(a) The commissioner shall adopt rules for allocation of waters based on the following priorities for the consumptive appropriation and use of water:
(1) first priority, domestic water supply, excluding industrial and commercial uses of municipal water supply, and use for power production that meets the contingency planning provisions of section 103G.285, subdivision 6;
(2) second priority, a use of water that involves consumption of less than 10,000 gallons of water per day;
(3) third priority, agricultural irrigation, and processing of agricultural products involving consumption in excess of 10,000 gallons per day;
(4) fourth priority, power production in excess of the use provided for in the contingency plan developed under section 103G.285, subdivision 6;
(5) fifth priority, uses, other than agricultural irrigation, processing of agricultural products, and power production, involving consumption in excess of 10,000 gallons per day; and
(6) sixth priority, nonessential uses.
(b) For the purposes of this section, "consumption" means water withdrawn from a supply that is lost for immediate further use in the area.
(c) Appropriation and use of surface water from streams during periods of flood flows and high water levels must be encouraged subject to consideration of the purposes for use, quantities to be used, and the number of persons appropriating water.
(d) Appropriation and use of surface water from lakes of less than 500 acres in surface area must be discouraged.
(e) The treatment and reuse of water for nonconsumptive uses shall be encouraged.