(a) Districts that are subject to the discretionary provisions. Unless an exemption in § 426.16 applies, a district is subject to the discretionary provisions if:

1. (1) The district executes a new or renewed contract with Reclamation after October 12, 1982. The discretionary provisions apply as of the execution date of the new or renewed contract;

2. (2) The district amends its contract to conform to the discretionary provisions:

   1. (i) A district may ask Reclamation to amend its contract to conform to the discretionary provisions;
   2. (ii) The district's request to Reclamation must be accompanied by a duly adopted resolution dated and signed by the governing board of the district obligating the district to take, in a timely manner, actions required by applicable State law to amend its contract; and
   3. (iii) If the requirements of paragraphs (a)(2)(i) and (ii) of this section are met, then Reclamation will amend the contract, and the district becomes subject to the discretionary provisions from the date the district's request was submitted to Reclamation;
   4. (iv) If the district only wants to amend its contracts to become subject to the discretionary provisions, the amendments need only be to the extent required to conform to the discretionary provisions; or

3. (3) The district amends its contract after October 12, 1982, to provide the district with additional or supplemental benefits. The amendment must also include the district's conformance to the discretionary provisions:

   1. (i) The discretionary provisions apply as of the date that Reclamation executes the contract amendment;

   2. (ii) For purposes of application of the acreage limitation provisions Reclamation considers a contract amendment as providing additional or supplemental benefits if that amendment:

      1. (A) Requires the United States to expend significant funds;
      2. (B) Requires the United States to commit significant additional water supplies; or
      3. (C) Substantially modifies contract payments due the United States; and

   3. (iii) For purposes of application of the acreage limitation provisions Reclamation does not consider the following contract actions as providing additional or supplemental benefits:

      1. (A) The construction of facilities for conveyance of irrigation water for which districts contracted on or before October 12, 1982;
      2. (B) Minor drainage and construction work contracted under a prior repayment or water service contract;
      3. (C) Operation and maintenance (O&M) amendments;
      4. (D) The deferral of payments provided the deferral is for a period of 12 months or less;
      5. (E) A temporary supply of irrigation water as set forth in § 426.16(d);

      6. (F) The transfer of water on an annual basis from one district to another, provided that:

         (1) Both districts have contracts with the United States;

         (2) The rate paid by the district receiving the transferred water:

         (i) Is the higher of the applicable water rate for either district;

         (ii) Does not result in any increased operating losses to the United States above those that would have existed in the absence of the transfer; and

         (iii) Does not result in any decrease in capital repayment to the United States below what would have existed in the absence of the transfer; and

         (3) The recipients of the transferred water pay a rate for the water that is at least equal to the actual O&M costs or the full-cost rate in those cases where, for whatever reason, the recipients would have been subject to such costs had the water not been considered transferred water;

      7. (G) Contract actions pursuant to the Reclamation Safety of Dams Act of 1978, as amended (43 U.S.C. 506); or
      8. (H) Other contract actions that Reclamation determines do not provide additional or supplemental benefits.

(b) Districts that are subject to prior law. Any district which had a contract in force on October 12, 1982, that required landholders to comply with the ownership limitations of Federal reclamation law remains subject to prior law unless and until the district:

1. (1) Enters into a new or renewed contract requiring it to conform to the discretionary provisions, as provided in paragraph (a)(1) of this section;
2. (2) Makes a contract action requiring conformance to the discretionary provisions, as provided in paragraphs (a)(2) or (3) of this section; or
3. (3) Becomes exempt, as provided in § 426.16.

(c) Standard RRA contract article.

1. (1) New or renewed contracts executed after October 12, 1982, or contracts that are amended to conform to the discretionary provisions before or on the effective date of these rules must include the following clause:

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

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

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

(d) The effect of a master contractor's and subcontractor's actions to conform to the discretionary provisions. If a district provides irrigation water to other districts through subcontracts and the master contracting district is subject to:

1. (1) The discretionary provisions, then all subcontracting districts who are entitled to receive irrigation water must also conform to the discretionary provisions; or
2. (2) Prior law, then the subcontracting district can amend its subcontract to conform to the discretionary provisions without subjecting the master contractor or any other subcontractor of the master contractor to the discretionary provisions. If a subcontract that does not include the United States as a party is amended to conform to the discretionary provisions, or the subcontract is a new or renewed contract executed after October 12, 1982, then the amended, new, or renewed subcontract must include the United States as a party.

(e) The effect on a landholder's status when a district becomes subject to the discretionary provisions. If a district conforms to the discretionary provisions and the landholder is:

1. (1) Other than a nonresident alien or a legal entity that is not established under State or Federal law, and is:

   1. (i) A direct landholder in that district, then the landholder becomes subject to the discretionary provisions and the associated acreage limitation status will apply in any district in which the landholder holds land; or
   2. (ii) Only an indirect landholder in that and all other discretionary provisions districts, then the landholder's acreage limitation status is not affected. Such a landholder can receive irrigation water as a prior law recipient on indirectly held lands in districts that conform to the discretionary provisions.

2. (2) A nonresident alien, or legal entity not established under State or Federal law, and the landholder is:

   1. (i) A direct landholder, then since such a landholder cannot become subject to, and has no eligibility under the discretionary provisions:

      1. (A) All direct landholdings in districts that conform to the discretionary provisions become ineligible; and
      2. (B) Directly held land that becomes ineligible as a result of the district's action to conform to the discretionary provisions may be placed under recordable contract as subject to the conditions specified in § 426.12; or
   2. (ii) An indirect landholder, then such a landholder may receive irrigation water on land indirectly held in districts conforming to the discretionary provisions, with the entitlements for such landholder determined as specified in § 426.8.

(f) Landholder actions to conform to the discretionary provisions.

1. (1) In the absence of a district's action to conform to the discretionary provisions, United States citizens, resident aliens, or legal entities established under State or Federal law, can elect to conform to the discretionary provisions by executing an irrevocable election. Upon execution of an irrevocable election:

   1. (i) The elector's entire landholding in all districts shall be subject to the discretionary provisions;
   2. (ii) The election shall be binding on the elector and his or her landholding, but will not be binding on subsequent landholders of that land;
   3. (iii) An irrevocable election by a legal entity is binding only upon that entity and not on the part owners of that entity;
   4. (iv) An irrevocable election by a part owner of a legal entity binds only the part owner making the election and not the entity or other part owners of the entity; and
   5. (v) An irrevocable election by a lessor does not affect the status of a lessee, and vice versa. However, the eligibility and entitlement of neither a lessor nor a lessee may be enhanced through leasing.

2. (2) A landholder makes an irrevocable election by completing a Reclamation issued irrevocable election form:

   1. (i) The elector's original irrevocable election form must be filed by the district with Reclamation and must be accompanied by a completed certification form, as specified in § 426.18;
   2. (ii) The elector must file copies of the irrevocable election and certification forms concurrently with each district where the elector holds nonexempt land;
   3. (iii) Reclamation will prepare a letter advising the recipient of the approval or disapproval of the election. Reclamation will base approval upon whether the election form and the accompanying certification form(s) indicate the elector's satisfaction of the various requirements of Federal reclamation law and these regulations;
   4. (iv) If the election is approved, the letter of approval, with a copy of the irrevocable election form and the original certification form(s), will be sent by Reclamation to each district where the elector holds land;
   5. (v) The district(s) shall retain the forms; and
   6. (vi) If the irrevocable election is disapproved, the landholder and the district will be advised by letter along with the reasons for disapproval.
3. (3) A landholder that only holds land indirectly in a district that has conformed to the discretionary provisions, other than a nonresident alien or a legal entity not established under State or Federal law, may make an irrevocable election also by simply submitting certification forms to all districts where the landholder holds land subject to the acreage limitation provisions. An election made in this manner is binding in all districts in which such elector holds land.