The much-contested legislation to revamp regulation of oil and gas drilling in Colorado is nearing Gov. Jared Polis’ desk after a number of significant changes designed to address industry concerns.
The new parts of Senate Bill 181 are intended to put guardrails on the additional authoriity given to state and local governments in order to prevent unwarranted setbacks, delays or de facto bans.
The latest version also recreates the state’s oil and gas commission with new standards to make it a full-time board appointed by the governor.
And a third major shift adjusts the original language on forced-pooling standards so that one company would not gain near-monopoly control on Front Range oil and gas development.
The bill’s sponsors said the changes came at the behest of the industry, which spent big money to air a TV commercial against the legislation and to hire high-powered Democratic lobbyists to push for changes.
Still, the core of the bill — which represents a monumental shift in regulatory authority — remains intact. Under the measure, the primary focus for regulators would become health and safety rather than a mission to “foster” oil and gas development. And local governments, whose regulations are currently preempted by the state, would gain the power to regulate the location and impacts of drilling.
“I know it’s been a struggle, but I think these changes are important, necessary and reasonable,” said House Speaker KC Becker, the bill’s sponsor, as it won approval in the chamber Friday.
The debate returns to the state Senate this week to approve the House amendments. The Senate bill sponsor said he expects to concur and move the bill to the governor, who has expressed support.
“None of those are make-or-break things,” Sen. Steve Fenberg, the Senate Democratic leader, said about the House amendments. “I think the bill overall is still strong, robust and pretty much accomplishes what we set out to do.”
Even though the legislation became more industry-friendly, oil and gas advocates are taking a cautious approach. “Some of the amendments begin to address some of industry’s concerns, but we will see what happens in the Senate,” said Ben Marter, a spokesman for the Colorado affiliate of the American Petroleum Institute.
Not all environmental advocates are cheering, either. Anne Lee Foster, a spokeswoman for Colorado Rising, an organization opposed to drilling near communities, called the legislation “a step in the right direction,” but said she is concerned about a series of “loopholes” for the industry.
“This has the potential to balance the scales of power,” she said, “but there is still a lot of work to be done and a lot of stuff that we are just going to have to see how it plays out.”
The first big change: A new “reasonable” standard
From the start, the legislation encountered major questions as the massive scope of the measure, drafted in private, came into view.
The bill puts local governments in the driver’s seat to determine the location of oil and gas drilling operations and conduct oversight to protect public health, safety and welfare, as well as the environment, if they want. The original version allowed rules for zoning, odors or noise that could lead to effective bans or moratoriums on energy development.
The newest edition of the legislation keeps the power concentrated at the local level but imposes limits. Any regulations imposed by a local government would need to be done in “a reasonable manner” and meet a “necessary and reasonable” standard — language requested by the industry.
The vague criteria are expected to get better defined in legal challenges, but the bill’s sponsors said it is intended to prevent outright bans on oil and gas development.
“I don’t think any local government … wants to do anything that is not reasonable that is not necessary, and if someone does, they’ll get taken to court,” Fenberg said. “And that’s how these issues get currently resolved.”
A related change also clarifies that regulations only extend to the local jurisdiction’s boundaries, preventing counties and municipalities from becoming involved in disputes across their borders.
The Senate put a similar restraint on the state’s authority, saying it couldn’t act in an “arbitrary or capricious manner.” But the House tweaked it to say that the oil and gas commission must regulate operations in “a reasonable manner” — a higher bar for the state to meet.
The wording is far more than semantics because the legislation orders the state to develop a litany of new regulations on development regarding the monitoring of pollutants and emissions, the financial liability for a company once wells are tapped and much more. The commission has the power to “delay” the final decision on permits as it develops the rules, which is expected to impact the current backlog of applications.
Foster, who represents Colorado Rising, is particularly concerned by this language. “The problem that we see is ‘reasonable’ is not a well defined legal term,” she said. “It raises the level of scrutiny, which just makes it much more difficult to put regulations in place.”
MORE: How would new regulations impact the oil and gas industry in Colorado? Here’s what we know.
The second big change: A new oil and gas commission
The original legislation reduced the industry’s representation on the Colorado Oil and Gas Conservation Commission, known as the COGCC, to one spot instead of the current three but kept it at nine members.
An amendment in the House went a step further to “professionalize” the commission by making it full-time board. The change came at the request of the industry, who wanted the panel to demonstrate a greater level of expertise when considering permits.
Under the new language, the commission would move to seven members, all appointed by the governor with consent by the state Senate. The directors of the state agencies for natural resources and public health and environment serve as non-voting members and the other five members must meet certain criteria, such as expertise on a land use, environmental protection and public health.
The legislation states that commissioners are not allowed to have conflicts of interest with oil and gas development but provides an exemption for those whose experience shows they can make balanced decisions.
The third big change: A new threshold for forced pooling
A little-known consequence in the introduced legislation created a new threshold for when oil and gas operators combine mineral rights for drilling — even if some property owners object — under a practice known as forced pooling.
As it stands now, a company needs consent from only one property owner. The original bill would have required that a company obtain leases from more than 50 percent of the mineral interests.
But the threshold essentially gave a monopoly to Anadarko Petroleum, the state’s largest driller and owner of 400,000 acres of land and mineral rights on the Front Range. To address the concern, first reported by The Sun, House lawmakers approved a measure to make the threshold 45 percent.
If a mineral right owner cannot be located, it’s not included in the calculation, which concerns some environmentalists who consider this a major caveat to the industry’s benefit.
GOP didn’t get the one change it wanted
A handful of other last-minute changes to the bill strengthened language involving air quality control measures, making clear it extends to all facets of the drilling process, and tweaked the review process when local decisions are challenged by the industry.
In particular, when a technical review panel is requested by local governments, the House limited the scope of the review to exclude economic effects, which is a concern for the industry when permits are denied.
Republican lawmakers wanted to add a petition clause to the bill to allow a process by which voters could repeal the law, and won support from six Democratic lawmakers, but the amendment still failed.
House GOP leader Patrick Neville called the legislation “awful” at a party meeting Saturday, but he said the party’s opposition led to important changes that would mitigate the economic impact on the industry.
“We did some decent amendments and we were able to save some jobs,” he said.
Correspondent Mark Jaffe contributed to this report.
Updated 12 p.m. April 2, 2019: An earlier version of this story incorrectly how the original legislation would change the Colorado Oil and Gas Conservation Commission. The original legislation kept the commission at nine members. The House amendments changed it to seven with five voting members.