CHAPTER 3 LOCAL GOVERNMENT REGULATION AND LOCAL GOVERNMENT AGREEMENTS

• Jurisdiction: United States

Oil and Gas Agreements: Surface Use in the 21st Century (May 2017)
CHAPTER 3
LOCAL GOVERNMENT REGULATION AND LOCAL GOVERNMENT AGREEMENTS
John T. Sullivan
Sullivan Green Seavy LLC
Boulder, CO

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JOHN T. SULLIVAN is a founding partner of the law firm of Sullivan Green Seavy LLC, where his practice focuses on representing government agencies, individuals, and local and national corporations in litigation involving land use, environmental, real estate, business, commercial, and bankruptcy law. Mr. Sullivan earned his law degree from the University of Colorado, and holds a BA from Colorado College. He was admitted to the Colorado Bar in 1987 and is licensed to practice in all state and federal courts in Colorado and the United States Court of Claims. Mr. Sullivan presented a CLE seminar to the Colorado County Attorney's on local government authority to regulate oil and gas activities in 2012, provided testimony to the Governor's Task Force on Oil and Gas at its meeting in Durango on October 9, 2014, and, more recently, represented Fort Collins in City of Fort Collins v. Colorado Oil and Gas Association, 369 P.3d 586 (Colo. 2016). In his community, Mr. Sullivan has served on the Board of Directors for the CU Alumni Association, the Boulder Rotary Club, the Boulder History Museum, and the Boulder Swim Team.

ABSTRACT

Local governments have been pulled into the national debate over hydraulic fracturing and horizontal drilling, often as reluctant actors on a national stage. Proposed state constitutional amendments and local ballot measures, in Colorado and elsewhere, call for more local control over oil and gas development, while states and industry groups go to court to curtail or preempt the exercise of local government powers over this land use. Although local governments have used traditional land use powers to regulate extractive industries for nearly a century without much comment, the terms "local control" on the one hand, and "preemption" on the other, have become commonplace. Focusing primarily on the state of Colorado, this paper will briefly discuss local government land use powers over extractive industries, and describe how a local government can exercise its land use authority in this area using regulations and operator agreements. The author gratefully acknowledges the advice and contributions of Barbara J. B. Green.

INTRODUCTION

Courts have recognized local governments' power to regulate the use of land at least since the United States Supreme Court approved a municipal zoning ordinance in Village of Euclid v. Ambler Realty Co.¹ The public has grown to expect and invest in the relatively stable land use fabric afforded by zoning and other land use regulations. People are accustomed to having the opportunity to participate in public hearings and stakeholder discussions for projects perceived to be either compatible with or contrary to those expectations and investments. Because individual land use changes have impacts that extend beyond the location of the proposed development, many local regulations also afford citizens the right to appeal final land use decisions. Developers and investors also

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have become familiar with local government regulatory structures that lead to entitlements, and make investment decisions based on an understanding of how those structures work. Local officials are elected to office with the expectation that they can respond to constituents' concerns as they decide individual land use applications, develop master planning efforts, and/or revise land use regulations.

Because local land use decision making is designed to reflect local values, elected officials have become skilled, or perhaps, resigned to, the challenge of balancing a wide range of interests. Almost every community has voices championing often competing values and policies such as affordable housing, strict architectural and design guidelines, pro-growth boosterism, and environmental protection. When local governments regulate extractive industries, the voices get louder and the extent of local regulatory responses becomes less uncertain.

Extractive industries are tied to the location of minerals, and they are also subject to state regulations that were designed to promote use of the minerals. The degree to which localities can regulate extractive industries depends upon (i) the scope of general powers granted to municipalities and counties by individual state constitutions and statutes; (ii) limitations on local regulation of extractive industries contained in state laws regulating those industries; and (iii) judicial interpretations of conflicts between state and local powers. Nevertheless, local regulation of gravel, mining, and oil and gas has been common since the 1920s.²

Local governments' interest in regulating extraction activities is not limited to private lands. The United States Supreme Court's ruling in California Coastal Commission v. Granite Rock³ has been applied to extraction activities on federal lands, a critical issue in western states where county boundaries take in huge swaths of federal land. In Granite Rock, the court ruled that none of the federal mining and land management laws expressly preempts the California Coastal Commission's application of permit requirements to mining on federal lands.⁴ State courts have applied Granite Rock to uphold county and state environmental regulation of oil and gas and mining operations on federal lands.⁵

As hydraulic fracturing and horizontal drilling have moved into suburban and urban areas, and/or new housing developments are being constructed next to oil and gas drilling

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areas, the public has become more alarmed over potential impacts of extractive industries to health and property values. When citizens become frustrated about their ability to influence land use changes that affect their quality of life, they sometimes turn to the ballot box and "direct democracy."⁶ These efforts range from initiatives to impose more stringent laws in individual communities, to state-wide ballot questions seeking to amend state constitutions.

For example, in 2013, the cities of Longmont, Fort Collins, and Broomfield, Colorado enacted citizen-initiated ordinances that either banned or imposed moratoria on hydraulic fracturing within their city limits. As a result, the cities were sued, and forced to defend legislation that they, most likely, would not have enacted on their own.⁷ In August 2016, efforts to amend the Colorado Constitution to give local governments more authority over oil and gas development, and to impose mandatory state-wide setbacks on oil and gas operations failed to obtain sufficient signatures to place the questions on the ballot.⁸ And in Colorado's 2017 legislative session, several lawmakers introduced a bill to require a mandatory 1000 foot setback from school property boundaries, as opposed to school buildings, which is how the distance is measured under COGCC regulations.⁹

At the same time, legal challenges to local government regulatory authority brought by states and industry groups have discouraged some local governments from regulating localized impacts of extractive industries.¹⁰ States including Colorado, North Carolina, Oklahoma, and Texas have outlawed local fracking bans based on the assumption that the bans are an overreach of city power and that they damage an industry important to the states' bottom line.¹¹ Yet, in a statement released at the 2016 Conference of Mayors, 33 mayors from 14 states responded with a demand for more control over fracking within their jurisdictions.¹²

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COLORADO'S LEGAL FRAMEWORK FOR REGULATING OIL AND GAS DEVELOPMENT

In 1992, the Colorado Supreme Court addressed the interplay between the regulations of a local government and the state for the first time in a pair of cases.¹³ In Voss and Bowen/Edwards, the Court recognized that both the Colorado Oil and Gas Conservation Commission (COGCC) and the local government have the power to regulate oil and gas development. The COGCC's powers derive from the Colorado Oil and Gas Conservation Act ("Act").¹⁴ The stated purposes of the Act include: (1) fostering, encouraging, and promoting the development, production, and utilization of the natural resources of oil and gas in the state; (2) protecting public and private interests against the evils of waste; (3) safeguarding and enforcing the coequal and correlative rights of owners and producers in a common source or pool of oil and gas so that each may obtain a just and reasonable share of production therefrom; and (4) permitting each oil and gas pool to produce up to its maximum efficient rate of production subject to the prohibition of waste and subject further to the enforcement of the coequal and correlative rights of common-source owners and producers to a just and equitable share of profits.¹⁵ To achieve these purposes, the Act empowers the COGCC to "promulgate rules and regulations to protect the health, safety, and welfare of the general public in the drilling, completion, and operation of oil and gas wells and production facilities."¹⁶ However, Voss and Bowen/Edwards also ruled that by granting such powers to the COGCC, the Colorado legislature did not preempt local governments (expressly or impliedly) from regulating oil and gas development activity.

Under Article XX, Section 6 of the Colorado Constitution, home rule cities have the power to control matters of local concern, including land uses within their borders. In the Land Use Control and Enabling Act of 1974,¹⁷ the Colorado legislature expressly granted local governments (which include counties, towns and home rule cities) broad authority to "plan for and regulate the use of land within their respective jurisdictions."¹⁸ This statute gives local governments many land use powers including: (1) the power to regulate development and activities in hazardous areas, (2) the...