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AN ACT Relating to water marketing; adding a new section to chapter 35.92 RCW; adding a new section to chapter 54.08 RCW; adding a new section to chapter 57.08 RCW; adding a new section to chapter 87.03 RCW; adding a new section to chapter 89.30 RCW; and adding a new chapter to Title 90 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. As used in this chapter unless the context indicates otherwise:

(1) "Department" means the department of ecology.

(2) "Director" means the director of the department of ecology.

(3) "Local water resource agency" means any of the entities listed in section 3(1)(a) through (f) of this act.

(4) "Person" means any firm, association, water users' association, corporation, irrigation district, or municipal corporation, as well as an individual.

(5) "Water market transfer" or "transfer" means transaction for consideration carried out through a water conservancy district in accordance with the provisions of this chapter in which there is a temporary or permanent change in the place of diversion, place of use, source of supply, time of use, period of use, place of storage, or the purpose of use of all or part of the water to which any person is entitled by reason of owning or holding a water right. The terms water market transfer or transfer include, without limitation, a sale, lease, or exchange of water rights, an agreement not to exercise a water right, the sale of water conserved by a present user, or any other transaction that permits water rights to be transferred from one use to another for consideration. The terms water market transfer or transfer include the transfer of rights or the exchange or delivery of water between public water systems through an intertie.

(6) "Water conservancy district" means a district duly formed and established pursuant to this chapter with the approval of the department to exercise the powers and authorities of a water conservancy district enumerated herein.

(7) "Water resource inventory area" or "WRIA" means a water resource inventory area as defined in WAC 173-500-990.

NEW SECTION. Sec. 2. The legislature finds:

(1) Voluntary water market transfers between water users can reallocate water use in a manner that will result in more efficient use of water resources, benefiting both the buyer and the seller;

(2) Voluntary water market transfers can help alleviate water shortages, save capital outlays, reduce development costs, provide an incentive for investment in water conservation efforts by water right holders, and provide significant environmental benefits;

(3) Voluntary water market transfers are the most efficient means to encourage the reallocation of water resources to their highest and best use while protecting the rights and interests of water right holders.

For these reasons the legislature declares, it is in the public interest to facilitate the development of a viable commodity market for water rights, to encourage voluntary water market transfers, and to remove existing administrative, legal, and economic barriers to the voluntary alienation of water rights.

To achieve the public purposes of this section, chapter . . ., Laws of 1995 (this act) shall be liberally construed.

NEW SECTION. Sec. 3. (1) Any of the following local water resource agencies may petition the department for permission to organize a water conservancy district and to exercise the powers and authorities of a water conservancy district enumerated in this chapter within the geographic boundaries of the local water resource agency and any area in which the agency provides retail service to customers or members:

(a) Any irrigation district organized under chapter 87.03 RCW;

(b) Any reclamation district organized under chapter 89.30 RCW;

(d) Any public utility district that operates a municipal water supply system pursuant to chapter 54.08 RCW;

(e) Any water district that operates a municipal water supply system pursuant to chapter 57.08 RCW; or

(f) Any cooperative or mutual corporation that operates a public water system serving one hundred or more accounts.

(2) A water conservancy district formed and organized pursuant to this section by a local water resource agency shall constitute a separate governmental subdivision of this state, and a public body corporate and politic exercising public powers. The initial and successor directors or other governing body of the water conservancy district shall be appointed by the governing body of the local water resource agency petitioner. The number of directors shall be three and any director may be reappointed for successive terms.

NEW SECTION. Sec. 4. (1) Twelve or more water right holders who divert water for use within one or more WRIA may petition the department for permission to organize a water conservancy district encompassing the geographic area of the WRIAs in which the petitioners divert or use water and to exercise the powers and authorities of a water conservancy district enumerated in this chapter, provided, if the district is proposed to include two or more WRIAs, there shall be at least six petitioners who divert water for use within each WRIA to be included in the district.

(2) A water conservancy district formed and organized pursuant to this section by twelve or more water right holders shall constitute a separate governmental subdivision of this state, and a public body corporate and politic exercising public powers. The district shall have a governing body of three directors. Immediately upon approval of a petition to form a district, the initial governing body of such water conservancy district shall be appointed by the director from among six individuals recommended by the petitioners. The initial directors shall form and organize the district and shall serve as the initial governing body of the district. When the term of any initial director expires, the director shall appoint a successor. Any director may be reappointed for successive terms. If any director does not complete his or her term, a successor shall be appointed to fill out the remaining term. If any director does not complete his or her term, a successor shall be appointed to fill out the remaining term. Any water right holder who diverts or uses water within the WRIAs included in the district may be appointed as a successor director.

NEW SECTION. Sec. 5. (1) Any combination of two or more local water resource agencies or one or more local water resource agencies and twelve or more eligible water right holder petitioners may jointly petition the department for permission to organize a water conservancy district and to exercise the powers and authorities of a water conservancy district enumerated in this chapter within the geographic boundaries of any of the participating local water resource agencies and any area in which any agency provides retail service to customers or members, or within any WRIA in which at least six of the water right holder petitioners joining in the petition divert or use water.

(2) A water conservancy district formed and organized by any combination of two or more local water resource agencies, or two or more local water resource agencies and six eligible water right holder petitioners, shall constitute a separate governmental subdivision of this state, and a public body corporate and politic exercising public powers. Upon approval of the petition, one initial director of the water conservancy district shall be appointed by the governing body of each local water resource agency joining in the petition and, if twelve or more water right holders have joined in the petition, one initial director shall be appointed by the director from among three individuals recommended by such water right holder petitioners; provided, if the number of directors appointed in this manner is even, the director may appoint an additional director from among any individuals recommended to the director by any of the petitioners. Upon any vacancy, successor directors shall be appointed in the same manner as initial directors. Any director may be reappointed for successive terms.

NEW SECTION. Sec. 6. A petition to form a water conservancy district shall conform to the following requirements and shall contain the following information:

(1) The name and address of each petitioner.

(2) A brief description of the water right and use of each petitioner sufficient to identify the place and source of diversion and the place of use of the water.

(3) Identification of the geographic boundaries of any local water resource agency or WRIA or WRIAs to be included within the water conservancy district.

(4) A statement of the need for the district.

(5) The proposed bylaws or an equivalent statement of the rules and procedures that will govern the operation of the district once organized. Such bylaws shall provide, among other things, for four-year terms for directors. Terms of directors shall be staggered by the appointment of initial directors for less than a full four-year term.

(6) Identification of the individuals who will be appointed as initial directors of the district by each local water resource agency joining in the petition, including a statement of their qualifications to carry out and supervise the activities of the district, and a list of the individuals recommended by water right holder petitioners to serve as initial directors, including a statement of the qualifications of each individual to carry out and supervise the activities of the district.

NEW SECTION. Sec. 7. (1) The petition shall be presented to the director. As soon as practicable after it is received, but no later than one hundred eighty days, the department shall determine if approval of the petition would further the purposes of this chapter.

(2) No later than one hundred eighty days after the petition is first presented to the director, he or she shall act on the petition.

(a) If the petition is approved, the local water resource agency or the director, as the case may be, shall immediately appoint the initial directors, who shall form and organize the district and serve as its initial governing body. Directors shall serve without compensation but may be reimbursed for their expenses incurred incident to performing or conducting district business.

(b) If the director fails to act on the petition within one hundred eighty days after presentation, the petition shall be deemed approved and the petitioners shall be authorized to appoint directors and organize and establish a water conservancy district for any or all of the purposes mentioned herein.

(c) If a petition is denied, the director shall render a detailed explanation of the reasons for denial, including any deficiencies in the petition which, if corrected, would allow the petition to be approved. A petition that has been denied may be resubmitted with modifications incorporated for the purpose of addressing the director's reasons for denial of the original petition.

(3) Upon approval of a petition by the director and the appointment of directors, the petitioners may organize and operate a water conservancy district with all of the powers that may now or hereafter be conferred on such districts by law. The bylaws or equivalent statement of applicable rules of the district submitted with the petition shall not be amended without the approval of the director.

(4) The director may initiate a review of the capability of any district to carry out the powers, authorities, and duties enumerated in this chapter and to determine if any existing water conservancy district has substantially failed to perform its duties in compliance with law, including compliance with any guidelines adopted by the department for review and approval of water market transfers. The director may suspend the authority of any district under this chapter upon a finding that a district lacks the capability to perform its authorities and duties under this chapter or that it has substantially failed to perform its duties in compliance with law; provided, that any order or decision by the director to suspend the authority of a district shall specify, in detail, the reasons for the suspension and the actions necessary to rescind the suspension.

NEW SECTION. Sec. 8. (1) Each water conservancy district may establish a schedule of transaction fees and costs for the goods and services provided by the district and may assess such charges to persons requesting goods or services from the district according to the schedule. Such fees need not be uniform from district to district but may not exceed an amount necessary to cover the district's actual cost of the goods or services provided, including a reasonable allocation of the district's overhead costs.

(2) The governing body of a water conservancy district may authorize payments for district operations and activities with revenues obtained from:

(a) Fees for goods and services provided by the district; or

(b) Federal, state, or private grants, or contributions from municipalities.

(3) Any municipality or other corporation eligible to petition for the formation of a water conservancy district may contribute funds to the district to pay general overhead and administrative costs of the district and to utilize for that purpose any funds that would be available to pay for the general overhead and administrative costs of the municipality or other corporation. In addition, any such municipal or other corporation may contribute funds to the district to carry out any project, activity, or purpose which the district is authorized to carry out provided that the municipal or other corporation is also authorized to expend funds for such purposes.

(4) A water conservancy district organized under the provisions of this chapter shall not levy taxes or issue bonds, provided, neither this section nor any other provision of this chapter shall restrict or limit the powers and authorities of any municipality or any other corporation to raise or expend funds or limit such person in any way from exercising the powers and authorities which any such person possesses when acting in its own right, and such persons shall continue to have and exercise all powers and authorities according to any applicable statutes, regulations, articles of incorporation, or other governing law, agreement, or authority applicable to said person.

NEW SECTION. Sec. 9. Any water conservancy district, and the directors thereof, shall have the following powers, in addition to others granted in this chapter:

(1) A water conservancy district is authorized to establish a water market transfer exchange through which all or part of the water which any person is entitled to use by reason of owning or holding a water right may be listed for sale or transfer. Each water conservancy district shall maintain and publish all information made available to the district concerning water rights listed with the district and any application to the district for approval of a water market transfer.

(2) Each water conservancy district shall establish a program and procedures, consistent with applicable law and rules adopted by the department, for the administration of a system of timely local approvals for water market transfers pursuant to this chapter. The administration of the system shall be performed exclusively by the district.

(3) The transferor and the transferee of any proposed water market transfer may apply to a water conservancy district for approval of such transfer if the water proposed to be transferred is currently diverted or used within the geographic boundaries of the district, or would be diverted or used within the geographic boundaries of the district if the transfer is approved. The application shall contain such information as may be required by the district in order to review and act on the application.

(4) A water conservancy district may review and approve any application for a water market transfer if the water proposed to be transferred is currently diverted or used within the geographic boundaries of the water conservancy district, or the water would be diverted or used within the geographic boundaries of the district if the proposed transfer is approved. Water that is diverted or used within a district which is transferred to an instream use shall be deemed to be used within the district. The district shall publish notice of the application and send notice to state agencies as provided in RCW 90.03.280. Any person claiming detriment or injury to an existing water right as a result of the proposed transfer may intervene in any application before the district. Other interested persons may submit comments. The district shall review each application for a transfer and determine whether it meets the requirements of this chapter and any rules adopted by the department pursuant to this chapter, and otherwise complies with law. If a majority of the governing body of the district determines that the application is complete and in accordance with law, and the transfer may be made without injury or detriment to existing rights of other water right holders, the district shall issue to the applicant a certificate conditionally approving such transfer, subject to review by the director as provided in this section.

(5) A water conservancy district is authorized to acquire, purchase, hold, lease, manage, occupy, and sell real and personal property or any interest therein, to enter into and perform any and all necessary contracts, to appoint and employ the necessary agents and employees, to employ contractors, including contracts for professional services, to sue and be sued, and to do any and all lawful acts required and expedient to carry out the purposes of this chapter.

NEW SECTION. Sec. 10. Notwithstanding any provision of RCW 90.03.380 and 90.44.100 and chapters 90.38 and 90.42 RCW, any water right holder may enter into a water market transfer according to the procedures and under the terms and conditions specified in this chapter. The procedures and criteria for approval of a water market transfer as defined in this chapter are nonexclusive and are intended to be a separate, alternative, and supplementary procedure for obtaining approval of a transfer or change in a water right. Transfers shall be subject to the following additional terms and conditions:

(1) Except as modified by this chapter or as may be inconsistent with this chapter, other laws applicable to a change or transfer of water right or use shall be applicable to water market transfers.

(2) All or a portion of a water right may be sold and transferred by the holder to another through a water market transfer and it shall become appurtenant to any other land or place of use without loss of priority of right, provided, that the proposed use of the buyer is a beneficial use and such change can be made without detriment or injury to existing rights.

NEW SECTION. Sec. 11. (1) The application of the transferor and the transferee in any proposed water market transfer shall include, in addition to other information required by the district, information sufficient to establish to the district's satisfaction, the transferor's entitlement to the quantity of water being transferred, and it shall describe any applicable existing limitations on the right to use water, including, without limitation, the place of diversion, place of use, source of supply, time of use, period of use, and the place of storage.

(2) A water right or nonconsumptive use that has not been adjudicated may be transferred under this chapter, provided, neither the district's approval of a transfer, nor the department's approval of the district's action shall constitute an adjudication of the validity, priority, or quantity of the transferor's water right as between the transferor or the transferee and the state, or as between the transferor or the transferee and one or more other water use claimants and such approvals shall not preclude or prejudice a subsequent challenge to the validity, priority, or quantity of such right in an adjudication proceeding.

NEW SECTION. Sec. 12. (1) If an application for transfer proposes to transfer water rights from one irrigation district to another, approval of the transfer shall be conditioned upon receipt of concurrence from each of the irrigation districts that such transfer will not adversely affect the ability to deliver water to other landowners or impair the financial integrity of either of the irrigation districts. A transfer involving a change in place of use or a nonconsumptive use by an individual water user or users of water provided by an irrigation district need only receive approval for the change from the board of directors of the irrigation district if the use of water continues within the irrigation district.

(2) There shall be a rebuttable presumption that any water market transfer does not impair or injure any existing rights of third parties; provided, if any person claims to be the holder of a right impaired by a proposed transfer, such person shall have the right to a hearing before the governing body of the district. The district shall receive such evidence as it may deem material and necessary to determine the validity of the claim of impairment. If the evidence presented by the party claiming an impairment establishes that more probably than not, that the claimant's water right would be impaired by the proposed transfer, the district may not approve the transfer unless:

(a) The applicant and the impaired party agree upon compensation for the impairment; or

(b) The applicant proposes a physical solution that substantially mitigates the impairment and is reasonable under the circumstances.

(3) Any water market transfer that is limited to the consumptive quantity of the transferor or a nonconsumptive use shall be conclusively presumed to cause no detriment or impairment to existing rights of third parties. For purposes of this section, the term "consumptive quantity" means the actual five-year average amount of water that the water right holder has diverted reduced by the estimated amount of return flows. The burden shall be on the applicant to establish that a proposed transfer is limited to the transferor's consumptive quantity.

(4) Existing rights include instream flows and nonconsumptive uses for public and private fish propagation established under chapter 90.22 RCW or by court decree, as well as other junior and senior rights.

NEW SECTION. Sec. 13. (1) If a transfer is approved by a water conservancy district, the district shall submit a copy of the proposed certificate conditionally approving the transfer to the department for review. Along with a copy of the proposed certificate, the district shall submit a report summarizing any factual findings on which the district relied in deciding to approve the proposed transfer. Notice by mail shall be sent to any person who objected to a transfer or who has requested notice.

(2) The department is authorized to review any proposed transfer approved by a district for compliance with this chapter, any guidelines adopted by the department, and other applicable law. The parties to a transfer or any third party whose water right is alleged to be impaired by a transfer may appeal the district's decision to the department. The district shall, at the request of the department or any intervenor, forward to the department the files and records upon which the district based its decision. The department shall review the action of the district and affirm, reverse, or modify the action of the district within thirty days of receipt. The thirty-day time period for department review of a district's action may be extended an additional thirty days by the department for any reason, or for any time period by the consent of the parties to a transfer. If the department fails to act on the matter within the required time, the district's action shall be deemed final. Upon approval of a water market transfer by the action or nonaction of the department, the conditional certificate issued by the district shall become final and valid.

NEW SECTION. Sec. 14. The decision of the director or the department to approve or deny a petition to form a water conservancy district, or to suspend a water conservancy district's powers and authorities, or to approve or deny a water market transfer, by action or nonaction, and any other final agency decision or final action pursuant to this chapter, is subject to judicial review as provided in chapter 34.05 RCW.

NEW SECTION. Sec. 15. (1) Sections 1 through 14 of this act shall not apply to trust water rights acquired by the state through the funding of water conservation projects under chapter 90.38 RCW or RCW 90.42.010 through 90.42.070.

(2) The department may not initiate relinquishment proceedings under chapter 90.14 RCW as a result of information gained solely through a proposed water rights transfer under this chapter.

NEW SECTION. Sec. 16. Any cooperative corporation or any mutual corporation operating a public water system serving one hundred or more accounts is authorized to be a petitioner to establish a water conservancy district and to exercise the authorities of a water conservancy district and any other powers enumerated in sections 1 through 15 of this act.

NEW SECTION. Sec. 17. A new section is added to chapter 35.92 RCW to read as follows:

Any city operating a water system under this chapter is authorized to be a petitioner to establish a water conservancy district and to exercise the authorities of a water conservancy district and any other powers enumerated in sections 1 through 16 of this act.

NEW SECTION. Sec. 18. A new section is added to chapter 54.08 RCW to read as follows:

Any public utility district operating a water system under this chapter is authorized to be a petitioner to establish a water conservancy district and to exercise the authorities of a water conservancy district and any other powers enumerated in sections 1 through 16 of this act.

NEW SECTION. Sec. 19. A new section is added to chapter 57.08 RCW to read as follows:

Any water district operating a water system under this chapter is authorized to be a petitioner to establish a water conservancy district and to exercise the authorities of a water conservancy district and any other powers enumerated in sections 1 through 16 of this act.

NEW SECTION. Sec. 20. A new section is added to chapter 87.03 RCW to read as follows:

Any irrigation district organized and operating pursuant to this chapter is authorized to be a petitioner to establish a water conservancy district and to exercise the authorities of a water conservancy district and any other powers enumerated in sections 1 through 16 of this act.

NEW SECTION. Sec. 21. A new section is added to chapter 89.30 RCW to read as follows:

Any reclamation district organized and operating pursuant to this chapter is authorized to be a petitioner to establish a water conservancy district and to exercise the authorities of a water conservancy district and any other powers enumerated in sections 1 through 15 of this act.

NEW SECTION. Sec. 22. Sections 1 through 16 of this act shall constitute a new chapter in Title 90 RCW.