Second Substitute H.B. 49

Representative Kay L. McIff proposes the following substitute bill:


             1     
WATER RIGHTS - CHANGE APPLICATION AMENDMENTS

             2     
2014 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Kay L. McIff

             5     
Senate Sponsor: Jerry W. Stevenson

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies Title 73, Water and Irrigation, by amending the requirements for a
             10      change application.
             11      Highlighted Provisions:
             12          This bill:
             13          .    amends definitions;
             14          .    modifies the procedure for filing a change application;
             15          .    requires parties to mediate issues arising from a change application before
             16      administrative review or litigation;
             17          .    provides an option for court resolution of legal issues not within the purview of the
             18      state engineer;
             19          .    allows recovery of attorney fees under certain circumstances; and
             20          .    makes technical changes.
             21      Money Appropriated in this Bill:
             22          None
             23      Other Special Clauses:
             24          None
             25      Utah Code Sections Affected:


             26      AMENDS:
             27           73-1-4 , as last amended by Laws of Utah 2013, Chapters 221 and 380
             28           73-2-27 , as enacted by Laws of Utah 2005, Chapter 215
             29           73-3-3 , as last amended by Laws of Utah 2012, Chapter 229
             30           73-3-3.5 , as last amended by Laws of Utah 2008, Chapter 3
             31     
             32      Be it enacted by the Legislature of the state of Utah:
             33          Section 1. Section 73-1-4 is amended to read:
             34           73-1-4. Reversion to the public by abandonment or forfeiture for nonuse within
             35      seven years -- Nonuse application.
             36          (1) As used in this section:
             37          (a) "Public entity" means:
             38          (i) the United States;
             39          (ii) an agency of the United States;
             40          (iii) the state;
             41          (iv) a state agency;
             42          (v) a political subdivision of the state; or
             43          (vi) an agency of a political subdivision of the state.
             44          (b) "Public water supplier" means an entity that:
             45          (i) supplies water, directly or indirectly, to the public for municipal, domestic, or
             46      industrial use; and
             47          (ii) is:
             48          (A) a public entity;
             49          (B) a water corporation, as defined in Section 54-2-1 , that is regulated by the Public
             50      Service Commission;
             51          (C) a community water system:
             52          (I) that:
             53          (Aa) supplies water to at least 100 service connections used by year-round residents; or
             54          (Bb) regularly serves at least 200 year-round residents; and
             55          (II) whose voting members:
             56          (Aa) own a share in the community water system;


             57          (Bb) receive water from the community water system in proportion to the member's
             58      share in the community water system; and
             59          (Cc) pay the rate set by the community water system based on the water the member
             60      receives; or
             61          (D) a water users association:
             62          (I) in which one or more public entities own at least 70% of the outstanding shares; and
             63          (II) that is a local sponsor of a water project constructed by the United States Bureau of
             64      Reclamation.
             65          (c) "Shareholder" is as defined in Section 73-3-3.5 .
             66          (d) "Water company" is as defined in Section 73-3-3.5 .
             67          (e) "Water supply entity" means an entity that supplies water as a utility service or for
             68      irrigation purposes and is also:
             69          (i) a municipality, water conservancy district, metropolitan water district, irrigation
             70      district, or other public agency;
             71          (ii) a water company regulated by the Public Service Commission; or
             72          (iii) any other owner of a community water system.
             73          (2) (a) Except as provided in Subsection (2)(b) or (e), when an appropriator or the
             74      appropriator's successor in interest abandons or ceases to use all or a portion of a water right
             75      for a period of seven years, the water right or the unused portion of that water right is subject to
             76      forfeiture in accordance with Subsection (2)(c).
             77          (b) (i) An appropriator or the appropriator's successor in interest may file an
             78      application for nonuse with the state engineer.
             79          (ii) If a person described in Subsection (2)(b)(i) files and receives approval on a nonuse
             80      application, nonuse of the water right subject to the application is not counted toward a
             81      seven-year period described in Subsection (2)(a) during the period of time beginning on the day
             82      on which the person files the application and ending on the day on which the application
             83      expires without being renewed.
             84          (iii) If a person described in Subsection (2)(b)(i) files and receives approval on
             85      successive, overlapping nonuse applications, nonuse of the water right subject to the
             86      applications is not counted toward a seven-year period described in Subsection (2)(a) during
             87      the period of time beginning on the day on which the person files the first application and


             88      ending on the day on which the last application expires without being renewed.
             89          (iv) Approval of a nonuse application does not protect a water right that is already
             90      subject to forfeiture under Subsection (2)(a) for full or partial nonuse of the water right.
             91          (v) A nonuse application may be filed on all or a portion of the water right, including
             92      water rights held by a water company.
             93          (vi) After giving written notice to the water company, a shareholder may file a nonuse
             94      application with the state engineer on the water represented by the stock.
             95          (c) (i) Except as provided in Subsection (2)(c)(ii), a water right or a portion of the water
             96      right may not be forfeited unless a judicial action to declare the right forfeited is commenced
             97      within 15 years from the end of the latest period of nonuse of at least seven years.
             98          (ii) (A) The state engineer, in a proposed determination of rights prepared in
             99      accordance with Section 73-4-11 , may not assert that a water right was forfeited unless a period
             100      of nonuse of seven years ends or occurs during the 15 years immediately preceding the day on
             101      which the state engineer files the proposed determination of rights with the court.
             102          (B) After the day on which a proposed determination of rights is filed with the court a
             103      person may not assert that a water right subject to that determination was forfeited during the
             104      15-year period described in Subsection (2)(c)(ii)(A), unless the state engineer asserts forfeiture
             105      in the proposed determination, or a person makes, in accordance with Section 73-4-11 , an
             106      objection to the proposed determination that asserts forfeiture.
             107          (iii) A water right, found to be valid in a decree entered in an action for general
             108      determination of rights under Chapter 4, Determination of Water Rights, is subject to a claim
             109      of forfeiture based on a seven-year period of nonuse that begins after the day on which the state
             110      engineer filed the related proposed determination of rights with the court, unless the decree
             111      provides otherwise.
             112          (iv) If in a judicial action a court declares a water right forfeited, on the date on which
             113      the water right is forfeited:
             114          (A) the right to use the water reverts to the public; and
             115          (B) the water made available by the forfeiture:
             116          (I) first, satisfies other water rights in the hydrologic system in order of priority date;
             117      and
             118          (II) second, may be appropriated as provided in this title.


             119          (d) [This] Except as provided in Subsection (2)(e), this section applies whether the
             120      unused or abandoned water or a portion of the water is:
             121          (i) permitted to run to waste; or
             122          (ii) used by others without right with the knowledge of the water right holder.
             123          (e) This section does not apply to:
             124          (i) the use of water according to a lease or other agreement with the appropriator or the
             125      appropriator's successor in interest;
             126          (ii) a water right if its place of use is contracted under an approved state agreement or
             127      federal conservation fallowing program;
             128          [(iii) those periods of time when a surface water or groundwater source fails to yield
             129      sufficient water to satisfy the water right;]
             130          (iii) a water right during a period of time when a surface water source or groundwater
             131      source fails to yield sufficient water to satisfy the water right;
             132          (iv) a water right when water is unavailable because of the water right's priority date;
             133          (v) a water right to store water in a surface reservoir or an aquifer, in accordance with
             134      Title 73, Chapter 3b, Groundwater Recharge and Recovery Act, if:
             135          (A) the water is stored for present or future use; or
             136          (B) storage is limited by a safety, regulatory, or engineering restraint that the
             137      appropriator or the appropriator's successor in interest cannot reasonably correct;
             138          (vi) a water right if a water user has beneficially used substantially all of the water right
             139      within a seven-year period, provided that this exemption does not apply to the adjudication of a
             140      water right in a general determination of water rights under Chapter 4, Determination of Water
             141      Rights;
             142          (vii) except as provided by Subsection (2)(g), a water right:
             143          (A) (I) owned by a public water supplier;
             144          (II) represented by a public water supplier's ownership interest in a water company; or
             145          (III) to which a public water supplier owns the right of use; and
             146          (B) conserved or held for the reasonable future water requirement of the public, which
             147      is determined according to Subsection (2)(f);
             148          (viii) a supplemental water right during a period of time when another water right
             149      available to the appropriator or the appropriator's successor in interest provides sufficient water


             150      so as to not require use of the supplemental water right; or
             151          (ix) a water right subject to an approved change application where the applicant is
             152      diligently pursuing certification.
             153          (f) (i) The reasonable future water requirement of the public is the amount of water
             154      needed in the next 40 years by the persons within the public water supplier's [projected]
             155      reasonably anticipated service area based on [projected] reasonably anticipated population
             156      growth or other water use demand.
             157          (ii) For purposes of Subsection (2)(f)(i), a community water system's projected or
             158      reasonably anticipated service area:
             159          (A) is the area served by the community water system's distribution facilities; and
             160          (B) expands as the community water system expands the distribution facilities in
             161      accordance with Title 19, Chapter 4, Safe Drinking Water Act.
             162          (g) For a water right acquired by a public water supplier on or after May 5, 2008,
             163      Subsection (2)(e)(vii) applies if:
             164          (i) the public water supplier submits a change application under Section 73-3-3 ; and
             165          (ii) the state engineer approves the change application.
             166          (3) (a) The state engineer shall furnish a nonuse application form requiring the
             167      following information:
             168          (i) the name and address of the applicant;
             169          (ii) a description of the water right or a portion of the water right, including the point of
             170      diversion, place of use, and priority;
             171          (iii) the quantity of water;
             172          (iv) the period of use;
             173          (v) the extension of time applied for;
             174          (vi) a statement of the reason for the nonuse of the water; and
             175          (vii) any other information that the state engineer requires.
             176          (b) (i) Upon receipt of the application, the state engineer shall publish a notice of the
             177      application once a week for two successive weeks:
             178          (A) in a newspaper of general circulation in the county in which the source of the water
             179      supply is located and where the water is to be used; and
             180          (B) as required in Section 45-1-101 .


             181          (ii) The notice shall:
             182          (A) state that an application has been made; and
             183          (B) specify where the interested party may obtain additional information relating to the
             184      application.
             185          (c) Any interested person may file a written protest with the state engineer against the
             186      granting of the application:
             187          (i) within 20 days after the notice is published, if the adjudicative proceeding is
             188      informal; and
             189          (ii) within 30 days after the notice is published, if the adjudicative proceeding is
             190      formal.
             191          (d) In any proceedings to determine whether the nonuse application should be
             192      approved or rejected, the state engineer shall follow the procedures and requirements of Title
             193      63G, Chapter 4, Administrative Procedures Act.
             194          (e) After further investigation, the state engineer may approve or reject the application.
             195          (4) (a) The state engineer shall grant a nonuse application on all or a portion of a water
             196      right for a period of time not exceeding seven years if the applicant shows a reasonable cause
             197      for nonuse.
             198          (b) A reasonable cause for nonuse includes:
             199          (i) a demonstrable financial hardship or economic depression;
             200          (ii) physical causes or changes that render use beyond the reasonable control of the
             201      water right owner;
             202          [(ii)] (iii) the initiation of water conservation or efficiency practices, or the operation of
             203      a groundwater recharge recovery program approved by the state engineer;
             204          [(iii)] (iv) operation of legal proceedings;
             205          [(iv)] (v) the holding of a water right or stock in a mutual water company without use
             206      by any water supply entity to meet the reasonable future requirements of the public;
             207          [(v)] (vi) situations where, in the opinion of the state engineer, the nonuse would assist
             208      in implementing an existing, approved water management plan; or
             209          [(vi)] (vii) the loss of capacity caused by deterioration of the water supply or delivery
             210      equipment if the applicant submits, with the application, a specific plan to resume full use of
             211      the water right by replacing, restoring, or improving the equipment.


             212          (5) (a) Sixty days before the expiration of a nonuse application, the state engineer shall
             213      notify the applicant by mail or by any form of electronic communication through which receipt
             214      is verifiable, of the date when the nonuse application will expire.
             215          (b) An applicant may file a subsequent nonuse application in accordance with this
             216      section.
             217          Section 2. Section 73-2-27 is amended to read:
             218           73-2-27. Criminal penalties.
             219          (1) This section applies to offenses committed under:
             220          (a) Section 73-1-14 ;
             221          (b) Section 73-1-15 ;
             222          (c) Section 73-2-20 ;
             223          (d) [Subsection] Section 73-3-3 [(9)];
             224          (e) Section 73-3-26 ;
             225          (f) Section 73-3-29 ;
             226          (g) Section 73-5-9 ;
             227          (h) Section 76-10-201 ;
             228          (i) Section 76-10-202 ; and
             229          (j) Section 76-10-203 .
             230          (2) Under circumstances not amounting to an offense with a greater penalty under
             231      Subsection 76-6-106 (2)(b)(ii) or Section 76-6-404 , violation of a provision listed in Subsection
             232      (1) is punishable:
             233          (a) as a felony of the third degree if:
             234          (i) the value of the water diverted or property damaged or taken is $2,500 or greater;
             235      and
             236          (ii) the person violating the provision has previously been convicted of violating the
             237      same provision;
             238          (b) as a class A misdemeanor if:
             239          (i) the value of the water diverted or property damaged or taken is $2,500 or greater; or
             240          (ii) the person violating the provision has previously been convicted of violating the
             241      same provision; or
             242          (c) as a class B misdemeanor if Subsection (2)(a) or (b) does not apply.


             243          Section 3. Section 73-3-3 is amended to read:
             244           73-3-3. Permanent or temporary changes in point of diversion, place of use, or
             245      purpose of use.
             246          (1) For purposes of this section:
             247          (a) "Permanent change" means a change for an indefinite period of time with an intent
             248      to relinquish the original point of diversion, place of use, or purpose of use.
             249          (b) "Temporary change" means a change for a fixed period of time not, exceeding one
             250      year.
             251          (2) (a) Subject to Subsection (2)(c), a person entitled to the use of water may make
             252      permanent or temporary changes in the:
             253          (i) point of diversion;
             254          (ii) place of use; [or]
             255          [(iii) purpose of use for which the water was originally appropriated.]
             256          (iii) period of use;
             257          (iv) nature of use; or
             258          (v) addition or deletion of storage as an authorized use.
             259          (b) Except as provided by Section 73-3-30 , a change may not be made if it impairs a
             260      vested water right without just compensation.
             261          (c) A change application on a federal reclamation project water right shall be signed
             262      by:
             263          (i) the local water users organization that is contractually responsible for:
             264          (A) the operation and maintenance of the project; or
             265          (B) the repayment of project costs; and
             266          (ii) the record title owner of the water right.
             267          (3) A person entitled to use water shall change a point of diversion, place of use, or
             268      purpose of water use, including water involved in a general adjudication or other suit, in the
             269      manner provided in this section.
             270          (4) (a) A person entitled to use water may not make a change unless the state engineer
             271      approves the change application.
             272          (b) A shareholder in a water company who seeks to make a permanent or temporary
             273      change to a water right held in title by the water company shall file a change application in


             274      accordance with Section 73-3-3.5 .
             275          [(b)] (5) A person entitled to use water shall submit a change application, upon forms
             276      furnished by the state engineer [and shall set forth], that includes:
             277          [(i)] (a) the change applicant's name;
             278          [(ii)] (b) the water right description, including the water right number;
             279          [(iii)] (c) the water quantity;
             280          [(iv)] (d) the stream or water source;
             281          [(v)] (e) if applicable, the point on the stream or water source where the water is
             282      diverted;
             283          [(vi)] (f) if applicable, the point to which it is proposed to change the diversion of the
             284      water;
             285          [(vii)] (g) the place, [purpose] nature, period, and extent of the [present] approved use;
             286          [(viii)] (h) the place, [purpose] nature, period, and extent of the proposed use; [and]
             287          (i) if the change applicant is submitting a change application in accordance with
             288      Section 73-3-3.5 , the information required by Section 73-3-3.5 ; and
             289          [(ix)] (j) any other information that the state engineer requires.
             290          [(5) (a) The state engineer shall follow the same procedures, and the rights and duties
             291      of the applicants with respect to applications for permanent changes of point of diversion, place
             292      of use, or purpose of use shall be the same, as provided in this title for applications to
             293      appropriate water.]
             294          (6) (a) With respect to a change application for a permanent change:
             295          (i) the state engineer shall follow the same procedures provided in this title for
             296      approving an application to appropriate water; and
             297          (ii) the rights and duties of a change applicant are the same as the rights and duties of a
             298      person who applies to appropriate water under this title.
             299          (b) The state engineer may waive notice for a permanent change application involving
             300      only a change in point of diversion of 660 feet or less.
             301          [(6)] (7) (a) The state engineer shall investigate all temporary change applications.
             302          (b) If the state engineer finds that the temporary change will not impair a vested water
             303      right, the state engineer shall issue an order authorizing the change.
             304          (c) If the state engineer finds that the change sought might impair a vested water right,


             305      before authorizing the change, the state engineer shall give notice of the application to any
             306      person whose right may be affected by the change.
             307          (d) Before making an investigation or giving notice, the state engineer may require the
             308      applicant to deposit a sum of money sufficient to pay the expenses of the investigation and
             309      publication of notice.
             310          [(7)] (8) (a) Except as provided by Section 73-3-30 , the state engineer may not reject a
             311      permanent or temporary change application for the sole reason that the change would impair a
             312      vested water right.
             313          (b) If otherwise proper, the state engineer may approve a permanent or temporary
             314      change application for part of the water involved or upon the condition that the applicant
             315      acquire the conflicting water right or otherwise mitigate the impairment.
             316          [(8) (a) A person holding an approved application for the appropriation of water may
             317      change the point of diversion, place of use, or purpose of use.]
             318          [(b)] (9) A change of an approved application to appropriate water does not:
             319          [(i)] (a) affect the priority of the original application to appropriate water; or
             320          [(ii)] (b) extend the time period within which the construction of work is to begin or be
             321      completed.
             322          [(9)] (10) Any person who changes [or who attempts to change] a point of diversion,
             323      place of use, or purpose of use, either permanently or temporarily, without first applying to the
             324      state engineer in the manner provided in this section[: (a) obtains no right; (b)], is guilty of [a
             325      crime] an offense punishable under Section 73-2-27 if the change [or attempted change] is
             326      made knowingly or intentionally[; and].
             327          [(c) is guilty of a separately punishable offense for each day of the unlawful change.]
             328          (11) A person who makes a permanent or temporary change before obtaining an
             329      approved change application under this section obtains no additional water right by the change
             330      and shall comply with the change application process.
             331          [(10)] (12) (a) This section does not apply to the replacement of an existing well by a
             332      new well drilled within a radius of 150 feet from the point of diversion of the existing well.
             333          (b) Any replacement well must be drilled in accordance with the requirements of
             334      Section 73-3-28 .
             335          Section 4. Section 73-3-3.5 is amended to read:


             336           73-3-3.5. Application for a change of point of diversion, place of use, or purpose
             337      of use of water in a water company made by a shareholder.
             338          (1) As used in this section:
             339          (a) "Shareholder" means the owner of a share of stock, or other evidence of stock
             340      ownership, that entitles the person to a proportionate share of water in a water company.
             341          (b) "Water company" means, except as described in Subsection (1)(c), any company,
             342      operating for profit or not for profit, [in which] where a shareholder has the right to receive a
             343      proportionate share, based on that shareholder's ownership interest, of water delivered by the
             344      company.
             345          (c) "Water company" does not include a public water supplier, as defined in Section
             346      73-1-4 .
             347          [(2) A shareholder who seeks to change the point of diversion, place of use, or purpose
             348      of use of the shareholder's proportionate share of water in the water company shall submit a
             349      request for the change, in writing, to the water company. This request shall include the
             350      following information:]
             351          [(a) the details of the requested change, which may include the point of diversion,
             352      period of use, place, or nature of use;]
             353          [(b) the quantity of water sought to be changed;]
             354          (2) (a) A shareholder who seeks to file a change application under Section 73-3-3 to
             355      make a change to some or all of the water represented by the shareholder's shares in a water
             356      company shall submit a proposed change application to the water company before filing the
             357      application with the state engineer.
             358          (b) In addition to the information required under Section 73-3-3 , the proposed change
             359      application shall include:
             360          [(c)] (i) the certificate number of the stock affected by the change;
             361          [(d)] (ii) a description of the land proposed to be retired from irrigation [pursuant to] in
             362      accordance with Section 73-3-3 , if the proposed change in place or nature of use of the water
             363      involves a situation where the water was previously used for irrigation;
             364          [(e)] (iii) an agreement by the shareholder to continue to pay all applicable corporate
             365      assessments on the share affected by the change; and
             366          [(f)] (iv) any other information that the water company may reasonably need to


             367      evaluate the [requested] proposed change application.
             368          [(3) (a) A water company shall make a decision and provide written notice of that
             369      decision on a shareholder's request for a change application within 120 days from receipt of the
             370      request.]
             371          [(b) Based on the facts and circumstances of each proposed change, a water company
             372      may take the following action:]
             373          [(i) approve the change request;]
             374          [(ii) approve the change request with conditions; or]
             375          [(iii) deny the change request.]
             376          [(c) If the water company fails to respond to a shareholder's request for a change
             377      application, pursuant to Subsection (3)(a), the failure to respond shall be considered to be a
             378      denial of the request.]
             379          [(d) The water company may not withhold approval if any potential damage, liability,
             380      or impairment to the water company, or its shareholders, can be reasonably mitigated without
             381      cost to the water company.]
             382          [(e) A water company may consider the following factors in evaluating change
             383      applications:]
             384          (3) (a) The water company shall respond to the proposed change application described
             385      in Subsection (2) within 90 days after the day on which the water company receives the
             386      proposed change application.
             387          (b) The water company's response to the proposed change application shall be in
             388      writing and shall:
             389          (i) consent to the proposed change;
             390          (ii) consent to the proposed change, subject to certain conditions described by the water
             391      company;
             392          (iii) decline to consent to the proposed change, describing the reasons for declining to
             393      consent; or
             394          (iv) give notice that it elects to respond in a confidential communication for use in
             395      mediation, as described in Subsection (8).
             396          (c) In reviewing a shareholder's proposed change application, a water company may
             397      consider:


             398          (i) [any] whether an increased cost to the water company or its shareholders results
             399      from the proposed change;
             400          (ii) [interference] whether the proposed change will interfere with the water company's
             401      ability to manage and distribute water for the benefit of all shareholders;
             402          (iii) whether the proposed change represents more water than the shareholder's [pro
             403      rata] proportionate share of the water company's right;
             404          (iv) whether the proposed change would create preferential access to use of particular
             405      company water rights to the detriment of other shareholders;
             406          [(iv) impairment of either] (v) whether the proposed change will impair the quantity or
             407      quality of water delivered to other shareholders under the existing water rights of the water
             408      company, including rights to carrier water;
             409          [(v)] (vi) whether the proposed change [would cause a violation of any] violates a
             410      statute, ordinance, regulation, or order of a court or [governmental] government agency; and
             411          [(vi) whether the shareholder has or can arrange for the beneficial use of water to be
             412      retired from irrigation within the water company's service under the proposed change; or]
             413          [(vii)] (vii) the cumulative effects that the approval of the change application may have
             414      on other shareholders or water company operations.
             415          [(4) The water company may require that all costs associated with the change
             416      application, including costs of submitting proof, be paid by the shareholder. (5) (a) The]
             417          (4) (a) Within 60 days after the day on which the shareholder receives the water
             418      company's response, or, if the water company fails to respond within 60 days after the last day
             419      on which the water company may respond under Subsection (3)(a), the shareholder may
             420      commence an administrative proceeding by filing the change application with the state
             421      engineer in accordance with Section 73-3-3 and this section.
             422          (b) The shareholder shall include as part of the change application filed with the state
             423      engineer under Subsection (4)(a):
             424          (i) the water company's response to the shareholder's proposed change application; or
             425          (ii) an affidavit signed by the shareholder documenting the water company's failure to
             426      respond in the time period described in Subsection (3)(a).
             427          (5) If a shareholder files a change application and the water company has consented to
             428      the proposed change under Subsection (3)(b)(i), or the water company has consented to the


             429      proposed change subject to certain conditions under Subsection (3)(b)(ii) and the shareholder
             430      agrees to the conditions, the state engineer shall proceed to evaluate the change application in
             431      accordance with Subsection (13).
             432          (6) If a shareholder files a change application and the water company has consented to
             433      the proposed change subject to certain conditions under Subsection (3)(b)(ii), but the
             434      shareholder disagrees with one or more conditions described in the response, or if the water
             435      company declines to consent under Subsection (3)(b)(iii), or if the water company elects to
             436      respond in a confidential communication as described in Subsection (3)(b)(iv), or if the water
             437      company fails to respond and the shareholder submits an affidavit of nonresponse under
             438      Subsection (4)(b)(ii), the state engineer shall:
             439          (a) within 10 days after the day on which the state engineer receives the change
             440      application, give notice to the shareholder and the water company that both parties are required
             441      to engage in mediation before the state engineer will evaluate the change application; and
             442          (b) provide written notice to the water company, if it failed to respond as required
             443      under Subsection (3)(b), that the water company shall respond to the proposed change
             444      application within 30 days after the day on which the water company receives the notice from
             445      the state engineer, and that the response shall conform with one of the options described in
             446      Subsection (3)(b).
             447          (7) If the water company has not previously responded under Subsection (3)(b) and
             448      fails to respond to the notice under Subsection (6)(b), the state engineer may proceed with the
             449      administrative evaluation under Subsection (13).
             450          (8) (a) If the water company has, in writing, declined to consent to the change
             451      application under Subsection (3)(b)(iii), or Subsection (6)(b), has consented on conditions
             452      unacceptable to the shareholder, or has elected to respond in a confidential communication as
             453      described in Subsection (3)(b)(iv), the parties shall jointly retain the service of a mediator and
             454      schedule a mediation on the change application filed by the shareholder and the response of the
             455      water company.
             456          (b) If the shareholder and water company are unable to agree upon a mediator, the
             457      private property rights omsbudsman shall serve in the capacity of mediator.
             458          (c) The shareholder and water company shall equally share the costs related to the use
             459      of the mediator for a mediation conducted under Subsection (8)(a).


             460          (d) The mediation described in Subsection (8)(a) shall be held within 60 days of the
             461      day on which the state engineer gives the notice set forth in Subsection (6)(a) if the water
             462      company issued a written response pursuant to Subsection (3)(a), or within 60 days of the day
             463      on which the water company issues a written response pursuant to Subsection (6)(b).
             464          (e) If the water company elected to respond in a confidential communication as
             465      described in Subsection (3)(b)(iv), the water company shall provide the shareholder and the
             466      mediator a confidential statement of the reasons supporting any conditions on which its consent
             467      is based, or on which its decision to decline to consent is based, no less than 21 days before the
             468      day on which mediation is scheduled to occur.
             469          (f) The shareholder and the mediator shall keep confidential any information in the
             470      statement described in Subsection (8)(e) identified as confidential.
             471          (g) The time for completion of the mediation may be extended for up to 90 days if the
             472      parties agree and send written notice to the state engineer.
             473          (h) If the water company gave written notice under Subsection (3)(b)(iv) of its election
             474      to respond to the shareholder's change application in a confidential communication before
             475      mediation, but then failed to respond as required in Subsection (8)(e) within the time specified,
             476      or within the time allowed under any agreed extension, the water company shall be considered
             477      to have consented to the change application.
             478          (i) Within five days after the day on which the final day of mediation occurs, the
             479      mediator shall send a written statement to the state engineer, with a copy provided to each
             480      party, advising whether the mediation resulted in an agreement between the parties.
             481          (9) If a shareholder and a water company come to an agreement in a mediation
             482      conducted under Subsection (8), the state engineer shall proceed to evaluate the change
             483      application in accordance with Subsection (13).
             484          (10) If the parties do not reach an agreement through mediation and a mediator's
             485      statement, as described in Subsection (8)(i), is not received within 10 days following the time
             486      allowed for mediation, either party may send written notice to the other and to the state
             487      engineer that the parties are not in agreement regarding the proposed change application.
             488          (11) Within 60 days of the day on which the state engineer receives the written
             489      statement from the mediator under Subsection (8)(i), or the written notice from a party under
             490      Subsection (10), that the parties are not in agreement regarding the proposed change


             491      application, the shareholder or the water company may file an action in district court to resolve
             492      legal issues not within the purview of the state engineer's evaluation under Subsection (13).
             493          (12) If a court action is not timely filed under Subsection (11), or if an action is timely
             494      filed and subsequently resolved and the matter remanded to the state engineer, the state
             495      engineer shall move forward with the administrative proceeding under Subsection (13).
             496          (13) (a) The state engineer shall evaluate a shareholder's change application in the same
             497      manner used to evaluate a change application submitted under Section 73-3-3 , using:
             498          (i) the criteria described in Section 73-3-8 ;
             499          (ii) the considerations described in Subsection (3)(c), related specifically to shareholder
             500      applications; and
             501          (iii) the water company's conditions in consenting to the shareholder's proposed change
             502      application.
             503          (b) Nothing in this section limits the authority of the state engineer in evaluating and
             504      processing a change application, including the authority to require or allow a shareholder or
             505      water company to submit additional relevant information, if the state engineer finds an absence
             506      of prejudice and allows adequate time and opportunity for the other party to respond.
             507          (c) The state engineer may not withhold approval of a change application under this
             508      section based on potential damage, liability, or impairment to the water company or its
             509      shareholders if the potential damage, liability, or impairment can be reasonably mitigated
             510      without cost to the water company.
             511          (14) If the state engineer approves a shareholder's change application, the state
             512      engineer:
             513          (a) may condition approval on payment of the water company's reasonable costs
             514      incurred in the transfer process and in making adjustments to the water company's diversion or
             515      delivery system that are necessitated by the approved change application; and
             516          (b) for shares included in the approval, require that the shareholder requesting the
             517      change [must] be current on all water company assessments and [agree to]:
             518          (i) continue to pay all reasonably applicable future assessments[, except that the
             519      shareholder may choose to prepay any portion of the water company assessments attributable to
             520      an existing debt of the water company.], with credit given to the shareholder for cost savings to
             521      the company; or


             522          [(b) Other than prepaid assessments, the water company may require that the
             523      shareholder continue to pay all applicable assessments.]
             524          [(6) If the water company approves the requested change, with or without conditions,
             525      the change application may be filed with the state engineer, and must:]
             526          [(a) be signed on behalf of the water company; or]
             527          [(b) be accompanied by written authorization from the water company assenting to the
             528      change.]
             529          [(7) (a) The state engineer may evaluate a change application authorized by a water
             530      company under this section in the same manner and using the same criteria that he or she uses
             531      to evaluate any other change application.]
             532          [(b) Nothing in this section shall limit the authority of the state engineer in evaluating
             533      and processing any change application.]
             534          [(8) If an application authorized by a water company under this section is approved by
             535      the state engineer, the shareholder may file requests for extensions of time to submit proof of
             536      beneficial use under the change application without further permission of the water company.]
             537          [(9) (a) Change applications approved under this section are subject to all conditions
             538      imposed by the water company and the state engineer.]
             539          [(b) If a shareholder fails to comply with all of the conditions imposed by the water
             540      company, the water company may, after written notice to the shareholder and after allowing
             541      reasonable time to remedy the failure, withdraw its approval of the application, and petition the
             542      state engineer for an order canceling the change application.]
             543          [(c) The water company may not revoke its approval of the change application or seek
             544      an order canceling the application if the conditions are substantially satisfied.]
             545          [(10) (a) The shareholder requesting the change shall have a cause of action, including
             546      an award of actual damages incurred, against the water company if the water company:]
             547          [(i) unreasonably withholds approval of a requested change;]
             548          [(ii) imposes unreasonable conditions in its approval; or]
             549          [(iii) withdraws approval of a change application in a manner other than as provided in
             550      Subsection (9).]
             551          [(b) The action referred to in Subsection (10)(a) shall be referred to mediation by the
             552      court under Title 78B, Chapter 6, Part 2, Alternative Dispute Resolution Act, unless both


             553      parties decline mediation.]
             554          [(c) If mediation is declined, the prevailing party to the action shall be entitled to costs
             555      and reasonable attorney fees.]
             556          (ii) by mutual agreement only, and when the shares will rely upon a different diversion
             557      and delivery system, negotiate a buyout that includes a prorata share of the bonded
             558      indebtedness assignable to the shares, together with the capitalized value of anticipated future
             559      assessments for maintenance and operation that otherwise would have applied.
             560          (15) A shareholder or a water company may obtain de novo judicial review of the state
             561      engineer's determination under Subsections (13) and (14) by filing an action in district court
             562      within 30 days after the day on which the state engineer makes a final determination in the
             563      adjudicative proceeding on the change application.
             564          (16) If, after a proposed change has been approved and gone into effect, a shareholder
             565      fails to substantially comply with a condition described in Subsection (14)(a) or (b) and
             566      neglects to remedy the failure after written notice from the water company that allows the
             567      shareholder a reasonable opportunity to remedy the failure, that is not less than 90 days after
             568      the day on which the water company gives notice, the water company may:
             569          (a) petition the state engineer to order a reversal of the change application approval; or
             570          (b) proceed under the remedies provided in Title 16, Chapter 4, Share Assessment Act.
             571          (17) If a shareholder's change application is denied by the state engineer and the denial
             572      is upheld by the district court in a de novo action, the district court may award costs and
             573      reasonable attorney fees to the water company if the court finds that:
             574          (a) the shareholder refused to accept conditions advanced by the water company for the
             575      water company to consent to the proposed change; and
             576          (b) the conditions advanced by the water company for consenting to the shareholder's
             577      change were reasonable and necessary to protect the other shareholders.
             578          (18) If a shareholder's change application is approved by the state engineer and upheld
             579      by a district court in a de novo action, the district court may award costs and reasonable
             580      attorney fees to the shareholder if the district court finds that the water company:
             581          (a) unreasonably declined to consent to the proposed change; or
             582          (b) conditioned its consent to the proposed change on unreasonable requirements.


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