May 2, 2016
On Monday, May 2, 2016, the Colorado Supreme Court issued decisions in two cases involving local bans on hydraulic fracturing or fracking in City of Longmont v. Colorado Oil and Gas Association, 2016 CO 29, ___ P.3d ___ (Longmont) and City of Fort Collins v. Colorado Oil and Gas Association, 2016 CO 28, ___ P.3d ___ (Fort Collins). In both cases, the court unanimously held that the bans were pre-empted by the state's pervasive regulation of this activity. In doing so, the court re-affirmed the validity of its preemption analysis in Bd. of Cty. Comm'rs v. Bowen/Edwards Assocs., Inc., 830 P.2d 1045 (Colo. 1992) and Voss v. Lundvall Bros., Inc., 830 P.2d 1061 (Colo. 1992) with certain clarifications, confirmed that local governments cannot prohibit hydraulic fracturing for any appreciable period of time and suggested that these issues should usually be decided through summary judgment.
An Affirmation of Prior Case Law
The two seminal Colorado cases addressing conflicts between state and local requirements for oil and gas development are the companion cases, Bowen/Edwards and Voss. The Supreme Court's rulings in Longmont and Fort Collins further cement the legal foundation of the Bowen/Edwards and Voss cases.
In Bowen/Edwards, the Colorado Supreme Court ruled that the Oil and Gas Conservation Act does not preempt all local land use regulation of oil and gas development, but may operationally preempt certain requirements. 830 P.2d at 1056-59. Such operational preemption occurs when a local regulation materially impedes or destroys the state interest. Id. at 1059. The court suggested that this determination should be made after trial-type proceedings, that is, "on an ad-hoc basis under a fully developed evidentiary record." Id. at 1060. However, the court also suggested that operational conflicts would arise if the local government imposed technical conditions on the drilling or pumping of wells contrary to those required by the state. See id.
In Voss, the court ruled that a total ban on drilling was impermissible because it would conflict with the state's interest under the Conservation Act in the efficient production and development of oil and gas resources. 830 P.2d at 1066-68. But the court also recognized that local regulation is permissible "if such regulations do not frustrate and can be harmonized with the development and production of oil and gas in a manner consistent with the stated goals" of the Conservation Act. Id. at 1068.
Two subsequent decisions by the Colorado Court of Appeals further define the parameters of preemption in this context, Town of Frederick v. N. Am. Res. Co., 60 P.3d 758 (Colo. Ct. App. 2002) and Bd. of Cty. Comm'rs v. BDS Int., LLC, 159 P.3d 773 (Colo. Ct. App. 2006).
In Town of Frederick, the court ruled that local requirements regarding well setbacks, noise abatement, visual impact, and penalties were preempted because they differed from state regulations, but upheld provisions regarding permitting, roads, and emergency response as consistent with the state's requirements. 60 P.3d at 764-66. In BDS, the court ruled that local requirements imposing fines, financial guarantees, and records access were preempted because they were inconsistent with state regulations, but held that an evidentiary hearing would be necessary to determine the validity of other requirements involving water quality, soil erosion, wildlife, vegetation, livestock, cultural resources, geologic hazards, wildfire protection, recreation, and permit duration. 159 P.3d at 779-82.
Finally, two recent Colorado Supreme Court decisions had applied the preemption analysis delineated in Bowen/Edwards and Voss in other contexts. In Colo. Mining Ass'n v. Bd. of Cty. Comm'rs, 199 P.3d 718, 723-24, 730 (Colo. 2009), the court extensively relied upon Bowen/Edwards and Voss in determining that state law preempted a county from prohibiting the use of certain chemicals for mineral processing operations. In Webb v. City of Black Hawk, 295 P.3d 480, 489-93 (Colo. 2013), the court applied reasoning similar to Voss in holding that state law preempted a city from banning bicycles from certain streets.
City of Longmont v. Colorado Oil and Gas Association
In November 2012, Longmont voters approved Ballot Measure 300, which added Article XVI to Longmont's home-rule charter. Article XVI prohibited hydraulic fracturing and the storage of hydraulic fracturing waste. Soon thereafter, COGA filed a lawsuit against Longmont seeking to invalidate Article XVI on the basis of preemption, arguing that hydraulic fracturing and the storage and transportation of hydraulic fracturing waste are matters of statewide concern. The Colorado Oil and Gas Conservation Commission and TOP Operating Company joined the lawsuit as plaintiffs, and several citizen groups intervened as defendants. The district court granted summary judgement to the plaintiffs, holding that the Conservation Act preempts Article XVI. Longmont then appealed the district court's order to the Colorado Court of Appeals, which transferred the case to the Colorado Supreme Court.
Writing for a unanimous court, Justice Gabriel held that Longmont's ban on hydraulic fracturing and the storage of associated waste is preempted because it operationally conflicts with the state's statutory and regulatory oversight of this activity. See Longmont, ¶¶ 3 & 54. Justice Gabriel also suggests that these issues should usually be decided on summary judgment, explaining that "in virtually all cases, this analysis will involve a facial evaluation of the respective regulatory schemes, not a factual inquiry as to the effect of those schemes 'on the ground.'" Id, ¶ 15.
For a home rule city like Longmont, the court must first decide whether a matter is of statewide, local or mixed state and local concern. This is determined by examining four factors: 1) the need for statewide uniformity of regulation, 2) the extraterritorial impact of the local regulation, 3) whether state or local government traditionally regulated the matter, and 4) whether the Colorado Constitution commits the matter to either state or local regulation. See Longmont, ¶ 20. The court found that the uniform statewide regulation and extraterritorial impacts of the fracking ban weigh in favor of the state, while Longmont has traditionally exercised zoning authority over land where oil and gas development occurs; accordingly, the court found that hydraulic fracturing is of mixed state and local concern. See id. at ¶ 31.
Next, the court turned to the issue of whether the local regulation conflicts with or is preempted by state law. Colorado case law recognizes three forms of preemption: express, implied, and operational conflict preemption. See Bowen/Edwards, 830 P.2d at 1056â€“57. The court concluded that neither express nor implied preemption applied. See Longmont, ¶¶ 44 & 45. In reaching this conclusion, the court rejected arguments that the state's dominant interest in oil and gas development justified implied preemption and that the state has the exclusive authority to regulate the technical aspects of oil and gas operations. See id. at ¶ 47. The court agreed, however, that operational conflict preemption applies because the fracking ban would materially impede or destroy the state's interest in the efficient and responsible development oil and gas. See id. at ¶ 53. This interest includes "a strong interest in the uniform regulation of fracking" as demonstrated by the state's "pervasive rules and regulations, which evince state control over numerous aspects of fracking." Id.
Citizen intervenors had posed a novel argument that the inalienable rights granted to citizens under article II, section 3 of the Colorado Constitution precludes the preemption of the fracking ban because it protects citizen rights. See Longmont, ¶ 57. The court dismissed this argument, stating that it would allow local regulations that promote citizen rights to always supersede state law and render the home-rule provision of the Colorado Constitution superfluous Id. at ¶ 59. The court found no authority for the adoption of such a concept under Colorado law.
City of Fort Collins v. Colorado Oil and Gas Association
Similar to the hydraulic fracturing ban in Longmont, Fort Collins voters approved a five year moratorium on hydraulic fracturing and the storage of hydraulic fracturing waste in November 2013. In response, COGA filed a lawsuit against Fort Collins seeking a declaratory judgment that state law preempts the moratorium. As in Longmont, the district court granted summary judgement to COGA, holding that the five year moratorium is preempted by the Conservation Act. Fort Collins appealed the district court's order to the Colorado Court of Appeals, which transferred the case to the Colorado Supreme Court.
Justice Gabriel again wrote for a unanimous Supreme Court. Using the same preemption analysis applied in Longmont, the court concluded that the Fort Collins hydraulic fracturing moratorium involves a matter of mixed state and local concern. See Fort Collins, ¶ 16. It next determined that the moratorium operationally conflicts with the Conservation Act by "rendering the state's statutory and regulatory scheme superfluous, at least for a lengthy period of time, because it prevents operators . . . from fracking until 2018." Id. at ¶ 30. The court rejected Fort Collins' arguments that a moratorium is different than a ban because fracking is a non-essential phase of production and a moratorium is only a temporary time out. The court noted that virtually all oil and gas wells in Colorado are fracked, and that the moratorium interferes with the state's goal of permitting oil and gas pools to produce up to their maximum efficient rate of production, subject to the prevention of waste and consistent with the protection of public health, safety, and welfare. See id. at ¶ 33. It also explained that unlike moratoria that have been upheld in other contexts, the Fort Collins moratorium changes rather than maintains the status quo and covers a lengthy time period. See id. at ¶ 34. The court also emphasized that the moratorium is a prohibition and not a regulation and that it impedes the state's interest in hydraulic fracturing. See id. at ¶ 37. The court expressed no view, however, on "the propriety of a moratorium of materially shorter duration." Id. at ¶ 40.
The Longmont and Fort Collins decisions uphold Colorado's longstanding preemption approach and clarify the proper analysis to be applied to determine whether state law preempts local regulation of oil and gas development. The court's holdings confirm that local governments cannot prohibit hydraulic fracturing for a period of five years or longer, finding such bans materially impede or destroy the state's interest in the efficient and responsible development oil and gas. The holdings also appear to encourage the resolution of these issues on summary judgment, which promises a faster and less costly process than the evidentiary proceedings contemplated in Bowen/Edwards. Whether these decisions will have a beneficial effect on future legislative and ballot battles over these issues remains to be seen.