`[Federal Register Volume 60, Number 63 (Monday, April 3, 1995)]
[Proposed Rules]
[Pages 16922-16960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7524]




[[Page 16921]]

_______________________________________________________________________

Part II





Department of the Interior





_______________________________________________________________________



Bureau of Reclamation



_______________________________________________________________________



43 CFR Parts 426 and 427



Acreage Limitation and Water Conservation Rules and Regulations; 
Proposed Rule

  Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed 
Rules   
[[Page 16922]] 

DEPARTMENT OF THE INTERIOR

Bureau of Reclamation

43 CFR Parts 426 and 427

RIN 1006-AA32


Acreage Limitation and Water Conservation Rules and Regulations

AGENCY: Bureau of Reclamation, Interior.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This proposed rulemaking would retitle and revise the existing 
Rules and Regulations for Projects Governed by Federal Reclamation Law 
(Part 426) and add new Water Conservation Rules and Regulations (Part 
427). These rules would replace and expand upon existing rules that 
pertain to the administration of the Reclamation Reform Act of 1982 
(RRA) and are in partial fulfillment of the requirements of a 
Settlement Contract between the Department of the Interior, Department 
of Justice, and the Natural Resources Defense Council (NRDC).

DATES: Written comments on these proposed rules and regulations must be 
received by June 2, 1995.

ADDRESSES: Written comments should be mailed to the Westwide Settlement 
Manager, Bureau of Reclamation, P.O. Box 25007 (Mail Code D-5010), 
Denver, Colorado 80225.

FOR FURTHER INFORMATION CONTACT: Concerning part 426, contact Richard 
Rizzi, Bureau of Reclamation, P.O. Box 25007 (Mail Code D-5200), 
Denver, Colorado 80225, telephone (303) 236-1061 ext. 235; concerning 
part 427, contact Craig Phillips, Bureau of Reclamation, P.O. Box 25007 
(Mail Code D-5300), Denver, Colorado 80225, telephone (303) 236-1061 
ext. 265.

SUPPLEMENTARY INFORMATION: The RRA (43 U.S.C. 390aa, et seq.) was 
signed into law on October 12, 1982. It was the culmination of an 
effort to modernize Federal reclamation law. The RRA made a number of 
changes to prior Federal reclamation law while retaining the basic 
principle of limiting the amount of land in ownership which may receive 
water deliveries from Bureau of Reclamation (Reclamation) projects.
    Rules and regulations for implementing the RRA were published in 
the Federal Register (43 FR 54768, Dec. 6, 1983) and became effective 
on January 5, 1984. In 1987, the rules and regulations were amended, 
primarily to implement Section 203(b) of the RRA, which was not 
addressed in the 1983 rulemaking. Revisions also were made to those 
provisions of the rules and regulations pertaining to submission of 
certification and reporting forms, trusts, non-resident aliens, water 
transfers, covenant restrictions, and religious and charitable 
organizations.
    The 1987 rules and regulations and three alternatives were 
evaluated in an Environmental Assessment (EA) published by Reclamation 
in April 1987. The EA concluded that the impacts of the proposed 
rulemaking were primarily economic in nature and that no significant 
impacts to the natural environment would result from the rulemaking. A 
Finding of No Significant Impact concerning the 1987 rulemaking was 
therefore issued by Reclamation on April 8, 1987. The final rules and 
regulations were published in the Federal Register (52 FR 11954, Apr. 
13, 1987) and became effective on May 13, 1987.
    The Omnibus Budget Reconciliation Act of 1987, enacted on December 
22, 1987, included amendments to the RRA. The amendments addressed 
revocable trust agreements, provisions for audits by Reclamation to 
confirm information from reporting procedures, application of full-cost 
water rates for lands under extendable recordable contracts, and 
interest on underpayments or nonpayments. Consequently, further 
proposed amendments to the rules and regulations were evaluated in a 
supplemental EA published by Reclamation in September 1988. The 
supplemental EA concluded that the impacts of the proposed rulemaking 
were primarily economic in nature and that no significant impacts to 
the natural environment would result from the rulemaking. A Finding of 
No Significant Impact concerning the 1988 rulemaking was therefore 
issued by Reclamation on September 23, 1988. The final rules and 
regulations were published in the Federal Register (53 FR 50535, Dec. 
16, 1988) and became effective on January 17, 1989.

Litigation Concerning the RRA Rules and Regulations

    The NRDC and others filed a lawsuit challenging the validity of the 
1987 and 1988 rules and regulations (NRDC v. Underwood, No. Civ. S-88-
375-LKK). On July 26, 1991, the United States District Court for the 
Eastern District of California (Court) granted NRDC's partial motion 
for summary judgment. The Court ruled that Reclamation had not complied 
with the requirements of the National Environmental Policy Act (NEPA) 
and the regulations of the Council of Environmental Quality in 
preparing the EA and the Findings of No Significant Impact in the 
promulgation of the 1987 rules and regulations.
    Reclamation appealed the District Court's decision to the Ninth 
Circuit Court of Appeals. In September 1993, while the appeal was still 
pending, the Department of the Interior (Interior), the Department of 
Justice, and NRDC entered into a Settlement Contract which requires 
Reclamation ``to propose new rules and regulations implementing, on a 
westwide basis, the * * * (RRA) as part of a new rulemaking proceeding 
that comprehensively reexamines the implementation of the RRA.'' The 
Settlement Contract also requires Interior to prepare an environmental 
impact statement (EIS) considering the impact of the proposed rules and 
regulations and alternatives thereto. However, nothing in the contract 
requires Interior to adopt changes to the rules now in effect.
    The required draft EIS has been published separately and notice of 
its availability will be published in the ``notice'' section of the 
Federal Register.

Public Scoping

    A notice of intent regarding the EIS and a notice of intent 
regarding the rulemaking were both published in the Federal Register 
(58 FR 64277 and 58 FR 64336, Dec. 6, 1993). A press release was issued 
on December 29, 1993, and approximately 3,500 information packets were 
distributed to environmental groups, entities that have contracts with 
Reclamation for project water supplies, the media, and other interested 
parties. Public scoping meetings were held in January 1994 to receive 
public input regarding the issues and alternatives to be considered in 
the EIS and rulemaking. Scoping sessions were held in Billings, MT; 
Fresno, CA; Salt Lake City, UT; Phoenix, AZ; Boise, ID; Spokane, WA; 
Portland, OR; and Denver, CO. In addition to the oral comments received 
at the scoping sessions, approximately 150 letters were received.
    Public comments generally focused on 5 areas: process, acreage 
limitations on receipt of project water, water conservation, the 
Settlement Contract, and EIS alternatives. Each comment was considered 
in the development of EIS alternatives, the EIS analysis, and these 
proposed rules and regulations.

Partnerships for Improved Resources Management

    In December 1994, the Commissioner of Reclamation announced a new 
initiative to develop formal partnerships between Reclamation and water 
districts in a collaborative effort to improve the management of water 
and associated resources throughout the Western [[Page 16923]] United 
States. The partnerships will address mutually desirable water 
resources management objectives and provide for public involvement to 
consider the broadest range of traditional and emerging societal needs 
and water resources management solutions.
    Under this initiative, partnerships will be formed with one or more 
districts on a district basis, project basis, or watershed basis. 
Partnerships will involve agricultural water districts, municipal and 
industrial water districts, other Reclamation contractors, and other 
water suppliers and users throughout the 17 Western States. The 
initiative will also provide for State participation in the 
partnerships to assure compliance with State water law and 
consideration of State resources priorities.
    These proposed regulations acknowledge this new partnership 
initiative. Certain requirements are modified if a formal partnership 
with a district achieves the same objectives through similar or 
alternative means. One section specifically allows for this type of 
flexibility: Sec. 426.17 regarding landholder information requirements.

Description and Analysis of Part 426

    Reclamation has taken advantage of the opportunity afforded by the 
NRDC settlement to rework part 426 in its entirety. The majority of the 
changes have been made for the sole purpose of improving the clarity of 
the regulation. Thus, the bulk of the changes do not represent new 
Reclamation policy regarding the RRA, but rather an attempt on 
Reclamation's part to resolve any uncertainty that may have been 
associated with the interpretation of the existing regulations. In some 
cases, these proposed regulations include Reclamation policies that 
have been in effect for some time, but which are not specifically 
covered in the existing regulations.
    However, a number of substantive changes have been proposed. The 
key topics under which substantive changes have been made is summarized 
as follows:
     Reduction in certification and reporting burden
     Definition of lease
     Nonresident alien and foreign legal entity entitlements
     Types of contracts considered additional and supplemental 
benefits
     Application of the RRA to religious and charitable 
organizations
     Application of class 1 equivalency
     Involuntary acquisition and future operation of formerly 
excess land by excess land sellers
     Application of the compensation rate and administrative 
fees in cases of irrigation of ineligible excess land
     New procedures for administrative appeals of RRA-related 
determinations.
    Also, a new ordering of the sections has been proposed with the 
objectives of grouping related topics and of attaining a more logical 
and progressive sequence. For example, Secs. 426.4 through 426.6 would 
address how basic landholding entitlements are determined, followed by 
Secs. 426.7 through 426.9, which would discuss the entitlements of 
particular types of landholders. Sections 426.10 through 426.14 would 
be generally categorized as addressing the status of land under acreage 
limitation laws, and the remaining sections would address 
administrative and miscellaneous provisions.
    Finally, all examples would be deleted from the text of the 
regulations and would be instead included, if necessary, in the 
following section-by-section analysis. This change would make the rule 
more compact, and would promote our effort to improve precision in the 
text of the regulation.

Section-by-Section Analysis

    Section 426.1. The proposed rule would change the title of this 
section from Objectives to Purpose, and the narrative would be 
rewritten to include a straightforward statement as to the purpose of 
these regulations.
    Section 426.2. The existing section on applicability would be 
removed because it is not possible to write a concise, yet accurate, 
statement as to the applicability of these regulations. Because the 
rule's scope of effect is not the same for the various provisions of 
the regulations, Reclamation proposes that the best approach would be 
to have each section speak for itself as to its applicability.
    The proposed Sec. 426.2 defines terms used in the regulation and 
would replace Sec. 426.4 from the existing regulation.
    Numerous changes would be made to the definition section. The more 
significant of the proposed changes are discussed as follows in 
alphabetical order:
    Acreage limitation entitlement, acreage limitation provisions, and 
acreage limitation status would be added to the proposed regulations to 
add precision and to replace the compound term ownership limitation and 
pricing restrictions.
    Arable land would be deleted because the term's only use is within 
the definition of irrigable land. The term arable land is included in 
the existing rules because the definition of irrigable land is based on 
one more useful for formal land classification purposes. It is 
suggested that a simpler definition of the term irrigable land would be 
appropriate for this regulation, and, therefore, a definition of the 
term arable land would be unnecessary.
    Compensation rate would be newly defined in these proposed 
regulations to describe the full-cost charges applied to certain types 
of illegal irrigation water deliveries that are not discovered until 
after they have taken place.
    For conciseness only, the two sentences in the definition of the 
term contract would be merged. In addition, the term agreement was 
added to broaden the definition to ensure all arrangements between 
Reclamation and water users that may be subject to application of the 
acreage limitation provisions are captured.
    Contract rate would be changed to reflect awareness of the fact 
that many contracts do not include per acre or per acre-foot rates. For 
purposes of this part, however, contract rate would mean such a rate on 
a per acre or per-acre-foot basis.
    Direct and indirect would be defined in this proposed regulation 
because they are used in the RRA and are frequently used in the text of 
the regulation. The terms apply in situations wherein land is held 
directly by a landowner or lessee, or indirectly by a party that has a 
beneficial interest in a legal entity that is a landowner or lessee 
(such as a stockholder, partner, or trust beneficiary).
    Discretionary provisions of Title II would be deleted and would be 
replaced with the more concise discretionary provisions. Also, section 
203(b) would be excepted from this definition, since it applies even to 
prior law districts and landholders. Finally, United States Code 
citations would be substituted, as they are more useful in locating the 
relevant statutes.
    District would be changed to replace the phrase eligible to 
contract with can potentially enter into a contract, in order to avoid 
the use of the term eligible, which has its own specific meaning under 
part 426.
    Eligible would be included to reflect its common meaning among 
those familiar with acreage limitation laws: the right to receive 
irrigation water without consideration of the price paid for that 
water. This definition can be compared with that of ineligible.
    Exempt land would be replaced with the term exempt primarily 
because that term can be applied to districts and certain types of 
landholders (e.g., [[Page 16924]] trustees and government agencies), as 
well as to specific land parcels.
    In the definition of the term full cost, Secretary would be changed 
to Reclamation.
    Full-cost rate and full-cost charge are defined to differentiate 
between the two terms.
    Indirect would be added. See the above discussion of the term 
direct.
    The reference to the Internal Revenue Code would be deleted from 
the definition of individual because that concept is covered in the 
definition of dependent.
    Ineligible would be added to reflect that term's common meaning 
among those familiar with acreage limitation laws: The lack of 
eligibility to receive irrigation water at any price. This definition 
can be compared with that of eligible.
    Intermediate entity would be added to define a term used in these 
regulations.
    Irrevocable election would be changed to delete both the reference 
to Title II and the second sentence which presently contains additional 
explanation that is redundant with that contained in the text of the 
existing rule.
    Irrigable land would be changed to be more concise and 
understandable. The phrases from the existing regulation excluding 
permanent buildings, etc., would be transferred to the definition of 
nonexempt land.
    Irrigation land would be modified primarily to exclude land exempt 
from acreage limitation laws. Also, the phrase in a given water year 
would be added to clarify that land which has received irrigation water 
retains irrigation land status for the entire water year, even if 
irrigation is not taking place at any particular time.
    Landholder would be modified to delete the references to the terms 
qualified recipient, limited recipient, and prior law recipient, 
because not all landholders fall into these categories (i.e. government 
agencies, Native American tribes, etc.).
    Landholding would be greatly simplified. The proposed definition is 
clearer, and takes advantage of the new term nonexempt land. It should 
be noted that involuntarily acquired land would be included within this 
definition of landholding.
    Lease would be substantially modified. Under the existing 
regulation, one of the key elements in the definition of lease is the 
assumption of economic risk by the reputed lessee. This definition 
permits the development of arrangements under which an individual or 
legal entity is paid a fixed fee for operating a farming enterprise. 
Since the operator under these arrangements assumes no economic risk, 
Reclamation currently does not deem operator to be in a lease 
relationship. Therefore, under the existing rules, operators are not 
subject to full-cost irrigation water rates.
    The new definition would make possession the singular element 
indicating the existence of a lease. The definition would eliminate 
economic interest as an essential element of a lease (although economic 
risk would remain a factor indicating the existence of a lease). Thus, 
under the proposed regulation, whenever someone other than the 
landowner has possession of nonexempt land, a lease would exist. 
Reclamation would consider fixed-fee operations leases and would 
subject the parties to full cost pricing if possession of the land has 
been transferred, and if nonfull-cost entitlements are exceeded.
    The second and third sentences of the definition would address the 
situation where more than one party has some degree of possession; for 
example, a landowner may contract with a farm manager but may retain 
some decisionmaking authority.
    Reclamation intends the proposed definition of the term lease to 
exclude arrangements between landholders and custom operators, 
employees, lenders, and other landholders with whom farm equipment is 
shared.
    Legal entity would be broadened to include certain types of 
landholding arrangements whose status for acreage limitation purposes 
had been unclear under the existing regulation.
    Nondiscretionary provisions would be modified to eliminate the 
reference to Title II, to include section 203(b), and to include the 
United States Code citation. The second sentence of the current 
definition has been eliminated because that concept is covered 
elsewhere in the regulations.
    Nonexempt land would be newly defined in these proposed regulations 
to replace the compound term irrigable and irrigation land. Nonexempt 
land would be defined more precisely than irrigable and irrigation 
land, and would be used as a concise term to describe, generally, all 
land subject to the acreage limitation provisions of Federal 
reclamation law.
    Nonfull-cost entitlement would be modified to enhance clarity by 
including the defined term nonfull-cost rate.
    Nonresident alien entitlement would be eliminated because, under 
the proposed rules, nonresident aliens would be treated as prior law 
recipients, and their entitlements derived accordingly. This fact would 
be made clear in the definition of prior law recipient.
    Operation and maintenance costs or O&M costs would be newly defined 
in order to clarify the types of activities that are included in the 
calculation of operation and maintenance costs.
    Part owner would be added to define a term that is used in these 
regulations.
    Prior law would be modified primarily to include United States Code 
citations.
    Prior law recipient would be modified to include within the 
definition, nonresident aliens and legal entities not registered in the 
United States. Under the proposed regulations such persons and entities 
could only be prior law recipients. This conclusion results from the 
RRA's definitions of qualified recipient and limited recipient.
    Public entity would be added to define a term that is used in these 
regulations.
    Qualified recipient would be modified to include married couples in 
which only one spouse is a U.S. citizen or resident alien.
    Reclamation fund would be modified to eliminate unnecessary 
language.
    RRA would be added. This term would be used throughout the part as 
it is concise and well understood by most readers.
    Title II would be eliminated in favor of a definition of the term 
RRA which would be used throughout the part.
    Section 426.3. The section in the existing regulations, entitled 
Authority, would be removed because it is redundant with the 
authorities statement that immediately follows the table of contents.
    The proposed Sec. 426.3, Conformance to the discretionary 
provisions, would replace the existing Sec. 426.5 and add a more 
precise description of the section's contents.
    The section would be generally rewritten to eliminate redundancy 
with other sections and paragraphs within the section. Paragraph (a) 
categorically describes the conditions under which districts remain 
subject to prior law. These conditions are summarized in the following 
table:

                                                                                                                                                        
[[Page 16925]]
------------------------------------------------------------------------
        If a district * * *                       then * * *            
------------------------------------------------------------------------
Executes a new or renewed contract   The discretionary provisions apply 
 with Reclamation after October 12,   as of the execution date of the   
 1982.                                new or renewed contract.          
Amends its contract to conform to    The district is subject to the     
 the discretionary provisions         discretionary provisions from the 
 (following the procedures            date it requests the amendment.   
 specified in these regulations)                                        
 and Reclamation amends the                                             
 contract.                                                              
Amends its contract after October    The discretionary provisions apply 
 12, 1982 to provide the district     as of the date that the Secretary 
 with additional or supplemental      executes the contract amendment.  
 benefits (as described in these                                        
 regulations) and the amendment                                         
 includes the district's                                                
 conformance to the discretionary                                       
 provisions.                                                            
------------------------------------------------------------------------

  A new standard RRA contract article is included under paragraph (c) 
to clarify any misconceptions concerning the applicability of the 
Acreage Limitation Rules and Regulations and Reclamation's right to 
administer contracts.
    Another substantial proposed change in the rule would involve 
specific contract actions that would be considered additional and 
supplemental benefits. Under this proposed regulation, Rehabilitation 
and Betterment Act and Small Reclamation Projects Act (SRPA) loans, 
which are not currently considered additional and supplemental 
benefits, would now be considered as such. Any district already subject 
to the acreage limitation provisions that obtains benefits under these 
programs would be required to conform to the discretionary provisions. 
Furthermore, Emergency Fund Act and Distribution Systems Loan Act 
contracts, whose treatment is not clearly established under the current 
rules and policy, would be considered additional and supplemental 
benefits under this proposal. The listing of types of contract 
amendments requiring district conformance to the discretionary 
provisions should not, however, be considered comprehensive.
    Actions pursuant to the Reclamation Safety of Dams Act of 1978 
would be added to the list of items not considered to provide 
additional and supplemental benefits, as provided by statute.
    The following statement and table are being considered as an 
alternative to Sec. 426.3(a)(3)(iv)(F) in the final rules :
    (F) Transfer of water on an annual basis from one district to 
another if the parties to the transfer meet the conditions in the table 
below:

------------------------------------------------------------------------
               Party                              Condition             
------------------------------------------------------------------------
Both districts.....................  Must have contracts with the United
                                      States.                           
District receiving transferred       Must pay a rate that:              
 water.                              --is the higher of the applicable  
                                      water rate for either district;   
                                     --does not result in any increased 
                                      operating losses to the United    
                                      States above those that would have
                                      existed if there had not been a   
                                      transfer; and                     
                                     --does not decrease the capital    
                                      repayment to the United States    
                                      below what it would have been if  
                                      there had been no transfer.       
Recipients of transferred water....  Must pay a rate that is at least   
                                      equal to the actual O&M costs or  
                                      the full-cost rate if the         
                                      recipients would have been subject
                                      to these costs in the absence of a
                                      transfer.                         
------------------------------------------------------------------------

    Paragraph (d), The effect of a master contractor's and 
subcontractor's actions to conform to the discretionary provisions, of 
the proposed regulation has been rewritten for conciseness. The 
following examples illustrate the application of this paragraph:

    Example (1). Assume Districts A, B, and C are members of a water 
conservancy district which entered into a master contract with the 
United States prior to October 12, 1982. The water conservancy 
district has allocated all the irrigation water made available to it 
under the master contract to Districts A and B, pursuant to pre-
October 12, 1982, subcontracts with the conservancy district to 
which the United States is a party. The irrigation water is not made 
available to District C or any other districts or landholders within 
the water conservancy district. Consequently, Districts A and B are 
subject to the acreage limitation and pricing provisions of prior 
law. Districts A and B may amend their subcontracts to conform to 
the discretionary provisions without making it necessary for the 
conservancy district or the other subcontracting entity with the 
conservancy district to so amend their contract or the subcontract.
    Example (2). Assume District XYZ has a pre-October 12, 1982, 
contract with the United States for the delivery of irrigation 
water. The district also has allocated that irrigation water 
pursuant to subcontracts with six subcontracting entities. However, 
the United States is not a party to these subcontracts. A 
subcontractor may choose to conform to the discretionary provisions 
only if it makes the United States a party to the subcontract. Such 
action will not require the prior law master contractor or the other 
subcontractors to so amend.
    Example (3). Assume District A, a master contracting agency, 
executes a water service contract with the United States after 
October 12, 1982. The irrigation water is to be delivered to only 
two of the eight member agencies within District A. Subcontracts are 
executed between District A, the United States, and each of the two 
member agencies to provide irrigation water service to the two 
member agencies. In this instance, the discretionary provisions 
become applicable to only the two member agencies which execute 
subcontracts with District A and the United States.

    Paragraph (e) is new that would explain the effect of a district's 
becoming subject to the discretionary provisions on a landholder's 
status. It would explain how certain indirect landholders in districts 
with an amended contract can conform to the discretionary provisions by 
simply submitting a certification form. The provision would also 
explain how Reclamation would treat direct and indirect landholdings of 
nonresident aliens and foreign entities in amended districts.
    Paragraph (f) would expand on the current rules' discussion of 
individual elections to address the effects of elections by part owners 
on entities and vice versa.
    Section 426.4 in the existing regulations, Definitions, would be 
renumbered Sec. 426.2. The proposed new Sec. 426.4, entitled 
Attribution of land, is intended to clarify how Reclamation would 
attribute land to indirect landholders, and to landholders who are 
[[Page 16926]] part owners or are entities not wholly owned by an 
individual. It would also concisely summarize existing policy regarding 
on how land is attributed for entitlement purposes.
    Paragraph (a) would establish the general rule that individuals and 
entities cannot enhance their entitlements or eligibility through the 
creation or acquisition of legal entities. For example, a prior law 
recipient could not increase his or her 160-acre ownership entitlement 
(see Sec. 426.5) by creating or acquiring an interest in a qualified 
recipient legal entity. Such a prior law recipient would need to 
conform to the discretionary provisions (through district contract 
action or individual irrevocable election) in order to realize an 
increase in his or her entitlements.

    Example (1). Corporation A, a limited recipient that did not 
receive water on or before October 1, 1981, and therefore is not 
entitled to receive irrigation water at a nonfull-cost rate (see 
Sec. 426.6). Such an entity may not gain entitlement to receive 
irrigation water at a nonfull-cost rate by acquiring Corporation B, 
an entity that received water on or before that date. If the latter 
entity were so acquired, irrigation water could be delivered to the 
entities' landholding only at the appropriate full-cost rate.
    The converse is also true. If the entities' roles in the 
preceding example were reversed (that is, if Corporation B acquired 
Corporation A), the landholding of Corporation A could be irrigated 
only at the appropriate full-cost rate as long as Corporation A 
continued to exist. In this case, it should be noted that 
Corporation B, which is eligible to receive irrigation water at a 
nonfull-cost rate, could potentially receive nonfull-cost irrigation 
water on other land in its holding that is not held through 
Corporation A; but any land held by or through Corporation A could 
be irrigated only at full cost.
    Example (2). Corporation C is a qualified recipient which owns 
and irrigates 500 acres. Corporation C is subsequently acquired by 
Corporation D, a limited recipient which received irrigation water 
on or before October 1, 1981, but which currently has no 
landholdings other than Corporation C's 500 acres. On the date of 
acquisition, Corporation C becomes a limited recipient because it 
benefits all the stockholders of Corporation D. Thus, both 
Corporations C and D are entitled to own and irrigate 640 acres (see 
Sec. 426.5), but only 320 acres at the nonfull-cost water rate (see 
Sec. 426.6). Therefore, if all 500 acres are irrigated, the full-
cost water rate must be paid for water delivered to 180 of those 
acres.
    Example (3). The trustees of five irrevocable trusts, each of 
which have six natural persons as beneficiaries, form a partnership 
that holds land subject to the acreage limitation provisions in a 
discretionary district. In order to determine if that partnership is 
a limited or qualified recipient, it is necessary to ascertain how 
many natural persons will benefit from the partnership. In this 
case, 30 natural persons will benefit (none of the trust 
beneficiaries benefit from more than one trust) and, therefore, the 
partnership has the acreage limitation status of limited recipient. 
Although the five trusts are not limited in the amount of land they 
can hold and receive irrigation water at the nonfull-cost rate 
(other than through the entitlements of their beneficiaries) the 
acreage limitation status of the partnership will limit how much 
land can be held through that entity by the trusts and receive such 
water.

    Paragraph (b) would establish that, for purposes of acreage 
limitation entitlements, owned land is attributed to each indirect 
landholder proportionally based on that landholder's interest. 
Paragraph (c) would establish that leased land counts against the 
entitlements of both the owner and the lessee. Paragraph (d) would 
establish that if a series of legal entities has ownership 
relationships with each other, Reclamation would proportionately 
attribute the land to each such entity.

    Example (4). Assume Trust A has two beneficiaries, beneficiary A 
and beneficiary B. Beneficiary A has a 60 percent interest in the 
trust, and beneficiary B has a 40 percent interest. Trust A owns 800 
acres of nonexempt land. Reclamation attributes 480 acres toward her 
ownership entitlement, and beneficiary B must attribute 320 acres 
toward his ownership entitlement.
    Example (5). Assume Corporation C wholly owns Corporation D, and 
that Corporation D owns a 60 percent interest in Corporation E. 
Corporation E leases 500 acres of irrigation land. Reclamation will 
attribute to Corporation E all 500 acres toward the company's 
nonfull-cost entitlement, and Corporations C and D must each 
attribute 300 acres toward their nonfull-cost entitlements.
    Example (6). Attribution to both owner and lessee is 
demonstrated by Farmer A who owns 400 acres of irrigation land which 
she leases to Farmer B. Farmer A must count all 400 acres toward her 
ownership and nonfull-cost entitlements, and Farmer B must count all 
400 acres toward his nonfull-cost entitlement.
    Paragraph (e) addresses how land that is owned by a landholder 
and then is indirectly leased by the same landholder will be counted 
by that landholder.
    Example (7). Farmer A owns 60 acres and leases that land to 
Corporation XYZ that leases a total of 200 acres. Farmer A also owns 
50 percent of Corporation XYZ. Farmer A would claim his 60 owned 
acres, but would not have to claim the entire 200 acres leased by 
Corporation XYZ. Instead, Farmer A would claim 70 acres leased by 
Corporation XYZ (200 acres minus the 60 owned acres times the 50 
percent ownership interest). Accordingly, Farmer A would claim a 
total landholding of 130 acres. If Farmer B was the other part owner 
of Corporation XYZ and leased his 140 owned acres to that entity, 
his claimed landholding would be 170 acres (140 owned acres, plus 
200 acres minus the 140 owned acres times the 50 percent ownership 
interest).

    Paragraph (f) would establish that, for purposes of eligibility, 
land is attributed in its entirety to all direct and indirect 
landholders, unless they hold divided interests. The provision 
acknowledges that irrigation water cannot be delivered to a legal 
entity without benefiting all indirect owners of undivided interests in 
that entity; therefore, all such indirect owners must be eligible in 
order for the entity to be eligible.

    If the interests of the entity's indirect owners are divided, 
however, then the district could deliver irrigation water to the entity 
without necessarily benefiting all such owners. In this situation, it 
may be possible to deliver irrigation water to the entity even if one 
or more of the entity's indirect owners is not eligible.

    Example (8). Assume two qualified recipients, Farmer A and 
Farmer B, form a qualified recipient partnership with equal, 
undivided interests. Farmer A has no landholding outside the 
partnership, but Farmer B owns 960 acres of nonexempt and nonexcess 
land outside the partnership, and has therefore completed his 
ownership entitlement. The partnership has no remaining ownership 
entitlement, because any land irrigated by the partnership would 
cause Farmer B to exceed his ownership entitlement.
    If, however, the partnership agreement in this example provided 
that the partners' interests were separable and alienable, the 
partnership could receive irrigation water on that land attributable 
to Farmer A. It would need to be shown that Farmer B does not 
benefit from the receipt of irrigation water by the partnership.

    Section 426.5 in the existing regulations, Contracts, would be 
renamed and renumbered Sec. 426.3. The proposed new Sec. 426.5, 
Ownership entitlement, would replace Sec. 426.6 of the existing 
regulations. This section would summarize the ownership entitlements of 
individuals and most types of entities, and would be generally 
rewritten for conciseness.
    Paragraph (a) would be rewritten to achieve better organization and 
clarity. Moreover, the reference in the current language to the 
regulation on class 1 equivalency would be deleted because that topic 
is addressed in the discussion of qualified and limited recipient 
entitlement.
    All descriptions of what constitutes qualified, limited, and prior 
law recipients would be deleted because they are redundant with the 
definitions found in Sec. 426.2.
    The trust discussion would be placed in a new Sec. 426.7.
    The following table summarizes the ownership entitlements specified 
in this section:

                                                                        
[[Page 16927]]
------------------------------------------------------------------------
                         The size of his or                             
 If the landowner is       her ownership         Basis of computation   
          a:              entitlement is:                               
------------------------------------------------------------------------
Qualified recipient..  960 acres or class 1   Westwide.                 
                        equivalent.                                     
Limited recipient....  640 acres westwide or  Westwide                  
                        class 1 equivalent.                             
Prior law recipient                                                     
 and is a(n):                                                           
    Individual.......  160 acres............  Westwide for land acquired
                                               after 12/6/79. District- 
                                               by-district for land     
                                               acquired on or before 12/
                                               6/79.                    
    Husband and wife   320 acres............  Westwide for land acquired
     who jointly own                           after 12/6/79. District- 
     equal interest.                           by-district for land     
                                               acquired on or before 12/
                                               6/79.                    
    Surviving spouse.  Up to 320 acres......  Westwide for land acquired
                                               after 12/6/79. District- 
                                               by-district for land     
                                               acquired on or before 12/
                                               6/79.                    
    Child............  160 acres............  Westwide for land acquired
                                               after 12/6/79. District- 
                                               by-district for land     
                                               acquired on or before 12/
                                               6/79.                    
    Joint tenancy or   160 acres per tenant.  Westwide for land acquired
     tenancy-in-                               after 12/6/79. District- 
     common, if                                by-district for land     
     interests are                             acquired on or before 12/
     equal.                                    6/79.                    
    Partnership if     160 acres per partner  Westwide for land acquired
     interests are:                            after 12/6/79. District- 
     alienable,                                by-district for land     
     equal, and                                acquired on or before 12/
     separable.                                6/79.                    
    Partnership if     160 acres total......  Westwide for land acquired
     interests are:                            after 12/6/79. District- 
     not alienable or                          by-district for land     
     not separable.                            acquired on or before 12/
                                               6/79.                    
    Corporation......  160 acres............  Westwide for land acquired
                                               after 12/6/79. District- 
                                               by-district for land     
                                               acquired on or before 12/
                                               6/79.                    
------------------------------------------------------------------------

  The following examples illustrate the application of this section:

    Example (1). Farmer A receives irrigation water on 160 acres 
owned in District X, a district subject to prior law. District X 
subsequently amends its contract to conform to the discretionary 
provisions. Farmer A automatically becomes a qualified recipient by 
virtue of the district decision and is entitled to receive 
irrigation water on a maximum of 960 acres of irrigation land in his 
ownership.
    Example (2). Farmer B and her husband are a qualified recipient 
by virtue of an irrevocable election. They own in joint tenancy 960 
acres of nonexempt land. As a qualified recipient, they may irrigate 
the entire 960-acre landholding. However, they have completed their 
ownership entitlement.
    Example (3). Farmer C and Farmer D are a married couple, and 
each owns 480 acres of irrigation land under separate title in 
District A. District A has amended its contract to conform to the 
discretionary provisions. Even though the land is held in separate 
title, Farmer C and Farmer D as a married couple have reached the 
limits of their ownership entitlement as a qualified recipient.
    Example (4). Farmer E is a citizen of Germany, but has taken up 
permanent residency in the United States. Farmer E owns 160 acres in 
District Y and desires to purchase an additional 800 acres. District 
Y has not amended its contract to conform to the discretionary 
provisions. Farmer E; however, decides to execute an irrevocable 
election. After the election, Farmer E becomes entitled to receive 
irrigation water on 960 acres of owned land. This entitlement as a 
qualified recipient remains in force so long as Farmer E, as a 
resident alien, maintains permanent residency in the United States. 
If Farmer E were to become a U.S. citizen, his eligibility as a 
qualified recipient would, of course, remain in force.
    Example (5). Farmer F is a citizen and resident of Switzerland. 
Farmer F owns 160 acres of irrigation land in District X, a district 
subject to prior law. Subsequently, District X amends its contract 
to conform to the discretionary provisions. Farmer F, as a 
nonresident alien, cannot meet the requirements of either a 
qualified recipient or limited recipient. For that reason, and 
because he owned the irrigation land prior to the district's 
contract amendment, Farmer F may, as set forth in Sec. 426.11(e), 
place the land under recordable contract and receive irrigation 
water at the nonfull-cost rate for 5 years. (If the land were not 
placed under recordable contract or had Farmer F not acquired the 
irrigation land prior to the district's contract amendment, the 160 
acres owned would be ineligible for service until such time as it 
was sold or otherwise transferred to an eligible recipient or Farmer 
F qualifies as a resident alien in the United States.)
    Example (6). ABC Farms is a general partnership comprised of 
four individuals who are qualified recipients and who own equal 
interests in the partnership's 960-acre landownership. The land is 
located in District Z, which is subject to the discretionary 
provisions. Therefore, ABC Farms satisfies the requirements for a 
qualified recipient and may receive irrigation water for all 960 
acres in its ownership. Moreover, the members of the partnership, as 
qualified recipients, may each receive irrigation water on a maximum 
of 720 acres in some ownership or ownerships other than ABC Farms.
    Example (7). Six brothers who are citizens and residents of 
Canada form a family corporation registered in the State of Montana 
with each brother holding equal shares in the corporation. The 
corporation makes an irrevocable election and is therefore a 
qualified recipient entitled to receive irrigation water on 960 
acres or less of owned land. The brothers cannot meet the 
requirements to be qualified recipients since none are citizens of 
the United States or residents aliens thereof. Therefore, each 
brother has completed his 160-acre ownership entitlement as a prior 
law recipient. In a district subject to the discretionary 
provisions, nonresident aliens may receive irrigation water only on 
lands held through legal entities (i.e., indirectly) and may not 
receive irrigation water on land they hold directly.
    Example (8). Corporation A is a qualified recipient receiving 
irrigation water on a landownership of 960 acres. Farmer Brown is 
also a qualified recipient who owns 25 percent of Corporation A and 
farms 800 acres of owned land using irrigation water. In this 
instance, Farmer Brown exceeds his individual ownership entitlement 
by 80 acres and must either divest an appropriate share of his 
ownership in Corporation A or designate 80 acres of his directly 
owned land as excess.
    Example (9). Corporation B and Corporation C, wholly owned 
subsidiaries of Corporation D, each own 500 acres in District Z 
which has amended its contract to conform to the discretionary 
provisions. All three corporations are qualified recipients. The 
landholdings of Corporations B and C are counted against the 
entitlement of the parent corporation, Corporation D. Therefore, 
Corporation D has exceeded its 960-acre ownership entitlement by 40 
acres, and 40 acres must be declared excess.
    Example (10). AAA Land Company, a corporation benefiting more 
than 25 persons and registered in the State of California, owns 320 
acres in District Y. In the absence of district action, the company 
makes an irrevocable election to conform to the discretionary 
provisions. Thereby AAA Land Company becomes a limited recipient and 
is entitled to receive irrigation water on 640 acres or less owned 
westwide.
    Example (11). BBB Fertilizer Company is a corporation registered 
in Nebraska and owns 160 acres of nonexcess and 480 acres of excess 
land in District X, a district subject to prior law. District X 
subsequently amends its contract to conform to the discretionary 
provisions. BBB Fertilizer Company benefits more than 25 persons and 
therefore automatically becomes a limited recipient with a 640-acre 
ownership entitlement. BBB Fertilizer Company may therefore 
redesignate the 480 excess acres as nonexcess.
    [[Page 16928]] Example (12). CDE Development Company is a 
corporation, incorporated in the Greater Antilles, with more than 25 
shareholders. CDE Development Company buys 160 acres in a district 
which has amended its contract to conform to the discretionary 
provisions. However, unless and until such time as CDE Development 
Company establishes itself as a legal entity under State or Federal 
law, it cannot meet the requirements to become a limited recipient, 
and none of its directly held land is eligible for irrigation water. 
Had CDE Development Company been receiving irrigation water on the 
160 acres prior to the district's amendment, it could have placed 
the land under recordable contract as set forth in Sec. 426.11(e)(3) 
and could have continued to receive irrigation water for 5 years.
    Example (13). FGH Corporation is owned by more than 25 
stockholders and is registered in France. IJK Corporation is 
registered in California and is a wholly-owned subsidiary of FGH 
Corporation. IJK owns 640 acres in a district subject to the 
discretionary provisions. IJK is a limited recipient that would 
normally be entitled to irrigate the entire 640-acre landownership; 
however, FGH cannot become a limited recipient because it is not 
registered in the United States. Therefore, FGH has only the 160-
acre ownership entitlement of a prior law recipient. As a result, 
only 160 acres of IJK's owned land is eligible to receive irrigation 
water. The remaining 480 acres must be declared excess.
    Example (14). Farmer G, a prior law recipient, owns 160 acres of 
irrigation land in each of four districts. None of the districts in 
which Farmer G owns land has amended its contract to conform to the 
discretionary provisions, and Farmer G held title to the land prior 
to December 6, 1979. Thus, Farmer G remains eligible to receive 
irrigation water on the 640 acres owned in the four different 
districts.

    Note: If title to the irrigated land changes hands, the 160-acre 
westwide entitlement will automatically apply to the transferred 
land, assuming the new landholder is a prior law recipient.

    Example (15). Farmer H owns 160 acres in each of two prior law 
districts, and all of the acreage is eligible for irrigation water 
by virtue of the fact Farmer H owned the land prior to December 6, 
1979. On January 1, 1983, Farmer H purchased another 160 acres of 
nonexcess land which is located in a third prior law district. The 
land newly purchased in this district must be declared excess, 
except as provided for in Sec. 426.11(d).
    Example (16). Farmer I and his wife own 320 acres of irrigation 
land in each of two prior law districts, for a total of 640 acres. 
The couple purchased both parcels of land in 1976. Farmer I and his 
wife have not made an irrevocable election. Since the land was 
purchased prior to December 6, 1979, Farmer I and his wife are 
entitled to receive irrigation water on all 640 acres. The couple 
has reached the limit of their ownership entitlement.
    Example (17). Farmer J and Farmer K own equal interests in a 
tenancy-in-common which owns 320 acres of irrigation land in 
District Y. District Y has not amended its contract to become 
subject to the discretionary provisions. Both Farmers J and K own 
nonexempt land only through their interests in the tenancy; however, 
Farmer J wishes to purchase additional land in the district so he 
makes an irrevocable election. Since the tenancy remains subject to 
prior law, Farmers J and K may each receive irrigation water on a 
maximum of 160 acres through their interests in the entity. 
Therefore, the tenancy's 320 acres remain eligible to receive 
irrigation water, but the tenancy and Farmer K have both reached the 
limits of their ownership entitlements under prior law. However, as 
a qualified recipient, Farmer J may receive irrigation water on an 
additional 800 acres of owned land.
    Example (18). Mr. and Mrs. L, who purchased all of their owned 
land prior to December 6, 1979, may receive Reclamation irrigation 
water on the 320 acres they jointly own as prior law recipients in 
District A and also on the 100 acres they own in District B. On July 
1, 1991, Mr. and Mrs. L purchase an additional 40 acres in District 
B. Since the 40 acres were acquired after December 6, 1979, all 460 
acres in their ownership must be taken into consideration to 
determine if the newly acquired land is within the couple's 
ownership entitlement. In this case, the total owned acres westwide 
(460 acres) exceeds the couple's maximum westwide entitlement as 
prior law recipients (320 acres). Therefore, the 40 newly acquired 
acres are considered to be excess land and ineligible to receive 
Reclamation irrigation water in the couple's landholding.
    Example (19). EFG Farms, a partnership composed of four 
individuals who hold equal, separable, and alienable interests in 
the partnership, owns 960 acres of nonexempt land located in 
District Y. District Y has not amended its contract to become 
subject to the discretionary provisions. EFG Farms and two of the 
partners are subject to prior law; the other two partners have made 
irrevocable elections. Neither EFG Farms nor any of the partners 
owns irrigation land outside the partnership. Based on these facts, 
each partner may own and receive irrigation water on a maximum of 
160 acres through the partnership. Therefore, 640 of the EFG Farms' 
960 acres are entitled to receive irrigation water; the remaining 
320 acres must be declared excess. The two partners who have made 
irrevocable elections may each purchase and receive irrigation water 
on another 800 acres outside the partnership in order to complete 
their individual 960-acre ownership entitlement for qualified 
recipients.
    Example (20). Corporation GHI owns 320 acres in District Y, a 
prior law district. Corporation GHI's two shareholders, Farmer L and 
Farmer M, hold equal interests in the corporation. Both District Y 
and Farmer L are subject to prior law; however, Farmer M is a 
qualified recipient by virtue of having made an irrevocable 
election. As a corporation subject to prior law, only 160 of 
Corporation GHI's 320 acres can be declared nonexcess. Eighty acres 
of the corporation's nonexcess ownership is attributed toward the 
ownership entitlement of each shareholder. As a prior law recipient, 
Farmer L may receive irrigation water on another 80 acres of 
irrigation land through ownership arrangements outside the 
corporation in order to complete his individual 160-acre ownership 
entitlement. To complete his 960-acre ownership entitlement as a 
qualified recipient, Farmer M may receive irrigation water on an 
additional 880 acres outside the corporation.
    Example (21). Farmer N and Farmer O form a corporation in which 
Farmer N owns a 60 percent interest and Farmer O owns a 40 percent 
interest. Neither individual owns land outside the corporation. 
Farmer N and the corporation are qualified recipients, but Farmer O 
remains subject to prior law. The maximum nonexempt acreage that the 
corporation can own as nonexcess is 400 acres (160 divided by 40 
percent). If the corporation owned more than 400 nonexempt acres, 
this would cause Farmer O to exceed his ownership entitlement.
    Example (22). Farmer P, a qualified recipient, owns 1,400 
nonexempt acres and has designated 960 acres as nonexcess and 
eligible to receive irrigation water. In 1995, Farmer P irrigates 
only 800 acres; however, the entire 960 nonexcess acres are still 
counted against his ownership entitlement.
    Example (23). Farmer Q, a qualified recipient, owns 640 acres 
receiving irrigation water. Farmer Q also owns 320 acres which are 
not in a district, but Farmer Q has individually entered into a 10-
year contract with the United States for irrigation water for that 
land. All 960 acres receiving irrigation water must be counted for 
purposes of determining ownership entitlement.
    Example (24). Farmer R, a prior law recipient, owns 160 
nonexempt acres. However, only 120 acres were deemed irrigable and 
eligible to receive irrigation water. Some years subsequent to this 
determination, Farmer R installed a center pivot irrigation system 
and now irrigates 160 acres with the same amount of water as he once 
used to irrigate 120 acres. For purposes of ownership entitlement 
under the RRA, all 160 acres must be counted.
    Example (25). Farmer S remains under prior law. Farmer S 
irrigates 160 acres of owned land. Subsequently, Farmer S buys, in 
another prior law district, a 160-acre farm which is also receiving 
irrigation water. All the land newly purchased by Farmer S thereby 
becomes ineligible for service except as provided for in 
Sec. 426.11(d). If the 160 acres which Farmer S purchased had never 
received irrigation water and were in an area for which water 
distribution facilities had not been constructed, Farmer S could, as 
provided in Sec. 426.11(d)(1)(ii) or (2)(ii), place the 160 acres 
under recordable contract when the facilities became available to 
serve the land.

    Section 426.6 in the existing regulations, Ownership entitlement, 
would be renumbered Sec. 426.5. The proposed new Sec. 426.6, Leasing 
and full-cost pricing, would replace Sec. 426.7 of the existing 
regulations. This section would describe the conditions under which 
full-cost charges would be applied (see examples 1 through 14), and 
would describe how full-cost rates [[Page 16929]] are determined (see 
examples 15 through 21).
    The paragraph in the existing regulation on what constitutes a 
lease would be deleted because it more properly belongs in the 
definition section.
    Care has been taken to distinguish between the definition of a 
lease and the requirements of a lease. It is important to note that 
failure to meet the requirements of a lease does not mean failure to 
meet the definition of a lease. Thus, for example, it cannot be argued 
that an agreement does not constitute a lease because it is not in 
writing. Rather, a lease which is not written would not qualify for 
treatment as a lease for the purposes of the RRA, and therefore, the 
land associated with the lease would be ineligible to receive 
irrigation water.
    In the discussion of nonfull-cost entitlements, the term irrigation 
land would be used liberally. The reference to exempt land would be 
deleted since use of the term irrigation land automatically excludes 
exempt land.
    The citation regarding extended recordable contracts would be 
deleted because the paragraphs on extended recordable contracts are 
proposed for deletion from Sec. 426.11 of the regulations. (This 
deletion will be addressed in the discussion of section 11.)
    Under the discussion of nonfull-cost entitlements of qualified, 
limited, and prior law recipients, the sentences describing various 
types of land not subject to full cost would be deleted to eliminate 
redundancy with other sections. Land subject to recordable contracts is 
discussed in Sec. 426.11; exempt land does not need discussion because 
it has been excluded through use of the term irrigation land; and 
involuntarily acquired land is addressed earlier in the section.
    The paragraph on multidistrict landholdings would be deleted 
because it is redundant with the discussion of these topics in 
Sec. 426.3.
    The following table summarizes the nonfull-cost entitlements 
specified in this section:

------------------------------------------------------------------------
                                                      The landholder's  
                                                        nonfull-cost    
                                                       entitlement is   
             If the landholder is a:                   computed on a    
                                                     westwide basis and 
                                                            is:         
------------------------------------------------------------------------
Qualified recipient..............................  960 acres.           
Limited recipient who acquired the land:                                
  Prior to or on October 1, 1981.................  320 acres.           
  After October 1, 1981..........................  0 acres.             
Prior law recipient and is a(n):                                        
  Individual.....................................  160 acres.           
  Husband and wife who jointly own equal interest  320 acres.           
  Surviving spouse...............................  Up to 320 acres.     
  Child..........................................  160 acres.           
  Joint tenancy or tenancy-in-common, if           160 acres per tenant.
   interests are equal.                                                 
  Partnership if interests are: alienable, equal,  160 acres per        
   and separable.                                   partner.            
  Partnership if interests are: not alienable or   160 acres total.     
   not separable.                                                       
  Corporation....................................  160 acres.           
------------------------------------------------------------------------

    The application of Sec. 426.6 is illustrated by the following 
examples:

    Example (1). Farmer A, a qualified recipient, receives 
irrigation water on 900 of the 960 acres of nonexempt land in his 
ownership in District X. Farmer A leases and receives irrigation 
water on another 320 acres in District Y. Since Farmer A receives 
water on 260 acres over and above his nonfull-cost entitlement, he 
must select 260 acres of owned land, leased land, or a combination 
of both, and pay the full-cost rate for water delivered to that 
land.
    Example (2). Farmer B, a qualified recipient, owns and receives 
irrigation water on 960 acres in District X. Farmer B decides to 
lease all 960 acres to another qualified recipient, Farmer C. Farmer 
C, however, already farms 960 acres receiving irrigation water. 
Therefore, Farmer C would be eligible for nonfull-cost rate 
irrigation water delivered to only 960 acres.
    Example (3). Farmer D has made an irrevocable election and owns 
and receives irrigation water on 960 acres. Farmer E is subject to 
prior law and owns and receives water on 160 acres. Farmer D hires 
Farmer E to operate Farmer D's equipment in performance of all the 
physical farm work on Farmer D's 960 acres. Farmer E receives 
compensation for such services, which does not consist of a share of 
the crop and is not based, in advance, on the degree of economic 
success or failure of the production or marketing of the crop. 
Farmer D retains at all times the economic risk associated with both 
crop production and marketing from his 960 acres. Farmer D also 
makes all major decisions concerning the farming operation, and 
Farmer E merely carries out Farmer D's instructions. This 
arrangement between Farmer D and Farmer E does not constitute a 
lease because Farmer D has not transferred possession of his land to 
Farmer E.
    Example (4). Assume the same facts as in example 3 of this 
section, except that Farmer E makes the major decisions concerning 
the farming operation. This arrangement between Farmer D and Farmer 
E constitutes a lease because possession of the land has transferred 
from Farmer D to Farmer E. Therefore, Farmer E has exceeded her 
nonfull-cost entitlement by 960 acres and must pay full cost for 
water delivered to 960 acres of her landholding.
    Example (5). Landholder F, a qualified recipient, receives 
irrigation water on 960 acres of owned land in District X and 800 
acres leased in District Y. At the beginning of the water year, 
Landholder F selects 360 owned acres plus 600 leased acres to 
receive irrigation water at the nonfull-cost rate. He pays the full-
cost rate for water delivered to the remaining 800 acres. In July, 
Landholder F terminates the lease on the 600 acres of leased land 
which are part of his nonfull-cost entitlement. However, since 
nonfull-cost acreage is counted against one's entitlement on a 
cumulative basis during any 1 water year, Landholder F has already 
reached the limits of his nonfull-cost entitlement for this water 
year. Therefore, Landholder F may not replace in that water year 
those 600 nonfull-cost acres, even though they no longer receive 
irrigation water, with 600 acres from his full-cost land. Landholder 
F also must pay the full-cost rate for irrigation water delivered to 
any new land he irrigates during that water year.
    Example (6). Landholder G, a qualified recipient, owns and 
irrigates 1,200 acres, 400 of which are subject to a recordable 
contract. Landholder G also irrigates 300 acres leased from another 
party. All of Landholder G's landholding, a total of 1,500 acres, 
counts against his nonfull-cost entitlement; therefore, he is in 
excess of his nonfull-cost entitlement by 540 acres. However, the 
400 acres under recordable contract are not subject to full-cost 
pricing, so Landholder G need select only 140 acres for full-cost 
pricing. The full-cost land may be selected from the nonexcess, 
recordable contract, or leased land in his holding.
    Example (7). ABC Farms remains under prior law. It owns and was 
receiving irrigation water on 160 acres in District X prior to 
October 1, 1981. ABC Farms also owns and irrigates 480 acres in 
another prior law district which are subject to a recordable 
contract. ABC Farms may continue to receive irrigation water at the 
nonfull-cost rate on its entire landholding until the end of the 
recordable contract period. At that time, if ABC Farms remains under 
prior law, only 160 acres in District X may continue to receive 
irrigation water. If ABC Farms makes an irrevocable election prior 
to the maturity of the recordable contract, it may amend the 
recordable contract to allow it to own and receive irrigation water 
on all 640 acres owned. Upon electing, ABC Farms may receive 
irrigation water at the nonfull-cost rate on 320 acres, but it must 
pay the full-cost rate on the 320 acres by which it has exceeded its 
nonfull-cost entitlement.
    Example (8). CDE Farms, a limited recipient, owns 640 acres of 
land eligible to receive irrigation water. The purchase of the land 
took place after October 1, 1981, and CDE Farms was not receiving 
irrigation water on any other land on or before October 1, 1981. 
Therefore, in order for CDE Farms to receive irrigation water for 
any nonexempt land, it must pay the full-cost rate for that 
water. [[Page 16930]] 
    Example (9). FGH Fertilizer Company, a limited recipient, buys 
160 acres of land receiving irrigation water in District X. The 
purchase of the land is made subsequent to October 1, 1981. However, 
the company was receiving irrigation water on 160 leased acres in 
District B prior to October 1, 1981. Therefore, the 160 acres 
recently purchased are eligible to receive irrigation water at the 
nonfull-cost rate. If FGH Fertilizer Company buys or leases 
additional land, the company would have to select and pay the full-
cost rate for any irrigation water delivered to land in excess of 
its 320-acre nonfull-cost entitlement.
    Example (10). The XYZ Corporation, a limited recipient, owns 640 
acres of irrigation land in District A. Since the corporation was 
receiving irrigation water prior to October 1, 1981, it is entitled 
to irrigate 320 acres at the nonfull-cost rate and 320 acres at the 
full-cost rate. If the corporation were to lease the owned land 
subject to full cost to another landholder, the full-cost rate would 
still apply.
    Example (11). Farmer H and her husband receive irrigation water 
on 320 owned acres of irrigation land and on 40 leased acres in 
District X. District X has not amended its contract to become 
subject to the discretionary provisions and Farmer H and her husband 
have not made an irrevocable election. Since Farmer H and her 
husband receive irrigation water on 40 acres in excess of their 320-
acre nonfull-cost entitlement, the couple must select 40 acres in 
their landholding and pay the full-cost rate for water delivered to 
that land. If Farmer H and her husband make an irrevocable election 
or if District X amends its contract to become subject to the 
discretionary provisions, the couple would thereby become a 
qualified recipient with a nonfull-cost entitlement of 960 acres. 
Since their landholding is within that entitlement, Farmer H and her 
husband would be able to receive irrigation water at the nonfull-
cost rate on all 360 acres.
    Example (12). Farmer I and his wife lease 640 acres of 
irrigation land in District X and another 640 acres of irrigation 
land in District Y. Districts X and Y have not amended their 
contracts to become subject to the discretionary provisions and 
Farmer I and his wife have not made an irrevocable election. Since 
the couple has exceeded their 320-acre nonfull-cost entitlement by 
960 acres, Farmer I and his wife must select 960 acres in their 
landholding and pay the full-cost rate for water delivered to that 
land.
    Example 13. Four brothers hold equal, separable, and alienable 
interests in a partnership they formed. The partnership owns 160 
acres of irrigation land in District X and also leases another 320 
acres from another party in District Y. The partnership and both 
districts remain subject to prior law. Since the partnership's 
landholding is within its 640-acre nonfull-cost entitlement (160 
times 4), no full-cost charges will be assessed to water delivered 
to any land in the holding.
    Example (14). Farmer J, a prior law recipient, owns 5,000 acres 
of irrigation land in District X, 4,900 of which are under 
recordable contract. He also receives irrigation water on another 
320 acres which he leases in this same district. Thus, Farmer J is 
receiving irrigation water on 5,160 acres (5,320 minus 160) in 
excess of his nonfull-cost entitlement. However, his recordable 
contract land is not subject to full-cost pricing; therefore, Farmer 
J must select 260 acres (5,160 minus 4,900) for full-cost pricing. 
Although his recordable contract land is not subject to full-cost 
pricing, Farmer J may, at his option, select part or all of the 260 
full-cost acres from the land under recordable contract in lieu of 
his nonexcess or leased land.
    Example (15). District A contains 90,000 irrigable acres. The 
construction costs allocated to irrigation for the project and to be 
repaid by District A amount to $240 million. As of October 12, 1982, 
the district's accumulated repayments are $174 million, and 11 years 
remain on its contract term. The established annual contract rate is 
$66.67 per acre. This amount repays the outstanding balance of the 
contractual obligation ($66 million, or $733.33 per acre) in 11 
years. The applicable interest rate is determined to be 7.5 percent; 
therefore, the equal annual payments for full cost would be $100.24. 
This payment is calculated using standard amortization procedures 
and is the annual payment necessary to retire a debt of $733.33 at a 
7.5 percent rate of interest over 11 years. This full-cost charge 
will apply regardless of when District A amends its contract. Full 
O&M charges must be added to this charge and included in the 
assessment for any landholder subject to full-cost rates.
    Example (16). District B has a water service contract that 
establishes a rate of $6.50 per acre-foot for 90,000 acre-feet of 
water delivered to the district, a rate which is fixed over the 
remaining 10 years of the contract term. Currently, $1 of the $6.50 
rate is used to pay annual O&M charges. The remainder is credited to 
the repayment of irrigation construction costs, although inflation 
over the next 10 years is expected to leave a $5 per acre-foot 
payment to irrigation, averaged over the remaining 10 years. The 
construction costs to be repaid from irrigation revenues and 
assignable to be repaid by the land in District B are $24 million, 
and the district has paid $15.5 million of those costs to date.
    As of October 12, 1982, the accumulated payments credited to 
repayment on construction are $15.5 million. The unpaid balance for 
full cost is $8.5 million ($24 million minus $15.5 million), and the 
applicable interest rate is determined to be 7.5 percent. Amortizing 
the unpaid balance over the remaining contract term of 10 years 
results in an annual full-cost charge of $1,384,016, or $15.38 per 
acre-foot. Full O&M charges must be added to this charge and 
included in the assessment for any landholder subject to full-cost 
rates. Upon expiration of the current contract, the district expects 
to enter into a subsequent water service contract in order to expand 
its water deliveries. If District B desires to amortize its unpaid 
balance for full cost over a longer period than 10 years, it can 
choose to renegotiate its existing contract before the current 
contract expires to bring it into conformance with current 
Reclamation policy. When the district renegotiates its contract, the 
unpaid balance for full cost could be reamortized, at the district's 
option, for any period up to the term of the new water service 
contract, which cannot exceed the repayment period authorized by 
Congress. For example, suppose the new water service contract runs 
for 18 years and is executed immediately. If the district chooses to 
amortize full cost over the longest permissible repayment period (18 
years), then the full-cost charge would be $10.88 per acre-foot. If 
the district chooses to amortize over 15 years, the full-cost charge 
would be $11.96 per acre-foot, assuming the unpaid costs remain the 
same.
    Example (17). District C contains 90,000 irrigable acres, and 
the construction costs allocated to irrigation for the project and 
assignable to be repaid amount to $240 million. As of October 12, 
1982, the accumulated repayments of the district are $174 million. 
The district's repayment obligation is $200 million. (The $40 
million difference between construction costs allocated to 
irrigation and the repayment obligation is scheduled to be paid from 
other project revenues.) The unpaid obligation on District C's 
repayment contract is $26 million, and 11 years remain on its 
contract term. The annual rate established by the contract is $26.26 
per acre. This amount repays the outstanding balance of the 
contractual obligation in 11 years. As of October 12, 1982, the 
unpaid balance for full cost is $66 million (allocated cost, less 
payments) or $733.33 per acre, and the applicable interest rate is 
determined to be 7.5 percent. Therefore, the equal annual payment 
for full cost would be $100.24 per acre.
    Example (18). District D has a 40-year water service contract 
for 90,000 acre-feet of water per year. The District's current 
contract expires in 1997 and will be renewed for another 40-year 
term, resulting in an expiration date of 2036. Construction costs 
assigned to District D are $24 million, and such costs are to be 
repaid from irrigation water service revenues. As of October 12, 
1982, the accumulated payments credited to construction costs are 
$15.5 million. The unpaid balance for full cost is $8.5 million and 
the applicable interest rate is determined to be 7.5 percent. Water 
service rates for this project are designed to completely repay 
applicable expenditures by the end of the authorized repayment 
period, which occurs in 2030. Amortizing the unpaid balance over the 
remaining authorized repayment period of 48 years results in an 
annual full-cost charge of $657,945 or $7.31 per acre-foot. Normal 
O&M charges would be collected annually in addition to this rate. It 
should be noted that even though the contract renewal extends beyond 
2030, the repayment period is limited to the authorized repayment 
period ending in 2030, with full-cost charges calculated 
accordingly.
    Example (19). Farmer K, a qualified recipient, owns 960 acres 
receiving irrigation water in Alpha Irrigation District. Farmer K 
also leases 100 acres receiving irrigation water in Alpha Irrigation 
District from another party. Alpha Irrigation District's repayment 
contract specifies an annual assessment of $5 per irrigable acre. 
Alpha Irrigation District's annual full-cost rate is 
[[Page 16931]] calculated to be $15 per irrigable acre. Therefore, 
Farmer K's total water charge for that year is (960 acres times $5) 
plus (100 acres times $15), for a total of $6,300.
    Example (20). Farmer L and his wife own 320 acres receiving 
irrigation water in Beta Irrigation District and lease another 320 
acres receiving irrigation water in the same district. Farmer L, his 
wife, and Beta Irrigation District all remain subject to prior law. 
Beta Irrigation District's water service contract specifies a rate 
of $10 per acre-foot, and its full-cost rate is calculated to be $25 
per acre-foot. Farmer L has a turnout and measuring device to the 
320 acres he has selected to pay full cost, and a separate turnout 
and measuring device to the 320 acres receiving water at the 
contract rate. At the end of the water year, district records show 
that Farmer L received 1,000 acre-feet of water on his full-cost 
land, and 1,050 acre-feet of water on his nonfull-cost land. These 
measurements are judged to be accurate and reliable; therefore, 
Farmer L's water charges for that year are (1,000 acre-feet times 
$25) plus (1,050 acre-feet times $10) for a total of $35,500. If 
accurate records showing the amounts of water delivered to Farmer 
L's full-cost and nonfull-cost land had not been maintained, it 
would have been necessary to assume that equal amounts of water per 
acre had been delivered to both types of land. Without accurate 
water delivery records, Farmer L's water charges for that year would 
have been (1,025 acre-feet times $25) plus (1,025 acre-feet times 
$10) or $35,875.
    Example (21). Farmer M, a qualified recipient, leases 1,000 
acres in Gamma Irrigation District where the contract rate is $5 per 
acre-foot, and the full-cost rate is $15 per acre-foot. Farmer M 
applies irrigation water to 960 acres and irrigates the remaining 40 
acres from a private well. In 1 particular year, Farmer M applied 
water to the land six times during the irrigation season; but in the 
final two applications, his well failed, so he chose to apply 
irrigation water to his entire landholding. Because there were no 
separate measuring devices for the 40 full-cost acres, it was 
necessarily assumed that equal amounts of water per acre were 
applied to the full-cost and nonfull-cost land during the final two 
applications of water. Gamma Irrigation District's record showed 
that 600 acre-feet were delivered to Farmer M during each of the 
first four applications, and 625 acre-feet during each of the last 
two applications. Farmer M's water charges for that year were 
calculated as follows: The first four applications did not include 
any full-cost water; therefore, the appropriate charge was (4 times 
600 acre-feet  x  $5) or $12,000. The final two applications were 96 
percent contract rate and 4 percent full cost. Thus, the appropriate 
charges were (2 times 625 acre-feet times .96 times $5) plus (2 
times 625 times .04 times $15), or $6,750. Farmer M's total charge 
for the year was $12,000 for the first four applications plus $6,750 
for the last two applications, for a total of $18,750.

    Section 426.7 of the existing regulations, Leasing and full-cost 
pricing, would be renumbered Sec. 426.6. The proposed new Sec. 426.7, 
Trusts, would be a new section devoted to describing the requirements 
and entitlements of trusts. This new section would not alter existing 
Reclamation policy regarding trusts, but would include some existing 
policies that are not referenced in the current regulation.
    Paragraph (a) would define the three categories of trusts. The 
effects of inclusion or absence of required elements of each category 
of trust would be described in paragraph (b)
    Paragraph (b)(1) would establish that land held by an irrevocable 
trust would be attributed to the trust's beneficiaries, provided that 
the trust agreement is in writing, has been approved by Reclamation, 
and the beneficiaries and that their interests are identified. 
Otherwise, the land would be attributed to the trustee.
    Paragraph (b)(2) would describe attribution of trusted land in the 
case of a revocable trust that provides for reversion of the trusted 
land to the grantor upon revocation. Land held by trusts in this 
situation would be attributed to the grantor(s) of the trust, 
conditioned on the facts immediately prior to the transfer of the land 
to the trust, if specified criteria are met.
    Paragraph (b)(3) would describe attribution of trusted land for all 
types of revocable trusts other than those covered under paragraph 
(b)(2). Land held by trusts in this category would be attributed to 
either the beneficiaries or to the trustee, depending on whether 
specified criteria are met. If the revocable trust, however, does not 
specify its grantors, the conditions under which it may be revoked, or 
to whom the land would revert upon revocation, the trusted land would 
be ineligible to receive irrigation water until these issues were 
resolved.
    Application of this section is illustrated by the following 
examples:

    Example (1). Bank X is the trustee for five irrevocable trusts, 
each of which has more than one beneficiary. The irrevocable trusts 
contain 1,280, 960, 640, 800, and 400 acres, respectively, and all 
meet the criteria set forth in Sec. 426.7(b)(1). All trust 
beneficiaries are qualified recipients, and none has any 
landholdings outside of the trusts. Since all the trusts' land is 
attributable to the trust beneficiaries, and Reclamation determines 
all the beneficiaries are within their ownership and nonfull-cost 
entitlements, all 4,080 acres in the five irrevocable trusts are 
eligible to receive irrigation water.
    Example (2). Farmer A, a qualified recipient, provides in his 
will for the establishment of a trust and the conveyance of 640 
acres of his land receiving irrigation water into that trust for his 
daughter upon his death. The trust meets the criteria set forth in 
Sec. 426.7(b)(1). The land is located in a district which has 
amended its contract to conform to the discretionary provisions. The 
brother, who is designated as trustee for the trust, owns 800 acres 
in the same district which receives an irrigation water supply. 
Farmer A dies, and the testamentary trust he has established is 
activated. The trust's land is attributable to the daughter as the 
sole trust beneficiary. Therefore, the trust's land is eligible to 
receive irrigation water at the nonfull-cost rate, assuming the 
daughter has not exceeded her acreage limitation entitlements as a 
result of this action.
    Example (3). Farmer B, a qualified recipient, owns 960 acres 
eligible to receive irrigation water in a district subject to the 
discretionary provisions. He decides to place 160 acres of his land 
in an irrevocable trust with his daughter as the life tenant. The 
trust agreement satisfies the criteria of Sec. 426.7(b)(1). The 160 
acres of trust land shall be attributed to the daughter's 
entitlement if she is independent. If she is dependent, the 160 
acres of trust land shall be attributed to Farmer B as her parent or 
to the person who is acting as her guardian.
    Example (4). ABC Corporation, a prior law recipient, establishes 
a grantor revocable trust and places 160 acres of land receiving 
irrigation water in the trust for the benefit of J. Jones. The trust 
agreement satisfies all criteria of Sec. 426.7(b)(2). Under the 
terms of the revocable trust, the trust will terminate and title to 
the 160 acres will revert back to ABC Corporation in 10 years. All 
160 acres of the land in trust are attributed to the corporation and 
to the corporation's stockholders in proportion to their percent of 
stock held in the corporation.
    Example (5). Assume the same facts as in Example 4 above, except 
that Corporation X, a legal entity fully independent of ABC 
Corporation, contributes the 160 acres to the trust created by ABC 
Corporation. In this example, the 160 acres are attributed to the 
beneficiary of the trust, J. Jones, since the criteria for 
attribution to the grantor (Corporation X) have not been met, 
namely, the 160 acres will revert in 10 years to the trustor (ABC 
Corporation), not the grantor, and the grantor does not have the 
power to revoke the trust. As such the trust is in fact an otherwise 
revocable trust.
    Example (6). Farmer C, a qualified recipient, places 960 acres 
of land receiving irrigation water in a trust for his son. The trust 
agreement satisfies all criteria of Sec. 426.7(b)(2) and (3). It 
provides that the trust shall expire in 20 years, and ownership of 
the trust land shall be vested in Corporation Y, of which Farmer C 
is a part owner with 5 percent interest. Because title to 5 percent 
of the trust land will revert indirectly to Farmer C upon 
termination of the trust, 48 acres (960 times 5 percent) of the 
trust land are attributed to Farmer C. The remaining 912 acres of 
trust land is attributable to the beneficiaries of the trust. If 
Farmer C's interest in Corporation Y changes during the term of the 
trust, the amount of trust land attributed to Farmer C will change 
accordingly.

    Section 426.8 of the existing regulations, Operation and 
Maintenance (O&M) charges, would be renumbered Sec. 426.22. The 
proposed new Sec. 426.8, Religious or charitable organizations, would 
replace Sec. 426.15 of the existing [[Page 16932]] regulations. This 
section would describe the entitlements of these types of 
organizations.
    Paragraph (a) would define religious or charitable organizations 
for the purpose of this section. The titles of paragraphs (b) and (c) 
would be modified to reflect their application to both the ownership 
and nonfull-cost entitlements of religious and charitable 
organizations. This change would eliminate the need for paragraph (d) 
in the existing regulation.
    A more significant modification would change the consequences of 
failure by a subdivision of a religious or charitable organization to 
satisfy the three criteria established by the RRA. Under the current 
rules, failure by such a subdivision to meet these criteria results in 
the entire organization being reduced to the entitlements of a single 
limited recipient. Under the proposed rules, only the subdivision in 
question would be affected by its failure to meet the criteria; the 
central organization and other subdivisions would be unaffected.
    The new language would also establish that the qualified or limited 
recipient status of a subdivision which fails to meet the three 
criteria would be determined by counting the subdivision's membership. 
Thus, most subdivisions which fail to meet the criteria would be 
treated as limited recipients.
    Paragraph (d) on leasing would be deleted as unnecessary. The 
provisions establishing that religious or charitable organizations are 
treated either as qualified or limited recipients would eliminate any 
need for a separate statement regarding leasing. The proposed paragraph 
(d) on affiliated farm management would replace the existing paragraph.
    Section 426.9 in the existing regulations, Class 1 equivalency, 
would be renumbered Sec. 426.10. The proposed new Sec. 426.9, Public 
entities, would replace Sec. 426.17 of the existing regulations. This 
section would describe the application of acreage limitation laws to 
public entities and would be rewritten for clarity and organization. 
Paragraph (a) would define the term public entities for purposes of 
this section. Paragraph (b) would be rewritten to show that public 
entities are exempt from certain acreage limitation provisions rather 
than the land. The rephrasing would more accurately state Reclamation 
policy, as the land can become subject to ownership limitations through 
the holding of a lessee. Also, the wording of paragraph (d) would be 
changed to state that land leased from a public entity would count 
toward the lessee's ownership entitlement, rather than being worded as 
a prohibition of leasing in excess of ownership entitlements.
    Section 426.10 in the existing regulations, Information 
requirements, would be replaced by Secs. 426.17, Landholder information 
requirements, 426.18, District responsibilities, and 426.24 Reclamation 
audits. The proposed new Sec. 426.10, Class 1 equivalency, would 
replace Sec. 426.9 of the existing regulations.
    Substantial editorial and organizational changes would be made 
throughout this section. The only substantive change would be in 
Sec. 426.10(g). Provisions to this paragraph would prohibit application 
of class 1 equivalency in cases where irrigation of the land would 
result in hazardous or toxic return flows. This rule would affect 
existing equivalency determinations only if the land is reclassified 
for some reason.
    The wording of paragraph (b) would be changed to make clear that 
only districts, and not individual landholders, can make requests to 
Reclamation for class 1 equivalency determinations. Individual 
landholders must work through their districts to obtain class 1 
equivalency.
    The following examples illustrate the application of Sec. 426.10:

    Example (1). Farmer X has a total landholding of 1,300 acres in 
District A. That acreage includes 800 acres of class 1 land, 300 
acres of class 2 land, and 200 acres of class 3 land. The 
equivalency factors for the district have been determined to be: 
Class 1 equals 1.0, class 2 equals 1.20, and class 3 equals 1.50. 
Using these equivalency factors, the following landholding in terms 
of class 1 equivalency would apply:
     Class 1: 800 acres divided by 1.0 equals 800 acres 
class 1 equivalent
     Class 2: 300 acres divided by 1.2 equals 250 acres 
class 1 equivalent
     Class 3: 200 acres divided by 1.5 equals 133 acres 
class 1 equivalent
    Thus, Farmer X's total landholding of 1,300 acres is equal to 
1,183 acres of class 1 land in terms of productive capacity. It will 
be necessary for him to declare the equivalent of 223 acres of class 
1 land (1,183 acres minus 960 acres), as excess and ineligible to 
receive irrigation water while in his landholding. This can be 
accomplished in any combination of class 1, 2, and 3 land that 
achieves the necessary result. If Farmer X desires to maximize his 
actual nonexcess acreage, he would declare 223 acres of class 1 land 
as excess and designate 577 acres of class 1, 300 acres (250 acres 
class 1 equivalent) of class 2, and 200 acres (133 acres class 1 
equivalent) of class 3 as nonexcess and eligible to receive 
irrigation water. This would result in a total of 1,077 actual acres 
which would equal 960 acres of class 1 land in productive capacity. 
Or, he could maximize his holding of class 1 and 2 lands by 
designating as nonexcess 800 acres of class 1 land and 192 acres 
(192 divided by 1.2 equals 160 acres class 1 equivalent) of class 2 
land. This total landholding of 992 acres would, again, be equal in 
productive capacity to 960 acres of class 1 land. In the latter 
case, all 200 acres of Farmer X's class 3 land and 108 acres of his 
class 2 land would be considered excess and ineligible to receive 
irrigation water in his landholding.
    Example (2). A district with an existing contract decides not to 
amend its contract to conform to the discretionary provisions. 
However, an individual landholder within the district makes an 
irrevocable election to conform to these provisions. The landholder 
requests equivalency through the district, and the district requests 
Reclamation to make the equivalency determination for the entire 
district. Under such conditions, the district would be required to 
pay the United States for the cost of making the equivalency 
determination. The payment of the costs between the landholder and 
the district would be a district matter. The application of 
equivalency would be available only to the landholder(s) who 
exercise an irrevocable election.
    Example (3). A district decides to amend its contract to conform 
to the discretionary provisions, but it elects not to request 
equivalency. Thus, individual landholders within the district are 
not entitled to equivalency until after the district makes the 
equivalency request and Reclamation has acted upon that request.
    Example (4). Landholder X is a qualified recipient who owns no 
land, but leases 1,100 acres in a district which has requested 
equivalency. The land leased is a mix of class 1, 2, and 3 land. 
During the time the equivalency determination was being made, 
Landholder X would be required to pay the full-cost water rate on 
140 acres (1,100 acres leased minus her 960-acre nonfull-cost 
entitlement) if she continued to receive irrigation water on that 
land. Once the equivalency determinations had been completed, 
Landholder X would be entitled to lease the equivalent of 960 acres 
of class 1 land at the nonfull-cost rate (something greater than 960 
acres). Landholder X would also be reimbursed for certain full-cost 
payments made for land which became nonfull-cost as a result of the 
equivalency determination.
    Example (5). Corporation Y is a limited recipient that owns 600 
acres of irrigation land and leases another 160 acres in District A. 
District A has requested and received an equivalency determination. 
However, Corporation Y was not receiving irrigation water on or 
before October 1, 1981. Thus, even with equivalency, Corporation Y 
would be required to pay the full-cost water rate for all land 
served in its landholding. (If Corporation Y had been receiving 
irrigation water on or before October 1, 1981, it would have been 
entitled to receive irrigation water on the equivalent of 320 acres 
of class 1 land at the nonfull-cost rate. Deliveries on the 
remaining 440 acres or less, depending on application of class 1 
equivalency, would be at the full-cost rate.)
    Example (6). Farmer Jones is a qualified recipient and owns 320 
acres in each of three districts. One of those districts, District 
A, [[Page 16933]] requests and receives an equivalency 
determination. From the equivalency determination, Farmer Jones is 
shown to own the equivalent of 240 acres of class 1 land in District 
A. Farmer Jones is therefore entitled to purchase and receive 
irrigation water on an additional 80 acres of irrigation land (or 
the class 1 equivalent thereof in District A) in any district. He 
could also lease 80 acres (class 1 equivalent thereof in District A) 
in any district and receive irrigation water on that land at the 
nonfull-cost rate.
    Example (7). Landholder Y owns 1,200 acres in District A and 160 
acres in District B. Landholder Y is a qualified recipient and has 
designated 800 acres in District A as nonexcess and 400 acres in 
District A as excess. She has placed the 400 acres of excess land 
under recordable contract so that it can be irrigated while still in 
her ownership. Subsequent to this nonexcess land designation, 
District A requests and receives an equivalency determination. 
Landholder Y is then free to withdraw excess land from recordable 
contract and redesignate it as nonexcess to take advantage of 
District A's equivalency determination, as provided in 
Sec. 426.11(b) and (j)(5), if an appraisal of the excess land has 
not already been performed. The maturity date as determined in the 
original recordable contract, however, would not change.

    Section 426.11 would be generally rewritten for conciseness.
    The In general section has been deleted because the first sentence 
contained a definition of excess land redundant with that found in 
Sec. 426.2.
    Paragraphs (d) (2) and (3) of the existing regulation would be 
merged in paragraph (d)(2) of the proposed regulation.
    In the proposed paragraph (j)(4)(i), paragraph (e) of the existing 
regulation, the new language would make clear that land subject to a 
recordable contract can receive irrigation water at a less-than-full 
O&M rate only if both the owner and the lessee are subject to prior 
law. The sentence from the current rules allowing recordable contract 
land to be selected as full-cost land was deleted because that issue is 
addressed in Sec. 426.6.
    Paragraphs 426.11(g) and (i) of the current rules would be deleted. 
These paragraphs apply to only a very small number of landholders who 
have pre-1982 recordable contracts. Reclamation proposes to not retain 
paragraphs in the CFR that (1) currently apply to only a few 
landholders, and (2) are likely to become completely obsolete in the 
next few years. These few landholders' recordable contracts will 
continue to be administered as provided in the existing rule.
    Paragraph 426.11(i) of the proposed regulation, which corresponds 
to paragraph 426.11(h) of the existing regulation, would add a new 
paragraph to the deed covenant language. The proposed language would 
provide that the covenant terms, which permit removal of the covenant 
and eliminate the requirement for sale price approval, would not apply 
if the acquiring party is the party who originally held the land as 
excess. It should be noted that the provisions of the deed covenant 
would apply only when title to the land is transferred. Thus, the deed 
covenant would apply only to direct landowners, and would not apply to 
the sale or purchase of an indirect interest in a legal entity that is 
the direct landholder.
    In paragraph 426.11(e) of the proposed regulation, which 
corresponds to paragraph 426.11(k) of the current regulation, a new 
provision has been proposed. This language would permit direct 
landowners to place under recordable contract certain land indirectly 
held by nonresident aliens or legal entities not established under 
State or Federal law. If such land is not placed under a recordable 
contract it would become ineligible as a result of implementation of 
the proposed regulation.
    The proposed regulation would add a new paragraph (g) which would 
promote the intent of statutes concerning the disposal of excess land 
by prohibiting excess land sellers from receiving irrigation water if 
they lease back or reacquire the land either voluntarily or 
involuntarily. Such lease back or reacquisition situations, however, 
would be grandfathered if the agreement or transaction transferring the 
land back to the excess land seller takes place prior to July 1, 1995.
    The proposed regulation would also add a new paragraph (h) which 
would provide for assessment of the compensation rate (see Sec. 426.2), 
which has been Reclamation policy, and an administrative fee (see 
Sec. 426.19) if ineligible excess land is irrigated in violation of 
Federal reclamation law and regulations.
    Application of the section is illustrated by the following 
examples:

    Example (1). Landowner A owns 1,200 acres of irrigable land in 
District S. He purchased this land before the district entered its 
first repayment contract with the United States after October 12, 
1982. Landowner A, as a qualified recipient, designates 960 of his 
1,200 acres as nonexcess. With Reclamation approval, Landowner A may 
designate the 240 acres, which are now excess, as nonexcess and 
eligible to receive irrigation water, provided he redesignates 240 
acres of presently nonexcess land as excess.
    Example (2). Landowner B is a U.S. citizen and a qualified 
recipient by virtue of District T's contract amendment to conform to 
the discretionary provisions. Landowner B purchased 1,400 acres of 
irrigable land in this district before the district entered a 
repayment contract to receive an irrigation water supply. After the 
district's contract amendment, Landowner B designates 960 acres of 
his land as nonexcess. Subsequent to this designation, the district 
requests and receives an equivalency determination. All 1,400 acres 
of Landowner B's land is class 3 land, and in District T, 1 acre of 
class 1 land is equal to 1.4 acres of class 3 land. With 
equivalency, Landowner B may irrigate 1,344 acres of class 3 land in 
District T. Thus, he may redesignate everything in his ownership as 
nonexcess except for 56 acres. In the future, if Landowner B sells 
some of this 1,344 acres of nonexcess land, he may not designate any 
of the 56 excess acres as nonexcess.
    Example (3). Farmer C, who owns irrigable land in excess of his 
ownership entitlement, sells 960 acres of his excess land to Farmer 
D, a qualified recipient, at a Reclamation-approved price. Farmer D 
owns no other irrigable land and designates the 960 acres as 
nonexcess and eligible to receive irrigation water in his ownership. 
After the 10-year period of the deed covenant expires, Farmer D 
sells the 960 acres at fair market value and purchases another 960 
acres of irrigable land located in yet another district. Farmer D 
purchases the latter parcel at a Reclamation-approved price because 
the land was excess in the seller's holding. However, since Farmer D 
has already reached his 960-acre limit for recapturing the fair 
market value of land purchased at a Reclamation-approved price, the 
newly purchased land is not eligible to receive irrigation water 
while in his holding. In order to regain eligibility, the land must 
be sold to an eligible buyer at a Reclamation-approved price. After 
Farmer D sells that land at a Reclamation-approved price, he may 
purchase and receive irrigation water on another 960 acres, provided 
it is bought from nonexcess status.
    Example (4). Landowner E is a resident alien and owns 480 acres 
of irrigable land in District X, which is subject to prior law. 
Landowner E has designated 160 acres as nonexcess, and it is 
receiving irrigation water. Following this designation, District X 
amends its contract to conform to the discretionary provisions. As a 
result of the district amendment, Landowner E satisfies the 
requirements for a qualified recipient and may designate all 480 
acres owned as nonexcess.
    Example (5). Landowner F and his wife own 1,200 acres of 
irrigable land in District Y which is subject to prior law. They 
owned this land even before District Y entered into a repayment 
contract with the United States. Landowner F and his wife have 
designated 320 acres as nonexcess and eligible to receive irrigation 
water. The remaining 880 acres are excess and ineligible to receive 
irrigation water. This excess land cannot be placed under recordable 
contract because the 10-year grace period for executing recordable 
contracts, as provided in the district's contract, has expired. 
Landowner F makes an irrevocable election to conform to the 
discretionary provisions. By that election, Landowner F becomes a 
qualified recipient, and is therefore entitled to redesignate 640 
[[Page 16934]] additional acres as nonexcess. Landowner F's 
remaining 240 acres can become eligible if he sells it to an 
eligible buyer at an approved price or redesignates it, with the 
approval of Reclamation, as nonexcess.
    Example (6). Landowner G is a resident alien and owns 160 acres 
of irrigation land in District A. District A is subject to prior 
law. Landowner G purchases an additional 160 acres which had been 
designated nonexcess while in the landholding of the seller. Since 
Landowner G has purchased himself into excess status, the newly 
purchased land becomes ineligible to receive irrigation water in his 
holding. However, 3 weeks later, Landowner G makes an irrevocable 
election. Since he meets the requirements of a qualified recipient 
and since he has become subject to the discretionary provisions, 
Landowner G may designate the newly purchased 160 acres as 
nonexcess. As a qualified recipient, he may also purchase and 
receive irrigation water on another 640 acres of eligible land.
    Example (7). In 1986, Landowner H bought 160 acres of irrigable 
land from excess status in District Z. Landowner H, however, failed 
to get sale price approval from Reclamation. This land is ineligible 
for service in his holding unless the sale is reformed at a 
Reclamation-approved price. If the price is not reformed, the 160 
acres must be sold to an eligible buyer at a Reclamation-approved 
price in order to become eligible to receive irrigation water.
    Example (8). In 1980, Landowner I, a U.S. citizen, buys 1,920 
acres of land in District U. In addition to its own water supply, 
District U wishes to receive supplemental irrigation water. 
Therefore, it enters into a water service contract with the United 
States on May 14, 1984. Thereby, all direct landholders in the 
district automatically become subject to the discretionary 
provisions. As a qualified recipient, Landowner I may receive 
irrigation water on any 960 acres which he designates as nonexcess. 
The remaining 960 acres are excess and ineligible for service until 
Landowner I places the land under recordable contract, sells it to 
an eligible buyer at a price approved by Reclamation, or receives 
Reclamation approval to redesignate the land as nonexcess. If 
Landowner I had purchased the 1,920 acres from nonexcess status in 
1985, rather than before the date of the district's contract, he 
still would have been able to designate 960 acres as nonexcess and 
eligible to receive irrigation water. However, the remaining 960 
acres of excess land would not have been eligible until sold to an 
eligible buyer at a Reclamation-approved price, the sale is 
cancelled, or he receives Reclamation approval to redesignate the 
land as nonexcess. The excess acres could not have been placed under 
recordable contract unless irrigation water had not been physically 
available when the land was purchased.
    Example (9). Landowner J is a qualified recipient and owns 1,400 
acres of irrigable land in District Z. The landowner places 440 
acres under recordable contract so that he may receive irrigation 
water at the nonfull-cost rate on all owned land in the district. 
Subsequently, Landowner J leases the 440 acres under recordable 
contract to Landowner K who is a limited recipient that did not 
receive irrigation water prior to October 1, 1981. Therefore, the 
full-cost rate must be paid for irrigation water delivered to the 
440 leased acres. Leasing the land to Landholder K does not affect 
other terms of the recordable contract.
    Example (10). Farmer L owns 160 acres of irrigable land in 
District V and 1,000 acres in District W. Districts V and W are both 
subject to prior law, and both have fixed-rate water service 
contracts which no longer cover actual operation and maintenance 
costs. Farmer L has designated the 160 acres in District V as 
nonexcess and has placed the 1,000 acres in District W under 
recordable contract. This means that Farmer L is able to receive 
irrigation water at the contract rate on all her owned land. 
Subsequently, District V amends its contract to become subject to 
the discretionary provisions. As provided in Sec. 426.11(b)(1), 
Farmer L withdraws 800 acres from under recordable contract and 
redesignates that land as part of her 960-acre entitlement as a 
qualified recipient. Since Farmer L is now a qualified recipient, 
she must pay the full operation and maintenance costs applicable in 
each district for all land in her landholding, including the 200 
acres remaining under recordable contract.
    Example (11). Landowner M and his wife are U.S. citizens and own 
320 acres of irrigation land purchased on or prior to December 6, 
1979, and designated as nonexcess in each of Districts A, B, C, and 
D. In June of 1980, Landowner M purchased an additional 280 acres in 
District E. District A amends its contract to conform to the 
discretionary provisions. Landowner M and his wife automatically and 
without benefit of choice become a qualified recipient and as such 
are entitled to irrigate no more than 960 acres westwide with 
irrigation water. Their present ownership exceeds their 960-acre 
ownership entitlement by 600 acres. Since the 280 acres in District 
E were purchased after December 6, 1979, that land was ineligible to 
receive irrigation water even under prior law. Therefore, no part of 
that parcel can be placed under recordable contract and the land 
remains ineligible until sold to an eligible buyer at an approved 
price, the sale is cancelled, or the land is redesignated with 
Reclamation approval. The remaining 320 excess acres, however, have 
been eligible under prior law. Therefore, that land can continue to 
receive irrigation water if Landowner M either sells it to an 
eligible buyer or places the land under a 5-year recordable 
contract. In either case, Landowner M can sell the land at fair 
market value.
    Example (12). ABC Corporation, which was established under the 
laws of Switzerland, is owned by two stockholders who are citizens 
and residents of Switzerland. The corporation owns 480 acres of 
irrigation land in District X and has designated 160 acres as 
nonexcess and eligible to receive irrigation water, and the 
remaining 320 acres as excess and ineligible. District X 
subsequently amends its contract to conform to the discretionary 
provisions. Thereby, ABC Corporation becomes ineligible to receive 
irrigation water as a qualified recipient because it is not 
established under State or Federal law. However, since 160 acres of 
its land were eligible to receive irrigation water under prior law, 
this land will continue to be eligible if it is placed under a 
recordable contract or sold to an eligible buyer. The 160 acres, 
whether or not under recordable contract, may be sold at fair market 
value; however, the 320 acres which were excess under prior law 
remain ineligible until sold to an eligible buyer at an approved 
price.
    Example (13). Corporation N, a foreign corporation owned by two 
stockholders who are citizens and residents of Norway, purchased 480 
acres of irrigation land in District A. Subsequent to the purchase, 
District A entered into its first contract with the United States, 
thereby becoming subject to the discretionary provisions. 
Corporation N, however, is not eligible to receive irrigation water 
as a qualified recipient because it is not established under State 
or Federal law. Since Corporation N's land had never been subject to 
prior law, it does not fall under the purview of Sec. 426.11(e)(2). 
However, since the land was purchased before the date of the 
district's contract, the corporation can receive irrigation water by 
placing the land under a recordable contract requiring Reclamation 
sale price approval, as provided in Sec. 426.11(e)(3)(i).
    Example (14). Landholder O, a nonresident alien, is the sole 
stockholder in Corporation P, a qualified recipient legal entity 
registered in Idaho. In 1990, Corporation P purchased 960 acres of 
nonexempt land in District B. This land was all designated nonexcess 
under the then-current regulations. However, on the effective date 
of these regulations, Landholder O's ownership entitlement decreases 
to 160 acres, even for indirectly held land. The remaining 800 acres 
that become excess can continue to receive irrigation water if 
Corporation P places the land under recordable contract, and the 
land can be sold at fair market value and remain eligible if sold to 
an eligible buyer.
    Example (15). Landholder P sold 500 acres of excess land to 
Landholder Q, and financed the purchase, in 1996. In 1998, 
Landholder Q defaults and Landholder P forecloses and repossesses 
the land. Upon transfer of the land's title back to Landholder P, 
the land becomes ineligible to receive irrigation water because that 
transaction took place after the effective date of these 
regulations. Furthermore, Landholder P may not make any part of the 
land nonexcess in his holding. Thus, Landholder P must sell the land 
to an eligible landholder at a Reclamation-approved price if it is 
to be eligible to receive irrigation water.
    Example (16). Landholder R sold 500 acres of excess land to 
Landholder S in 1993. In 1994, Corporation T, of which Landholder R 
is the sole stockholder, leases the land from Landholder S. The land 
remains eligible until the expiration or termination date of the 
lease. If Corporation T renews the lease after the effective date of 
these regulations, the land becomes ineligible while the renewed 
lease is in effect, because of Landholder R's interest in 
Corporation T and the renewed agreement took effect after the 
effective date of these regulations.

    [[Page 16935]] Section 426.12. Editorial changes would be made to 
the existing regulation.
    Section 426.13 in the existing regulation, Exemptions, would be 
renumbered Sec. 426.15. The proposed new Sec. 426.13, Involuntary 
acquisition of land, would replace Sec. 426.16 of the existing 
regulations.
    Paragraph (a) would define involuntarily acquired land. A change 
would be made to paragraph (e) of this section to reflect the changes 
discussed in Sec. 426.11 regarding the reacquisition of formerly excess 
land by the party that originally held the land as excess.
    Section 426.14 in the existing regulations, Residency, would be 
deleted because residency has not been a provision of acreage 
limitation law since it was repealed by the RRA in 1982. The proposed 
new Sec. 426.14, Commingling, would replace Sec. 426.18 of the existing 
regulations. Editorial changes would be made to the existing 
regulation.
    The following examples illustrate the application of this section:

    Example (1). District A has a distribution system constructed 
without funds made available pursuant to Federal reclamation law and 
irrigates land therein with nonproject surface supplies and ground 
water distributed to users within the district through its 
distribution system. The district enters into a contract with the 
United States for a supplemental irrigation water supply and intends 
to distribute that supplemental water through its distribution 
system. Only the landholders within the district who are eligible to 
receive a supply of irrigation water as specified in 
Sec. 426.14(c)(1) are subject to reclamation law. The district is 
not restricted in its use of the nonproject surface water or ground 
water, and will be in compliance with the provisions of its contract 
so long as there is sufficient eligible land to receive the 
Reclamation irrigation water supply.
    Example (2). District A has a contract with Reclamation for a 
supply of irrigation water. Within the boundary of the district 
there are several parcels of ineligible excess lands which are not 
supplied with irrigation water. Those lands are irrigated from the 
ground-water resources under them. If irrigation water furnished to 
the district pursuant to the contract reaches the underground strata 
of these ineligible lands as an unavoidable result of the furnishing 
of the irrigation water by the district to eligible lands, the 
continued irrigation of the ineligible excess lands with that ground 
water shall not be deemed to be in violation of reclamation law.

    Note: Example 2 also is applicable to the issue of unavoidable 
ground-water recharge and can also serve as an example in Sec. 426.15.

    Example (3). A district has nonproject water available to 
deliver to lands considered not eligible (ineligible) for irrigation 
water under provisions of Federal reclamation law and these 
regulations. To eliminate the need to build a duplicate private 
conveyance system to transport nonproject water, the district would 
like to transport such water through facilities constructed with 
funds made available pursuant to Federal reclamation law without the 
nonproject water being subject to Federal reclamation law and these 
regulations. If the district agrees, with prior Reclamation 
approval, the nonproject water may be commingled in federally 
financed facilities and delivered to ineligible lands if the 
district pays the incremental fee, as determined by Reclamation, for 
the use of the federally financed facilities required to deliver the 
nonproject water. The fee will be in addition to the capital, 
operation, maintenance, and replacement costs the district is 
obligated to pay and will be based on a methodology designed to 
reasonably reflect an appropriate share of the cost to the Federal 
Government, including interest, of providing the service.
    Example (4). The State of Euphoria has a water supply it wishes 
to transport in the same direction and elevation as planned in the 
Federal reclamation project. If Reclamation and the State each 
finance their share of the costs to construct and operate the 
project, the water supply of the State will not be subject to 
Federal reclamation law and these regulations.
    Example (5). District A has water rights to divert water from a 
river. These water rights are adequate to meet its requirements. It 
is located immediately adjacent to a federally subsidized facility, 
District B. District B is located immediately adjacent to the river 
but several miles from the Federal facility. District B contracts 
with the United States for a supply of irrigation water, but rather 
than construct several miles of conveyance facility, District B, 
with the approval of the United States, contracts with District A to 
allow District A's water rights water to flow down the river for use 
by District B, and the irrigation water is in turn delivered to 
District A. District A is not subject to Federal reclamation law and 
these regulations by virtue of this exchange, provided it does not 
materially benefit from that exchange. District B, however, is 
subject to Federal reclamation law and these regulations since it is 
the beneficiary of the exchange, i.e. a water supply.

    Section 426.15 in the existing regulation, Religious and charitable 
organizations, would be renumbered Sec. 426.8. The proposed new 
Sec. 426.15, Exemptions and exclusions, would replace Sec. 426.13 of 
the existing regulation.
    This section would be rewritten for editorial changes and 
clarification. Paragraph (f) would be added to make clear that the RRA 
is not applicable to Indian trust or restricted lands.
    It should be noted that a given contract action could be considered 
an additional or supplemental benefit pursuant to Sec. 426.3 of this 
proposed regulation even though it neither invokes nor extends the 
application of acreage limitation laws in general. For example, 
Rehabilitation and Betterment Act contracts are considered additional 
and supplemental benefits under Sec. 426.3 even though they would 
neither extend nor reinstate the application of acreage limitations, as 
provided in Sec. 426.15.
    Section 426.16 in the existing regulation, Involuntary acquisition 
of land, would be renumbered Sec. 426.13. The proposed new Sec. 426.16, 
Small reclamation projects, would replace Sec. 426.21 of the existing 
regulation.
    The only substantive changes that would be made to this section are 
in paragraph (a). A phrase would be added to reflect the fact that 
Small Reclamation Projects Act loans would be considered additional and 
supplemental benefits as provided in Sec. 426.3 of the new regulation. 
In addition, language has been added to reflect Title III of Pub. L. 
99-546 and its effect of reducing the acreage limitation entitlements 
from 960 to 320 acres for districts that enter into a new SRPA contract 
or amend their SRPA contract after October 27, 1986.
    Section 426.17 in the existing regulation, Land held by 
governmental agencies, would be renumbered Sec. 426.9. The proposed new 
Sec. 426.17, Landholder information requirements, would replace, in 
part, Sec. 426.10 of the existing regulation.
    This section would be rewritten to address only the certification 
and reporting requirements of landholders. A new definition paragraph 
and section regarding district responsibilities (Sec. 426.18) would be 
added. This section would clarify district certification and reporting 
requirements. In addition, a new section concerning Reclamation audits 
(Sec. 426.24) would be added.
    References to the contents of the certification and reporting forms 
would be deleted because a comprehensive list of these contents would 
be too unwieldy for these regulations, and a partial list would be 
inappropriate.
    A paragraph on eligibility would be added stating that landholders 
that have not filed the required forms are not eligible to receive 
irrigation water. The phrase must not accept delivery of would be added 
to make clear that the landholder, as well as the district, is 
responsible for water deliveries in the absence of the required forms.
    Wholly-owned subsidiaries would be specifically exempted from forms 
requirements, provided the ultimate parent legal entity has met its 
forms requirement.
    The 40-acre certification and reporting exemption threshold would 
be replaced with a new system which would permit higher exemption 
thresholds for landholders in districts that meet the following 
requirements: [[Page 16936]] district conformance by contract with the 
discretionary provisions; the district's financial obligations are not 
delinquent; and the district has entered into a formal resources 
management partnership with Reclamation. Districts that meet the 
requirements would be granted Category 1 status. Category 1 districts 
would be allowed exemption thresholds as high as 240 acres for 
qualified recipients and 80 acres for some limited recipients. The 
specific threshold for a district would be determined and documented in 
the partnership agreement with the district, based on factors such as 
the resources management objectives of the partnership and the 
achievements of the district(s) under the partnership. Landholders in 
districts which have not formed formal partnerships with Reclamation or 
do not meet the other two criteria, would remain in Category 2 status. 
Such districts would be subject to an 80-acre exemption threshold for 
qualified recipients and a 5-acre threshold for all limited recipients. 
For both categories, the exemption threshold for prior law recipients 
remains set at 40 acres.
    The following examples illustrate the application of this section:

    Example (1). Landholder A failed to submit the required 
certification forms to District X in 1994 and 1995. District X 
delivered, and Landholder A accepted delivery of, irrigation water 
in those years. Landholder A submitted certification forms for 1996; 
however, Landholder A's landholding is not eligible to receive 
irrigation water until he submits the necessary forms for 1994 and 
1995.
    Example (2). Corporation A, which is registered in Venezuela, 
owns 100 percent of the stock of Corporation B, which is registered 
in Iowa. Corporation B, in turn, owns 100 percent of the stock in 
Corporations C and D, each of which are registered in Arizona and 
own and irrigate nonexempt land in two different Arizona irrigation 
districts. The landholdings exceed applicable certification and 
reporting exemption thresholds. Corporation A, as a prior law parent 
legal entity, must submit reporting forms to both Arizona districts. 
The forms must describe the corporate structure and Corporation A's 
entire landholding, including those of its subsidiaries. 
Furthermore, any stockholders of Corporation A that exceed 
applicable reporting thresholds must submit the necessary forms in 
order for the landholding to be eligible. Corporations B, C, and D 
are not required to file.
    Example (3). In September 1996, the management of District A 
enters into a formal partnership agreement with Reclamation to 
improve resources management in the district. The district and 
Reclamation agree to develop an integrated resources management plan 
and develop and implement an incentive pricing mechanism for the 
district. As part of the close working relationship with the 
district and the information generated by the partnership, and the 
fact that the other two requirements specified in Sec. 426.17(h) 
have been met, the Regional Director determines that a 240-acre 
reporting threshold would be appropriate for qualified recipients in 
the district and an 80-acre threshold would be appropriate for 
limited recipients who first received irrigation water on or before 
October 1, 1981. The partnership agreement establishes these 
thresholds as part of Category 1 status for the district.
    Example (4). Landholder A is a qualified recipient who leases 
120 acres in District X and 40 acres in District Y. For 1997, 
District X achieves Category 1 status, but District Y does not. 
Landholder A is therefore subject to Category 2 thresholds and must 
certify in both districts in 1997 because his total landholding 
exceeds the 80-acre qualified recipient threshold of Category 2.
    Example (5). Bank Y is a limited recipient and has 12,000 acres 
of involuntarily acquired excess landholdings, some of which are 
located in Category 2 districts. Bank Y has also designated 500 
acres as nonexcess. Stockholder A, a qualified recipient, owns a 15 
percent interest in Bank Y. Thus, Stockholder A is attributed with 
1,800 acres of involuntarily acquired excess land and 75 acres of 
nonexcess land. The fact that most of its landholdings are 
involuntarily acquired does not afford Bank Y with any exemption 
with respect to certification thresholds; therefore, Bank Y is 
subject to Category 2 thresholds and must file certification forms. 
Stockholder A need not consider the bank's involuntarily acquired 
excess land in determining whether she is required to certify, but 
she must consider the 75 acres of attributed nonexcess land. Because 
she has not exceeded the 80-acre threshold applicable to qualified 
recipients in Category 2 districts, she is not required to file. 
However, had Stockholder A exceeded a certification or reporting 
threshold, she would have been required to include all land 
attributed to her, including that land involuntarily acquired, on 
her RRA form(s).
    Example (6). Corporation E leases 640 acres in a Category 1 
district which has a partnership agreement with Reclamation 
specifying 80 acre and 200 acre thresholds for limited and qualified 
recipient, respectively. Corporation E is 90 percent owned by 
Corporation F, 5 percent owned by Corporation G, and 5 percent owned 
by Farmer B. Corporations E and F are limited recipients that did 
not receive irrigation water on or before October 1, 1981. 
Corporation G is a limited recipient that received irrigation water 
on or before October 1, 1981, but currently has no landholding 
outside of Corporation E. Farmer B is a qualified recipient who also 
directly owns 320 nonexempt acres in the same district. Corporations 
E and F must both file because both have exceeded the applicable 5-
acre threshold, and because Corporation E is not wholly owned by 
Corporation F. Corporation G need not file because it is subject to 
an 80-acre threshold, as specified in the district's partnership 
agreement with Reclamation. Farmer B must file because he has 
exceeded the applicable 200-acre threshold also specified in the 
district's partnership agreement with Reclamation.
    Example (7). Farmer C owns 440 acres in a Category 1 district. 
After the district's last delivery in 1996, Farmer C buys another 
40-acre parcel in the same district. Farmer C need not submit new 
forms until the start of the next irrigation season.

    Section 426.18 in the existing regulation, Commingling, would be 
renumbered Sec. 426.14. The proposed new Sec. 426.18, District 
responsibilities, would replace, in part, Sec. 426.10 of the existing 
regulation. This new section would be added to clarify the role of 
irrigation contracting entities in RRA administration and enforcement. 
Because this issue has caused some confusion and controversy in the 
past, it is considered desirable to explicitly establish district 
responsibilities in these proposed regulations.
    The proposed changes to provisions of this section would be 
nonsubstantive, except the number of years districts will be required 
to retain expired RRA forms will be increased from 3 to 6 years. Some 
existing Reclamation policy not contained in the existing regulation, 
however, would be included. The proposed section would be included to 
help prevent future misunderstandings about districts' roles in RRA 
administration.
    The application of this rule is illustrated by the following 
examples:
    Example (1). Landholder A submitted to District X a 
certification form in 1988, then filed verification forms each year 
through 1993. He then filed a new certification form in March 1994. 
District X must retain Landholder A's 1988 certification form 
through March 2000; thereafter, it may be destroyed by the district.
    Example (2). Same facts as Example 1, except that in October 
1999 a Reclamation audit team requests that Landholder A's 1988 
certification form be retained until January 2001. The district must 
retain the form until that date.
    Example (3). Landholder B submitted to District X a 
certification form in 1985, and has submitted verification forms 
each year thereafter. District X must retain Landholder B's 1985 
certification form as long as he continues to verify each year and, 
if he submits a new certification form, for 6 years thereafter.
    Example (4). District Y delivers 2,000 acre-feet of irrigation 
water to Farmer C in 1996 at the contract rate of $10 per acre-foot. 
It is subsequently found that Farmer C used 100 acre-feet of that 
water to irrigate excess land. Therefore, the payments made by 
District Y to the United States for the water used to irrigate the 
excess land ($1,000) must be deposited into the Reclamation fund and 
not credited toward any obligation of District Y to the United 
States.

    Section 426.19 of the existing regulation, Water conservation, 
would be deleted as water conservation would be the topic of a new 
regulation, part 427. The proposed new Sec. 426.19, 
[[Page 16937]] Assessment of administrative costs, would replace 
Sec. 426.24 of the existing regulation.
    The only proposed substantive change from the existing regulation 
would be to add irrigation of ineligible excess land as a violation 
subject to assessment of an administrative fee. Reclamation will base 
any changes to the assessment amount on Reclamation's costs for field 
observation; information analysis; communication with district 
representatives and landholders regarding possible cases of irrigation 
of ineligible excess land, or obtaining missing or corrected forms; 
assistance to landholders in completing certification or reporting 
forms for the period of time they were not in compliance with the form 
requirements; performance of onsite visits to determine if irrigation 
water deliveries have been terminated to landholders that failed to 
submit the required forms or that irrigated ineligible excess land; and 
performance of other activities necessary to address form and excess 
land violations.
    The following examples illustrate the application of this section:

    Example (1). ABC Corporation holds irrigable land in District Y 
and in District Z and has three shareholders (Farmers A, B, and C). 
In both 1992 and 1993, ABC Corporation and each shareholder filed 
certification forms prior to receiving irrigation water in these 
districts. However, in each year, Reclamation found several errors 
on the forms the three shareholders had submitted in each district. 
The districts were given 60-calendar days in which to have the forms 
corrected and returned to Reclamation. All the corrected forms were 
returned by the designated due date, except for Farmer C's. 
Districts Y and Z will each be assessed a fee of $520 ($260 for each 
of the 1992 and 1993 water years) because Farmer C's forms were not 
corrected and returned within the specified time period.
    Example (2). Farmer X owns 560 acres and leases 400 acres in 
District A. Each year, Farmer X submitted certification forms to the 
district prior to receipt of irrigation water. However, Reclamation 
found that in 1992 and 1993, Farmer X had reported all of his owned 
land on his form but only 150 of his 400 leased acres. Reclamation 
determines that this omission of information is not an attempt to 
defraud the Federal Government. Accordingly, the district will be 
required to obtain a corrected form, and if this is not accomplished 
in 60-calendar days, it will be assessed a fee of $520 ($260 for 
1992, and $260 for 1993.)
    Example (3). Farmer X and his wife, who are prior law 
recipients, own 480 acres in District A. None of the 160 acres in 
excess of the couple's 320-acre ownership entitlement was under 
recordable contract, as set forth in Sec. 426.11, or otherwise 
eligible to receive irrigation water. However, Reclamation found 
that irrigation water had been delivered to the 160 excess acres in 
both 1992 and 1993. For the irrigation water delivered in these 2 
years, District A will be assessed the compensation rate as set 
forth in Sec. 426.11(h). An additional fee of $520 will also be 
assessed to the district ($260 each for 1992 and 1993)

    .Section 426.20 of the existing regulation, Public participation, 
would be renumbered Sec. 426.21. The proposed new Sec. 426.20, Interest 
on underpayments, would replace Sec. 426.23 of the existing regulation.
    A definition of underpayment is proposed as paragraph (a), and 
other editorial changes from the existing regulation would be made for 
clarity and organization.
    Section 426.21 of existing regulation, Small reclamation projects, 
would be renumbered Sec. 426.16. The proposed new Sec. 426.21, Public 
participation, would replace Sec. 426.20 of the existing regulation.
    The only substantive change made would be in paragraph (8) of the 
current rule, which would be replaced by paragraph (b) of the proposed 
rule, to delete the 60-day public comment period. The existing 
provision reduces Reclamation's flexibility to base the comment period 
on specific circumstances and is not a statutory requirement.
    Section 426.22 of the existing regulation, Decisions and appeals, 
would be renumbered Sec. 426.23. The proposed new Sec. 426.22, Recovery 
of operation and maintenance (O&M) costs, would replace Sec. 426.8 of 
the existing regulation.
    This section would be rewritten for clarity. The proposed language 
would contain no substantive changes to existing policy.
    Section 426.23 of the existing regulation, Severability, would be 
renumbered Sec. 426.25. The proposed new Sec. 426.23, Agency decisions 
and appeals, would replace Sec. 426.22 of the existing regulation.
    This section would be rewritten to streamline the appeals process 
and to enhance the protection of parties who may be adversely affected 
by RRA-related decisions.
    The proposed language would require the appropriate regional 
director to make initial agency decisions. It would provide flexibility 
to the regional director in establishing the effective date of the 
initial decision, and would protect landholders by providing for a 10 
calendar day delay before deliveries of water are terminated. 
Furthermore, affected parties would be able to request reconsideration 
of the initial decision.
    The proposed language would permit regional directors to notify 
potentially affected parties if appropriate, and would allow any 
impacted party to use the appeal process whether or not the regional 
director gave notice of the particular agency decision. Parties who 
were not notified would have a longer period of time to initiate the 
appeals process than would parties who were notified of an initial 
decision. The proposed rules would also allow affected parties to 
request a stay of the regional director's initial decision while it is 
being reconsidered.
    Following reconsideration by the regional director, affected 
parties would have the opportunity to appeal the final agency action 
directly to the Department of the Interior's Office of Hearings and 
Appeals. This change would streamline the review process by eliminating 
the Commissioner level of review provided by the existing regulation.
    The proposed language would also provide for retroactive 
application of decisions (which is current practice) and application of 
the compensation rate in cases of illegal irrigation water deliveries.
    The proposed language would validate any decisions made under the 
existing appeals process, and provide that appeals pending as of the 
effective date of the new regulation would be processed under the 
existing regulation.
    Completion of this administrative appeals process would be required 
before parties may file suit in court regarding final agency 
determinations pursuant to part 426.
    Section 426.24. The proposed Sec. 426.24, Reclamation Audits, would 
replace Sec. 426.10(i) of the existing regulation.
    Section 426.25. The proposed Sec. 426.25, Severability, would 
replace Sec. 426.24 of the existing regulations.

Description and Analysis of Part 427

    Reclamation has a major responsibility, in partnership with water 
users, States, Indian tribes, and other interested parties, to help 
improve water management and the efficiency of water use in nearly 
every major river basin in the Western United States. Water 
conservation measures can improve reliability and reduce costs for 
water users, and under some circumstances yield water for additional 
agricultural, urban, or environmental needs.
    Opportunities for additional water conservation and efficiency 
improvements vary from system to system depending on factors such as 
delivery and storage facilities, operational practices, existing 
conservation measures, and the use or destination of ``non-conserved'' 
water (i.e., downstream appropriators, riparian habitat, groundwater 
recharge, estuary inflow, evaporation, etc.). To be most 
[[Page 16938]] effective, water conservation measures must be evaluated 
on a site-specific basis and must be tailored to the circumstances of 
each water system and its local environment.
    Preparation and implementation of water conservation plans by 
recipients of Reclamation project water is one aspect of Reclamation's 
overall water conservation program. Improvements in water management on 
Federal projects can reduce overall operating costs, improve 
reliability of existing water supplies, postpone the need for new or 
expanded water supplies, and reduce the impacts of drought.
    The RRA challenges those who contract for Federal project water 
supplies to develop water conservation plans that examine existing 
water management practices, evaluate alternative water management 
strategies, and implement appropriate water conservation measures. A 
thoughtfully developed water conservation plan represents an 
opportunity for every district to identify water management problems, 
evaluate opportunities, highlight accomplishments, and plan for 
improvements.
    These rules and regulations prescribe the requirements for 
preparation and submittal of water conservation plans prepared by water 
districts and other entities that contract with the United States for a 
supply or storage of water under Federal reclamation law, the Small 
Reclamation Projects Act, the Water Conservation and Utilization Act, 
or the Warren Act.
    Section 427.1 explains the purpose of these rules and regulations, 
Sec. 427.2 describes conservation plan requirements, and Sec. 427.3 
describes incentives for preparing adequate water conservation plans.
    Section 427.4 references additional information that will be 
available from Reclamation in the form of Technical Guidelines and 
Criteria for Water Conservation Plans (Guidelines and Criteria). These 
Guidelines and Criteria describe the standards and process which 
Reclamation will use to evaluate district water conservation plans, 
describe the schedule and process for submitting plans, provide 
information on environmental compliance, suggest specific plan 
elements, and identify water conservation measures for evaluation and 
inclusion in district water conservation plans.
    The Guidelines and Criteria are currently undergoing a public 
review that began on January 10, 1995 and will end on April 10, 1995. 
Upon completion of this review period, Reclamation intends to finalize 
the Guidelines and Criteria as guidance in the development and approval 
of water conservation plans.
    Although the Guidelines and Criteria are not part of the proposed 
rules and regulations, they were included as part of the proposed rule 
alternative in the draft EIS. This allowed an evaluation of the 
proposed rules in combination with the Guidelines and Criteria. 
Although page 2-18 of the draft EIS states that the Guidelines and 
Criteria are included as an appendix to the rules, it was decided it 
was not necessary to print the Guidelines and Criteria with the 
proposed rules. A copy of the Guidelines and Criteria may be obtained 
by calling Mr. Craig Phillips at (303) 236-1061 ext. 265 or by 
contacting any Bureau of Reclamation Regional Office.
Public Comment

    Public comment is solicited on all aspects of this proposed 
rulemaking. Reclamation will consider all comments received. All those 
wishing to make comments are advised that, pursuant to the 
Administrative Procedure Act (5 U.S.C. 551, 553), all information 
provided to Reclamation will be available for public inspection.
    To assist Reclamation in compiling and analyzing comments, it is 
requested that comments be grouped according to the two separate parts 
(i.e, part 426 and 427) of the proposed rule. However, it is not 
required that comments be so organized.
    Oral comments on the proposed rules will be accepted at public 
hearings which will be conducted in April 1995 on the proposed rules 
and regulations and on the draft EIS which evaluates these proposed 
rules and regulations. Hearings will be announced in a separate Federal 
Register notice.

National Environmental Policy Act

    In compliance with the NEPA, a draft EIS has been prepared which 
analyzes the impacts of these proposed rules and regulations and 
alternatives thereto. The draft EIS includes a no action alternative, a 
preferred alternative (which is the proposed rule), and three 
additional alternatives encompassing a range of potential rules and 
regulations. The draft EIS is being published and distributed for 
public review concurrent with the publication of these proposed rules 
and regulations.

Environmental Compliance, Review, and Consultation Requirements

    The EIS and related coordination activities described below will 
provide full compliance for the promulgation of final rules and 
regulations. However, any future actions taken pursuant to final rules 
and regulations by the Federal government or by contracting entities 
(e.g., irrigation districts, drainage districts, municipal and 
industrial water districts, etc.) shall be subject to the requirements 
of all applicable Federal environmental laws including, but not limited 
to, the NEPA, the Endangered Species Act, the Fish and Wildlife 
Coordination Act, the Clean Water Act, and the National Historic 
Preservation Act, and laws relating to Indian treaty and trust 
reponsibilities.
    This EIS has been prepared concurrently with environmental review 
and consultation required by Federal environmental law other than NEPA, 
as required by 40 CFR 1502.25. Compliance with specific environmental 
review and consultation requirements is described below.

Fish and Wildlife Coordination Act (16 U.S.C. 661, et seq.)

    The Fish and Wildlife Coordination Act (FWCA) requires Federal 
agencies to consult with the Fish and Wildlife Service, National Marine 
Fisheries Service (as applicable), and state wildlife agencies during 
the planning of new projects and for modifications to existing projects 
(e.g., whenever the waters of any stream or other body of water are 
proposed or authorized to be impounded, diverted, the channel deepened, 
or the stream or other body of water otherwise controlled or modified 
for any purpose whatever) so that wildlife resources receive equal 
consideration along with other project objectives and features.
    Compliance with the FWCA requires: (1) Consultation, (2) 
opportunity for the Fish and Wildlife Service, the National Marine 
Fisheries Service, and the State wildlife agency to report, (3) 
consideration of FWCA report recommendations, (4) incorporation of 
justifiable wildlife features into a recommended plan or action, and 
(5) incorporation of the FWCA report as an integral part of the 
decision making package submitted to Congress or to any agency or 
person having the authority by administrative action to authorize 
construction of a project or modification of a previously authorized 
project.
    In meetings and correspondence between Reclamation and the Fish and 
Wildlife Service, the National Marine Fisheries Service, and State 
wildlife agencies, it was agreed that a formal FWCA report would not be 
required for this rulemaking. Rather, coordination efforts with the 
Fish and Wildlife Service, the National Marine Fisheries Service, and 
State wildlife agencies were handled by those agencies providing 
technical assistance to [[Page 16939]] Reclamation, which assistance 
has been appropriately documented. Detailed FWCA coordination and 
formal reports will be accomplished for specific sites in the future as 
the need and opportunity arises (e.g., amendment or renewal of specific 
repayment or water service contracts which are subject to these 
regulations).
    The EIS that accompanies this proposed rulemaking contains a 
description of the general FWCA compliance process and makes the 
commitment to deal with site-specific issues as they come up in the 
future when a site-specific Federal action is taken. The EIS does not 
satisfy the site-specific need for future compliance with the FWCA.
Endangered Species Act (16 U.S.C. 1521, et seq.)

    The objective of the Endangered Species Act (ESA) is to provide a 
means whereby the ecosystem upon which endangered species and 
threatened species depend may be conserved and to provide a program for 
the conservation of such species. It is further stated in the ESA that 
it is the policy of the Congress ``that all Federal Departments and 
agencies shall seek to conserve endangered species and threatened 
species and shall utilize their authorities in furtherance of the 
purposes of the Act.'' The ESA further states that ``Federal agencies 
shall cooperate with state and local agencies to resolve water resource 
issues in concert with conservation of endangered species.''
    Section 7 of the ESA establishes the interagency cooperation 
program under which Federal agencies have their primary compliance 
responsibilities. In meetings between Reclamation and the Fish and 
Wildlife Service and National Marine Fisheries Service, it was agreed 
that the way to comply with the ESA for the purposes of this rulemaking 
would be to use section 7(a)(1) of the ESA and describe, in broad 
terms, the general effects of actions associated with new or revised 
regulations. Thus, Reclamation initiated informal ESA consultation on a 
broad spectrum basis and requested a list of federally proposed or 
listed threatened, endangered, and candidate species from the Fish and 
Wildlife Service and the National Marine Fisheries Service.
    A tiering process will be used down to a level more appropriate to 
section 7(a)(2) of the ESA, whereby consultation will be initiated if 
and when site-specific analyses becomes necessary, such as with the 
amendment or renewal of specific repayment or water service contracts. 
The EIS indicates that if Reclamation consults under Section 7 of the 
ESA, individual landowners will not have to go through Section 10 
compliance on their own.

National Historic Preservation Act (15 U.S.C. 470, et seq.)

    The National Historic Preservation Act of 1966, (NHPA), as amended, 
is the basic Federal law governing preservation of cultural resources 
of national, regional, state, and local significance. Specifically, 
section 106 of the NHPA requires each Federal agency to consider the 
effect of its actions on ``any district, site, building, structure or 
object that is included in or eligible for inclusion in the National 
Register''. Furthermore, an agency must afford the Advisory Council on 
Historic Preservation, an independent Federal agency created by the 
National Historic Preservation Act, an opportunity to comment on any of 
the agency's undertakings that could affect historic properties. 
Procedures for meeting section 106 requirements are defined in Federal 
regulations 36 CFR part 800. Other Federal legislation further promotes 
and requires the protection of historic and archaeological resources by 
the Federal government. Among these laws are the Archaeological 
Resources Protection Act and the Native American Graves Protection and 
Repatriation Act.
    Informal consultation with the Advisory Council on Historic 
Preservation to apprise them that this rulemaking has been initiated. 
The draft EIS will be sent to the Council and the 17 western State 
Historic Preservation Offices for official comment. Procedures 
prescribed in 36 CFR part 800 will be followed for future site-specific 
Federal actions pursuant to these rules that trigger compliance under 
NHPA.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires that a regulatory 
flexibility analysis, describing the impact of regulations on small 
entities be prepared and published if proposed regulations will have a 
significant economic effect on a substantial number of small entities. 
It has been determined that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
Consequently, a regulatory flexibility analysis has not been prepared.

Paperwork Reduction Act

    Sections 206, 224(c), and 228 of the RRA (43 U.S.C. 390ff, 
390ww(c), and 390zz) require, among other things, that (1) as a 
condition to the receipt of Reclamation irrigation water, each 
landholder must certify, in a form suitable to the Secretary, that they 
are in compliance with the provisions of the Act, and (2) districts 
must annually submit to Reclamation, in a form suitable to the 
Secretary, records and information necessary to implement the RRA. 
These requirements are presently promulgated in 43 CFR 426.10. To 
comply with these requirements, Reclamation provides forms for the 
landholders' and districts' use. The existing landholder forms have 
been approved by the Office of Management and Budget (OMB) under 
clearance number 1006-0005. This clearance expires on October 31, 1995. 
The district summary forms have been approved under clearance number 
1006-0006; that clearance expires on July 31, 1995.
    This proposed rulemaking contains a change to the existing 
Sec. 426.10 that would reduce the reporting burden by raising the 
acreage threshold for which certification and reporting forms are 
required. The estimated average annual paperwork reduction which would 
occur if the proposed revisions to Sec. 426.10 are made final is about 
3100 hours per year westwide. It is estimated that the proposed rule's 
changes to the definition of what constitutes a lease will cause a 
slight increase of burden hours for farm operators who do not now have 
to complete forms. The net reduction would be approximately 3000 hours 
per year westwide and will reduce the paperwork burden by about 20 
percent compared to current requirements, which are approximately 
14,400 hours.
    Section 427.2 of the proposed water conservation rules require that 
water districts and other entities prepare and submit water 
conservation plans. Reclamation will be requesting OMB approval for 
collection of information contained in water conservation plans 
consistent with the requirements of the Paperwork Reduction Act.

Executive Order 12866

    Under Executive Order 12866, (58 FR 51735 Oct. 4, 1993), an agency 
must determine whether a regulatory action is significant and therefore 
subject to Office of Management and Budget (OMB) review and the 
requirements of the Executive Order. It has been determined that this 
proposed rule is a significant regulatory action within the meaning of 
the Executive Order.

Executive Order 12612, Federalism

    This rule has no significant impact on Federalism under Executive 
Order 12612. The regulations affect State/Federal relations in three 
ways, none of which are significant. First, while the 
[[Page 16940]] rules involve state water, consistent with section 8 of 
the Reclamation Act of 1902, 43 U.S.C. 383, these regulations do not 
affect state control of irrigation water rights. Second, the rules 
relate extensively to state organized irrigation districts. However, 
these proposed regulations would serve to clarify the existing 
Reclamation-district relationship and would not affect a significant 
change in policy. Finally, while the regulations address the 
commingling of Reclamation and non-reclamation water, the rules do not 
change existing policy.

Executive Order 12630, Takings

    This proposed rule has been reviewed under Executive Order 12630 to 
determine the takings implications of the proposed rule. Because 
districts and individual water users hold only contractual rights to 
services provided by Reclamation and the proposed rule would have only 
a de minimus impact on the value of any Constitutionally-protected 
property right if such right exists, it has been determined that this 
proposed rule does not present a significant risk of a taking.

    Authorship: The primary authors of these proposed regulations 
are Gary Anderson, J. William McDonald, Richard Rizzi, and Rusty 
Schuster, Program Analysis Office, Bureau of Reclamation; however, 
much of the substance of the regulations was developed by RRA and 
water conservation experts throughout Reclamation.

List of Subjects in 43 CFR Part 426 and 43 CFR Part 427

    Administrative practice and procedure, Irrigation, Reclamation, 
Reporting and record keeping requirements.

    Dated: March 22, 1995.
Elizabeth Ann Rieke,
Assistant Secretary--Water and Science.
    For the reasons stated in the preamble, it is proposed that 43 CFR 
part 426 be revised as follows and that 43 CFR part 427 be added as 
follows:
    Part 426 is revised to read as follows:

PART 426--ACREAGE LIMITATION RULES AND REGULATIONS

Sec.
426.1  Purpose.
426.2  Definitions.
426.3  Conformance to the discretionary provisions.
426.4  Attribution of land.
426.5  Ownership entitlement.
426.6  Leasing and full-cost pricing.
426.7  Trusts.
426.8  Religious or charitable organizations.
426.9  Public entities.
426.10  Class 1 equivalency.
426.11  Excess land.
426.12  Excess land appraisals.
426.13  Involuntary acquisition of land.
426.14  Commingling.
426.15  Exemptions and exclusions.
426.16  Small reclamation projects.
426.17  Landholder information requirements.
426.18  District responsibilities.
426.19  Assessment of administrative costs.
426.20  Interest on underpayments.
426.21  Public participation.
426.22  Recovery of operation and maintenance (O&M) costs.
426.23  Agency decisions and appeals.
426.24  Reclamation audits.
426.25  Severability.

    Authority: 5 U.S.C. 301; 5 U.S.C. 553; 16 U.S.C. 590z-11; 31 
U.S.C. 9701; and 32 Stat. 388 and all acts amendatory thereof or 
supplementary thereto including, but not limited to, 43 U.S.C. 390aa 
to 390zz-1, 43 U.S.C. 418, 43 U.S.C. 423 to 425b, 43 U.S.C. 431, 
434, 440, 43 U.S.C. 451 to 451k, 43 U.S.C. 462, 43 U.S.C. 485 to 
485k, 43 U.S.C. 491 to 505, 43 U.S.C. 511 to 513, and 43 U.S.C. 544.


Sec. 426.1  Purpose.

    These rules and regulations implement certain provisions of Federal 
reclamation law that address the ownership and leasing of land on 
Federal Reclamation irrigation projects, the pricing of Federal 
Reclamation project irrigation water, and establish terms and 
conditions for the delivery of Federal Reclamation project irrigation 
water.


Sec. 426.2  Definitions.

    As used in these rules:
    Acreage limitation entitlements means the ownership and nonfull-
cost entitlements.
    Acreage limitation provisions means the ownership limitations and 
pricing restrictions specified in Federal reclamation law, including 
but not limited to, sections 203(b), 204, and 205 of the Reclamation 
Reform Act of 1982 (43 U.S.C. 390aa et seq.).
    Acreage limitation status means whether a landholder is a qualified 
recipient, limited recipient, or prior law recipient.
    Commissioner means the Commissioner of the Bureau of Reclamation, 
U.S. Department of the Interior.
    Compensation rate means a water rate applied, in certain 
situations, to water deliveries to ineligible land that are not 
discovered until after the delivery has taken place. The compensation 
rate is equal to the established full-cost rate that would otherwise 
apply to the landholder.
    Contract means any repayment or water service contract or agreement 
between the United States and a district providing for the payment to 
the United States of construction charges and normal operation, 
maintenance, and replacement costs under Federal reclamation law, even 
if the contract does not specifically identify the portion of the 
payment that is to be attributed to operation and maintenance and that 
is to be attributed to construction. This definition includes contracts 
made in accordance with the Distribution System Loans Act, as amended 
(43 U.S.C. 421).
    Contract rate means the assessment as set forth in a contract that 
is to be paid by a district to the United States, and recomputed if 
necessary on a per acre or per acre foot basis.
    Dependent means any natural person within the meaning of the term 
dependent in the Internal Revenue Code of 1954 (26 U.S.C. 152) and any 
subsequent amendments.
    Direct when used in connection with the terms landholder, 
landowner, lessee, lessor, or owner, means that the party is the owner 
of record or the lessee of a land parcel, as appropriate. However, 
landholdings of joint tenants and tenants-in-common will not be 
considered direct under these regulations.
    Discretionary provisions refers to sections 390cc through 390hh, 
except for 390cc(b), of the Reclamation Reform Act of 1982, (43 U.S.C. 
390aa et seq.).
    District means any individual or any legal entity established under 
State law that has entered into a contract or can potentially enter 
into a contract with the United States for irrigation water service 
through federally developed or improved water storage and/or 
distribution facilities.
    Eligible, except where otherwise provided, means permitted to 
receive an irrigation water supply from a Bureau of Reclamation project 
under applicable Federal reclamation law.
    Entity, see definition of legal entity.
    Excess land means nonexempt land that is in excess of the 
landowner's maximum ownership entitlement under the applicable 
provisions of Federal reclamation law.
    Exempt, except where otherwise provided, means not subject to the 
acreage limitation provisions of Federal reclamation law.
    Extended recordable contract means a recordable contract whose term 
was extended due to moratoriums on the sale of excess land that were 
established in 1976 and 1977.
    Full cost or full-cost rate means an annual rate established by the 
Bureau of Reclamation that amortizes the expenditures for construction 
properly allocable to irrigation facilities in service, including all 
operation and [[Page 16941]] maintenance deficits funded, less 
payments, over such periods as may be required under Federal 
reclamation law, or applicable contract provisions. Interest will 
accrue on both the construction expenditures and funded operation and 
maintenance deficits from October 12, 1982, on costs outstanding at 
that date, or from the date incurred in the case of costs arising 
subsequent to October 12, 1982. The full-cost rate includes actual 
operation, maintenance, and replacement costs required under Federal 
reclamation law.
    Full-cost charge means the full-cost rate less the actual 
operation, maintenance, and replacement costs required under Federal 
reclamation law.
    Indirect, when used in connection with the terms landholder, 
landowner, lessee, lessor or owner, means that such party is not the 
owner of record or the lessee of a land parcel, but that such party has 
a beneficial interest in the legal entity that is the owner of record 
or the lessee of a land parcel. Landholdings of joint tenants and 
tenants-in-common will be considered indirect under these regulations.
    Individual means any natural person, including his or her spouse, 
and including other dependents; provided that, under prior law, the 
term individual does not include a natural person's spouse or 
dependents.
    Ineligible, except where otherwise provided, means not permitted to 
receive an irrigation water supply under applicable Federal reclamation 
law regardless of the rate paid for such water.
    Intermediate entity means an entity that is a part owner of another 
entity and in turn is owned by others, either another entity or 
individuals.
    Involuntary acquisition means land that is acquired through an 
involuntary foreclosure or similar involuntary process of law, 
conveyance in satisfaction of a debt (including, but not limited to, a 
mortgage, real estate contract or deed of trust), inheritance, or 
devise.
    Irrevocable election means the legal instrument that a landholder 
executes to become subject to the discretionary provisions of Federal 
reclamation law.
    Irrevocable elector means a landholder who makes an irrevocable 
election to conform to the discretionary provisions of Federal 
reclamation law.
    Irrigable land means land so classified by the Bureau of 
Reclamation under a specific project plan for which irrigation water 
is, can be, or is planned to be provided, and for which facilities 
necessary for sustained irrigation are provided or are planned to be 
provided.
    Irrigation land means any land receiving irrigation water in a 
given water year, except for land that has been specifically exempted 
by statute or administrative action from the acreage limitation 
provisions of Federal reclamation law.
    Irrigation water means water made available for agricultural 
purposes from the operation of Reclamation project facilities.
    Landholder means a party that directly or indirectly owns or leases 
nonexempt land.
    Landholding means the total acreage of nonexempt land directly or 
indirectly owned or leased by a landholder.
    Lease means any arrangement between a landholder (the lessor) and 
another party (the lessee) under which possession of the lessor's land 
is partially or wholly transferred to the lessee. Possession means the 
authority to make, or prevent the lessor from making, decisions 
concerning the farming enterprise on the land; or the assumption of 
economic risk with respect to the farming enterprise on the land. In 
situations where possession has been partially transferred from a 
landholder to another party, a lease will be considered to exist if the 
majority of possession is not held by the potential lessor. In 
situations where possession has been transferred from a landholder to 
more than one other party, a lease will be considered to exist between 
the lessor and the party holding the greatest degree of possession.
    Legal entity means, but is not limited to, corporations, 
partnerships, trusts, organizations, associations, and any business or 
property ownership arrangements such as joint tenancies and tenancies-
in-common.
    Limited recipient means any legal entity established under State or 
Federal law benefiting more than 25 natural persons. In order to become 
limited recipients, individuals and legal entities must be subject to 
the discretionary provisions through either district contract action or 
irrevocable election.
    Nondiscretionary provisions means section 390cc(b) and 390hh 
through 390zz-1 of the Reclamation Reform Act of 1982 (43 U.S.C. 390aa 
et seq.).
    Nonexempt land means irrigation land or irrigable land that is 
subject to the acreage limitation provisions of Federal reclamation 
law. Areas used for field roads, farm ditches and drains, tailwater 
ponds, temporary equipment storage, and other improvements subject to 
change at will by that landowner, are included in the nonexempt 
acreage. Areas occupied by and currently used for homesites, farmstead 
buildings, and corollary permanent structures such as feedlots, 
equipment storage yards, permanent roads, permanent ponds, and similar 
facilities, together with roads open for unrestricted use by the public 
are excluded from nonexempt acreage.
    Nonfull-cost entitlement means the maximum acreage a landholder may 
irrigate with irrigation water at a nonfull-cost rate.
    Nonfull-cost rate means any water rate other than the full-cost 
rate. Nonfull-cost rates are paid for irrigation water made available 
to land in a landholder's nonfull-cost entitlement.
    Nonresident alien means any natural person who is neither a citizen 
nor a resident alien of the United States.
    Operation and maintenance costs or O&M costs means all direct 
charges and overhead costs incurred by the United States after the date 
that Reclamation has declared a project, or a part thereof, 
substantially complete to operate, maintain, provide replacements of, 
administer, manage, and oversee project facilities and lands.
    Ownership entitlement means the maximum acreage a landholder may 
directly or indirectly own and irrigate with irrigation water.
    Part owner means an individual or entity that has a beneficial 
interest in an entity, but does not own 100 percent of that entity.
    Prior law means the Reclamation Act of 1902, and acts amendatory 
and supplementary thereto (43 U.S.C. 371 et seq.) that were in effect 
prior to the enactment of the Reclamation Reform Act of 1982 (43 U.S.C. 
390aa et seq.), and as amended by the Reclamation Reform Act of 1982.
    Prior law recipient means an individual or legal entity that has 
not become subject to the discretionary provisions. All nonresident 
aliens and legal entities not registered under State or Federal law 
will be considered prior law recipients, and shall have entitlement and 
eligibility only as prior law recipients.
    Project means any irrigation project authorized by Federal 
reclamation law, or constructed by the United States pursuant to such 
law, or in connection with a repayment or water service contract 
executed by the United States pursuant to such law, or any project 
constructed by the United States through the Bureau of Reclamation for 
the reclamation of lands. The term project includes any incidental 
features of an irrigation project.
    Public entity means States, political subdivisions or agencies 
thereof, and agencies of the Federal Government.
    Qualified recipient means an individual who is a citizen or a 
resident alien of the United States or any legal [[Page 16942]] entity 
established under State or Federal law that benefits 25 natural persons 
or less. A married couple may become a qualified recipient if either 
spouse is a United States citizen or resident alien. In order to become 
qualified recipients, individuals and legal entities must be subject to 
the discretionary provisions through either district contract action or 
irrevocable election.
    Reclamation means the Bureau of Reclamation, U.S. Department of the 
Interior.
    Reclamation fund means a special fund established by the Congress 
under the Reclamation Act of 1902, as amended, for the receipts from 
the sale of public lands and timber, proceeds from the Mineral Leasing 
Act, and certain other revenues.
    Recordable contract means a written contract between Reclamation 
and a landowner capable of being recorded under State law, providing 
for the disposition of land held by that landowner in excess of the 
ownership limitations of Federal reclamation law.
    Resident alien means any natural person within the meaning of the 
term as defined in the Internal Revenue Act of 1954 (26 U.S.C. 7701) as 
it may be amended.
    RRA means the Reclamation Reform Act of 1982, Public Law 97-293, 
Title II, 96 Stat. 1263, (43 U.S.C. 390aa et seq.) as amended.
    Secretary means Secretary of the Interior.
    Standard certification or reporting forms means those forms on 
which landholders provide complete information about the directly and 
indirectly owned and leased land in their landholding.
    Westwide means the 17 Western States where Reclamation projects are 
located, namely: Arizona, California, Colorado, Idaho, Kansas, Montana, 
Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South 
Dakota, Texas, Utah, Washington, and Wyoming.


Sec. 426.3  Conformance to the discretionary provisions.

    (a) Districts that are subject to the discretionary provisions. 
Unless an exemption in Sec. 426.15 applies, a district is subject to 
the discretionary provisions if:
    (1) The district executes a new or renewed contract with 
Reclamation after October 12, 1982. The discretionary provisions apply 
as of the execution date of the new or renewed contract;
    (2) The district amends its contract to conform to the 
discretionary provisions:
    (i) A district may ask Reclamation to amend its contract solely to 
conform to the discretionary provisions;
    (ii) The district's request to Reclamation must be accompanied by a 
duly adopted resolution dated and signed by the governing board of the 
district obligating the district to take, in a timely manner, actions 
required by applicable State law to amend its contract; and
    (iii) If Reclamation amends the contract, the district becomes 
subject to the discretionary provisions from the date the district's 
request was made; or
    (3) The district amends its contract after October 12, 1982, to 
provide the district with additional or supplemental benefits. The 
amendment must also include the district's conformance to the 
discretionary provisions:
    (i) The discretionary provisions apply as of the date that the 
Secretary executes the contract amendment;
    (ii) For purposes of application of the acreage limitation 
provisions, Reclamation considers all contract amendments as providing 
additional or supplemental benefits, except as specified in paragraphs 
(a)(3)(iii) or (iv) of this section. This includes loans made under the 
following acts that require amendment of a district's existing 
contract:
    (A) Rehabilitation and Betterment Act (43 U.S.C. 504);
    (B) Small Reclamation Projects Act (43 U.S.C. 422);
    (C) Distribution Systems Loan Act (43 U.S.C. 421); and
    (D) Emergency Fund Act (43 U.S.C. 502);
    (iii) for purposes of application of the acreage limitation 
provisions Reclamation considers a contract amendment as not providing 
additional or supplemental benefits if that amendment:
    (A) Does not require the United States to expend significant funds;
    (B) Does not require the United States to commit significant 
additional water supplies; or
    (C) Does not substantially modify contract payments due the United 
States; and
    (iv) For purposes of application of the acreage limitation 
provisions Reclamation does not consider the following contract actions 
as providing additional or supplemental benefits:
    (A) The construction of facilities for conveyance of irrigation 
water for which districts contracted on or before October 12, 1982;
    (B) Minor drainage and construction work contracted under an 
existing repayment or water service contract;
    (C) Operation and maintenance (O&M) amendments;
    (D) The deferral of payments provided the deferral is for a period 
of 12 months or less;
    (E) A temporary supply of irrigation water as set forth in 
Sec. 426.15(d);
    (F) The transfer of water on an annual basis from one district to 
another, provided that;
    (1) Both districts have contracts with the United States;
    (2) The rate paid by the district receiving the transferred water:
    (i) Is the higher of the applicable water rate for either district;
    (ii) Does not result in any increased operating losses to the 
United States above those that would have existed in the absence of the 
transfer; and
    (iii) Does not result in any decrease in capital repayment to the 
United States below what would have existed in the absence of the 
transfer; and
    (3) The recipients of the transferred water pay a rate for the 
water that is at least equal to the actual operation and maintenance 
costs or the full-cost rate in those cases where, for whatever reason, 
the recipients would have been subject to such costs had the water not 
been considered transferred water;
    (G) Contract actions pursuant to the Reclamation Safety of Dams Act 
of 1978, as amended (43 U.S.C. 506); or
    (H) Other contract actions that Reclamation determines do not 
provide additional or supplemental benefits.
    (b) Districts that are subject to prior law. Any district which had 
a contract in force on October 12, 1982, that required landholders to 
comply with the ownership limitations of Federal reclamation law remain 
subject to prior law unless and until the district:
    (1) Enters into a new or renewed contract requiring it to conform 
to the discretionary provisions, as provided in Sec. 426.3(a)(1);
    (2) Makes a contract action requiring conformance to the 
discretionary provisions, as provided in Sec. 426.3(a) (2) or (3); or
    (3) Becomes exempt, as provided in Sec. 426.15.
    (c) Standard RRA contract article.
    (1) New or renewed contracts executed after October 12, 1982, or 
contracts that are amended to conform to the discretionary provisions 
through the effective date of these rules must include the following 
clause:

    The parties agree that the delivery of irrigation water or use 
of Federal facilities pursuant to this contract are subject to 
Federal reclamation law, as amended and supplemented, including but 
not limited to the Reclamation Reform Act of 1982 (43 U.S.C. 390aa 
et seq.).

    (2) New or renewed contracts executed after the effective date of 
these rules, or contracts that are amended to conform to the 
discretionary provisions [[Page 16943]] after the effective date of 
these rules must include the following clause:

    The parties agree that the delivery of water or use of Federal 
facilities pursuant to this contract is subject to Federal 
reclamation law, including but not limited to the Reclamation Reform 
Act of 1982 (43 U.S.C. 390aa et seq.), as amended and supplemented, 
and the rules and regulations promulgated by the Secretary of the 
Interior under Federal reclamation law.
    The contracting officer shall have the right to make 
determinations necessary to administer this contract that are 
consistent with the expressed and implied provisions of this 
contract, the laws of the United States and the State as they now or 
hereafter exist, and the rules and regulations promulgated by the 
Secretary of the Interior. These determinations shall be made in 
consultation with the contractor.

    (d) The effect of a master contractor's and subcontractor's actions 
to conform to the discretionary provisions. If a district provides 
irrigation water to other districts through subcontracts and the master 
contracting district is subject to:
    (1) The discretionary provisions, then all subcontracting districts 
who are entitled to receive irrigation water must also conform to the 
discretionary provisions; or
    (2) Prior law, then the subcontracting district can amend its 
subcontract to conform to the discretionary provisions without 
subjecting the master contractor or any other subcontractor of the 
master contractor to the discretionary provisions. If a subcontract 
that does not include the United States as a party is amended to 
conform to the discretionary provisions, or the subcontract is a new or 
renewed contract executed after October 12, 1982, then the amended, 
new, or renewed subcontract must include the United States as a party.
    (e) The effect on a landholder's status when a district becomes 
subject to the discretionary provisions. If a district conforms to the 
discretionary provisions and the landholder is:
    (1) Other than a nonresident alien or a legal entity that is not 
registered under State or Federal law, and is:
    (i) A direct landholder in that district, then the landholder 
becomes subject to the discretionary provisions and that acreage 
limitation status will apply in any district in which the landholder 
holds land; or
    (ii) Only an indirect landholder, then the landholder's acreage 
limitation status is not affected. Such a landholder can receive 
irrigation water as a prior law recipient on indirectly held lands in 
districts that conform to the discretionary provisions.
    (2) A nonresident alien, or legal entity not registered under State 
or Federal law, and the landholder is:
    (i) A direct landholder, then since such a landholder cannot become 
subject to, and has no eligibility under the discretionary provisions:
    (A) All direct landholdings in districts that conform to the 
discretionary provisions become ineligible; and
    (B) Directly held land that becomes ineligible as a result of the 
district's action to conform to the discretionary provisions may be 
placed under recordable contract as subject to the conditions specified 
in Sec. 426.11; or
    (ii) An indirect landholder, then such a landholder, as a prior law 
recipient, may receive irrigation water on land indirectly held in 
districts conforming to the discretionary provisions, but such holdings 
cannot exceed the landholder's prior law entitlements.
    (f) Landholder actions to conform to the discretionary provisions.
    (1) In the absence of a district's action to conform to the 
discretionary provisions, United States citizens, resident aliens, or 
legal entities established under State or Federal law, can elect to 
conform to the discretionary provisions by executing an irrevocable 
election. Upon execution of an irrevocable election:
    (i) The elector's entire landholding in all districts shall be 
subject to the discretionary provisions;
    (ii) The election shall be binding on the elector and his or her 
landholding, but will not be binding on subsequent landholders of that 
land;
    (iii) An irrevocable election by a legal entity is binding only 
upon that entity and not on the members of that entity;
    (iv) An irrevocable election by a member of a legal entity binds 
only the member making the election and not the entity or other members 
of the entity; and
    (v) An irrevocable election by a lessor does not affect the status 
of a lessee, and vice versa. However, the eligibility and entitlement 
of neither a lessor nor a lessee may be enhanced through leasing.
    (2) A landholder makes an irrevocable election by completing a 
Reclamation issued irrevocable election form:
    (i) The elector's original irrevocable election form must be filed 
by the district with Reclamation and must be accompanied by a completed 
certification form, as specified in Sec. 426.17;
    (ii) The elector must file copies of the irrevocable election and 
certification forms concurrently with each district where the elector 
holds nonexempt land;
    (iii) Reclamation will prepare a letter advising the recipient of 
the approval or disapproval of the election. Reclamation will base 
approval upon whether the election form and the accompanying 
certification or reporting forms(s) indicate the elector's satisfaction 
of the various requirements of Federal reclamation law and these 
regulations;
    (iv) If the election is approved, the letter of approval, with a 
copy of the irrevocable election form and the original certification 
form(s), will be sent by Reclamation to each district where the elector 
holds land;
    (v) The district(s) shall retain the forms; and
    (vi) If the irrevocable election is disapproved, the landowner and 
the district will be advised by letter along with the reasons for 
disapproval.
    (3) A landholder that only holds land indirectly in a district that 
has conformed to the discretionary provisions, other than a nonresident 
alien or a legal entity not registered under state or Federal law, may 
make an irrevocable election also by simply submitting a certification 
form. An election made in this manner is binding in all districts in 
which such elector holds land.
    (g) District reliance on irrevocable election form information. The 
district is entitled to rely on the information contained in the 
irrevocable election form. The district does not need to make an 
independent investigation of the information.
    (h) Time limits for amendments or elections to conform to the 
discretionary provisions. Reclamation will allow at anytime a 
landholder to elect or a district to amend its contract to conform to 
the discretionary provisions. An irrevocable election that was made 
after April 12, 1987, but on or before May 13, 1987, shall be 
considered effective on April 12, 1987.


Sec. 426.4  Attribution of land.

    (a) Prohibition on increasing acreage limitation entitlements. 
Except as specifically provided in these rules, landholders cannot 
increase acreage limitation entitlements or eligibility by acquiring or 
holding a beneficial interest in a legal entity. Similarly, the acreage 
limitation status of an individual or legal entity that holds or has 
acquired a beneficial interest in another legal entity will not be 
permitted to enlarge the latter legal entity's acreage limitation 
entitlements or eligibility.
    (b) Attribution of owned land. For purposes of determining acreage 
to be counted against acreage limitation entitlements, acreage will be 
attributed to all: [[Page 16944]] 
    (1) Direct landowners in proportion to the direct beneficial 
interest the landowners own in the land; and
    (2) Indirect landowners in proportion to the indirect beneficial 
interest they own in the entity that directly owns the land.
    (c) Attribution of leased land. Leased land will be attributed to 
the direct and indirect landowners as well as to the direct and 
indirect lessees in the same manner as described in Sec. 426.4 (b) and 
(d).
    (d) Attribution of land held through intermediate entities. If land 
is held by a direct landholder and a series of indirect landholders, 
Reclamation will attribute that land to the acreage limitation 
entitlements of the direct landholder and each indirect landholder in 
proportion to each landholder's beneficial interest in the entity that 
directly holds the land.
    (e) Leasebacks. Any land a landholder directly or indirectly owns 
and that is directly or indirectly leased back will only count once 
against that particular landholder's nonfull-cost entitlement.
    (f) Effect on an entity of attribution to part owners. For purposes 
of determining eligibility, land will be attributed in its entirety to 
all direct and indirect landholders. If the interests in a legal entity 
are:
    (1) Undivided, then all of the indirect part owners must be 
eligible in order for the entity to be eligible; or
    (2) Divided, in such a manner that specific parcels are 
attributable to each indirect landholder, then the entity may qualify 
for eligibility on those portions of the landholding not attributable 
to any part owner who is ineligible.


Sec. 426.5  Ownership entitlement.

    (a) General. Except as provided in Secs. 426.11 and 426.13, all 
nonexempt land directly or indirectly owned by a landholder counts 
against that landholder's ownership entitlement. In addition, land 
owned or controlled by a public entity that is leased to another party 
counts against the lessee's ownership entitlement, as specified in 
Sec. 426.9.
    (b) Qualified recipient ownership entitlement. A qualified 
recipient is entitled to receive irrigation water on a maximum of 960 
acres of owned nonexempt land, or the class 1 equivalent thereof. This 
entitlement applies on a westwide basis.
    (c) Limited recipient ownership entitlement. A limited recipient is 
entitled to receive irrigation water on a maximum of 640 acres of owned 
nonexempt land, or the class 1 equivalent thereof. This entitlement 
applies on a westwide basis.
    (d) Prior law recipient ownership entitlement.
    (1) Ownership entitlements for prior law recipients are determined 
by whether the recipient is one individual or a married couple, and for 
entities by the type of entity as follows:
    (i) Individuals subject to prior law are entitled to receive 
irrigation water on a maximum of 160 acres of owned nonexempt land;
    (ii) Married couples who hold equal interests are entitled to 
receive irrigation water on a maximum of 320 acres of jointly owned 
nonexempt land;
    (iii) Surviving spouses until remarriage are entitled to receive 
irrigation water on that land owned jointly in marriage up to a maximum 
of 320 acres. If any of that land should be sold, the applicable 
ownership entitlement would be reduced accordingly, but not to less 
than 160 acres;
    (iv) Children are each entitled to receive irrigation water on a 
maximum of 160 acres, regardless of whether they are independent or 
dependent;
    (v) Joint tenancies and tenancies-in-common subject to prior law 
are entitled to receive irrigation water on a maximum of 160 acres of 
owned nonexempt land per tenant, provided each tenant holds an equal 
interest in the tenancy;
    (vi) Partnerships subject to prior law are entitled to receive 
irrigation water on a maximum of 160 acres of owned nonexempt land per 
partner if the partners have separable and equal interests in the 
partnership and the right to alienate that interest. Partnerships where 
each partner does not have a separable interest and the right to 
alienate that interest are entitled to receive irrigation water on a 
maximum of 160 acres of nonexempt land owned by the partnership; and
    (vii) All corporations subject to prior law are entitled to receive 
irrigation water on a maximum of 160 acres of owned nonexempt land.
    (2) Prior law recipient ownership entitlements, specified in this 
section, apply on a westwide basis unless the land was acquired by the 
current owner on or before December 6, 1979. For land acquired by the 
current owner on or before that date, prior law ownership entitlements 
apply on a district-by-district basis. For any land acquired after that 
date, prior law ownership entitlements apply on a westwide basis.


Sec. 426.6  Leasing and full-cost pricing.

    (a) Conditions that a lease must meet. Districts can make 
irrigation water available to leased land only if the lease meets the 
following requirements.
    Land that is leased under a lease instrument that does not meet the 
following requirements will be ineligible to receive irrigation water 
until the lease agreement is terminated or modified to satisfy these 
requirements.
    (1) The lease must be in writing;
    (2) The lease includes the effective date and term of the lease, 
the length of which must be:
    (i) 10 years or less, including any exercisable options; or
    (ii) Equal to the average life of the perennial crop grown on the 
land, if the crop has a life longer than 10 years. In no case may the 
term of a lease exceed 25 years, including any exercisable options;
    (3) The lease includes a legal description of the land subject to 
the lease;
    (4) Signatures with signature dates of all parties to the lease are 
included;
    (5) The lease includes the date(s) lease payments are due and the 
amounts of the payment required;
    (6) The lease must be available for Reclamation's inspection and 
Reclamation must review and approve all leases for terms longer than 10 
years; and
    (7) if either the lessor or the lessee is subject to the 
discretionary provisions, the lease must provide for agreed upon 
payments that reflect the reasonable value of the irrigation water to 
the productivity of the land.
    (b) Nonfull-cost entitlements.
    (1) The nonfull-cost entitlement for qualified recipients is 960 
acres, or the class 1 equivalent thereof.
    (2) The nonfull-cost entitlement for limited recipients that 
received irrigation water on or before October 1, 1981, is 320 acres or 
the class 1 equivalent thereof. The nonfull-cost entitlement for 
limited recipients that did not receive irrigation water on or prior to 
October 1, 1981, is zero.
    (3) The nonfull-cost entitlement for prior law recipients is equal 
to the recipient's maximum ownership entitlement as set forth in 
Sec. 426.5(d). However, for the purpose of computing the acreage 
subject to full cost, all owned and leased irrigation land westwide 
must be considered.
    (c) Application of the nonfull-cost and full-cost rates.
    (1) A landholder may irrigate at the nonfull-cost rate directly and 
indirectly held acreage equal to his or her nonfull-cost entitlement.
    (2) If a landholding exceeds the landholder's nonfull-cost 
entitlement, the landholder must pay the appropriate full-cost rate for 
irrigation water delivered to acreage that equals the 
[[Page 16945]] amount of leased land that exceeds that entitlement.
    (3) In the case of limited recipients, a landholder does not have 
to lease land to exceed a nonfull-cost entitlement, since the nonfull-
cost entitlement is less than the ownership entitlement. Therefore, 
limited recipients must pay the appropriate full-cost rate for 
irrigation water delivered to any eligible land that exceeds their 
nonfull-cost entitlement.
    (d) Types of lands that count against the nonfull-cost entitlement.
    (1) All directly and indirectly owned irrigation land and 
irrigation land leased for any period of time during one water year 
counts towards a landholder's nonfull-cost entitlement, except:
    (i) Involuntarily acquired land, as provided in Secs. 426.11 and 
426.13; and
    (ii) Land that is leased for incidental grazing or similar purposes 
during periods when the land is not receiving irrigation water.
    (2) Reclamation's process for determining if a nonfull-cost 
entitlement has been exceeded is as follows:
    (i) All land counted toward a landholder's nonfull-cost entitlement 
will be counted on a cumulative basis during any one water year;
    (ii) Once a landholder's nonfull-cost entitlement is met in a given 
water year, any additional land leased by that landholder in that water 
year may be irrigated only at the full-cost rate; and
    (iii) Irrigation land will be counted towards nonfull-cost 
entitlements on a westwide basis, even for prior law recipients, 
regardless of the date of acquisition.
    (e) Selection of nonfull-cost land.
    (1) A landholder that has exceeded his or her nonfull-cost 
entitlement may select in each water year, from his or her directly 
held irrigation land, the land that can be irrigated at a nonfull-cost 
rate and the land that can be irrigated only at the full cost rate. 
Selections for full-cost or nonfull-cost land may include:
    (i) Leased land;
    (ii) Nonexcess owned land;
    (iii) Land under recordable contract, unless that land is already 
subject to application of the full cost rate under an extended 
recordable contract; or
    (iv) A combination of all three.
    (2) Once a landholder has received irrigation water on a given land 
parcel during a water year, the selection of that parcel as full cost 
or nonfull-cost is binding for the remainder of that water year.
    (f) Applicability of a full-cost selection to an owner or lessee. 
If a landowner or lessee should select land as subject to full-cost 
pricing, then that land can receive irrigation water only at the full-
cost rate, regardless of eligibility of the other party to receive the 
irrigation water at the nonfull-cost rate.
    (g) Subleased land. Land that is subleased (the lessee transfers 
possession of the land to a sublessee) will be attributed to the 
landholding of the sublessee and not to the lessee.
    (h) Calculating full-cost rates. Reclamation will calculate a 
district's full-cost rate using accepted accounting procedures and 
under the following conditions.
    (1) The full-cost charge does not recover interest retroactively 
before October 12, 1982, but interest on the unpaid balance does accrue 
from October 12, 1982; where the unpaid balance equals the irrigation 
allocated construction costs for facilities in service plus cumulative 
federally funded O&M deficits, less payments.
    (2) The full-cost rate will be determined:
    (i) As of October 12, 1982, for contracts entered into before that 
date regardless of amendments to conform to the discretionary 
provisions; and
    (ii) At the time of contract execution for new and renewed 
contracts entered into on or after October 12, 1982.
    (3) For repayment contracts, the full-cost charge will fix equal 
annual payments over the amortization period. For water service 
contracts, the full-cost charge will fix equal payments per acre-foot 
of projected water deliveries over the amortization period.
    (4) If there are additional construction expenditures, or if the 
cost allocated to irrigation changes, then a new full-cost charge will 
be determined.
    (5) Reclamation will notify the respective districts of changes in 
the full-cost charge at the time the district is notified of other 
payments due the United States.
    (6) In determining full-cost charges, the following factors will be 
considered:
    (i) Amortization period. The amortization period for calculating 
the full-cost charge will be the remaining balance of:
    (A) The contract repayment period as of October 12, 1982 for 
contracts entered into before October 12, 1982;
    (B) The contract repayment period for contracts entered into on or 
after October 12, 1982;
    (C) For water service contracts, the period from October 12, 1982, 
or the execution date of the contract, whichever is later, to the 
anticipated date of project repayment; and
    (D) In cases where water services rates are designed to completely 
repay applicable Federal expenditures in a specific time period, that 
time period may be used as the amortization period for full-cost 
calculations related to these expenditures; but, in no case will the 
amortization period exceed the project payback period authorized by the 
Congress;
    (ii) Construction costs. For determining full cost, construction 
costs properly allocable to irrigation are those Federal project costs 
for facilities in service that have been assigned to irrigation within 
the overall allocation of total project construction costs. Total 
project construction costs include all direct expenditures necessary to 
install or implement a project, such as:
    (A) Planning;
    (B) Design;
    (C) Land;
    (D) Rights-of-way;
    (E) Water-rights acquisitions;
    (F) Construction expenditures;
    (G) Interest during construction; and
    (H) When appropriate, transfer costs associated with services 
provided from other projects;
    (iii) Facilities in service. Facilities in service are those 
facilities that are in operation and providing irrigation services;
    (iv) Operation and maintenance deficits funded. Operation and 
maintenance (O&M) deficits funded are the annual O&M costs including 
project-use pumping power allocated to irrigation that have been 
federally funded and that have not been paid by the district;
    (v) Payments received. In calculating the payments that have been 
received, all receipts and credits applied to repay or reduce allocated 
irrigation construction costs in accordance with Federal reclamation 
law, policy, and applicable contract provisions will be considered. 
These may include:
    (A) Direct repayment contract revenues;
    (B) Net water service contract income;
    (C) Contributions;
    (D) Ad valorem taxes; and
    (E) Other miscellaneous revenues and credits excluding power and 
municipal and industrial (M&I) revenues;
    (vi) Interest rates. Interest rates to be used in calculating full 
cost charges will be determined by the Secretary of the Treasury as 
follows:
    (A) For irrigation water delivered to qualified recipients, limited 
recipients receiving water on or before October 1, 1981, and extended 
recordable contract land owned by prior law recipients, the interest 
rate for expenditures made on or before October 12, 1982, will be the 
greater of 7.5 percent per annum or the weighted average yield of all 
interest-bearing marketable issues sold by the [[Page 16946]] Treasury 
during the fiscal year the expenditures were made by the United States. 
The interest rate for expenditures made after October 12, 1982, will be 
the arithmetic average of:
    (1) The computed average interest rate payable by the Treasury upon 
its outstanding marketable public obligations that are neither due nor 
callable for redemption for 15 years from the date of issuance at the 
beginning of the fiscal year the expenditures are made; and
    (2) The weighted average yield on all interest-bearing marketable 
issues sold by the Treasury during the fiscal year preceding the fiscal 
year the expenditures are made;
    (B) For irrigation water delivered to limited recipients not 
receiving irrigation water on or before October 1, 1981, and prior law 
recipients, except for land owned subject to extended recordable 
contract, the interest rate will be determined on the arithmetic 
average as follows, based on the average interest rates and yields 
during the fiscal year preceding the fiscal year the expenditures are 
made, except that the interest rate for expenditures made before 
October 12, 1982, will be determined as of October 12, 1982:
    (1) The computed average interest rate payable by the Treasury upon 
its outstanding marketable public obligations that are neither due nor 
callable for redemption for 15 years from the date of issuance; and
    (2) The weighted average yield on all interest-bearing marketable 
issues sold by the Treasury.
    (C) Landholders who were prior law recipients and become subject to 
the discretionary provisions after April 12, 1987, are eligible for the 
full-cost interest rate specified in paragraph (h)(6)(vi)(A) of this 
section, unless they are limited recipients that did not receive 
irrigation water on or before October 1, 1981, in that case they remain 
subject to the full-cost interest rate specified in paragraph 
(h)(6)(vi)(B) of this section.
    (i) Direct and proportional charges for full-cost water. In 
situations where water delivery charges are contractually or 
customarily levied on a per-acre basis, full-cost assessments will be 
made on a per-acre basis. In situations where water delivery charges 
are contractually or customarily levied on a per acre-foot basis, one 
of the following methods must be used to make full-cost assessments:
    (1) Assessments will be based on the actual amounts of water used 
in situations where measuring devices are in use, to the satisfaction 
of Reclamation, to reasonably determine the amounts of irrigation water 
being delivered to full-cost and nonfull-cost land; or
    (2) In situations where, as determined by Reclamation, measuring 
devices are not a reliable method for determining the amounts of water 
being delivered to full-cost and nonfull-cost land, then water charges 
must be based on the assumption that equal amounts of water per acre 
are being delivered to both types of land during periods when both 
types of land are actually being irrigated.
    (j) Disposition of revenues obtained through full-cost water 
pricing.
    (1) Legal deliveries. If irrigation water has been delivered in 
compliance with Federal reclamation law and these regulations, then:
    (i) That portion of the full-cost rate that would have been 
collected if the land had not been subject to full cost will be 
credited to the annual payments due under the district's contractual 
obligation;
    (ii) Any O&M revenues collected over and above those required under 
the district's contract will be credited to the project O&M account; 
and
    (iii) The remaining full-cost revenues will be credited to the 
Reclamation fund unless otherwise provided by law.
    (2) Illegal deliveries. Revenues resulting from the assessment of 
compensation charges for illegal deliveries of irrigation water will be 
deposited into the Reclamation fund in their entirety, and will not be 
credited toward any contractual obligation or O&M account of the 
district or project.


Sec. 426.7  Trusts.

    (a) Definitions for purposes of this section:
    Irrevocable trust means a non-revocable trust that holds irrigable 
land or irrigation land.
    Grantor revocable trust means a trust which holds irrigable land or 
irrigation land that may be revoked at the discretion of the 
grantor(s), or terminated at a specified point in time, in such a 
manner that revocation results in reversion of the land to the 
grantor(s), either directly or indirectly.
    Otherwise revocable trust means a trust that holds irrigable land 
or irrigation land and that is revokable or terminable by the terms 
prescribed by the trust, and the revocation or termination results in 
the title to the land held in trust reverting either directly or 
indirectly to a person or entity other than the grantor.
    (b) Attribution of land held by a trust. The acreage limitation 
entitlements of a trust are only limited by the acreage limitation 
entitlements of the trustees, grantors, or beneficiaries to whom land 
held by the trust must be attributed as provided for in Sec. 426.4. The 
entitlements of the parties to whom trusted land is attributed is 
determined according to Secs. 426.5 and 426.6, and any other applicable 
provisions of Federal reclamation law and these regulations. 
Reclamation attributes nonexempt land held by a trust as follows:
    (1) For land held in an irrevocable trust, the land is attributed 
to the beneficiaries in proportion to their beneficial interest in the 
trust. However, this attribution is only made if the following criteria 
are met. If the trust fails to meet any portion of the criteria listed 
in paragraph (b)(1) (i) or (ii) of this section then Reclamation 
attributes the land held in the trust to the trustee.
    (i) The trust is in written form and approved by Reclamation; and
    (ii) The beneficiaries of the trust and the beneficiaries' 
respective interests are identified within the trust document.
    (2) For land held in a grantor revocable trust, the land is 
attributed to the grantor according to the grantor's acreage limitation 
status and the land's eligibility immediately prior to its transfer to 
the trust. However, this attribution is only made if the following 
criteria are met. If the trust fails to meet any portion of the 
criteria listed in paragraph (b)(2) (i), (ii), (iii), or (iv) of this 
section, then the land held in trust will be ineligible to receive 
irrigation water until all of the criteria are met. The only exception 
is if the trust's and grantor's certification or reporting forms 
indicate that the land held by the trust has been attributed to the 
trust's grantor(s).
    (i) The trust meets the criteria specified in Sec. 426.7(b)(1);
    (ii) The grantor(s) of all land held by the trust is identified 
within the trust document;
    (iii) The conditions under which the trust may be revoked or 
terminated are identified within the trust document; and
    (iv) The recipient(s) of the trust land upon revocation or 
termination is identified within the trust document.
    (3) For land held in an otherwise revocable trust, the land is 
attributed to the beneficiaries in proportion to their beneficial 
interests in the trust. However, this attribution is only made if the 
trust meets the criteria specified in Sec. 426.7(b)(1) and the trust 
meets the additional criteria specified in Sec. 426.7(b)(2).
    (i) If the trust fails to meet the criteria listed in 
Sec. 426.7(b)(1), but does meet the additional criteria listed in 
Sec. 426.7(b)(2), then the land is attributed to the trustee. 
[[Page 16947]] If the trust fails to meet the additional criteria 
listed in Sec. 426.7(b)(2), then irrigation water will not be made 
available to the land held in trust until the trust satisfies the 
additional criteria listed in Sec. 426.7(b)(2).
    (c) Application of full-cost rate to land held by grantor revocable 
trusts. If a grantor revised his or her grantor revocable trust that 
meets the criteria specified in Sec. 426.7(b)(2), in a manner that 
precludes attribution of the land held in trust to the grantor:
    (1) Before April 20, 1988, Reclamation will not assess full-cost 
rates for the land held by the revised trust for the period before it 
was revised; or
    (2) On or after April 20, 1988, Reclamation will charge the full-
cost rate for irrigation water delivered to any land held by the trust 
that exceeds the grantor's nonfull-cost entitlement, commencing 
December 23, 1987, until the trust agreement is revised to make it an 
irrevocable trust or an otherwise revocable trust.


Sec. 426.8  Religious or charitable organizations.

    (a) Definition for purposes of this section:
    Religious or charitable organization means an organization or each 
congregation, chapter, parish, school, ward, or similar subdivision of 
a religious or charitable organization that is exempt from paying 
Federal taxation under section 501 of the Internal Revenue Code of 
1954, as amended.
    (b) Acreage limitation status of religious or charitable 
organizations which are subject to the discretionary provisions.
    (1) Religious or charitable organizations or their subdivisions 
that are subject to the discretionary provisions have qualified 
recipient status, if:
    (i) The organization's or subdivision's agricultural produce and 
proceeds from the sales of such produce are used only for charitable 
purposes;
    (ii) The organization or subdivision, itself, operates the land; 
and
    (iii) No part of the net earnings of the organization or 
subdivision accrue to the benefit of any private shareholder or 
individual.
    (2) If Reclamation determines that a religious or charitable 
organization or any of its subdivisions does not meet the criteria 
listed in paragraph (b)(1) of this section, then:
    (i) If the central organization has not met the criteria, then 
Reclamation will treat the entire organization, including all 
subdivisions, as a single entity; or
    (ii) If a subdivision has not met the criteria, only that 
subdivision and any subdivisions of it will be treated as a single 
entity and not the central organization or other subdivisions of the 
central organization; and
    (iii) In order to ascertain the acreage limitation status, 
Reclamation determines the total number of members in both the 
organization that has not met the criteria and in any subdivisions that 
are under that organization. If Reclamation determines that total 
number equals:
    (A) More than 25 members, then Reclamation treats that organization 
and every subdivision under that organization as a single legal entity 
with a limited recipient status; or
    (B) Less than 25 members, then Reclamation treats that organization 
and every subdivision under that organization as a single legal entity 
with a qualified recipient status.
    (c) Acreage limitation status of prior law religious or charitable 
organizations or subdivisions.
    (1) Reclamation treats each congregation, chapter, parish, school, 
ward, or other subdivision of a religious or charitable organization as 
an individual, prior law corporation, if neither the district nor that 
religious or charitable organization or its subdivisions elect to 
conform to the discretionary provisions.
    (2) Reclamation must treat the entire organization, including all 
subdivisions, as a single prior law corporation if the central 
organization or any associated subdivisions do not meet the criteria 
specified in Sec. 426.8(b)(1).
    (d) Affiliated farm management between a religious or charitable 
organization and a more central organization of the same affiliation. 
Reclamation permits a subdivision of a religious or charitable 
organization to retain its status as an individual entity while 
cooperating with a more central organization of the same affiliation in 
farm operation and management. Reclamation permits affiliated farm 
management regardless of whether the subdivision is the owner of record 
of the land being operated.


Sec. 426.9  Public entities.

    (a) Definition of public entities. For purposes of this section 
public entities means States, political subdivisions or agencies 
thereof, and agencies of the Federal government.
    (b) Application of the acreage limitation provisions to public 
entities. Reclamation does not subject public entities to the acreage 
limitation provisions of Federal reclamation law with respect to land 
that Reclamation determines public entities farm primarily for 
nonrevenue producing functions. However, public entities are required 
to meet certification and reporting requirements as specified in 
Sec. 426.17.
    (c) Sale of public land. Reclamation does not require public 
entities to seek price approval before they sell irrigable lands. Once 
sold, Reclamation can make irrigation water available to such land if 
the purchaser meets RRA eligibility requirements.
    (d) Leasing of public land. Public entities can lease irrigation 
land that they own or control to eligible landholders. Land leased from 
a public entity counts towards the lessee's ownership entitlement.


Sec. 426.10  Class 1 equivalency.

    (a) General application. Class 1 equivalency determinations will 
establish, on a district-wide basis the acreage of land with lower 
productive potential (classes 2, 3, and 4) that would be equivalent in 
productive potential to the most suitable land (class 1) in the local 
agricultural economic setting.
    (1) Reclamation establishes equivalency factors by comparing the 
weighted average farm size required to produce a given level of income 
on each of the lower classes of land with the farm size required to 
produce that income level on class 1 land.
    (2) For equivalency purposes, Reclamation will classify all 
irrigable land as class 1, 2, or 3; no other classifications are 
permissible for irrigable land. Class 4 and special-use land classes 
will be allocated to one of these three classes on a case-by-case 
basis.
    (3) Once the class 1 equivalency determinations have been made, 
individual landowners with classes 2, 3, and 4 land will have the right 
to adjust, for acreage limitation entitlement purposes, their actual 
landholding acreage to its class 1 equivalent acreage.
    (4) In a district subject to prior law, class 1 equivalency can be 
applied only to landholders who are subject to the discretionary 
provisions.
    (b) Who may request a class 1 equivalency determination? Only 
districts may request class 1 equivalency determinations. Upon the 
request of any district subject to the acreage limitation provisions, 
Reclamation will make a class 1 equivalency determination for that 
district. Equivalency determinations can be made only on a district-
wide basis.
    (c) Definition of class 1 land.
    (1) Class 1 land is defined and will be classified as that 
irrigable land within a particular agricultural economic setting that: 
[[Page 16948]] 
    (i) Most completely meets the various parameters and specifications 
established by Reclamation for irrigable land classes;
    (ii) Has the relatively highest level of suitability for 
continuous, successful irrigation farming; and
    (iii) Is estimated to have the highest relative productive 
potential measured in terms of net income per acre (reflecting both 
productivity and costs of production). The equivalency analysis will 
establish the acreage of each of the lower classes of land which is 
equal in productive potential (measured in terms of net farm income) to 
1 acre of class 1 land.
    (2) All land that Reclamation has not classified, or for which 
Reclamation has not yet performed the necessary economic studies, will 
be considered class 1 land for the purposes of determining entitlements 
under these rules until such time as the necessary classifications or 
studies have been completed.
    (d) Determination of land classes . The extent and location of 
class 1 land and land in lower land classes in a district have been, or 
will be, determined by Reclamation.
    (1) Reclamation will take into account the influence of economic 
and physical factors upon the productive potential of the land lying 
within the district. These factors will include, but are not limited to 
the following and their effect on agricultural practices:
    (i) The physical and chemical characteristics of the soil;
    (ii) Topography;
    (iii) Drainage status;
    (iv) Costs of production;
    (v) Land development costs;
    (vi) Water quality and adequacy;
    (vii) Elevation;
    (viii) Crop adaptability; and
    (ix) Length of growing season.
    (2) Acceptable levels of detail for land classification studies to 
be utilized in making class 1 equivalency determinations will be 
evaluated on the basis of the physical and agricultural economic 
characteristics of the area. For districts where the sole purpose of 
the land classification study is for a class 1 equivalency 
determination, the level of detail of the land classification to be 
made will never be greater than that required to make a class 1 
equivalency determination.
    (3) Reclamation will pay for at least a portion of the costs 
associated with the land classification study. The amount to be paid by 
Reclamation will be determined as follows:
    (i) Reclamation has provided basic land classification data as part 
of the project development process since 1924. Accordingly, if the 
Commissioner determines that acceptable land classification data are 
not available for making requested class 1 equivalency determinations 
and if the project was authorized for construction since 1924, such 
data will be made available at Reclamation's expense; or
    (ii) For each district located in projects authorized for 
construction prior to 1924, Reclamation will pay 50 percent of the 
costs and the district must pay 50 percent of the costs of new land 
classification studies required to make accurate class 1 equivalency 
determinations.
    (4) When basic land classification data are available for a 
district, but the district does not agree with the accuracy or asserts 
that the data have become outdated, the district may request, and 
Reclamation may perform, a reclassification under the authority 
contained in the Reclamation Project Act of 1939 (43 U.S.C. 485), with 
the following conditions:
    (i) The requesting district will pay 50 percent of the costs of 
performing such reclassifications and 100 percent of the cost of all 
other studies inherent in the equivalency process; and
    (ii) The results of such reclassifications will be binding upon the 
requesting district and Reclamation.
    (e) Additional studies required for class 1 equivalency 
determinations. Economic studies related to class 1 equivalency 
determinations will measure net farm income by land classes within the 
district.
    (1) Net farm income will be determined by considering the 
disposable income accruing to the farm operator's labor, management, 
and equity from the sale of farm crops and livestock produced on 
irrigated land, after all fixed and variable costs of production, 
including costs of irrigation service, are accounted for.
    (2) Net farm income will be the measure of productivity to 
establish equivalency factors reflecting the acreage of each of the 
lower classes of land which is equal in productive potential to 1 acre 
of class 1 land.
    (3) The cost of performing new or additional economic studies and 
computations inherent in the equivalency process will be the 
responsibility of the requesting district.
    (4) District requests for equivalency determinations will be 
scheduled by region, with the regional director of each Reclamation 
region having responsibility for such scheduling. Generally, requests 
will be honored on a first-come-first-served basis. However, if 
requests exceed the region's ability to fulfill them expeditiously, 
priority will be given on the basis of greatest immediate need.
    (f) Use of class 1 equivalency with the acreage limitation 
provisions. Class 1 land and land in lower classes will be identified 
on a district basis by Reclamation using a standard approach in which 
the land classification for the entire district is considered. 
Equivalency factors will then be computed for the district and applied 
to specific tracts within individual landholdings. If adequate land 
classification data are not available, they will be developed as 
specified in Sec. 426.10(d) using standard procedures established by 
Reclamation.
    (1) For purposes of ownership entitlement, class 1 equivalency will 
not be applied until a final determination has been made by Reclamation 
on the district's request for equivalency.
    (i) Reclamation will protect the excess landowner's property 
interests by ensuring that equivalency determinations are completed in 
advance of maturity dates on recordable contracts, provided the 
district's request for an equivalency determination was made at least 6 
months prior to the maturity of the recordable contract and the 
district fulfills its obligations under this section and notifies 
Reclamation 6 months in advance of the maturity dates for the need for 
an expedited review.
    (ii) Once the determination has been made, owners of land subject 
to recordable contracts may withdraw land from such recordable 
contracts in order to reach their ownership entitlement in class 1 
equivalent acreage.
    (iii) The requirement that land under recordable contract be sold 
at a price approved by Reclamation does not apply to land which is 
withdrawn from a recordable contract and included as part of a 
landowner's nonexcess landholding as a result of an equivalency 
determination.
    (iv) In cases of equivalency determination disputes, Reclamation 
will not undertake the sale of the reasonable increment of the excess 
land under matured recordable contract which could be affected by a 
reclassification, provided the dispute is determined by Reclamation not 
to be an attempt to thwart the sale of excess land.
    (2) For purposes of nonfull-cost entitlement, class 1 equivalency 
will not be applied until a final determination has been made by 
Reclamation on a district's request for equivalency.
    (i) During the time when such determinations are pending, the full-
cost rate will be assessed based on a landholder's nonfull-cost 
entitlement as [[Page 16949]] determined in the absence of class 1 
equivalency.
    (ii) Following Reclamation's final determination, Reclamation will 
reimburse the district for any full-cost charges that would not have 
been assessed had class 1 equivalency been in place from the date of 
the district's request. Districts will return such reimbursements to 
the appropriate landholders.
    (3) A landholder with holdings in more than one district is 
entitled to equivalency only in those districts which have requested 
equivalency (or are already subject to equivalency). That part of the 
landholding in a district or districts not requesting equivalency will 
be counted as class 1 land for purposes of overall entitlement.
    (g) Exception to use of class 1 equivalency factors. Prior to the 
application of class 1 equivalency to any land not subject to class 1 
equivalency on the effective date of these rules, Reclamation will 
perform an analysis to determine whether the irrigation of such land 
could contribute to hazardous or toxic irrigation return flows. In 
addition, when any land subject to class 1 equivalency on the effective 
date of these rules is reclassified for any reason, Reclamation will 
perform an analysis to determine whether the irrigation of such land 
could contribute to hazardous or toxic irrigation return flows.
    (1) Reclamation will make reasonable efforts to specifically 
identify any land that could contribute to hazardous or toxic return 
flows.
    (2) Increased acreage entitlements as a result of class 1 
equivalency will not be permitted on land whose irrigation Reclamation 
finds could contribute to hazardous or toxic irrigation return flows.
    (3) On land for which application of class 1 equivalency will be 
revoked as a result of this paragraph (g), such revocation will take 
place at the beginning of the irrigation season following Reclamation's 
determination.
    (4) The cost of performing the analyses required by this paragraph 
(g) will be the responsibility of the requesting district.
    (h) Existing equivalency determinations. In districts where 
equivalency was a provision of project authorization, those equivalency 
factor determinations will be honored as originally calculated unless 
the district requests a reclassification.


Sec. 426.11  Excess land.

    (a) The process of designating excess and nonexcess land. If a 
landowner owns more land than the landowner's ownership entitlement, 
all of the landowner's nonexempt land must be designated as excess and 
nonexcess as follows:
    (1) The landowner designates which land is excess and which is 
nonexcess in accordance with the instructions on the appropriate 
certification or reporting forms; or
    (2) If a landowner fails to designate his or her land as excess and 
nonexcess on the appropriate certification or reporting forms:
    (i) And all of the landowner's nonexempt land is in only one 
district:
    (A) If the district's contract with Reclamation includes 
designation procedures, then the land is designated according to those 
procedures; or
    (B) If the district's contract with Reclamation does not include 
designation procedures, then:
    (1) Reclamation will notify the landowner and the district that the 
landowner must designate the land as excess and nonexcess on the 
appropriate certification or reporting forms within 30 calendar days of 
the notification;
    (2) If the landowner fails to make the designation within 30 
calendar days of notification, the district will make the designation 
within 30 calendar days thereafter; or
    (3) If the district does not make the designation within its 30 
calendar days, Reclamation will make the designation; or
    (ii) If the landowner owns nonexempt irrigable land or irrigation 
land in more than one district, then Reclamation will notify the 
landowner and the districts that the landowner has 60 calendar days 
from the date of notification to make the designation. If the landowner 
does not make the designation in the 60 calendar days, Reclamation will 
make the designation.
    (b) Changing excess and nonexcess land designations.
    (1) The designation of excess and nonexcess land must be filed with 
the district(s) in which the land is located and with Reclamation and 
is binding on the land. However, the landowner may change the 
designation under the following circumstances without Reclamation's 
approval:
    (i) The excess land becomes eligible to receive irrigation water 
because the landowner becomes subject to the discretionary provisions 
as provided in Sec. 426.3;
    (ii) A recordable contract is amended to remove excess land when 
the landowner's entitlement increases because the landowner becomes 
subject to the discretionary provisions as provided in 
Sec. 426.11(j)(5); or
    (iii) The excess land becomes eligible to receive irrigation water 
as a result of equivalency determinations, as provided in Sec. 426.10.
    (2) No other redesignation of excess land is allowable without the 
approval of Reclamation in accordance with established Reclamation 
procedures. Reclamation will not approve a redesignation request if:
    (i) The purpose of the redesignation is for achieving, through 
repeated redesignation, an effective farm size in excess of that 
permitted by Federal reclamation law; or
    (ii) The landowner sells some or all of his or her land that is 
currently classified as nonexcess.
    (3) When a redesignation involves an exchange of nonexcess land for 
excess land, a landowner must make an equal exchange of acreage (or 
class 1 equivalent acreage) through the redesignation.
    (c) Land that becomes excess when a district first contracts with 
Reclamation.
    (1) If a landowner owned irrigable land on the execution date of 
the district's first water service or repayment contract, and the 
execution date was on or before October 12, 1982, the landowner's 
excess land is ineligible until the landowner:
    (i) Becomes subject to the discretionary provisions and the 
landowner designates the excess land, up to his or her ownership 
entitlement, as nonexcess as provided for in Sec. 426.11(b)(1)(i);
    (ii) Places such excess land under a recordable contract, provided 
the period for executing recordable contracts under the district's 
contract has not expired;
    (iii) Sells such excess land to an eligible buyer at a price and on 
terms approved by Reclamation; or
    (iv) Redesignates the land as nonexcess with Reclamation's approval 
as provided for in Sec. 426.11(b)(2).
    (2) If the landowner owned irrigable land on the execution date of 
the district's first water service or repayment contract and the 
execution date is after October 12, 1982, the landowner's excess land 
is ineligible until the landowner:
    (i) Places such excess land under a recordable contract, provided 
the period for executing recordable contracts under the district's 
contract has not expired;
    (ii) Sells such excess land to an eligible buyer in a sale or 
transfer at a price and on terms approved by Reclamation; or
    (iii) Redesignates the land as nonexcess with Reclamation's 
approval as provided for in Sec. 426.11(b)(2). [[Page 16950]] 
    (d) Land acquired into excess after the district has already 
contracted with Reclamation.
    (1) If a landowner acquires land after the date the district first 
entered into a repayment or water service contract that was nonexcess 
to the previous owner and is excess to the acquiring landowner, the 
first repayment or water service contract was executed on or before 
October 12, 1982, and:
    (i) Irrigation water was physically available when the landowner 
acquires such land, then the land is ineligible to receive such water 
until:
    (A) The landowner becomes subject to the discretionary provisions 
and the landowner designates the excess land, up to his or her 
ownership entitlement, as nonexcess as provided for in 
Sec. 426.11(b)(1)(i);
    (B) The landowner sells such land to an eligible buyer at a price 
and on terms approved by Reclamation;
    (C) The sale from the previous landowner is cancelled; or
    (D) The landowner redesignates the land as nonexcess with 
Reclamation's approval as provided for in Sec. 426.11(b)(2); or
    (ii) Irrigation water was physically not available when the 
landowner acquired the land, then the land is ineligible to receive 
water until:
    (A) The landowner becomes subject to the discretionary provisions 
and the landowner designates the excess land, up to his or her 
ownership entitlement, as nonexcess as provided for in 
Sec. 426.11(b)(1)(i);
    (B) The landowner sells the land to an eligible buyer at a price 
and on terms approved by Reclamation;
    (C) The sale from the previous landowner is cancelled;
    (D) The landowner places the land under recordable contract when 
water becomes available; or
    (E) The landowner redesignates the land as nonexcess with 
Reclamation's approval as provided for in Sec. 426.11(b)(2).
    (2) If the landowner acquires land after the date the district 
first entered into a repayment or water service contract that was 
nonexcess to the previous owner and is excess to the acquiring 
landowner, the first repayment or water service contract was executed 
after October 12, 1982, and:
    (i) Irrigation water was physically available when the landowner 
acquired such land, then the land is ineligible until:
    (A) The landowner sells the land to an eligible buyer at a price 
and on terms approved by Reclamation;
    (B) The sale from the previous landowner is cancelled; or
    (C) The landowner redesignates the land as nonexcess with 
Reclamation's approval as provided for in Sec. 426.11(b)(2); or
    (ii) Irrigation water was not physically available when the 
landowner acquired such land, then the land is ineligible to receive 
water until:
    (A) The landowner sells the land to an eligible buyer at a price 
and on terms approved by Reclamation;
    (B) The sale from the previous landowner is cancelled;
    (C) The landowner redesignates the land as nonexcess with 
Reclamation's approval as provided for in Sec. 426.11(b)(2); or
    (D) The landowner places the land under recordable contract when 
water becomes available.
    (e) If the status of land is changed by law and regulations.
    (1) If the district had a contract with Reclamation on or before 
October 12, 1982, and eligible land became excess because the 
landowner's entitlement changed from being based on a district-by-
district basis to a westwide basis, then such formerly eligible land is 
ineligible until:
    (i) The landowner places such land under recordable contract. The 
recordable contract does not need to include the sales price approval 
clause and application of the deed covenant provision will not be 
required; or
    (ii) The landowner sells such land to an eligible buyer. The sales 
price does not need Reclamation's approval.
    (2) If the district had a contract with Reclamation on or before 
October 12, 1982, and the landowner was a nonresident alien or a legal 
entity not established under State or Federal law, who directly held 
eligible land and such land is no longer eligible to receive water, 
then such formerly eligible land is ineligible until:
    (i) The landowner places such land under recordable contract. The 
recordable contract does not need to include the sales price approval 
clause and application of the deed covenant provision will not be 
required; or
    (ii) The landowner sells such land to an eligible buyer. The sales 
price does not need Reclamation's approval.
    (3) If the district first entered a contract with Reclamation after 
October 12, 1982, and land would have been eligible before October 12, 
1982, but is now ineligible because the landowner is a nonresident 
alien or a legal entity not established under State or Federal law, 
then such land that would have been eligible remains ineligible until:
    (i) If the landowner acquired such land before the date of the 
district's contract:
    (A) The landowner places such land under a recordable contract 
requiring Reclamation sales price approval; or
    (B) Sells the land to an eligible buyer subject to Reclamation 
sales price approval; or
    (ii) If the landowner acquired such land after the date of the 
district's contract, the landowner sells such land to an eligible buyer 
subject to Reclamation sales price approval.
    (4) Eligible nonexcess land that is indirectly owned on or before 
July 1, 1995, by a nonresident alien or a legal entity not established 
under State or Federal law, and that becomes ineligible because of 
these rules is ineligible until:
    (i) The landowner places such land under recordable contract. The 
recordable contract does not need to include the sales price approval 
clause and application of the deed covenant provision will not be 
required; or
    (ii) The landowner sells such land to an eligible buyer. The sales 
price does not need Reclamation's approval.
    (f) Excess land that is transferred without approval or in 
violation of other requirements.
    (1) If a landowner purchases land that is subject to Reclamation 
price approval, without obtaining such approval, the land is ineligible 
to receive water until:
    (i) The sales price is reformed to conform to the price approved by 
Reclamation and is eligible to receive irrigation water in the 
landowner's ownership entitlement; or
    (ii) Such landowner sells the land to an eligible buyer at a price 
approved by Reclamation.
    (2) If a landowner acquires land for which irrigation water is 
available and by that acquisition places himself or herself in an 
excess status, the land so acquired cannot be placed under recordable 
contract. The landowner must sell the land to an eligible buyer at a 
price approved by Reclamation, in order for such land to again be 
eligible.
    (g) Excess land that is disposed of and subsequently reacquired. 
Districts may not under any circumstances make available irrigation 
water to excess land of which a landholder disposes, if the landholder 
subsequently becomes a direct or indirect landholder of that land, 
unless:
    (1) The landholder became or contracted to become a direct or 
indirect landholder of that land prior to July 1, 1995; or
    (2) Such land becomes exempt from the acreage limitations of 
Federal reclamation law.
    (h) Application of the compensation rate for irrigating ineligible 
excess land with irrigation water. Reclamation will charge the 
following for irrigation water [[Page 16951]] delivered to ineligible 
excess land in violation of Federal reclamation law and these 
regulations:
    (1) The appropriate compensation rate for irrigation water 
delivered; and
    (2) Any other applicable fees.
    (i) Deed covenants.
    (1) All land that is acquired from excess status after October 12, 
1982, must have the following covenant (that runs with the land) placed 
in the deed transferring the land to the purchaser in order for the 
land to be eligible to receive irrigation water except as otherwise 
specified in these regulations. The covenant must be in the deed 
regardless of whether or not the land was under recordable contract.

    This covenant is to satisfy the requirements in 209(f)(2) of 
Pub. L. 97-293 (43 U.S.C. 390, et seq.). This covenant expires on 
(date). Until the expiration date specified herein, sale price 
approval is required on this land. Sale by the landowner and his or 
her assigns of these lands for any value that exceeds the sum of the 
value of newly added improvements plus the value of the land as 
increased by the market appreciation unrelated to the delivery of 
irrigation water will result in the ineligibility of this land to 
receive Federal project water, provided however:
    (i) The terms of this covenant requiring price approval shall 
not apply to this land if it is acquired into excess status pursuant 
to a bona fide involuntary foreclosure or similar involuntary 
process of law, conveyance in satisfaction of a debt (including, but 
not limited to, a mortgage, real estate contract, or deed of trust), 
inheritance, or devise (hereinafter Involuntary Conveyance). 
Thereafter, this land may be sold to a landholder at its fair market 
value without regard to any other provision of the Reclamation 
Reform Act of 1982 enacted on October 12, 1982, (43 U.S.C. 390aa et 
seq.), or to section 46 of the Act entitled ``an Act to adjust water 
rights charges, to grant certain relief on the Federal irrigation 
projects, and for other purposes,'' enacted May 25, 1926 (43 U.S.C. 
423e);
    (ii) If the status of this land changes from nonexcess into 
excess after a mortgage or deed of trust in favor of a lender is 
recorded and the land is subsequently acquired by a bona fide 
Involuntary Conveyance by reason of a default under that loan, this 
land may thereupon or thereafter be sold to a landholder at its fair 
market value;
    (iii) The terms of this covenant requiring price approval shall 
not apply to the sales price obtained at the time of the Involuntary 
Conveyances described in subparagraphs (i) and (ii), nor to any 
subsequent voluntary sales by a landholder of this land after the 
Involuntary Conveyances or any subsequent Involuntary Conveyance;
    (iv) Upon the completion of an Involuntary Conveyance, 
Reclamation shall reconvey or otherwise terminate this covenant of 
record; and
    (v) Paragraphs (i) through (iv) above shall not apply if the 
acquiring party specified therein is the party whose excess 
ownership originally required the placement of this covenant. 
Furthermore, the party whose excess ownership originally required 
the placement of this covenant may not under any circumstances 
receive Federal reclamation project irrigation water on the land 
subject to this covenant as a direct or indirect landowner or 
lessee.

    Note: 1. Clause (v) of this covenant shall only be required on 
those covenants placed in deeds transferring land after the 
effective date of these regulations.
    2. The date that the covenant expires shall be 10 years from the 
date the land was first transferred from excess to nonexcess status.

    (2) A landholder may purchase or otherwise voluntarily acquire into 
nonexcess status, land subject to a deed covenant, at a price approved 
by Reclamation if the land is within the landholder's ownership 
entitlement.
    (3) Upon expiration of the terms of the deed covenant, a landowner 
may resell such land at fair market value. A landowner may not sell 
more of such land in his or her lifetime than an amount equal to his or 
her ownership entitlement. Once the landowner reaches this limit, any 
additional excess land or land subject to a deed covenant the landowner 
acquires is ineligible to receive irrigation water, until such land is 
sold to an eligible buyer at a price approved by Reclamation.
    (4) If a landholder acquires land burdened by such a deed covenant 
through involuntary foreclosure or similar involuntary process of law, 
conveyance in satisfaction of a debt, including, but not limited to, a 
mortgage, real estate contract, or deed of trust, inheritance, or 
devise, and is not the party whose excess ownership originally required 
placement of the deed covenant, then the deed covenant must be 
terminated by Reclamation upon the landholder's request.
    (j) Recordable Contracts.
    (1) Qualifications for recordable contracts. A landowner can make 
excess land eligible by entering into a recordable contract with the 
United States if the landowner qualifies under applicable provisions 
of:
    (i) The landowner's water district's contract with Reclamation;
    (ii) Federal reclamation law; and
    (iii) These regulations.
    (2) Clauses to be included in recordable contracts. A recordable 
contract must include:
    (i) A clause whereby the landowner agrees to dispose of the excess 
land, excluding mineral rights and easements, under terms and 
conditions of the sale, in accordance with Sec. 426.12; and within the 
period allowed for the disposition of excess land, that must be within 
5 years from the date that the recordable contract is executed by 
Reclamation (except for the Central Arizona Project wherein the time 
period is 10 years from the date water becomes available to the land); 
and
    (ii) A clause granting power of attorney to Reclamation to sell the 
land held under the recordable contract, if the landholder has not 
already sold the land by the recordable contract's maturation.
    (3) Date Reclamation can make irrigation water available. 
Reclamation can make available irrigation water to land that the 
landowner plans to place under a recordable contract on the day that 
Reclamation receives the landowner's written request to execute a 
recordable contract. The landowner has 20-working days in which to 
execute the recordable contract from the date Reclamation sends the 
recordable contract to the landowner. Reclamation, in its discretion, 
may extend this period upon the landowner's request.
    (4) Water rate. The rate for irrigation water delivered to land 
placed under recordable contract will be determined as follows:
    (i) If both the landowner and any lessee are prior law recipients, 
land placed under a recordable contract can receive irrigation water at 
a contract rate that does not cover full operation and maintenance 
costs;
    (ii) If either landowner or any lessee is subject to the 
discretionary provisions, the water rate applicable to the recordable 
contract must cover, at a minimum, the annual operation and maintenance 
costs; or
    (iii) If a lessee holds land under a recordable contract and is in 
excess of his or her nonfull-cost entitlement, the lessee may select 
such land as the land on which full-cost will be charged for the 
delivery of irrigation water.
    (5) Amending a recordable contract to include less acreage. 
Reclamation permits a landowner to amend a recordable contract to 
transfer land out of a recordable contract to nonexcess status, if:
    (i) The landowner has an increased ownership entitlement because of 
becoming subject to the discretionary provisions; or
    (ii) Land becomes eligible by implementation of class 1 
equivalency, if the landowner amends the recordable contract prior to 
performance of appraisal.
    (6) Sale of land by Reclamation. If the landowner does not dispose 
of the excess land held under recordable contract within the period 
specified in the contract, Reclamation will sell that land. Reclamation 
will not sell the land if the landowner complies with all requirements 
for sale of excess land [[Page 16952]] under these rules within the 
period specified, whether Reclamation gives any needed final approval 
of the sale within that period or after.
    (7) Delivery of water when a recordable contract has matured. 
Reclamation can make available irrigation water at the current 
applicable rate, pursuant to Sec. 426.11(j)(4), to excess land held 
under a matured recordable contract until Reclamation sells the land.
    (8) Procedures Reclamation follows in selling excess land. If 
Reclamation must sell excess land, the following procedures will be 
used:
    (i) a qualified surveyor must make a land survey, as determined 
necessary by Reclamation. The United States will pay for the survey 
initially, but such costs will be added to the approved sale price for 
the land. The United States will reimburse itself for these costs from 
the sale of the land;
    (ii) Reclamation will appraise the value of the excess land, in the 
manner prescribed by Sec. 426.12 of these regulations, to determine the 
appropriate sale price. The United States will pay for the appraisal 
initially, but such costs will be added to the approved sale price for 
the land. The United States will reimburse itself for these costs from 
the sale of the land; and
    (iii) Reclamation will advertise the sale of the property in farm 
journals and in newspapers within the county in which the land lies, 
and by other public notices as deemed advisable. The United States will 
pay for the advertisements and notices initially, but such costs will 
be added to the approved sale price for the land. The United States 
will reimburse itself for these costs from the sale of the land. The 
notices must state:
    (A) the minimum acceptable sale price for the property (which 
equals the appraised value plus the cost of the appraisal, survey, and 
advertising);
    (B) that Reclamation will sell the land by auction for cash, or on 
terms acceptable to the landowner, to the highest eligible bidder whose 
bid equals or exceeds the minimum acceptable sale price; and
    (C) the date of the sale (which must not exceed 90 calendar days 
from the date of the advertisement and notices);
    (iv) The proceeds from the sale of the land will be paid:
    (A) First, to the landowner in the amount of the appraised value;
    (B) Second, to the United States for costs of the survey, 
appraisal, advertising, etc.; and
    (C) Third, any remaining proceeds will be credited to the 
Reclamation fund or other funds as prescribed by law; and
    (v) Reclamation will close the sale of the excess land when parties 
complete all sale arrangements. Reclamation will execute a deed 
conveying the land to the purchaser. Reclamation will not require the 
purchaser to include a covenant in the deed restricting any further 
resale of the land, as specified in Sec. 426.11(i).


Sec. 426.12  Excess land appraisals.

    (a) When does Reclamation appraise the value of a landowner's land? 
Reclamation appraises excess land or land burdened by a deed covenant 
upon a landowner's request or when required by Reclamation. If a 
landowner does not request an appraisal within 6 months of the maturity 
date of a recordable contract, Reclamation, in its discretion, can 
initiate the appraisal.
    (b) Procedures Reclamation uses to determine the sale price of 
excess land or land burdened by a deed covenant. Reclamation complies 
with the following procedures to determine the sale price of excess 
land and land burdened by a deed covenant, except if a landholder owns 
land subject to a recordable contract that was in force on October 12, 
1982, or other pertinent contract that was in force on that date, and 
these regulations would be inconsistent with provisions in such a 
contract:
    (1) Appraisals of land. Reclamation will base all appraisals of 
land on the fair market value of the land at the time of appraisal 
without reference to the construction of the irrigation works. 
Reclamation must use standard appraisal procedures including: the 
income, comparable sales, and cost methods, as applicable. Reclamation 
will consider nonproject water supply factors as provided in 
Sec. 426.12(c)(1) as appropriate; and
    (2) Appraisal of improvements to land. Reclamation will assess the 
contributory fair market value of improvements to land, as of the date 
of appraisal, using standard appraisal procedures.
    (c) Appraisals of nonproject water supplies.
    (1) The appraiser will consider nonproject water supply factors, 
where appropriate, including:
    (i) Ground water pumping lift;
    (ii) Surface water supply;
    (iii) Water quality; and
    (iv) Trends associated with paragraphs (c)(1) (i) through (iii) of 
this section, where appropriate.
    (2) Reclamation may develop the nonproject water supply and trend 
information with the assistance of:
    (i) The district in which the land is located, if the district 
desires to participate;
    (ii) Landowners of excess land or land burdened by a deed covenant 
and prospective buyers who submit information either to the district or 
Reclamation; and
    (iii) Public meetings and forums, at the discretion of Reclamation.
    (3) Data submitted may include:
    (i) Historic geologic data;
    (ii) Changing crops and cropping patterns; and
    (iii) Other factors associated with the nonproject water supply.
    (4) If Reclamation and the district cannot reach agreement on the 
nonproject water supply information within 60 calendar days, 
Reclamation will review and update the trend information as it deems 
necessary and make all final determinations considering the data 
provided by Reclamation and the district. Reclamation will provide 
these data to the appraisers who must consider the data in the 
appraisal process, and clearly explain how they used the data in the 
valuation of the land.
    (d) The date of the appraisal. The date of the appraisal will be 
the date of last inspection by the appraiser(s) unless there is an 
existing signed instrument, such as an option, contract for sale, 
agreement for sale, etc., affecting the property. In those cases, the 
date of appraisal will be the date of such instrument.
    (e) Cost of appraisal. If the appraisal is:
    (1) The excess land's first appraisal, the United States will 
initially pay the costs of appraising the excess land's value, but such 
costs will be added to the approved sale price for the land. The United 
States will reimburse itself for these costs from the sale of the land; 
or
    (2) Not the excess land's first appraisal, the landowner must pay 
any costs associated with the reappraisal, unless the value set by the 
reappraisal differs by more than 10 percent, in which case the United 
States will pay for the reappraisal.
    (f) Appraiser selection. Reclamation will select a qualified 
appraiser to appraise the excess land or land burdened by a deed 
covenant, except as specified within Sec. 426.12(g).
    (g) Appraisal dispute resolution. The landowner who requested the 
appraisal may request that the United States conduct a second appraisal 
of the excess land or land burdened by a deed covenant if the landowner 
disagrees with the first appraisal. The second appraisal will be 
prepared by a panel of three qualified appraisers, one 
[[Page 16953]] designated by the United States, one designated by the 
district, and the third designated jointly by the first two. The 
appraisal made by the panel will fix the maximum value of the excess 
land and will be binding on both parties after review and approval as 
provided in Sec. 426.12(h).
    (h) Review of appraisals of excess land or land burdened by a deed 
covenant. Reclamation will review all appraisals of excess land or land 
burdened by a deed covenant for:
    (1) Technical accuracy and compliance with these rules and 
regulations;
    (2) Applicable portions of the ``Uniform Appraisal Standards for 
Federal Land Acquisition-Interagency Land Acquisition Conference 
1973,'' as revised in 1992;
    (3) Reclamation policy; and
    (4) Any detailed instructions provided by Reclamation setting 
conditions applicable to an individual appraisal.


Sec. 426.13  Involuntary acquisition of land.
    (a) Definitions.
    For purposes of this section involuntarily acquired land is land 
that is acquired through an involuntary foreclosure or similar 
involuntary process of law, conveyance in satisfaction of a debt 
(including, but not limited to, a mortgage, real estate contract or 
deed of trust), inheritance, or devise.
    (b) Ineligible excess land that is involuntarily acquired. 
Reclamation cannot make available irrigation water to land that was 
ineligible excess land before the new landowner involuntarily acquired 
it, unless:
    (1) The land becomes nonexcess in the new landowner's ownership; 
and
    (2) The deed to the land contains the 10-year covenant requiring 
Reclamation sale price approval, commencing when the land becomes 
eligible to receive irrigation water.
    (3) If either of these conditions is not met, the land remains 
ineligible excess until sold to an eligible buyer at an approved price, 
and the seller places the 10-year covenant requiring Reclamation price 
approval, as specified in Sec. 426.11(i), in the deed transferring 
title to the land to the buyer.
    (c) Land that was held under a recordable contract and is acquired 
involuntarily. Reclamation can make available irrigation water to land 
held under a recordable contract that is involuntarily acquired under 
the terms of the recordable contract, if the landowner, to the extent 
the land continues to be excess in his or her landholding:
    (1) Assumes the recordable contract; and
    (2) Executes an assumption agreement provided by Reclamation.
    (3) This land will remain eligible to receive irrigation water for 
the longer of 5 years from the date that the land was involuntarily 
acquired, or for the remainder of the recordable contract period. The 
sale of this land shall be under terms and conditions set forth in the 
recordable contract and must be satisfactory to and at a price approved 
by Reclamation.
    (d) Mortgaged land. Reclamation treats mortgaged land that changed 
from nonexcess status to excess status after the mortgage was recorded, 
and which is subsequently acquired by a new landowner through an 
involuntary foreclosure or similar process of law, or by a bona fide 
conveyance in satisfaction of a mortgage, in the following manner:
    (1) If the new landowner designates the land as excess in his or 
her holding, then:
    (i) The land is eligible to receive irrigation water for a period 
of 5 years or until transferred to an eligible landowner, whichever 
occurs first;
    (ii) During the 5-year period Reclamation will charge a rate for 
irrigation water equal to the rate paid by the former owner, unless the 
land becomes subject to full-cost pricing through leasing; and
    (iii) The land is eligible for sale at its fair market value 
without a deed covenant restricting its future sale price; or
    (2) If the new landowner is eligible to designate the land as 
nonexcess and he or she designates the land as nonexcess, the land will 
be treated in the same manner as any other nonexcess land and will be 
eligible for sale at its fair market value without a deed covenant 
restricting its future sale price.
    (e) Nonexcess land that becomes excess when acquired involuntarily. 

    (1) Reclamation can make irrigation water available to a landowner 
for a period of 5 years if the landowner acquires land involuntarily 
and that land becomes excess in the involuntarily acquiring landowner's 
holding provided:
    (i) The land was nonexcess to the previous owner; and
    (ii) The acquiring landowner never previously held such land as 
ineligible excess land or under a recordable contract, except as 
provided for in Sec. 426.11(g).
    (2) The following will be applicable in situations that meet the 
criteria specified under paragraph (e)(1) of this section:
    (i) Reclamation will charge a rate for irrigation water delivered 
to such land equal to the rate paid by the former owner, unless the 
land becomes subject to full-cost pricing through leasing;
    (ii) The new landowner may not place such land under a recordable 
contract;
    (iii) The new landowner may remove a deed covenant as provided in 
Sec. 426.11(i)(4), and may sell such land at any time without price 
approval and without the deed covenant;
    (iv) Reclamation will not allow the involuntary acquiring landowner 
to redesignate the land as nonexcess after he or she designates the 
land as excess; and
    (v) Such land will become ineligible to receive irrigation water 5 
years after it was acquired and will remain ineligible until sold to an 
eligible buyer.
    (f) Effect of involuntarily acquiring land subject to the 
discretionary provisions. A landowner does not automatically become 
subject to the discretionary provisions if the landowner acquires 
irrigation land involuntarily which was formerly subject to the 
discretionary provisions.
    (g) Land acquired by inheritance or devise. If the landowner 
receives irrigation land through inheritance or devise, the 5-year 
eligibility period for receiving irrigation water on the newly acquired 
land per Sec. 426.13(e) begins on the date of the previous landowner's 
death.


Sec. 426.14  Commingling.

    (a) Definitions for purposes of this section:
    Commingled water means irrigation water and nonproject water that 
uses the same facilities.
    Nonproject water means water from other sources as defined in the 
contract.
    (b) Application of Federal reclamation law and these regulations to 
existing commingling provisions in contracts. If a district entered 
into its present contract with Reclamation prior to October 1, 1981, or 
renewed such a contract, and that contract has provisions addressing 
commingled water situations, those provisions stay in effect.
    (c) Establishment of new commingling provision in contracts. New, 
amended, or renewed contracts may provide that irrigation water can be 
commingled with nonproject water as follows:
    (1) If the facilities used for the commingling of irrigation water 
and nonproject water are constructed without funds made available 
pursuant to Federal reclamation law, the provisions of Federal 
reclamation law and these regulations will apply only to the 
landholders who receive irrigation water, provided:
    (i) That the water requirements for eligible lands can be 
established; and [[Page 16954]] 
    (ii) The quantity of irrigation water to be used is less than or 
equal to the quantity necessary to irrigate eligible lands.
    (2) If the facilities used for commingling irrigation water and 
nonproject water are constructed with funds made available pursuant to 
Federal reclamation law, nonproject water will be subject to Federal 
reclamation law and these regulations unless:
    (i) The district collects and pays to the United States an 
incremental fee which reasonably reflects an appropriate share of the 
cost to the Federal Government, including interest, of storing or 
delivering the nonproject water; and
    (ii) The fee will be established by Reclamation and will be in 
addition to the district's obligation to pay for capital, operation, 
maintenance, and replacement costs associated with the facilities 
required to provide the service.
    (3) If paragraphs (c)(2) (i) and (ii) of this section are met, the 
provisions of Federal reclamation law and these regulations will be 
applicable to only those landholders who receive irrigation water. 
Accordingly, the provisions of Federal reclamation law and these 
regulations will not be applicable to landholders who receive 
nonproject water delivered through Reclamation program-funded 
facilities if those paragraphs are met.
    (d) Federal reclamation law and these regulations do not apply to 
irrigation water from federally financed facilities that is acquired by 
an exchange and that results in no material benefit to the recipient of 
the water.


Sec. 426.15  Exemptions and exclusions.

    (a) Army Corps of Engineers projects.
    (1) If Reclamation determines that land receives its agricultural 
water from an Army Corps of Engineers (Corps) project Reclamation will 
exempt that land from specific provisions of Federal reclamation law, 
including the RRA, unless:
    (i) Federal law explicitly designates, integrates, or incorporates 
that land into a Federal Reclamation project; or
    (ii) Reclamation provides project works for the control or 
conveyance of the agricultural water supply from the Corps project to 
that land.
    (2) Upon such determination, Reclamation will:
    (i) Notify the district of its exemption status;
    (ii) Require the district's agricultural water users to continue, 
under contracts made with Reclamation, to repay their share of 
construction, operation and maintenance, and contract administration 
costs of the Corps project allocated to conservation or irrigation 
storage; and
    (iii) At the request of the district delete provisions of the 
district's repayment or water service contract that imposes acreage 
limitation for those lands served by Corps projects.
    (b) Repayment of construction obligations. The acreage limitation 
provisions do not apply to districts that have repaid, in accordance 
with the district's contract with Reclamation, all obligated 
construction costs for Reclamation facilities.
    (1) Payments by periodic installments over the contract repayment 
term, as well as lump-sum and accelerated payments, if allowed by the 
district's contract with Reclamation, will qualify the district to 
become exempt.
    (2) If a district has a contract with the United States providing 
for individual repayment of construction charges allocated to land, and 
the individual landowner has repaid all obligated construction costs 
allocated for that landowner's land, that landowner may become exempt 
from the acreage limitation provisions.
    (3) Upon exemption Reclamation will:
    (i) Notify the district or individual landowner of the exemption 
from the acreage limitation provisions;
    (ii) Notify the district or individual landowner that the exemption 
does not relieve the district or individual landowner of the obligation 
to continue to pay, on an annual basis, O&M costs;
    (iii) Allow the owner of land for which repayment has occurred, to 
request a certificate from Reclamation acknowledging that the land is 
free of the acreage limitation provisions of Federal reclamation law;
    (iv) No longer apply the certification and reporting requirements 
to the district, if the entire district is exempt, or to exempt 
landowners as specified in Sec. 426.15(b)(2); and
    (v) Consider on a case-by-case basis continuation of the exemption 
if additional construction funds for the project are requested.
    (c) Rehabilitation and Betterment loans. If Reclamation makes a 
Rehabilitation and Betterment loan (pursuant to the R&B Act of October 
7, 1949, as amended, 43 U.S.C. 504) to a project that was authorized 
under Federal reclamation law prior to the submittal of the loan 
request, by or for the district, Reclamation:
    (1) Considers the loan as a loan for maintenance, including 
replacements that cannot be financed currently;
    (2) Does not consider the loan in determining whether the district 
has discharged its obligation to repay the construction cost of project 
facilities used to make project water available for delivery to such 
land; and
    (3) Will not allow such a loan to serve as the basis for 
reinstating acreage limitations in a district that has completed 
payment of its construction obligation, nor serve as the basis for 
increasing the construction obligation of the district and thereby 
extending the period during which acreage limitations will apply.
    (d) Temporary supplies of water. If Reclamation announces 
availability of temporary supplies of water resulting from an unusually 
large water supply, not otherwise storable for project purposes, or 
from infrequent and otherwise unmanaged floodflows of short durations a 
district may request that Reclamation make such supplies available to 
excess land. If Reclamation determines that such water deliveries would 
not have an adverse effect on other authorized project purposes, upon 
approval of the district's request, Reclamation will notify the 
requesting district of the availability of the temporary supply of 
water under the following conditions:
    (1) The contract for the temporary supply of water will be for 1 
year or less;
    (2) The acreage limitation provisions of Federal reclamation law 
will not be applicable to the temporary supply of water;
    (3) An applicable price for the water, if any, will be established; 
and
    (4) Such other conditions as Reclamation may include.
    (e) Isolated tracts. If a landowner requests that Reclamation 
determine that portions of his or her owned land can be farmed 
economically only if included in a farming operation that already 
exceeds an acreage limitation entitlement, and Reclamation makes such a 
determination, then Reclamation:
    (1) Will exempt such land from the ownership limitations of Federal 
reclamation law;
    (2) Will count such land against the landowner's or any lessee's 
nonfull-cost entitlements; and
    (3) Will assess the full-cost rate for any irrigation water 
delivered if the landowner or any lessee of the isolated tract exceeds 
applicable nonfull-cost entitlements.
    (f) Indian trust or restricted lands. Indian trust or restricted 
lands are excluded from application of the RRA.


Sec. 426.16  Small Reclamation projects.

    (a) Affect of the RRA on loan contracts made under the Small 
Reclamation Project Act.
    (1) If a district entered into a loan contract under the Small 
Reclamation [[Page 16955]] Projects Act of 1956 (43 U.S.C. 422) (SRPA) 
on or after October 12, 1982, the contract is subject to the provisions 
of the SRPA, as amended by section 223 of the RRA and as amended by 
Title III of Public Law 99-546.
    (2) If a district entered into a SRPA loan contract prior to 
October 12, 1982, and the district:
    (i) Did not amend the loan contract to conform to the SRPA, as 
amended by section 223 of the RRA, prior to October 27, 1986, then the 
provisions of the contract continue in effect.
    (ii) Amended the loan contract to conform to the SRPA, as amended 
by section 223 of the RRA, prior to October 27, 1986, the contract is 
subject to the increased acreage provisions provided in section 223 of 
the RRA. Reclamation cannot alter, modify or amend any other provision 
of the SRPA loan contract without the consent of the non-Federal party.
    (b) Other sections of these regulations that apply to SRPA loans. 
No other sections of these regulations apply to SRPA loans, except as 
specified in Sec. 426.16(d).
    (c) Affect of SRPA loans in determining whether a district has 
repaid its construction obligations on a water service or repayment 
contract. If a district has a water service or repayment contract in 
addition to an SRPA contract, Reclamation does not consider the SRPA 
loan:
    (1) In determining whether the district has discharged its 
construction cost obligation for the project facilities;
    (2) As a basis for reinstating acreage limitation in a district 
that has completed payment of its construction cost obligation(s); or
    (3) As a basis for increasing the construction obligation of the 
district and extending the period during which acreage limitation will 
apply to that district.
    (d) Districts that have a SRPA loan contract and a contract as 
defined in Sec. 426.2. If a district has a SRPA loan contract and a 
contract as defined in Sec. 426.2, the SRPA contract does not supersede 
the RRA requirements applicable to such contracts.


Sec. 426.17  Landholder information requirements.

    (a) Definitions for purposes of this section:
    Irrigation season means the period of time between the district's 
first and last water delivery in any water year.
    Standard certification or reporting forms means those forms on 
which landholders provide complete information about the directly and 
indirectly owned and leased land in their landholding.
    (b) Who must provide information to Reclamation? All landholders 
and other parties involved in the ownership or operation of nonexempt 
land must provide Reclamation, as required by these regulations or upon 
request, any records or information, in a form suitable to Reclamation, 
deemed reasonably necessary to implement the RRA or other provisions of 
reclamation law.
    (c) Required form submissions.
    (1) Landholders who are subject to the discretionary provisions 
must submit certification forms.
    (2) Landholders who make an irrevocable election must submit the 
appropriate certification forms with their irrevocable election in the 
year that they make the election.
    (3) Landholders who are subject to prior law must submit reporting 
forms.
    (4) Landholders who qualify under an exemption listed under 
paragraph (g) of this section need not submit any forms.
    (d) Required information. Landholders must declare on the 
appropriate certification or reporting forms all irrigable and 
irrigation land that they hold directly or indirectly westwide and 
other information pertinent to their compliance with Federal 
reclamation law.
    (e) District receipt of forms and information. Landholders must 
submit the appropriate, completed form(s) to each district in which 
they directly or indirectly hold irrigation land.
    (f) Certification or reporting forms for wholly owned subsidiaries. 
The ultimate parent legal entity of a wholly owned subsidiary or of a 
series of wholly owned subsidiaries must file the required 
certification or reporting forms. The ultimate parent legal entity must 
disclose all direct and indirect landholdings of its subsidiaries as 
required on such forms.
    (g) Exemptions from submitting certification and reporting forms.
    (1) A landholder is exempt from submitting the certification and 
reporting forms only if:
    (i) The landholder's district has Category 1 status, as specified 
in Sec. 426.17(h), and the landholder is a:
    (A) Qualified recipient whose total landholding westwide is 240 
acres or less as provided for in Sec. 426.17(i);
    (B) Limited recipient who first received any irrigation water:
    (1) On or before October 1, 1981, and whose total direct and 
indirect landholding westwide is 80 acres or less as provided for in 
section 426.17(i); or
    (2) After October 1, 1981, and whose total direct and indirect 
landholding westwide is 5 acres or less; or
    (C) Prior law recipient whose total direct and indirect landholding 
westwide is 40 acres or less.
    (ii) The landholder's district has Category 2 status, as specified 
in Sec. 426.17(h), and the landholder is a:
    (A) Qualified recipient whose total direct and indirect landholding 
westwide is 80 acres or less;
    (B) Limited recipient whose total direct and indirect landholding 
westwide is 5 acres or less; or
    (C) Prior law recipient whose total direct and indirect landholding 
westwide is 40 acres or less.
    (2) Wholly owned subsidiaries need not submit certification or 
reporting forms provided the ultimate parent legal entity has properly 
filed and has disclosed all direct and indirect landholdings of its 
subsidiaries as required on such forms.
    (3) In determining whether certification or reporting is required 
under paragraph (g):
    (i) Class 1 equivalency factors as determined in Sec. 426.10 shall 
not be used; and
    (ii) Landholders need not count involuntarily acquired excess 
acreage that they hold indirectly.
    (h) District categorization. For purposes of this section each 
district has Category 2 status, unless the district applied for and the 
regional director granted the district Category 1 status. Category 1 
districts must meet the following criteria:
    (1) District conformance by contract with the discretionary 
provisions;
    (2) The district must have entered into a partnership agreement 
with Reclamation which can include but is not limited to the 
development of integrated resources management plans, the development 
and implementation of specific water conservation standards for the 
district, or the development of specific measurable efficiencies for 
the district; and
    (3) The district's financial obligations to the United States are 
not delinquent.
    (i) Application of Category 1 status. The specific forms 
thresholds, up to the levels allowed in Sec. 426.17(g)(1)(i), will be 
specified within the partnership agreement made between the district 
and Reclamation. The agreement will include a provision for periodic 
review of the achievements of the district under the partnership. The 
regional director may withdraw the Category 1 status at any time if the 
district fails to accomplish the specific actions stated within the 
partnership agreement.
    (j) Submissions by landholders holding land in both a Category 1 
district and a Category 2 district. If a landholder's entire 
landholding, [[Page 16956]] westwide, is not located in Category 1 
districts, then the landholder must submit forms under the Category 2 
certification or reporting requirements in all districts.
    (k) Notification requirements for landholders whose ownership or 
leasing arrangements change after submitting forms. If a landholder's 
ownership or leasing arrangements change in any way:
    (1) During the irrigation season, the landholder must:
    (i) Notify the district office, either verbally or in writing 
within 15 calendar days of the change; and
    (ii) Submit new forms to all districts in which the landholder 
holds nonexempt land, within 30 calendar days of the change.
    (2) Outside of the irrigation season, then, the landholder must 
submit new certification or reporting forms to all districts in which 
nonexempt land is held prior to any irrigation water delivery following 
such changes.
    (l) Notification requirements for landholders whose ownership or 
leasing arrangements have not changed. If a landholder's ownership or 
leasing arrangements have not changed since last submitting a standard 
certification or reporting form, the landholder can satisfy the annual 
certification or reporting requirements by submitting a verification 
form instead of the standard form. On that form the landholder must 
verify that the information contained on the last submitted standard 
certification or reporting form remains accurate and complete.
    (m) Actions that Reclamation takes if required submission(s) are 
not made.
    (1) If a landholder does not submit required certification or 
reporting form(s), then:
    (i) The landholder is not eligible to receive and must not accept 
delivery of irrigation water in any water year prior to submission of 
the required certification or reporting form(s) for that water year; 
and
    (ii) Eligibility will be regained only after all required 
certification or reporting forms are submitted to the district.
    (2) If one or more part owners of a legal entity do not submit 
certification or reporting forms as required:
    (i) The entire entity will be ineligible to receive irrigation 
water until such forms are submitted; or
    (ii) If the documents forming the entity provide for the part 
owners' interest to be separable and alienable, then only that portion 
of the land attributable to the noncomplying part owners will be 
ineligible to receive irrigation water.
    (n) Actions taken by Reclamation if a landholder makes false 
statements on the appropriate certification or reporting forms. If a 
landholder makes a false statement on the appropriate certification or 
reporting form(s) Reclamation can prosecute the landholder pursuant to 
the following statement which is included in all certification and 
reporting forms:

    Under the provisions of 18 U.S.C. 1001, it is a crime punishable 
by 5 years imprisonment or a fine of up to $10,000, or both, for any 
person knowingly and willfully to submit or cause to be submitted to 
any agency of the United States any false or fraudulent statement(s) 
as to any matter within the agency's jurisdiction. False statements 
by the landowner or lessee will also result in loss of eligibility. 
Eligibility can only be regained upon the approval of the 
Commissioner.

    (o) Information requirements and Office of Management and Budget 
approval. The information collection requirements contained in this 
section have been approved by the Office of Management and Budget under 
44 U.S.C. 3501 et seq. and assigned clearance Nos. 1006-0005 and 1006-
0006. The information is being collected to comply with sections 206, 
224(c) and 228 of the RRA. These sections require that, as a condition 
to the receipt of irrigation water each landholder in a district which 
is subject to the acreage limitation provisions of Federal reclamation 
law, as amended and supplemented by the RRA, will furnish to his or her 
district annually a certificate/report which indicates that he or she 
is in compliance with the provisions of Federal reclamation law. The 
information collected on each landholding will be summarized by the 
district and submitted to Reclamation in a form prescribed by 
Reclamation. Completion of these forms is required to obtain the 
benefit of irrigation water.
    (p) Protection of forms pursuant to the Privacy Act of 1974. The 
Privacy Act of 1974 (5 U.S.C. 552) protects the information submitted 
in accordance with certification and reporting requirements. As a 
condition to execution of a contract, Reclamation requires the 
inclusion of a standard contract article which provides for district 
compliance with the Privacy Act of 1974 and 43 CFR Part 2, Subpart D, 
in maintaining the landholder certification and reporting forms.


Sec. 426.18  District responsibilities.

    A district that delivers irrigation water to nonexempt land under a 
contract with the United States must:
    (a) Provide information to landholders concerning the requirements 
of Federal reclamation law and these regulations;
    (b) Provide Reclamation, as required by these regulations or upon 
request, and in a form suitable to Reclamation, records and information 
as Reclamation may deem reasonably necessary to implement the RRA and 
other provisions of Federal reclamation law;
    (c) Be responsible for payments to Reclamation of all appropriate 
charges specified in these regulations. Districts must collect the 
appropriate charges from each landholder based on the landholder's 
status, landholdings, and entitlements, and must not average the costs 
over the entire district, unless the charges prove uncollectible from 
the responsible landholders;
    (d) Distribute, collect, and review landholder certification and 
reporting forms;
    (e) File and retain landholder certification and reporting forms. 
Districts must retain superseded landholder certification and reporting 
forms for 6 years; thereafter, districts may destroy such superseded 
forms, except:
    (1) Districts must keep on file the last fully completed standard 
certification or reporting form, in addition to the current 
verification form; or
    (2) If Reclamation specifically requests a district to retain 
superseded forms beyond 6 years.
    (f) Comply with the requirements of the Privacy Act of 1974, with 
respect to landholder certification and reporting forms;
    (g) Annually summarize information provided on landholder 
certification and reporting forms on separate summary forms provided by 
Reclamation and submit these forms to Reclamation on or before the date 
established by the appropriate regional director;
    (h) Withhold deliveries of irrigation water to any landholder not 
eligible to receive irrigation water under the certification or 
reporting requirements or any other provision of Federal reclamation 
law and these regulations; and
    (i) Return to Reclamation, for deposit as a general credit to the 
Reclamation fund, all revenues received from the delivery of water to 
ineligible land.


Sec. 426.19  Assessment of administrative costs.

    (a) Assessment of administrative costs for delivery of water to 
ineligible land. Reclamation will assess a district administrative 
costs as described in Sec. 426.19(e) if the district delivers 
irrigation water to land that was [[Page 16957]] ineligible because the 
landholders did not submit certification or reporting forms prior to 
the receipt of irrigation water in accordance with Sec. 426.17; or to 
ineligible excess land as provided in Sec. 426.11.
    (1) Reclamation will apply the assessment on a yearly basis in each 
district for each landholder that received irrigation water in 
violation of Sec. 426.17, or for each landholder that received 
irrigation water on ineligible land as specified above.
    (2) In applying the assessment to legal entities, compliance by an 
entity will be treated independently from compliance by its part owners 
or beneficiaries.
    (3) The assessment in Sec. 426.19(a) will be applied independently 
of the assessment specified in Sec. 426.19(b).
    (b) Assessment of administrative costs when form corrections are 
not made. Reclamation will assess a district for the administrative 
costs described in Sec. 426.19(e), unless the district provides 
Reclamation with requested reporting or certification form corrections 
within 60-calendar days of the date of Reclamation's written request. 
If Reclamation receives the corrections within 60-calendar days, 
Reclamation will consider the requirements of Sec. 426.17(b) satisfied.
    (1) Reclamation will apply the assessment on a yearly basis in each 
district for each landholder that received irrigation water and for 
whom the district does not provide corrected forms within the 
applicable 60-calendar day time period.
    (2) In applying the assessment to legal entities, compliance by an 
entity will be treated independently from compliance by its part owners 
or beneficiaries.
    (3) The assessment in Sec. 426.19(b) will be applied independently 
of the assessment specified in Sec. 426.19(a).
    (c) Party responsible for paying assessments. Districts are 
responsible for payment of Reclamation assessments described under 
Sec. 426.19(a) and (b).
    (d) Disposition of assessments. Reclamation will deposit to the 
general fund of the United States Treasury, as miscellaneous receipts, 
administrative costs assessed and collected under Sec. 426.19(a) and 
(b).
    (e) Amount of the assessment. The administrative costs assessment 
required under Sec. 426.19(a) and (b) is set at $260. Reclamation will 
review the associated costs at least once every 5 years, and will 
adjust the assessment amount, if needed, to reflect new cost data. 
Notice of the revised assessment for administrative costs will be 
published in the Federal Register in December of the year the data are 
reviewed.


Sec. 426.20  Interest on underpayments.

    (a) Definition of underpayment. For the purposes of this section 
underpayment means the difference between what a landholder owed under 
Federal reclamation law and what that landholder paid.
    (b) Collection of interest on underpayments. If a landholder has 
incurred an underpayment, Reclamation will collect from the appropriate 
district such underpayment with interest. Interest accrues from the 
original payment due date until the district pays the amount due. The 
original payment due date is the date the district should have paid the 
United States for water delivered to the landholder.
    (c) Underpayment interest rate. The Secretary of the Treasury 
determines the interest rate charged the district based on the weighted 
average yield of all interest-bearing marketable issues sold by the 
Department of the Treasury during the period of underpayment.


Sec. 426.21  Public participation.

    (a) Notification of contract actions. Except for proposed contracts 
having a duration of 1 year or less for the sale of surplus water or 
interim irrigation water, Reclamation will:
    (1) Provide notice of proposed irrigation or amendatory irrigation 
contract actions 60-calendar days prior to contract execution by 
publishing announcements in general circulation newspapers in the 
affected area;
    (2) Issue announcements in the form of news releases, legal 
notices, official letters, memoranda, or other forms of written 
material; and
    (3) Directly notify individuals and entities who made a timely 
written request for such notice to the appropriate Reclamation regional 
or local office.
    (b) Notification if parties to contract negotiations modify a 
proposed contract. In the event that modifications are made to a 
proposed contract the regional director must:
    (1) Provide copies of revised proposed contracts to all parties who 
requested copies of the proposed contract in response to the initial 
notice; and
    (2) Determine whether or not to republish the notice or to extend 
the comment period. The regional director must consider, among other 
factors:
    (i) The significance of the impact(s) of the modification to 
possible affected parties; and
    (ii) The interest expressed by the public over the course of 
contract negotiations.
    (c) Information that Reclamation will include in published 
announcements. Each published announcement will include, as 
appropriate:
    (1) A brief description of the proposed contract terms and 
conditions being negotiated;
    (2) Date, time, and place of meetings, workshops, or hearings;
    (3) The address and telephone number to which inquiries and 
comments may be addressed to Reclamation; and
    (4) The period of time during which Reclamation will accept 
comments.
    (d) Public availability of proposed contracts. Anyone can get 
copies of a proposed contract from the appropriate regional director or 
his or her designated public contact when the proposed contracts become 
available for review and comment, as specified in the published 
announcement.
    (e) Opportunities for public participation.
    (1) Reclamation can provide, as appropriate: Meetings, workshops, 
or hearings to provide local information. Advance notice of meetings, 
workshops, or hearings will be provided to those parties who make 
timely written request for such notice. Request for notice of meetings, 
workshops, or hearings should be sent to the appropriate Reclamation 
regional or local office.
    (2) Reclamation or the district can invite the public to observe 
any contract proceedings.
    (3) All public participation procedures will be coordinated with 
those involved with National Environmental Policy Act compliance, if 
Reclamation determines that the contract action may or will have 
``significant'' environmental effects.
    (f) Individuals authorized to negotiate the terms of contract 
proposals. Only persons authorized to act on behalf of the district may 
negotiate the terms and conditions of a specific contract proposal.
    (g) Agency use of comments submitted during the period provided for 
comment or made at hearings.
    (1) Reclamation will review and summarize for use by the contract 
approving authority testimony presented at any public hearing or any 
written comments submitted to the appropriate Reclamation officials at 
locations and within the comment period, as specified in the advance 
published announcement.
    (2) Reclamation will make available to the public all written 
correspondence regarding proposed contracts under the terms and 
procedures of the Freedom of Information Act (5 U.S.C. 552), as 
amended. [[Page 16958]] 


Sec. 426.22  Recovery of operation and maintenance (O&M) costs.

    (a) General. All new, amended, and renewed contracts shall provide 
for payment of O&M costs as specified in this section.
    (b) Amount of O&M costs a district must pay if it executes a new or 
renewed contract. If a district executes a new or renewed contract 
after October 12, 1982, then that district must pay all of the O&M 
costs that Reclamation allocates to irrigation.
    (c) Amount of O&M costs a district must pay if it amends its 
contract to conform to the discretionary provisions. If a district has 
a contract executed prior to October 12, 1982, and the district amends 
the contract after October 12, 1982, as provided for in 
Sec. 426.3(a)(2) to conform to the discretionary provisions, then the 
following must be complied with:
    (1) The district must pay all of the O&M costs that Reclamation 
allocates to irrigation;
    (2) If in the year the amendment is executed, the district's 
contract rate was more than the O&M costs allocated to the district in 
that year then that positive difference at the time of the contract 
amendment must continue to be factored into the contract rate and 
annually paid to the United States. This would be in addition to any 
adjusted O&M cost that results from paragraph (c)(1) of this section. 
The positive difference would be factored into the contract rate for 
the remainder of the term of the contract; and
    (3) The district will not be required to pay an increased amount 
toward the construction costs of a project as a condition of the 
district's agreeing to a contract amendment pursuant to paragraph (c) 
of this section.
    (d) Amount of O&M cost a district must pay if it amends its 
contract to provide supplemental or additional benefits. If a district 
amends its contract after October 12, 1982, to provide supplemental or 
additional benefits, as provided for in Sec. 426.3(a)(3), then each 
year the district must pay:
    (1) All of the O&M costs that Reclamation allocates to irrigation;
    (2) If in the year the amendment is executed, the district's 
contract rate was more than the O&M costs allocated to the district in 
that year then that positive difference at the time of the contract 
amendment must continue to be factored into the contract rate and 
annually paid to the United States. This would be in addition to any 
adjusted O&M cost that results from paragraph (d)(1) of this section. 
The positive difference would be factored into the contract rate for 
the remainder of the term of the contract; and
    (3) Any increases in the amount paid annually toward the 
construction costs of a project that the United States requires the 
district to pay as a condition of agreeing to provide the district with 
supplemental and additional benefits.
    (e) Amount of O&M a district pays under an existing contract. For a 
district whose existing contract was executed prior to October 12, 
1982, the district must pay all of the O&M costs allocated by 
Reclamation to irrigation unless specifically provided to the contrary 
by the terms of the contract.
    (f) Amount of O&M that Reclamation charges an irrevocable elector.
    (1) Regardless of any terms to the contrary within an existing 
contract with a district, a landholder who makes an irrevocable 
election, as provided for in Sec. 426.3(f) must pay, annually, his or 
her proportionate share of all O&M costs allocated by Reclamation to 
irrigation. The irrevocable elector's proportionate share is based upon 
the ratio of:
    (i) The amount of land in the district held by the irrevocable 
elector that received irrigation water to the total amount of land in 
the district that received irrigation water; or
    (ii) The amount of irrigation water in the district received by the 
irrevocable elector to the total amount of irrigation water that the 
district delivered.
    (2) The district or districts in which the irrevocable elector's 
landholding is located must collect from the irrevocable elector an 
amount equal to the irrevocable elector's proportionate share of all 
O&M costs allocated by Reclamation to irrigation and meet the following 
requirements:
    (i) If in the year the amendment is executed, the district's 
contract rate was more than the O&M costs allocated to the district in 
that year, then that positive difference at the time of the contract 
amendment must continue to be factored into the contract rate and 
annually paid to the United States. This would be in addition to any 
adjusted O&M cost that results from paragraph (f)(1) of this section. 
The positive difference would be factored into the contract rate for 
the remainder of the term of the contract; and
    (ii) Such collections must be forwarded to the United States.
    (g) Amount of O&M that Reclamation charges if a landholder is 
subject to full-cost pricing. In those districts subject to prior law 
if a landholder is subject to full-cost pricing the district must 
ensure that all O&M costs are included in any full-cost assessment, 
regardless of whether the landholder is subject to the discretionary 
provisions. The revenues from such full-cost assessments must be 
collected and submitted to the United States.


Sec. 426.23  Agency decisions and appeals.

    (a) Initial agency decisions.
    (1) Decisionmaker for initial agency decisions:
    (i) The appropriate regional director makes any initial agency 
decision that these regulations require or authorize; or
    (ii) If the initial agency decision is likely to involve districts, 
or landholders with landholdings located in more than one region, the 
Commissioner designates one regional director to make that decision.
    (2) Notice to affected parties. A regional director will notify 
parties, that are potentially affected by his or her initial decision, 
in writing.
    (3) Effective date for initial agency decisions. A regional 
director's initial decision takes effect immediately, unless the 
regional director otherwise specifies, or the decision involves the 
termination of water deliveries. A decision to terminate water delivery 
can take effect no sooner than 10 calendar days after the regional 
director makes his or her initial decision.
    (b) Reconsideration of initial agency decision.
    (1) Requests for reconsideration. Any district or landholder whose 
rights and interests are directly affected by a regional director's 
initial decision can submit a written request for reconsideration of 
the regional director's decision. The regional director must receive 
requests for reconsideration of an initial decision from districts and 
landholders, who:
    (i) Received notification of a regional director's decision by 
mail, within 30 calendar days from the date of the initial decision; or
    (ii) Did not receive notification of the initial decision by mail, 
within 90 calendar days from the date of the initial decision.
    (2) Requests for stay of the initial agency decision pending 
reconsideration.
    (i) The regional director will stay his or her initial decision if 
the requesting party:
    (A) Submits a request for stay in writing to the regional director, 
with, or in advance of, the request for reconsideration, and states the 
grounds upon which the party requests the stay; and
    (B) Demonstrates that the harm which a district or landholder would 
suffer if the regional director does not grant the stay outweighs the 
interest of the United States in having the initial decision take 
effect pending reconsideration. [[Page 16959]] 
    (ii) The initial decision will be automatically stayed pending the 
regional director's review of the initial agency decision, unless the 
regional director:
    (A) Acts upon the request for a stay within 15 calendar days of the 
request; and
    (B) Informs, by certified mail, the requesting party or parties of 
his or her decision within 1 business day after he or she rules on the 
request for a stay.
    (iii) A regional director's decision on a request for a stay is not 
appealable.
    (c) Reclamation's final action.
    (1) If no party requested a reconsideration of the initial 
decision. If the regional director does not receive a request for 
reconsideration within the time frames specified in Sec. 426.23(b)(1), 
the initial decision becomes Reclamation's final action on the 91st day 
after the date of the initial decision.
    (2) If a party requested reconsideration of the initial decision. 
If the regional director receives a timely request for reconsideration, 
the regional director will make a ruling on a request for 
reconsideration of an initial agency decision within 30 calendar days 
of receipt of the request, and will inform the requesting parties of 
his or her ruling by certified mail. This ruling will constitute 
Reclamation's final action.
    (i) The date of Reclamation's final action will be the date of 
mailing the regional director's ruling to the requesting party or 
parties.
    (ii) The regional director will establish the effective date of 
Reclamation's final action.
    (d) Appeal of Reclamation's final actions.
    (1) Reclamation's final actions that cannot be appealed. An initial 
agency decision that becomes Reclamation's final action as a result of 
a failure by an affected party to request reconsideration as provided 
in Sec. 426.23(b)(1) cannot be further appealed.
    (2) Reclamation's final actions that can be appealed. A party that 
timely requested reconsideration of the agency's initial decision may 
appeal Reclamation's final action to the Secretary of the Interior by 
writing to the Director, Office of Hearings and Appeals (OHA), U.S. 
Department of the Interior. For an appeal to be timely, OHA must 
receive the appeal within 30-calendar days from the date of 
Reclamation's final action.
    (3) Rules that govern the appeal process. Except for the authority 
of regional directors to grant stays of their determinations under 
Sec. 426.23(d)(4), 43 CFR part 4, subpart G, and other provisions of 43 
CFR part 4, where applicable, govern the appeal process.
    (4) Requests for stay of Reclamation's final action pending appeal. 
An appellant can request that the regional director who was responsible 
for Reclamation's final action stay that action pending an appeal as 
specified in Sec. 426.23(d)(2). The procedures and time frames set 
forth in Sec. 426.23(b)(2) for requests for stays of initial agency 
decisions apply to requests for stays of final Reclamation actions. If 
the regional director fails to act on the appellant's stay within 15 
calendar days of its receipt, then Reclamation's final action will 
automatically be stayed pending final action by OHA. A regional 
director's decision on a request for a stay cannot be appealed.
    (e) Effective date of an appealed decision. Reclamation can apply 
decisions made by a regional director or by OHA under Sec. 426.23 (c) 
and (d) as of the date of the initial agency decision. If, during the 
appeal process, irrigation water has been delivered to land 
subsequently found to be ineligible, for other than RRA forms submittal 
violations, the compensation rate may be applied to such deliveries 
retroactively.
    (f) Accrual of interest on underpayments during reconsideration or 
appeal. Interest on any underpayments, as provided in Sec. 426.20, 
continues to accrue during the reconsideration of an initial agency 
decision or an appeal of Reclamation's final action or judicial review 
of final agency action. Underpayment interest accrual will continue 
even during a stay under Sec. 426.23 (b)(2) or (d)(4).
    (g) Status of appeals made prior to the effective date of these 
regulations. (1) Appeals to the Commissioner of a regional director's 
determination which were decided by the Commissioner or his or her 
delegate prior to the effective date of these regulations are hereby 
validated.
    (2) Appeals to the Commissioner of determinations made by a 
regional director and appeals to OHA, which are pending on appeal as of 
the effective date of these regulations will be processed and decided 
in accordance with the regulations in effect immediately prior to the 
effective date of these regulations.
    (h) Addresses. All requests for reconsideration, stays, appeals, or 
other communications to the United States under this section must be 
addressed as follows:
    (1) Regional directors, at their current mailing addresses, which 
may be obtained by writing or calling the Office of the Commissioner, 
Bureau of Reclamation, 1849 C Street NW., MS-7060-MIB, Washington, DC 
20240, telephone (202) 208-4157; or by writing or calling the Program 
Analysis Office, Bureau of Reclamation, P.O. Box 25007, Denver, CO 
80225, telephone (303) 236-3292.
    (2) Director, Office of Hearings and Appeals, Department of the 
Interior, 4015 Wilson Boulevard, Room 1103, Ballston Tower No. 3, 
Arlington, VA 22203.


Sec. 426.24  Reclamation audits.

    Reclamation has the authority to conduct reviews of a district's 
administration and enforcement of and landholder compliance with 
Federal reclamation law and these regulations. These reviews may 
include, but are not limited to:
    (a) Water district reviews;
    (b) In-depth reviews; and
    (c) Audits.


Sec. 426.25  Severability.

    If any provision of these regulations or the application of these 
rules to any person or circumstance is held invalid, then the sections 
of these rules or their applications which are not held invalid will 
not be affected.
    Part 427 is added as follows:

PART 427--WATER CONSERVATION RULES AND REGULATIONS
Sec.
427.1  Purpose.
427.2  Conservation Plan Requirements.
427.3  Incentives.
427.4  Technical Guidelines and Criteria.

    Authority: 5 U.S.C. 301; 5 U.S.C. 553; 16 U.S.C. 590y et seq.; 
31 U.S.C. 9701; and 32 Stat. 388 and all acts amendatory thereof or 
supplementary thereto including, but not limited to, 43 U.S.C. 390b, 
43 U.S.C. 390jj, 390ww, 43 U.S.C. 422a et seq., and 43 U.S.C. 440.


Sec. 427.1  Purpose.

    These rules and regulations prescribe the requirements for 
preparation and submittal of water conservation plans prepared by water 
districts and other entities that contract with the United States for a 
supply or storage of water under Federal reclamation law, the Small 
Reclamation Projects Act, the Water Conservation and Utilization Act, 
or the Warren Act.


Sec. 427.2  Conservation Plan Requirements.

    (a) Submission requirements. All water districts and other entities 
that contract with the United States for a supply or storage of water 
under Federal reclamation law, the Small Reclamation Projects Act, the 
Water Conservation and Utilization Act, or the Warren Act must submit 
water conservation plans for approval by the appropriate Regional 
[[Page 16960]] director at least once every 5 years, except:
    (1) Districts that receive only irrigation water and deliver the 
water to less than 2000 acres of land,
    (2) Districts that receive only municipal and industrial water and 
deliver the water to fewer than 3,300 people,
    (3) Districts that receive any combination of irrigation water, 
municipal and industrial water, or water for other uses and receive an 
average annual water supply of less than 2,000 acre-feet from all 
Federal reclamation projects combined,
    (4) Districts whose only contract is a temporary contract of 1 year 
or less,
    (5) The Central Utah Water Conservancy District, Utah, and each 
petitioner of Central Utah Project water, which must comply only with 
the requirements of section 207 of the Central Utah Project Completion 
Act (Titles II through III of Pub. L. 102-575, 106 Stat. 4605, 4616), 
provided the district and petitioners have met the requirements of 
section 207 of the Act. If the district or a petitioner of Central Utah 
Project water also receives water from any other Federal reclamation 
project, that entity is subject to the requirements of Sec. 427.2 with 
respect to the non-Central Utah Project water,
    (6) Districts receiving water from the Central Valley Project, 
California, so long as criteria for evaluating water conservation plans 
have been developed, published, and are in effect under section 3405(e) 
of the Central Valley Project Improvement Act (Title XXXIV of Pub. L. 
102-575, 106 Stat. 4706, 4713), or
    (7) Districts that have met the requirements of these regulations 
by meeting the alternative standards or performance requirements of a 
State or Federal water conservation program as approved and notified in 
writing by the regional director.
    (b) Required Elements of a Water Conservation Plan. A water 
conservation plan must set forth definite goals for improvements in the 
management and efficient use of water. The plan must also identify 
those actions that are necessary and appropriate for achieving the 
plan's stated goals. The plan must establish a reasonable time schedule 
for implementing the identified actions and for meeting the plan's 
goals. The plan must also establish appropriate criteria for measuring 
progress toward meeting the plan's goals and include an assessment of 
progress achieved to date. At a minimum the plan must include the 
following actions:
    (1) A water measurement and accounting system designed to measure 
and account for all water conveyed through the district's distribution 
system to water users. The system must include metering or measuring 
devices at each agricultural water delivery turnout and each municipal 
and industrial water delivery service connection;
    (2) A water pricing structure for district water users designed to 
encourage increased efficiency of water use;
    (3) An information/education program for water users designed to 
promote increased efficiency of water use; and
    (4) Designation of a district water conservation coordinator.


Sec. 427.3  Incentives.

    (a) Reclamation will provide technical and financial assistance to 
districts and entities developing and implementing water conservation 
plans, as funding and staff availability permits. Reclamation will also 
establish voluntary partnerships with districts and entities in a 
collaborative effort to improve the management of water and associated 
resources in the Western United States, and to assist districts and 
entities in achieving their water conservation goals. However, if 
Reclamation does not provide technical or financial assistance, for 
whatever reason, the district is not relieved of its responsibility for 
the development and implementation of an adequate water conservation 
plan.
    (b) Reclamation will consider a district's progress in development 
and implementation of water conservation plans when prioritizing the 
allocation of future discretionary Reclamation program benefits. Except 
in unusual circumstances, future discretionary benefits will be 
unavailable to a district or entity that does not have an approved plan 
or is not adequately implementing an approved plan. These discretionary 
benefits may include:
    (1) Discretionary funds including, but not limited to, drought 
relief funds, drought assistance, loans and/or grants under various 
statutory authorities, construction funding, and technical planning 
assistance;
    (2) Discretionary programs or benefits including, but not limited 
to, temporary supplies of water under 43 U.S.C. 390oo, temporary or 
short-term contracts, and Warren Act contracts; and
    (3) Facilitating water transfers to or by a district, accommodating 
changes in the place or type of use of water, or assisting in the 
identification of beneficiaries that may be willing to fund 
conservation activities.


Sec. 427.4  Technical Guidelines and Criteria.

    (a) Reclamation has developed Technical Guidelines and Criteria for 
Water Conservation Plans (Guidelines and Criteria). These Guidelines 
and Criteria describe the standards and process which Reclamation will 
use to evaluate district water conservation plans, describe the 
schedule and process for submitting plans, provide information on 
environmental compliance, suggest specific plan elements, and identify 
water conservation measures for evaluation and inclusion in district 
water conservation plans.
    (b) The Guidelines and Criteria may be obtained from any Bureau of 
Reclamation regional office. The addresses of the regional offices may 
be obtained by writing or calling the Office of the Commissioner, 
Bureau of Reclamation, 1849 C Street N.W., MS-7060-MIB, Washington, 
D.C. 20240, telephone (202) 208-4157; or by writing or calling the 
Program Analysis Office, Bureau of Reclamation, P.O. Box 25007, Denver, 
CO 80225, telephone (303) 236-3292.

[FR Doc. 95-7524 Filed 3-31-95; 8:45 am]
BILLING CODE 4310-94-P`