Acreage Limitation and Water Conservation Rules and Regulations

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 limitatio

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