After a district excludes land from the district’s territory under this subchapter, the municipality or other municipal supplier that proposes to serve the land with a potable water supply may petition the district to convert the proportionate water rights previously allocated for the land from irrigation use rights to municipal use rights for the use and benefit of the municipality or other municipal supplier. The district shall compute the proportionate water rights available and shall initiate administrative proceedings to convert the irrigation use rights to municipal use rights. Before the district is obligated to initiate the administrative proceedings, the municipality or other municipal supplier must deposit with the district the amount that the district estimates the district will incur as reasonable expenses and attorney’s fees in those proceedings. On approval of the conversion by the commission, the district shall deliver the water to the municipality or other municipal supplier in the manner those entities may agree to under this code.