Sandy,
As you know, Cascade Creek is inhabited by resident and anadromous fish (trout and salmon).
Regulations are established to protect fish resources by protecting the habitat they rely upon (water).
Like many small streams, water is the primary limiting factor for fish in Cascade Creek.
Additional diversion of water or changes to existing diversions that reduces the flow
of Cascade Creek could be very detrimental to fish health, especially during low flow seasons.
Having all applicable permits in hand prior to starting any work on or near the water should
prevent unintended negative consequences of the work.

I have attached a document containing WAC language relevant to Hydraulic Permit Approvals (HPA)
in water withdrawals.  There are, of course, many RCW and WAC's that regulate HPA applications and issuance. 
I believe that, since the return flow of the diversion ditch provides water in Cascade Creek, 
it clearly "change[s] the natural flow or bed of... fresh waters of the state".  
That language from WAC 220-110-010 and 220-110-190 pretty clearly establishes the need for an HPA.  
In addition WAC 220-110-190 states that "Any hydraulic project activity related to a 
change in the manner or location of water diversion will require an HPA modification."  
I would think that changing the nature of an established diversion, especially one that 
partially utilizes natural drainage features of the watershed, would require an HPA.

Changes to diversions and work that effects the bed or flow of waters of the state 
often require SEPA review.  To avoid being out of compliance with state rules a 
SEPA checklist should be part of any work plan for the diversion.

Please feel free to share this email with any interested persons.  
Information on HPA and SEPA are readily available on many government websites, 
including the Department of Fish & Wildlife at http://wdfw.wa.gov/habitat.htm .

If you have any questions please feel free to contact me.

Sincerely,

Steve Boessow, Water Rights Biologist
Department of Fish & Wildlife
Habitat Program
(360) 902-2410 voice
(360) 902-2946 FAX
boesssnb@dfw.wa.gov

WAC 220-110-190