REGULATORY TUG-O-WAR: LOCAL GOVERNMENTS' EFFORTS TO REGULATE OIL AND GAS DEVELOPMENT UNDER STATE REGULATORY SCHEMES

• Jurisdiction: United States

Air Quality Issues Affecting Oil, Gas, and Mining Development in the West
(Feb 2013)
CHAPTER 6B
REGULATORY TUG-O-WAR: LOCAL GOVERNMENTS' EFFORTS TO REGULATE OIL AND GAS DEVELOPMENT UNDER STATE REGULATORY SCHEMES
Kenneth A. Wonstolen
Senior Counsel
Gregory J. Nibert, Jr.
Associate Attorney
Beatty & Wozniak, P.C.
Denver, Colorado

KENNETH A. WONSTOLEN is Senior Counsel at the energy law firm Beatty & Wozniak PC. Ken has more than 30 years of experience in energy policy and law, emphasizing oil and gas. He served in executive and counsel roles for IPAMS and COGA, oil and gas trade associations, and spent several years as a corporate counsel responsible for public affairs, environmental compliance, permitting, landowner relations and business development. He has a wide range of transactional experience, and also represents his clients before administrative panels and the courts. Ken has testified on numerous occasions before the Colorado General Assembly and the U.S. Congress. In 2008, the Denver Business Journal named Ken one of the top ten energy leaders in Colorado, and in 2012 he was named as a "Best Lawyer in America."

GREGORY J. NIBERT, JR. is an associate in the Denver office of Beatty & Wozniak P.C. He graduated from the University of New Mexico in 2008 with a B.A. in political science and from Valparaiso University in 2012 with a J.D. While in law school, he served on the Executive Board of the Moot Court Honor Society for 2011-12. Prior to law school, Greg served as a Page for the United States House of Representatives and interned for Congressman Steve Pearce, New Mexico Second Congressional District, in Washington, D.C. Since joining Beatty & Wozniak, he has been primarily engaged in oil and gas permitting and regulatory issues. He has recently been involved in the attempted promulgation and implementation of local land use regulations by Boulder County.

I. Introduction

Oil and natural gas development is in the forefront of national debate, with air quality concerns driving much of the current controversy. Alleged air quality impacts to public health were cited by "citizen and environmental" groups in the "setback" rulemaking conducted by the Colorado Oil and Gas Conservation Commission in 2012, and still underway as of the submission of this paper. Increased drilling in the Rocky Mountain region and nationwide in tight shale formations, especially horizontal drilling utilizing "high-volume," multiple "stage" hydraulic fracturing treatments, has led to increased public scrutiny. With documentaries and movies such as "Gasland" and "Promised Land," oil and gas development, now generically included under the term "tracking," has been thrown into the limelight and court of public opinion.

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This increased scrutiny driven by the public has ignited a nationwide trend of local governments¹ attempting to regulate, limit or ban development, at the same time that the industry faces increasing regulatory oversight at the federal and state level. In some western states, city and county governments are enacting moratoriums and promulgating regulations attempting to control or ban oil and gas operations. These local efforts are founded on community concerns about the environmental protection, air and water quality degradation, and classic "not-in-my-backyard" attitudes. However, local regulation of oil and gas development is not a new phenomenon.² This paper outlines state regulatory schemes controlling oil and gas production, recent efforts by local governments to impose their own regulations to limit or ban oil and gas development and state challenges to those local regulations and the role preemption plays in the local governments' attempts to regulate oil and gas development.

II. General State Regulatory Schemes and the interplay with Local Government Regulation

Regulation of oil and gas activity is shared, to some extent, between the federal, state and local governments. The impacts of oil and gas development are themselves complex, extending well beyond the traditional issues with which local governments are familiar and to which existing land use regulations are geared. Conventional surface development zoning and planning options (e.g., residential, commercial, industrial), which allow for location flexibility or alternative uses generally are unworkable for oil and gas development.

Generally, a state's authority to regulate oil and gas development is granted by broad legislative declarations set forth in each individual state's Oil and Gas Conservation Act.³

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Virtually all western hydrocarbon producing states have established oil and gas conservation commissions and have delegated broad powers and authority to such commissions to regulate most if not all phases of oil and gas drilling, development, well-siting, production, transportation to market, and site reclamation.⁴ Traditionally, the broad grants of regulatory authority to commissions were limited to the matters of protection of correlative rights and prevention of waste.

Many western states have now expanded the jurisdiction of their state commissions to also include specific health, safety, welfare, and environmental concerns, including more demanding requirements for chemical disclosures, groundwater and air quality protection, and reporting.⁵ To fulfill their statutory mandates, the state commissions are generally granted jurisdiction over all persons and property, public and private, necessary to enforce the provisions of the oil and gas act, including power and authority to make and enforce rules, regulations and orders.⁶

Local governments (counties and statutory municipalities), on the other hand, only possess those powers that are expressly delegated to them by the state via their general assembly or state legislature. Historically, state governments have been called on to provide nothing more than a suitable framework of planning.⁷ A county "is a political subdivision of the state existing only for the convenient administration of the state government, created to carry out the will of the state."⁸ Statutory municipalities and counties possess only those powers that are expressly or

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impliedly conferred by statute or constitutional provision. Statutory municipalities and counties have "the power to enact ordinances not inconsistent with state law that are necessary and proper to provide for the health, safety, prosperity, order, comfort, and convenience" of their citizens. This includes the broad authority to regulate land use planning and control.⁹ The authority local governments hold in regulating and planning for the use of land impacts the oil and gas development within their respective jurisdictions.¹⁰

However, in some western states such as Colorado both municipalities and counties also can elect to exercise home rule, which provides them greater governing authority than that of statutory municipalities and counties.¹¹ Home rule municipalities possess every power possessed by the state legislature, limited however to local and municipal matters. Home rule cities are often recognized in state constitutions. States generally permit municipalities that are home rule to adopt charters governing all local or municipal matters or affairs. They are granted every power possessed by the general assembly as to local and municipal matters, which universally include the regulation of land use within a city. Home rule cities therefore are in a unique position whereby a city charter may supercede a conflicting state law unless the state law: (1) addresses a matter of statewide concern, (2) is reasonably related to the resolution of that concern, and (3) is narrowly tailored to limit incursion into legitimate municipal interests.¹²

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III. Colorado Preemption Framework

With the apparent overlap of land use authority in Colorado, tension between state and local governments over oil and gas regulation has, in some cases, forced the courts to address the proper division of land use authority. Colorado, unlike other western states, has seen numerous local bans,¹³ moratoriums,¹⁴ and new regulations concerning oil and gas development. While not every attempt to regulate or restrict oil and gas development has resulted in litigation, the common issue in all matters was whether the local government's regulation or restriction was preempted by state statute or Colorado Oil and Gas Conservation Commission ("COGCC") rule.

A. General Preemption

"The purpose of the preemption doctrine is to establish a priority between potentially conflicting laws enacted by various levels of government."¹⁵ Thus, a local ordinance may be invalid if it conflicts with or is preempted by state law. There are three basic ways a state statute can preempt a local government's regulation:

(1) Express preemption, where the express language of a state statute clearly and unequivocally indicates its intent to preempt local ordinances.

(2) Implied preemption, where a state statute implies legislative intent to completely occupy a given field, as measured by the statutory language and the purpose and scope of the legislative scheme.

(3) Operational preemption, where the operational effect of a local ordinance conflicts with the application of the state statute and materially impedes or destroys the state interest.¹⁶

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Typically, local governments are not totally preempted by State oil and gas agencies.¹⁷ In Colorado, some degree of local control over oil and gas operations is available. The permissible extent of that control, however, is unclear.¹⁸

To determine whether a local regulation is preempted by state law in the area of oil and gas drilling, courts examine the nature of the local entity - i.e., statutory county or municipality¹⁹ versus home-rule county or municipality²⁰ - and the nature of authority granted to that entity; the nature of the delegation of power to the relevant state...