Save Our Carmel River v. Monterey Peninsula Water Management District

We find that section 15302 of the Guidelines, which provides that the replacement of an existing structure or facility is exempt from CEQA review, does not apply to the water credit transfer here. We further find that the Water District’s approval of the transfer was not supported by substantial evidence in the record, in part because it was based on the City’s exemption determination as lead agency, but also because the record reflected that the Water District did not consider the possible cumulative impacts of the water credit transfer, as expressly required by its rules. We will therefore reverse the trial court’s denial of the writ of mandate and direct that the court enter an order granting the writ of mandate.

BACKGROUND

The Monterey Peninsula Water Management District was created by the state Legislature in 1977, based on findings that integrated water management was necessary because of severe water shortages in the area. The mandate of the Water District is to conserve and augment existing water supplies and to prevent waste and unreasonable use of those supplies. (72 B West’s Ann. Wat. Code-Appen. (1995 ed.) § 118-2.) Nearly 25 years later, this court wrote that “[i]t is well documented that water availability is a critical problem throughout Monterey County . . . .” {Save Our Peninsula Committee v. Monterey County Bd. of Supervisors (2001) 87 Cal.App.4th 99 , 108-109 [ 104 Cal.Rptr.2d 326 ].) We noted that a Monterey County ordinance passed in 1988 found that “ ‘the potential exists that Monterey County’s allocation of water will be exhausted so as to pose an immediate threat to the public health, safety, or welfare.’ ” {Ibid.)

The Califomia-American Water Company (Cal-Am) is the main water supplier on the Monterey Peninsula, serving approximately 90 percent of the water users throughout the Monterey Peninsula Water District. Cal-Am draws on two principal sources of water for its customers: the Carmel River Basin and aquifers in the Seaside Basin. The primary source of Cal-Am’s water supply is the Carmel River, either via surface diversion or from a number of

As part of its oversight of water allocation and distribution, the Water District established a program whereby a water customer may obtain and reuse water credits when water use on a particular property is reduced or discontinued. This program is described in District Rule 25.5. A reduction of water use, whether by changing to a less intensive use, by retrofitting equipment with water conserving devices, or by abandoning or demolishing a building, results in a water credit that may be used later on the same site.

The property owner applies to the Water District for the water credit and the Water District calculates the amount of the credit based upon the number and types of water-using fixtures that will be discontinued. A 15 percent reduction is figured into the credit, to be reserved by the Water District pursuant to its mandated conservation program. (See District Rule 25.5-A.l.) Thus the credit received by the water customer is only 85 percent of the reduction in capacity.

Under Rule 25.5-A.l, a documented water credit obtained from the Water District “may be applied to, and shall allow future water use on that Site at any time within a period of 60 months.” The owner may apply for one extension of the 60-month period. However, after this time, “any remaining unused Water Use Credit shall expire.” There are no provisions for further extensions.

B. The Water Credit Transfer Program—District Rule 28-B

In 1993, the Water District began the Water Credit Transfer Program as a means to facilitate commercial expansion in the community while also supporting the Water District’s conservation goals. Under the Water Credit Transfer Program, transfers of documented water credits (for commercial and industrial property only) are allowed from an existing commercial use to an expanding commercial use in the same jurisdiction. In 1995, a provision was added to the rule authorizing a transfer from a commercial use to a jurisdiction’s water allocation. Water credit transfers must be approved by the Water District Board of Directors (Board), with prior approval of the jurisdiction in which the property is located.

In a property-to-property water credit transfer, the credit may only be used for water use intensification purposes, “as proposed by a current application for a water permit.” (Rule 28-B.7.) Transferred credits “shall not be ‘banked’ for future use at any new or different site.” (Rule 28-B.7.) In a property-to-jurisdiction water credit transfer, the future use of the credits “shall be at the discretion of the jurisdiction.” (Rule 28-B.8.) The effect of

Because any water credit is subject to a 15 percent reduction and reservation by the Water District pursuant to Rule 25.5, only 85 percent of the water use capacity is actually transferred in a water credit transfer. Thus a “key assumption” of the water credit transfer program is that “transfers will result in net reduced water use.”

In 2000, in order to test this assumption, the Water District ordered a report to determine whether or not water demand had actually been reduced as a result of the water credit programs. The preliminary, report indicated that the anticipated water savings from the water credit transfer program were not occurring. There were concerns that commercial water use factors did not accurately reflect actual historic water use at the transferring site. A final study completed in 2001 was “inconclusive” due to the lack of sufficient verifiable data. The data that was collected showed an increase in acre-feet of water actually used as a result of the water credit transfer program, rather than a decrease.

In 2002, the Water District determined that “the water transfer program had not resulted in the anticipated savings that had originally motivated the program and, in some cases, may have resulted in an increase in water usage.” The water credit transfer program was discontinued, but was then reinstated the following year, in 2003, in response to a lawsuit by some of the Water District’s jurisdictions. In reinstating the program, the Water District clarified that approval of a water credit transfer application is a discretionary act by the Board that requires environmental review. This language was added to District Rule 28-B.l: “Due to the District’s ongoing concern about the viability of the available water supply and the possibility that water transfers may result in additional water usage, water transfers shall be approved by the Board of Directors, subject to the other provisions of this Rule, if the transfer will not have an adverse impact on the water supply. In exercising its discretion, the Board of Directors shall consider the impacts of the application under consideration, as well as the cumulative impacts of other transfers, on the water supply.”

In enacting the 2003 ordinances that reinstated the Water Credit Transfer Program with an additional requirement for individual environmental assessment, the Water District Board indicated an intent to prepare an EIR to address concerns about the program in general, including whether it was accomplishing its water savings goals or whether it was, according to a staff

The case before us concerns only the first step of the process, namely the determination that the project was categorically exempt from CEQA.

A. Categorical Exemptions

The Legislature has authorized the Secretary of the Resources Agency to adopt a list of classes of projects determined to be exempt from CEQA because they “do not have a significant effect on the environment.” (§ 21084.) Such classes of projects are “declared to be categorically exempt from the requirement for the preparation of environmental documents.” (Guidelines, § 15300.) The determination whether a project is exempt under one of these classes is made as part of the preliminary review process prior to any formal environmental evaluation of the project. (City of Pasadena v. State of California (1993) 14 Cal.App.4th 810 , 820 [ 17 Cal.Rptr.2d 766 ], disapproved on another point in Western States Petroleum Assn. v. Superior Court (1995) 9 Cal.4th 559 [ 38 Cal.Rptr.2d 139 , 888 P.2d 1268 ].) If the agency determines one of the exemptions applies, the agency may prepare and file a notice of exemption, including a description of the project, a finding that the project is exempt under the relevant class or classes, and a brief statement of reasons supporting the finding. (Guidelines, § 15062, subd. (a).) “Where a project is categorically exempt, it is not subject to CEQA requirements and ‘may be implemented without any CEQA compliance whatsoever.’ ” (Association for Protection etc. Values v. City of Ukiah (1991) 2 Cal.App.4th 720 , 726 [ 3 Cal.Rptr.2d 488 ].)

B. Exceptions to Exempt Status

The categorical exemptions are not absolute. Even if a project falls within the description of one of the exempt classes, it may nonetheless have a significant effect on the environment based on factors such as location, cumulative impact, or unusual circumstances. “[Wjhere there is any reasonable possibility that a project or activity may have a significant effect on the environment, an exemption would be improper.” (Wildlife Alive v. Chickering (1976) 18 Cal.3d 190 , 205-206 [ 132 Cal.Rptr. 377 , 553 P.2d 537 ].) Guidelines section 15300.2 was adopted in recognition of this rule. It sets forth several exceptions to the categorical exemptions.

Subdivision (b) provides that “[a]ll exemptions for these classes are inapplicable when the cumulative impact of successive projects of the same type in the same place, over time is significant.” (Guidelines, § 15300.2, subd. (b).) Subdivision (c) provides that “[a] categorical exemption shall not be used for an activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.” (Guidelines, § 15300.2, subd. (c).)

A determination by the agency that a project is categorically exempt constitutes an implied finding that none of the exceptions applies. {Association for Protection etc. Values v. City of Ukiah, supra, 2 Cal.App.4th at p. 731.)

In

November of 1994, a commercial building complex located on Foam Street in Monterey, totaling approximately 11,274 square feet, was demolished. The uses in the building complex included a plumbing shop, barber shop, bakery, massage parlor and antique store. Based on the number of fixtures on file property, the Water District calculated a water credit of 0.789 acre-feet. A coordinated commercial development was planned in phases for the entire block of properties where the Foam Street property is located. In the first phase, the property where the building was demolished was to be used as a parking lot. That has been its continuing use since 1994.

On September 28, 2004, the City responded to the inquiry from Water Demand Manager Pintar. City Planner Richard Rerig explained that upon review he had determined that the water credit transfer could not have a significant effect on the environment. The letter notified the District that the City had found the water credit transfer to be exempt from CEQA and that the City had filed a Notice of Exemption.

The administrative record does not contain any further evidence of any environmental evaluation of the water credit transfer by the City. However, in a declaration later provided to the court, City Planner Rerig stated that it was his opinion that the water credit transfer “could not possibly have a significant effect on the environment.” He determined there were no cumulative impacts from this water credit transfer because any new building on the site would be required to use 15 percent less water than the buildings that previously occupied the site, due to the mandatory 15 percent reduction of the credit under the Water District’s conservation policy.

At the October 18, 2004 board meeting of the Water District, Water Demand Manager Pintar recommended that the water credit transfer be approved. Pintar noted that the Water District would retain 15 percent of the credit, resulting in a net transfer of .671 acre-feet. She concluded that the transfer met the requirements of District Rule 28-B. The staff report explained that the transfer would not result in cumulative impacts because the City had found it was categorically exempt from CEQA. The report acknowledged that this was the first water credit transfer application that the Water District Board had considered since the language had been added to Rule 28-B.l mandating consideration of adverse impacts on the water supply, and expressly requiring the Board to consider the cumulative impacts of other transfers. In response to a question by a Board member regarding the cumulative impacts of transfers of other water credits due to expire, Pintar conceded she “did not look at similar properties with credits that would expire in the near term.”

Appellants submitted a letter to the Board, objecting to the proposed water credit transfer on CEQA grounds, as well as on the basis that it violated the Water District’s own rules. They contended that the water credit transfer did not fall within the Class 2 categorical exemption because it was not a replacement of an existing structure. Furthermore, there was evidence in the record showing environmental impacts from the water credit transfer, in .the form of studies commissioned by the Water District indicating that the net result of water credit transfers was an increase in overall water demand. The letter noted that if the Board approved this transfer, it would be the first time the Board had ever allowed a credit to be transferred to a jurisdiction to be held for future use in order to avoid the 10-year mandatory expiration date. The letter referred to records showing numerous other on-site water credits that could be similarly “banked” by transferring them for a holding period to the City, in the event that the Board established a precedent with the Foursome transfer. The letter pointed out that the Water District rules expressly prohibited banking of water credits for future use. (Rule 28-B.7.) Furthermore, the Rules provided for no exception to the 10-year expiration date in Rule 25.5.

The Board voted to approve the water credit transfer by a vote of 4 to 2. The dissenters expressed concerns about the CEQA exemption and about compliance with District Rule 28-B, particularly the lack of any cumulative impact analysis.

Appellants filed their petition for a writ of mandate on October 25, 2004, contending that the Water District and the City had violated CEQA in approving the water credit transfer based on the Class 2 exemption without any environmental review, and that the Water District in addition had violated its own rules. Appellants asked the court to set aside the approvals of the project. Foursome and Cal-Am participated as real parties in interest.

The court denied the writ petition. The court found that substantial evidence supported the determination that the Class 2 exemption in Guidelines section 15302 applied. The court reasoned that because the credit would not be used for any new or additional structure that was not based on historic use, it fell within the class of exemptions for replacement or reconstruction of existing structures. The court found that no exceptions applied. Acknowledging that studies done by the Water District appeared to show that the water

ANALYSIS

As always, we start with the standards that will guide our review.

A. The City’s Action

The City’s determination that the project was exempt from compliance with CEQA requirements was a quasi-legislative action, where no administrative hearing was held or required. A preliminary determination such as this is subject to judicial review under the abuse of discretion standard in Public Resources Code section 21168.5. (Association for a Cleaner Environment v. Yosemite Community College Dist. (2004) 116 Cal.App.4th 629 , 636 [ 10 Cal.Rptr.3d 560 ]; Association for Protection etc. Values v. City of Ukiah, supra, 2 Cal.App.4th 720 .) Our inquiry focuses on “whether there was a prejudicial abuse of discretion. Abuse of discretion is established if the agency has not proceeded in a manner required by law or if the determination or decision is not supported by substantial evidence.” (§ 21168.5.)

Where the issue turns only on an interpretation of the language of the Guidelines or the scope of a particular CEQA exemption, this presents “a question of law, subject to de novo review by this court.” (Fairbank v. City of Mill Valley (1999) 75 Cal.App.4th 1243 , 1251 [ 89 Cal.Rptr.2d 233 ]; Azusa Land Reclamation Co. v. Main San Gabriel Basin Watermaster (1997) 52 Cal.App.4th 1165 , 1192 [ 61 Cal.Rptr.2d 447 ].) Our task is “to determine whether, as a matter of law, the [project] met the definition of a categorically exempt project.” (Santa Monica Chamber of Commerce v. City of Santa Monica (2002) 101 Cal.App.4th 786 , 792 [ 124 Cal.Rptr.2d 731 ], italics omitted.) Thus as to the question whether the activity comes within the categorical class of exemptions, “we apply a de novo standard of review, not

Where the record contains evidence bearing on the question whether the project qualifies for the exemption, such as reports or other information submitted in connection with the project, and the agency makes factual determinations as to whether the project fits within an exemption category, we determine whether the record contains substantial evidence to support the agency’s decision. (Apartment Assn, of Greater Los Angeles v. City of Los Angeles (2001) 90 Cal.App.4th 1162 , 1173 [ 109 Cal.Rptr.2d 504 ]; Fairbank v. City of Mill Valley, supra, 75 Cal.App.4th at p. 1252; Dehne v. County of Santa Clara (1981) 115 Cal.App.3d 827 , 842 [ 171 Cal.Rptr. 753 ].) There must be “ ‘substantial evidence that the [activity is] within the exempt category of projects.’ [Citation.]” (Magan v. County of Kings (2002) 105 Cal.App.4th 468 , 475 [ 129 Cal.Rptr.2d 344 ].) Generally speaking, the court “may consider only the administrative record in determining whether a quasi-legislative decision was supported by substantial evidence within the meaning of Public Resources Code section 21168.5.” (Western States Petroleum Assn. v. Superior Court, supra, 9 Cal.4th at p. 573.)

An agency’s determination that the project falls within a categorical exemption includes an implied finding that none of the exceptions identified in the Guidelines is applicable. The burden then shifts to the challenging party to produce evidence showing that one of the exceptions applies to take the project out of the exempt category. (Santa Monica Chamber of Commerce v. City of Santa Monica, supra, 101 Cal.App.4th at p. 795; City of Pasadena v. State of California, supra, 14 Cal.App.4th at pp. 824—825, disapproved on another point in Western States Petroleum Assn. v. Superior Court, supra, 9 Cal.4th 559 .) The question whether an exception applies is a question of fact, which is subject on appeal to review for substantial evidence. (Fairbank v. City of Mill Valley, supra, 75 Cal.App.4th at pp. 1259-1260.) Some courts apply the “fair argument” test, holding that an exemption cannot stand if the challengers present a fair argument that an exception applies. (Id. at p. 1259.) Other courts apply an ordinary substantial evidence test. (Id. at pp. 1259-1260.)

B. The Water District’s Action

In reviewing the Water District’s approval of the water credit transfer, where a public hearing was held and an adjudicatory decision was made, we apply the test for administrative mandamus. (Code Civ. Proc., § 1094.5.) “Section 1094.5 clearly contemplates that at minimum, the reviewing court must determine-both whether substantial evidence supports the administrative agency’s findings and whether the findings support the agency’s decision. . . .

In or

der to answer this question, we must first address the threshold issue, as to which the parties disagree, namely what is “the project” in this case?

A. What Is the “Project”?

A “project” under CEQA is a discretionary activity by a public agency that “may cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment . . . .” (§ 21065, subd. (a).) It includes agency approval of “a lease, permit, license, certificate, or other entitlement.” (§ 21065, subd. (c).)

Appellants contend that the project in this case is the transfer of the water use credit from the Foam Street property to the City of Monterey. Foursome argues that this is too narrow a definition of the project. Foursome points out that under the Guidelines definition, a “project” is “the whole of an action.” (Guidelines, § 15378, subd. (a).) In Foursome’s view, the whole project in this case is the replacement of the commercial structure that was demolished on the Foam Street property in 1994. Thus the water credit transfer must be evaluated in this context. The City essentially shares this point of view, arguing that the water credit transfer is simply one of the aspects of the replacement of the building on the Foam Street property, and that the Class 2 exemption applies to all aspects of the project.

Although the Guidelines define a project as “the whole of an action” (Guidelines, § 15378, subd. (a)), an agency action qualifies as a project if it is “necessary to the carrying out of some private project involving a physical change in the environment.” (Simi Valley Recreation & Park Dist. v. Local Agency Formation Com. (1975) 51 Cal.App.3d 648 , 664 [ 124 Cal.Rptr. 635 ],

Foursome contends that the water credit transfer by itself could not possibly cause any direct or indirect change to the environment. As appellants point out, however, courts have considered water credit transfers to have environmental impact. (See, e.g., Save Our Peninsula Committee v. Monterey County Bd. of Supervisors, supra, 87 Cal.App.4th at pp. 129-131.) Furthermore, the record in this case reflects that the State Water Board considered water credit transfers to have an effect on the water supply. And the Water District has expressly stated its “concern about the viability of the available water supply and the possibility that water transfers may result in additional water usage, . . .” (District Rule 28-B.) Thus the Water District, which supervises and manages water distribution in the area, views a water credit transfer to be an activity with possible environmental consequences, and its Board is required in approving a transfer to consider whether it would have “an adverse impact on the water supply.” In this case, if the water credit were not transferred to the City, it would expire under Rule 25.5. Thus the transfer of the credit, to be held for future development of the property, results in an increment of water that will be used rather than conserved. Thus the City’s action can be seen as causing a “reasonably foreseeable indirect physical change in the environment.” (§ 21065, subd. (a).)

For all of these reasons, and bearing in mind that “ ‘project’ is given a broad interpretation in order to maximize protection of the environment” (McQueen v. Board of Directors (1988) 202 Cal.App.3d 1136 , 1143 [ 249 Cal.Rptr. 439 ], disapproved on another point in Western States Petroleum Assn. v. Superior Court, supra, 9 Cal.4th 559 ), we conclude that the water credit transfer in this case was a “project” within the meaning of CEQA. This conclusion is fully supported by the record. Foursome applied here only for a transfer of water credits and the only action taken by the City was to approve the water credit transfer. Furthermore, the City’s Notice of Exemption described the “Project” as a “Transfer of commercial water credit from 784 Foam Street to the City of Monterey.” Similarly, the “Project Title” on the Notice of Exemption was “Water credit transfer from 784 Foam Street to City of Monterey.” And the Water District staff report identified the project as a “Commercial-to-jurisdiction Water Use Credit Transfer.”

The Guidelines provide that certain classes of projects “have been determined not to have a significant effect on the environment.” (Guidelines, § 15300.) Since a determination that a project falls within a categorical exemption excuses any further compliance with CEQA whatsoever, we must construe the exemptions narrowly in order to afford the fullest possible environmental protection. (Azusa Land Reclamation Co. v. Main San Gabriel Basin Watermaster, supra, 52 Cal.App.4th at p. 1193; County of Amador v. El Dorado County Water Agency (1999) 76 Cal.App.4th 931 , 966 [ 91 Cal.Rptr.2d 66 ]; Dehne v. County of Santa Clara, supra, 115 Cal.App.3d at p. 842.) “[Exemption categories are not to be expanded or broadened beyond the reasonable scope of their statutory language.” (Dehne v. County of Santa Clara, supra, 115 Cal.App.3d at p. 842; Mountain Lion Foundation v. Fish & Game Com. (1997) 16 Cal.4th 105 , 125 [ 65 Cal.Rptr.2d 580 , 939 P.2d 1280 ].) These rules ensure that in all but the clearest cases of categorical exemptions, a project will be subject to some level of environmental review.

The Class 2 exemption at issue here consists of “replacement or reconstruction of existing structures and facilities where the new structure will be located on the same site as the structure replaced and will have substantially the same purpose and capacity as the structure replaced . . ..” (Guidelines, § 15302.) Subdivision (b) of this Guideline provides that it applies specifically to “[replacement of a commercial structure with a new structure of substantially the same size, purpose, and capacity.” (Guidelines, § 15302, subd. (b).) On its face, this exemption does not apply to a water credit transfer, which is neither a structure nor a facility and therefore does not fit the elements of this exemption.

The City contends that the exemption applies for the reasons stated on its Notice of Exemption: “The project will transfer a documented water credit from a previously-existing building at 784 Foam Street to the City’s water allocation. The City will then commit the water credit back to the same site with the understanding that the property owner will construct a similar-sized building to that which previously existed on the site.”

Even if we were to consider the water credit transfer at issue here as part of an ongoing project to replace an existing structure, the City’s determination that the requirements of the Class 2 exemption were met must be supported by substantial evidence in the record. (Magan v. County of Kings,

There were no plans, reports or proposals submitted with the application for a water credit transfer that showed a replacement structure to be built on the Foam Street property where the commercial complex was demolished in 1994. The only application to the City consisted of Foursome’s letter of August 24, 2004, which stated that Foursome proposed to build either an “addition” to an office complex or a “new structure,” the purpose of which was not described. Both of these were to be located on sites other than the Foam Street property at issue here. As we have noted, categorical exemptions must be carefully applied and supported by the evidence. (Dehne v. County of Santa Clara, supra, 115 Cal.App.3d at p. 842.) At the very least a Class 2 exemption determination must be based on evidence from which the agency can compare the replacement structure and the existing structure. Foursome’s application letter does not provide this evidence.

We have found no cases applying a Class 2 exemption that have extended its application beyond the reasonable scope of its plain language. The typical application involves an agency’s consideration of plans for reconstruction or replacement of an existing structure. For example, in Dehne v. County of Santa Clara, supra, 115 Cal.App.3d 827 , the applicant submitted plans and proposals to modernize its cement plant. The evidence in the record showed that the new plant would be in the same location as the existing facility, that the new facilities would not extend outside the area bounded by the present facility, that the purpose of the new facility would be the same, and that it would have substantially the same production capacity. (Id. at p. 829.) On review of the agency’s determination that the project was exempt, the court was thus able to evaluate whether the elements of the Class 2 exemption were met and it found that they were. In the case before us, there is no similar factual predicate for the City’s determination of a Class 2 exemption. There is only the City’s “understanding” that a new structure will eventually be built that qualifies for the exemption.

Foursome, the City and the Water District all emphasize the small amount of the water credit at issue here, when viewed in the context of the water supply in the entire region. They argue that a water credit transfer of such a small amount cannot possibly have any significant effect on the environment. This argument does not bear on the Class 2 exemption determination. The size of the project in relation to the surrounding area is not an element of a Class 2 exemption. To the extent that the project’s size is relevant to the cumulative impacts analysis, we will address this issue in that portion of the discussion.

Foursome argues in its briefing on appeal that there may be other CEQA exemptions that apply to the water credit transfer. Since these issues were not raised below, we do not address them here. The City’s exemption determination was based only on Guidelines section 15302. We express no opinion as to whether any other categorical exemption or other CEQA exemption may apply or as to what level of environmental review may be appropriate for this project.

We find as a matter of law that the water credit transfer in this case does not fit the definition of a categorically exempt project under the Class 2 exemption defined in Guidelines section 15302. We further find that substantial evidence in the record does not support City’s determination that the project met the requirements of a Class 2 replacement structure. “An agency abuses its discretion if there is no basis in the record for its determination that the project was exempt from CEQA.” (Davidon Homes v. City of San Jose, supra, 54 Cal.App.4th at p. 114.) We therefore conclude that the City’s exemption determination constituted a prejudicial abuse of discretion. (§ 21168.5.)

IE. The Exceptions to Exempt Status

Since we conclude that the water credit transfer did not come within the Class 2 categorical exemption, we need not reach the next step of the analysis, which focuses on the question whether any exceptions to the exemption apply. Furthermore, the evidence submitted by appellants to support the exceptions they contend applied here was not before the City

Under CEQA law, the City acted as the “lead agency” with the principal responsibility for approving the water credit transfer and preparing any environmental documents. (Guidelines, § 15367.) The Water District was the “responsible agency.” (Guidelines, § 15381.) As the responsible agency, the Water District is entitled to rely on the lead agency’s environmental documents in acting on whatever aspect of the project requires its approval. (§ 21080.1; Guidelines, § 15050, subd. (c).) The responsible agency typically has permitting authority or discretionary approval power over some aspect of the project for which a lead agency is primarily responsible. (§ 21069; Guidelines, §§ 15096, 15381; Citizens Assn, for Sensible Development of Bishop Area v. County of Inyo (1985) 172 Cal.App.3d 151 , 173-175 [ 217 Cal.Rptr. 893 ].) And the “responsible agency may refuse to approve a project in order to avoid direct or indirect environmental effects of that part of the project which the responsible agency would be called on to carry out or approve.” (Guidelines, § 15042.)

Here the water credit transfer program was created by the Water District, which was responsible for ensuring that any water credit transfer complied with its Rules, namely Rule 25.5 and Rule 28-B. The Water District’s approval of the project, although it was based in part on the City’s environmental assessment, was a determination independent from that of the City and must be separately evaluated against the District Rules. As noted, our review of the Water District’s action consists of a determination whether the Water District’s findings supported its decision and whether substantial evidence supported the findings. (Code Civ. Proc., § 1094.5, subd. (b).)

Appellants first contend that in approving the water credit transfer the Water District made no findings that the transfer would not have “an adverse impact on the water supply,” or that it had considered “the cumulative impacts of other transfers[] on the water supply” as required by Rule 28-B.l. We believe the District made sufficient findings. The findings of an administrative agency can be informal so long as they serve the purposes of enabling the parties to determine whether and on what basis to appeal and enabling a reviewing court to determine the basis for the decision. (Topanga Assn, for a Scenic Community v. County of Los Angeles, supra, 11 Cal.3d at p. 517.) Findings may consist of adopting the recommendations in a staff report. (McMillan v. American Gen. Fin. Corp. (1976) 60 Cal.App.3d 175 ,

The Water District staff report acknowledged that Rule 28-B required the Board to approve the transfer “if the transfer will not have an adverse impact on the water supply,” and the same rule further called for “consideration of the impacts of the application under consideration, as well as the cumulative impact of other transfers, on the water supply.” The water demand manager preparing the report found no adverse impact and also identified no “cumulative impact that could result from the proposed transfer.” While these are sufficient findings to support the Board’s decision, that does not end the inquiry. We must in addition determine whether the findings are supported by substantial evidence in light of the whole record. (Topanga Assn, for a Scenic Community v. County of Los Angeles, supra, 11 Cal.3d at pp. 514-515.)

Appellants contend that the evidence does not support the findings contained in the staff report and adopted by the Water District Board. The record supports this contention. The Water District staff report concluded that the water credit transfer would not have an adverse impact on the water supply based solely on the Class 2 exemption determination made by the City. The water demand manager referred to the Notice of Exemption issued by the City and to a letter from the City planner stating that the water credit transfer was “exempt from the provisions of [CEQA].” Since we have concluded that the water credit transfer did not meet the requirements for a Class 2 categorical exemption, the City’s Class 2 exemption determination does not provide substantial evidence for the finding in the Water District staff report, and adopted by the Board, that the transfer would not have an adverse environmental impact.

As to the consideration of the possible cumulative impacts of the water credit transfer, the report concluded there were no cumulative impacts for three reasons: First, the City had impliedly found that there were no cumulative impacts by determining that the project came within a categorical exemption. Second, the City had committed the water credit to be transferred back to the same property for use by a replacement structure of a similar size and capacity as the structure that originally existed on the site. And finally, the transfer in question was a simple transfer involving only one property and was “not a complex transfer involving multiple originating sites or multiple receiving sites.”

Because the City’s Class 2 exemption determination cannot stand, the City’s implied finding under Guidelines section 15300.2, subdivision (b), that the project would have no cumulative impacts, must also fail and cannot suffice

Respondents point out that since the water credit transfer program was instituted in 1993, only 26 transfers have been made, transferring a total of 60.843 acre-feet. They contend that this shows that even the cumulative effect of the transfer program is de minimus. We disagree, for several reasons. The cumulative impact analysis requires the Board to consider changes in the environment resulting from “the incremental impact of the project when added to other closely related past, present, and reasonably foreseeable probable future projects.” (Guidelines, § 15355, subd. (b), italics added.) A consideration of only the past water credit transfers does not fulfill this requirement. This is particularly so since the record indicates that water credit transfers may be on the rise. A previous staff report had acknowledged “the potential for increased utilization of [water credit transfers], particularly as water supplies are less available . . . and transfers provide one of the only ways to obtain a water permit for expanded uses.” Furthermore, the transfer at issue here was the first water credit transfer to be considered by the Board under the revised Rule 28-B, which added the requirement that the Board consider environmental impacts, and specifically cumulative impacts, when considering an application for a water credit transfer. And it was the first such transfer where the credit was to be held by the jurisdiction to be re-transferred to the development site in order to avoid the 10-year expiration date in Rule 25.5. Thus the precedential effect of the approval of this project has some bearing on the cumulative impact analysis.

Foursome and the Water District assert repeatedly' that the water credit transfer at issue cannot possibly have any impact on water resources on the Monterey Peninsula because the State Water Board will count all water credit transfers towards the 11,285 acre-feet water diversion limit imposed by the state board on Cal-Am under Order 95-10. The record citations provided by Foursome and Water District do not support these assertions. The citations reference a staff report prepared for a Water District Board meeting in January of 2004. Staff noted that after the State Water Board issued Order 95-10, the Water District had sought to clarify certain aspects of the order. The executive staff of the State Water Board had responded with several letters. In two of these, the state agency staff had asserted that the water credit transfers may violate both the letter and the spirit of Order 95-10. The State Water Board staff “indicated that it would recommend action to reduce the 11,285 AF Cal-Am diversion limit to correspond with future water allocations associated with water credit transfers.” The actual letters from the State Water Board are not included in our record. There is no evidence that

Finally, respondents insist that the water credit transfer at issue here, even if considered with other water credit transfers, cannot have any cumulative impact or other impact because the Water District reserves 15 percent of the water credit and thus only 85 percent of the credit is transferred, resulting in a net water savings. The evidence in the record shows, however, that because of the method of calculating the water credit, the 15 percent reservation may not be representative of actual water savings. Two studies were ordered by the Water District, and based on these studies the Water District had determined in 2002 that “the water transfer program had not resulted in the anticipated savings that had originally motivated the program and, in some cases, may have resulted in an increase in water usage.” Because of these studies, the Water District actually discontinued the program, and questioned whether it was “exacerbating current environmental damage to local water resources.” When the program was reinstituted, the revised District Rule 28-B expressed the Water District’s continued concern about “the possibility that water transfers may result in additional water usage.”

In sum, based on our review of the record before us, we conclude that the Water District’s finding of no cumulative impacts associated with the water credit transfer was not supported by substantial evidence. Although Rule 28-B.l provided that the Board must consider “the cumulative impacts of other transfers,” staff did not consider evidence of other potential transfers of water credits, particularly those that were facing the 10-year expiration date, and therefore the Board did not have the relevant evidence from which to make an informed decision. As we have noted, this was the first occasion for the Board to apply the new provision in Rule 28-B.l, which acknowledged the Board’s “ongoing concern about the viability of the available water supply and the possibility that water transfers may result in additional water usage,” and which provided that the Board must consider adverse impacts and specifically cumulative impacts of other transfers on the water supply. And it was the first transfer application to be considered by the Board where the water credit was to be held by the jurisdiction for later use, in order to avoid the 10-year expiration date in Rule 25.5.

We express no opinion as to the possible significance of the evidence of any cumulative impacts or as to whether the Board’s consideration of such impacts might change the outcome here.

The order denying a writ of mandate is reversed and the court is directed to issue an order granting the writ of mandate and ordering that the City of Monterey and the Monterey Peninsula Water Management District reverse their approvals of the water credit transfer in accordance with the opinions expressed herein. Appellants are awarded costs on appeal.

Premo, Acting P. J., and Duffy, J., concurred.

On July 21, 2006, the opinion was modified to read as printed above.