The department, after public notice and hearing and with the advice of the State Department of Health Services, shall adopt rules and regulations necessary to carry out the purposes of this chapter. Such regulations shall include, but not be limited to, criteria and procedures for establishing the eligibility of a supplier and a project for assistance commensurate with the need for the project and the ability of the supplier to reasonably finance the project from other sources. It shall be the duty of the department to adopt such rules and regulations as in its judgment will most effectively carry out the provisions of this chapter in the public interest, to the end that the people of California are most efficiently and most economically provided supplies of pure, wholesome, and potable domestic water. Such rules and regulations may provide for the denial of funds when the purposes of this chapter may most economically and efficiently be attained by means other than the construction of the proposed project.