct the Executive Director to ensure that all due diligence is used by this Commission to control the costs of preparing this EIR in full compliance with CEQA and Rule 17.1.