Oil and gas (O&G) production in Colorado is growing largely through development of wells using hydraulic fracturing (pumping millions of gallons of water, sand and chemicals under high pressure) coupled with horizontal drilling at distances extending one to three miles from the wells. (The entire process in now commonly referred to as “fracking.”)
The search for the most productive areas increasingly involves proposals to locate multiple well pads in urban, suburban and exurban areas exposing communities to industrial-scale operations and related environmental, public health and safety, economic, and social impacts.
In response, various impacted parties have urged the Colorado Oil and Gas Conservation Commission (the Commission) to expand and/or strengthen its environmental, safety, siting, and public participation rules applicable to O&G projects; and many local governments have sought to ban or otherwise regulate fracking through home rule and/or land use/zoning authority.
The Colorado Oil and Gas Conservation Act (the Act) established the Commission to regulate O&G operations “so as to prevent and mitigate significant adverse environmental impact on the air, water, soil, or biological resources resulting from oil and gas operations to the extent necessary to protect public health, safety, and welfare, including protection of the environment and wildlife resources, taking into consideration cost effectiveness and technical feasibility.” It also directs the Commission to promulgate rules “in consultation with the department of public health and environment [DPHE]…, to protect the health, safety and welfare of the general public in the conduct of O&G operations.”
The Act further states that it is in the public interest “to foster the responsible, balanced development, production and utilization of… oil and gas… in a manner consistent with the protection of public health, safety and welfare, including protection of the environment and wildlife resources….”
The current Commission interprets the Act to mean it is required to balance a number of competing policies with protection of the environment, public health, and safety. The Commission’s “balancing test” has come under increasing scrutiny as environmental and safety issues have increased. The effects of climate change, explosions and leaks caused by pipelines, and a variety of community impacts associated with industrial-scale fracking have grown in number and intensity. In January, the Colorado Supreme Court agreed to review whether the balancing test satisfies the requirement to protect public health, safety and the environment in Colorado Oil and Gas Conservation Commission, American Petroleum Institute, and Colorado Petroleum Association v. Xiuhtezcatl Martinez, et al, 17SC297 (the Martinez Case).
The Martinez Case
In November 2013, a group of concerned citizens requested that the Commission adopt a rule to suspend issuance of permits for O&G projects until it determined, based on the best available science and independent third-party confirmation, that drilling can be done without impairing Colorado’s atmosphere, water, wildlife and land resources, adversely impacting human health, and contributing to climate change.
After holding a hearing and receiving an opinion from the Attorney General (AG) that found the proposed rule was beyond the Commission’s “limited statutory authority,” the Commission denied the request. A key reason was its conclusion that the proposed rule would require the Commission to “readjust the balance crafted by the General Assembly” under the Act. The Commission cited the AG’s opinion as “the primary basis of the Commission’s denial.”
Petitioners appealed and in February 2016, the Colorado District Court (Denver) affirmed the Commission’s denial. In March 2017, the Colorado Court of Appeals, in a two to one decision, held that the Commission erred in construing the Act to require a balancing test and reversed the District Court’s decision.
The Appellate Court did not address the merits of the proposed rule and remanded the matter for further proceedings consistent with its opinion.
The majority acknowledged the Act’s intent to foster “balanced development, but held that the statutory language, “ ‘in a manner consistent with’ does not indicate a balancing test but rather a condition that must be fulfilled.” Additionally, the majority found that the Commission’s obligation to prevent and mitigate significant adverse environmental impacts “to the extent necessary” to protect the public “evidences a similar intent to elevate the importance of public health, safety and welfare above a mere balancing….”
In May 2017, six of the seven Commission members voted to appeal the Appellate Courts ruling to obtain clarity. The Governor opposed an appeal, claiming the ruling was not a significant departure from current practice. The AG disagreed and sought review by the Supreme Court, arguing that the Appellate Court adopted a novel view of the Act by rejecting the Commission’s balancing test in favor of mandating that development be regulated subject to protection of the environment, public health, and safety.
The AG’s issue for review by the Supreme Court was stated as follows: “When the Commission engages in rule-making, is it permitted to disregard the Act’s policy of fostering O&G development in Colorado?” However, in granting review the Supreme Court reframed the issue asking whether the Appellate Court erred in determining that the Commission misinterpreted the Act as requiring a balance between O&G development and public health, safety, and welfare.
Based on the plain language of the Act, its legislative history, and established principles of statutory construction, the Appellate Court’s decision appears sound. For example, the word “balanced” appears once in the legislative declaration and only modifies development, production and utilization of O&G. Balanced O&G activities are declared to be in the public interest only if they proceed in a manner consistent with protection of public health, safety and welfare, and the environment. Treating such protection as one of many policies to be weighed, as opposed to a mandate applicable to O&G operations is unwarranted. Moreover, the AG’s opinion relied on by the Commission to support a balancing test is conclusory at best and circular at worst, including citing the Commission’s use of the balancing test in a 2008 rulemaking to implement 2007 amendments to the Act for support of the balancing test in the Martinez Case.
In any event, no matter how the legislative declaration is interpreted, the Act’s substantive provisions, set forth above, establish a clear mandate for the Commission, in some cases in consultation with the Colorado Department of Public Health and Environment (CDPHE), to develop environmental, public health, safety, and welfare protections for O&G operations without reference to fostering development or any other competing policies.
This mandate authorizes the Commission—as the expert agency regarding O&G operations—to supplement and expand the array of requirements to protect the environment, and public health, safety, and welfare applied to the O&G industry by other responsible federal and state agencies. It would be unreasonable at best to conclude that, having granted such powers to the Commission, the legislature intended the Commission to weaken or even avoid adopting such measures that it deems necessary to “foster” development. It would also fly in the face of established environmental protection, public health and safety policy and practice.
Claiming, as Judge Booras does in her dissenting opinion, that the direction to the Commission in one substantive provision to consider cost effectiveness and technical feasibility supports a general balancing test is unpersuasive. Cost effectiveness and technical feasibility are required considerations only to the extent they relate to assessing proposed environmental protection measures and do not encompass the broad economic implications and “many other factors” (largely unspecified) that the Commission claims it must consider. Also, as the Appellate Court noted, the statutory direction for the Commission to prevent and mitigate environmental impacts “to the extent necessary” to protect the public and environment belies any intent to mandate a regulatory balancing test.
The AG and the Appellate Court minority opinion argue that the Supreme Court’s 2016 decisions determining that local fracking bans and moratoria were preempted by state law support the view that the statewide interest in developing O&G resources trump or at least must be balanced against any environmental, public health and safety concerns. This claim is baseless. The issue in those cases was the extent to which local governments can regulate adverse impacts of O&G projects. The court did not address the nature and extent of the Commission’s authority to promulgate regulations, including whether it is required to balance protections with fostering development.
Whatever the Supreme Court holds in the Martinez case, its decision may be significantly affected by the results of the November 2018 elections for Governor, AG, and state legislature, each of which has a variety of opportunities to impact actions by the Commission. Earlier this year, for example, a bill to codify the Appellate Court decision passed by the House of Representatives died in the State Senate.
Robert Hallman is a GWC Senior Fellow, and a Fellow at the Center on Global Energy Policy at Columbia University. The author includes his thanks to GWC Student Fellow – Griffin Hay – for his research assistance.