(1) A project that receives a loan or grant from the Water Supply Development Account must:
(a) Demonstrate social or cultural benefits and economic benefits sufficient to qualify the project under the scoring and ranking system described in OAR 690-093-0090; and
(b) Except as otherwise provided in ORS 541.681, demonstrate environmental benefits:
(A) By dedicating 25 percent of conserved water or newly developed water, that will be protected by the Department, to instream use; or
(B) By demonstrating environmental benefits that are sufficient to qualify the project under the scoring and ranking system described in OAR 690-093-0090.
(2) To establish that a project complies with subsection (1)(b) of this section, the loan or grant recipient may include water dedicated to instream use as a result of the conditions of federal, state or local permits for the project.