Welcome New Changes for Regulating Colorado Oil and Gas Operations
On
April 16, 2019, Governor Jarod Polis signed into law SB19-181,
a bill that reforms oil and gas regulation in Colorado in several important
ways. It’s a remarkable achievement for House Speaker KC Becker and other supporters
who bent but did not break in the face of strong opposition from the oil and gas
industry. And it is notable too because it comes on the heels of the
defeat of Proposition 112,
which would have required that any new oil and natural gas development be
located at least 2,500 feet from any occupied structures or other “vulnerable”
areas. This last phrase might well explain the Proposition’s defeat,
since vulnerable areas were defined broadly to include such ubiquitous land
features as irrigation canals and intermittent streams. The Colorado Oil
and Gas Conservation Commission (COGCC or
Commission) estimated that 85% of the non-federal land subject to the law would
have been off-limits to development if Prop 112 had passed.
SB19-181 takes
a very different approach from Prop 112. In fact, it does not address setback
requirements at all – at least not directly. Rather, the new law focuses
primarily on three specific aspects of the oil and gas regulatory program —
administration, air pollution, and land use. The most notable
administrative change involves language that effectively overturns the Supreme
Court’s recent Martinez decision. In Martinez,
the Court addressed the statutory mandate that the COGCC foster oil and gas
development in a manner consistent with the protection of public health.
At issue was whether the language requires that public health take precedence
over development. The Court found that the statute promoted multiple policy
goals, and contemplated some adverse impacts because it required the
Commission’s rules to mitigate significant
adverse environmental impacts to protect public health while “taking
into consideration cost-effectiveness and technical feasibility.”
As amended, the statute now makes clear that the focus of the law is on public
health and environmental protection. Gone is any reference to fostering
development as well as the reference to cost-effectiveness and technological
feasibility.
Consistent with
this new direction, the statute changes the make-up of the Commission to reduce
the influence of the oil and gas industry. The new Commissioners will be
full-time state employees and, as of 2020, will consists of 5 voting members,
plus two ex-officio members, with only one voting member representing the oil
and gas industry. Other Commissioners must be experts in planning,
environmental protection, sound decision processes, and public health.
Currently, the Commission has nine voting members with three from the oil and
gas sector.
The new law
also requires the Air Quality Control Commission to promulgate new rules to
minimize air pollution, enhance inspections for leak detection and repair, and
requires large facilities to install continuous methane emissions monitors.
While Colorado already has relatively strict air emissions standards for oil
and gas facilities, air emissions from oil and gas facilities remain a
significant public health and environmental problem and these more stringent
requirements are a welcome and much needed addition to the regulatory program.
The most
creative aspect of the new law concerns land use and planning. SB19-181
recognizes that unconventional oil and gas development, which now dominates the
industry, presents an opportunity for smart planning that was impractical with
conventional development. Unlike conventional wells, the long horizontal wells
that characterize unconventional development afford developers and planners
substantial flexibility in siting well pads and other facilities to minimize
community impacts.
The land use
provisions of the law operate largely through the auspices of affected local
governments. The relevant provisions begin by clarifying the authority of local
governments to “regulat[e] the surface impacts of oil and gas operations … and
to protect and minimize adverse impacts to public health, safety, and welfare
and the environment.” The statute goes on to make clear that local governments
have broad planning authority and can regulate land use, well siting decisions,
infrastructure impacts, air and water quality and related impacts, and bonding
and insurance requirements. It further grants local governments the authority
to inspect and enforce its standards. These provisions appear to limit
the two recent decisions from the Colorado Supreme Court striking down the
fracking bans enacted by the Cities of Longmont and Fort
Collins on state preemption grounds. While the statute does
not specifically refer to fracking, and it does not appear to allow local
governments to ban oil and gas development outright, local governments are
granted the power to impose standards that are more stringent than state
standards, even if they might inhibit development.
The most
interesting planning provision in the new law requires the Commission to
promulgate rules that “adopt an alternative location analysis process and
specify criteria used to identify oil and gas locations and facilities proposed
to be located near populated areas….” The success or failure of the new law
could very well hinge on how well the Commission carries out this task. A big
problem with the current regulatory regime is its tendency to be reactive to
applications submitted by developers. But a well site that might seem best from
the perspective of a developer may be highly problematic for local
residents. Moreover, asking a local government or the COGCC to respond to
a specific application for a single well site or facility can obscure the
broader planning issues surrounding regional oil and gas development.
Typically, these issues are not about a single well, but rather about the
hundreds and even thousands of wells and support facilities that eventually
populate an area.
Advance
planning with an alternative location analysis has the potential to ensure safe
and efficient development at the best possible locations while minimizing
impacts to people and the environment. It will also facilitate an assessment of
cumulative impacts, and the new law directs the Commission to promulgate rules
that establish a process for evaluating and addressing these impacts.
Finally, it better accommodates adaptive management strategies that should be
built into every planning decision. Adaptive management recognizes that
decisions involving future events necessarily come with uncertainty. It
responds to that uncertainty by requiring monitoring of specific, measurable
performance standards and committing the affected parties to modifying the
approved activity as necessary to meet the standards.
Such advance
planning with an alternatives analysis as required by the statute will
necessarily involve consultations among local governments, the industry, and
the public to evaluate alternative well pad locations, rights-of-way corridors,
and locations for ancillary facilities. A thorough alternative analysis that
includes meaningful public engagement will likely take some time, and for that
reason strict rules demanding such an analysis may be resisted by the oil and
gas industry. But the ambitious goal of improving oil and gas regulation
in Colorado will not be met without a strong alternatives location analysis
rule.
Local siting
decisions will also be supported by the establishment of a Technical Review
Board. An operator seeking to locate or site an oil and gas facility must apply
to the relevant local government. Once the local government has made a
preliminary or final determination on that application the local government may
ask the COGCC Director to appoint a Technical Review Board. Alternatively, if
the local government does not act within 210 days after an application is filed
the operator may request a Technical Review Board. In either case, the Director
appoints a Board with appropriate expertise, including in land use planning and
oil and gas exploration and production. Although the statute is unclear,
presumably, the application process will be preceded by the comprehensive
alternative location analysis. Otherwise, that analysis would play no role in
the decision process. The Commission’s rules should nonetheless clarify this
point.
The Technical
Review Board’s primary function is to review the preliminary or final site
determination and to address disputes about siting between the operator and the
local government. These may include questions involving technological
feasibility and best practices, but the Board cannot consider economic
factors. The Board must issue its report within 60 days. Even assuming
the Board does not gather new evidence, this seems like an absurdly short
period of time to evaluate the evidence in the record, confer with the affected
parties, and issue a report. Such a short
timeline may encourage rote reports that fail to fully resolve disputes and
confront the site-specific issues that are the hallmark of smart planning for
oil and gas development. While the statute does not seem to impose
consequences for failing to meet the 60-day deadline, a decision that relies on
a late report could be vulnerable to a challenge on those grounds.
The above
described provisions reflect key changes to the law, but the law prescribes
other changes as well. Perhaps most importantly it requires the
Commission to adopt new rules to ensure that abandoned and inactive wells do
not pose risks to public health and safety. It also limits the Commission’s
authority to approve compulsory pooling orders to parties who own or control at
least 45% of the mineral interests to be pooled.
The oil and gas industry and its allies are predicting dire consequences to Colorado and its economy as a result of the bill’s passage. But, the industry should welcome legislation that avoids the overreach that characterized Prop 112 and they should embrace the challenge of designing oil and gas development to minimize their impact on communities. If they do, the public and the industry will both end up in a much better place and Colorado will burnish its reputation as a leader in the field of oil and gas regulation.