Springtime for Home Rule over Oil and Gas, 0719 COBJ, Vol. 48, No. 7 Pg. 36

Author:BY DANIEL E. KRAMER
Position:Vol. 48, 7 [Page 36]
 
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48 Colo.Law. 36

Springtime for Home Rule over Oil and Gas

No. Vol. 48, No. 7 [Page 36]

The Colorado Lawyer

July, 2019

TITLE GOVERNMENT COUNSEL

This article discusses Colorado SB 19-181, which makes sweeping changes to the regulation of oil and gas extraction operations.

BY DANIEL E. KRAMER

On April 3, 2019, the Colorado General Assembly passed SB 19-181, Protect Public Welfare Oil and Gas Operations (the Act), which makes sweeping revisions to several statutes governing oil and gas extraction operations. The Governor signed the bill into law on April 16, making the Act effective on that date. The changes encompass state agency rulemaking, the process for allowing oil and gas to be exploited without the consent of the mineral rights holder, financial guarantees to ensure the cleanup and reclamation of wells, and the essential mission of the Colorado Oil and Gas Conservation Commission (the Commission). But arguably the most pivotal change was the legislature's placement of the regulation of the surface impacts of oil and gas exploration firmly in the control of local communities, as coequals with the state.

This shift to local control abrogated the Colorado Supreme Court precedent that, in the event of a conflict between state and local laws on oil and gas, the state law prevails and the local law subsides.1 Now, the state statute itself makes state laws the floor, not the ceiling, for local regulation. The General Assembly has effectively reinstituted a sort of legislative home rule over the subject, bucking the national trend of state legislatures favoring intrastate preemption on oil and gas regulation issues and reversing a decades-long process of eroding local control.

The Court's recent elaborations of Colorado intrastate preemption doctrine may well still hold for other matters,2 but not for oil and gas.

SB 19-181: Changes in Local Control

In its 2016 decision overturning the City of Longmont's ban on hydraulic fracturing, the Colorado Supreme Court set forth its test for whether a local oil and gas regulation would pass scrutiny under the existing statutory scheme. Boiled down, the question was whether the local law conflicted with the state law, which, in practical terms, meant whether the local law would materially impede the state's interest in oil and gas production.3The Court extended its previous tests to find preemption where it determined that the local restriction upset "exhaustive" and "pervasive" state regulations that implied a state interest in uniform regulation of the subject.[4]

Eliminating Preemption

By passing SB 19-181, the legislature has abrogated those holdings. The Act created new CRS§ 34-60-131:

34-60-131. No land use preemption. Local governments ... have regulatory authority over oil and gas development, including as specified in section 34-60-105(l)(b).Alocal government's regulations maybe more protective or stricter than state requirements.5

Now, the statute itself helps define what constitutes a conflict between the state act and local regulations. There is no question that local governments may properly regulate oil and gas. While local ordinances cannot reduce the minimum state standards for protecting health, safety, welfare, and the environment, they now can clearly regulate above and beyond state regulations. This is true regardless of those state regulations' complexity or thoroughness. The heightened local standards will be in harmony with the Act itself and cannot be considered to conflict with it.6As preemption is largely a matter of statutory interpretation[7]—putting the state and local laws side by side to determine whether they can coexist8 —heightened local standards for oil and gas regulation will no longer be preempted by the state law.

Express Local Powers

The bill grants a long list of regulatory powers over oil and gas to local governments, some preexisting and some new:

I. Land use;

II. The location and siting of oil and gas facilities and oil and gas locations ...;

III. Impacts to public facilities and services;

IV. Water quality and source, noise, vibration, odor, light, dust, air emissions and air quality, land disturbance, reclamation procedures, cultural resources, emergency preparedness and coordination with first responders, security, and traffic and transportation impacts;

V. Financial securities, indemnification, and insurance as appropriate to ensure compliance with the regulations of the local government; and

VI. All other nuisance-type effects of oil and gas development.9

Land use controls over oil and gas facilities are an example of a power that previously was within the authority of local government, so long as the controls did not conflict with state statute.10 On the other hand, controls over local financial securities and noise, for example, had been held to be preempted.11 Siting of facilities, meanwhile, had been a perennial source of contention without much guidance from the courts. And the phrase "nuisance-type effects" in subparagraph VI is potentially so broad that it is hard to say yet just how much it expands existing powers.12

In addition to these enumerated powers, the bill contains a catch-all provision: Local governments may also regulate to "protect and minimize adverse impacts to public health, safety, and welfare and the environment," although this can only be done "to the extent necessary and reasonable."13

In fact, both the catch-all minimization of adverse impacts and the list of enumerated powers are limited in two other ways: the statutory authorization extends only to the regulation of "surface impacts," rather than pure underground engineering, and the regulations may only be exercised "in a reasonable manner."14

Defining "Necessary" and "Reasonable"

The words "necessary" and "reasonable" are not defined and leave much to interpretation. While "necessary" applies only to the catch-all minimization of adverse impacts, the full list is subject to the "reasonable manner" limitation. Where the application of the statute to a particular local regulation maybe ambiguous, the courts may consider the words of a Senate sponsor of the legislation before the final legislative vote on the bill:15

[A] question has repeatedly come up about the, quote, "necessary and reasonable" standard language that we added in the Senate. There have been several requests to further define it, but unfortunately that's proved to be difficult. I will say, though, that it's the sponsors' intent to have that phrase interpreted together, and in the context of, the bill as a whole, which is (1) a clear desire to prioritize health and safety when it comes to oil and gas operations, permitting, and supervision, without consideration of profitability from the state regulatory authority, the COGCC, and (2) an ability for local governments to do the same, and be more protective than the state if they choose. "Necessary and reasonable" is not intended to mean regulatory authorities can only make a land use decision or enact a regulation once all other options are exhausted. Instead, it is meant to be a guardrail against a regulatory or land use decision without reasonable justification. State and local governments should not be able to impose requirements, limitations, or decisions that defy explanation. However, they should be entitled to deference and allowed to use the precautionary principle to determine if a regulation or a land use decision is necessary and reasonable. Each locality's application of "necessary and reasonable" maybe different depending on its circumstances, and should be examined on a case-by-case basis.16

How strict a local regulation can be while remaining "reasonable" will ultimately be decided by the courts. SB 19-181 did not finally settle the bounds of local authority, and litigation will continue to define the rules of engagement. But SB 19-181 dramatically changed the location of the battlefield, propelling local jurisdictions into a much stronger position. Rather than argue over whether it is interfering with the state's manner of regulation—which the state has the inherent advantage of defining—the local government now need only show that its method of regulation is reasonable.

Since local land use decisions already cannot be arbitrary and capricious,17 "reasonable" may not prove to be a very high bar. A local government could demonstrate reasonableness dirough rough proportionality,[18]by more or less matching the strictness of the regulation to the severity of the oil and gas operation's potential surface impact. Reasonableness might also be demonstrated by the industry's ability to comply with similar regulations elsewhere, or the general application of similar regulations to other heavy industry...

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