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PROP 112 Deenergizing Colorado: A Statutory Perspective

Author – Tyler J. Cox, J.D.

Contributing Editor – Scott C. Kearney, J.D.

Editor – Ashley L. Glassman, J.D.

Editor – Rollin C. Wood, J.D, LL.M

Prologue

Proposition 112 is a statewide ballot initiative in the forthcoming November 6th, 2018, election. The Proposition asks voters to decide if all new oil and gas development should be required to be setback 2,500 feet from an expansive list of locations described below. This article will address the drafting flaws of Proposition 112 from a legal and energy law perspective by looking at the alleged intent, its actual impact, and why it’s structurally problematic. A follow-up to this article will address the resounding economic implications the Proposition will have throughout Colorado.

Introduction

Proposition 112 (“Prop 112”) fails to actually address the purported harms of exploration and production of oil and gas in Colorado while simultaneously crippling major sectors of the state economy. Prop 112 is flawed as to its spirit and its structure.

  • First, the effect of Prop 112 has been intentionally mischaracterized by its supporters as “really not that much.”[1] In fact, Prop 112 will serve as a de facto ban on the production of oil and gas in Colorado, which is consistent with the stated goal of Prop 112’s major supporters. It would ban development in 85% of the state and 95% of the state’s five most productive counties.[2] The 2,500-foot setback distance has been arbitrarily calculated, lacking any credible, scientific evidence that supports 2,500 feet as necessary to protect the health or safety of communities.
  • Second, Prop 112 is structurally flawed because it undermines the nuanced, complex, and expertly-crafted regime regulating oil and gas operations in Colorado. It disrupts the historically collaborative and progressive approach to oil and gas regulation traditionally embraced by the state and lauded as a model for regulatory processes across the country.
  • Finally, uncertainty as to the validity and application of Prop 112 will stall countless economic activities in Colorado until resolved. Rather than adopting Prop 112, Colorado should continue to rely on responsive and evidence-based regulation to protect our health and environment without arbitrarily crippling one of the state’s most-important industries.

The issues at hand are of such a pervasive and impactful nature that voters should reject Prop 112 on November 6th.

Background

Prop 112 is an initiative “designed to mandate that new oil and gas development, including fracking, be a minimum distance of 2,500 feet from occupied buildings…” and vulnerable areas including: "playgrounds, permanent sports fields, amphitheaters, public parks, public open space, public and community drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams, and creeks.”[3] Prop 112 would establish a minimum setback distance of 2,500 feet, but would also grant city and county governments the ability to unilaterally establish even larger setbacks. As mentioned above, such setbacks will prevent oil and gas development in 85% of Colorado and 95% of the state’s five most productive counties.

This is not the first initiative of its kind in Colorado. In 2014, a similar initiative proposed 2,000-foot setbacks, while another initiative proposed an environmental bill of rights, both of which were removed from the ballot as a compromise between the initiatives’ proponents, politicians, and industry leaders that led to the implementation of new rules and programs. In 2016, an initiative nearly identical to Prop 112 failed to qualify for the ballot.

Prop 112’s Flaws

Prop 112 is problematic as to its intent, effectiveness, and structure. The operational implications of Prop 112 are far broader than portrayed by its proponents while at the same time ineffectively addressing the problems its supporters use to justify the Proposition. The Proposition disrupts an already expertly-crafted and established regulatory balance, creating uncertainty with existing regulations and the state economy.

  1. Underlying Flaws of Prop 112

Portrayed as a minor rule change by its supporters, Prop 112 is truly a de facto ban on oil and gas production.

  1. Prop 112 is intended to ban oil and gas in Colorado

Colorado Rising, the organization supporting Prop 112, has consistently stated that Prop 112 is not intended to ban oil and gas activity. However, the 2,500-foot setback requirement does and will effectively ban oil and gas production across the state. The setback would bar production on 85% of non-federal land and would ban 95% of all production in the five highest producing counties in the state.[4] Additionally, the Proposition contains a clause granting local authorities powers to create setbacks above and beyond 2,500 feet and, in cases where conflicting setbacks exist between overlapping cities and counties, Prop 112 requires choosing the largest setback adopted.[5] Prop 112 gives local authorities unchecked power to expand the already exhaustive list of areas subject to the 2,500-foot setback requirement. The combination of these provisions gives city governments complete veto authority over all development.

The impact of Prop 112, a de facto ban all oil and gas development, is consistent with the explicitly stated goal of the Proposition’s largest supporters. For example:

  • The public face of Colorado Rising, Anne Lee Foster, has identified her employer as Hold Our Ground.[6] Hold Our Ground is a Boulder organization that opposes all oil and gas development with the motto “Not One More Well.”[7]
  • Huge portions of Colorado Rising’s funding have come from two out-of-state organizations, 350 and Food & Water Watch. Both organizations are fervent supporters of the Keep It In The Ground Movement.[8]
  • The New York-based 350 states its goal is to oppose all new oil and gas development and “take money out of” oil and gas companies. As of October 1, 2018, 350 has contributed over $50,000 in support to Colorado Rising.[9]
  • Likewise, the DC-based Food and Water Watch has called for “an all-out ban on fracking.”[10] Recent Food and Water Watch’s publications show the organization’s true intent with Prop 112, with titles such as:
    • The Urgent Case for Banning Fracking
    • Ban Fracking Now!
    • No Person Shall Be Deprived of Life, Liberty or Property…Unless the Oil and Gas Industry Says So[11]

As Colorado Rising’s largest single donor, Food & Water Watch has contributed $218,000 to Colorado Rising’s Prop 112 campaign.[12]

  1. Prop 112 does not effectively address the concerns raised by its supporters

Proponents of Prop 112 rely primarily on three arguments to justify their support. However, Prop 112 does not effectively or directly address these concerns.

First, Prop 112’s supporters use the tragic Firestone explosion caused by an uncapped oil and gas line to justify the Proposition. This Proposition would not have prevented the explosion because it would only apply to future operations,[13] whereas the pipeline involved in the Firestone incident was in place in 1993.[14] The home involved was built in 2015, some 22 years after the flowlines were in place.[15] Prop 112 would not prevent such incidents from occurring in the future where oil and gas infrastructure is already in place prior to residential development. Importantly, the state is addressing causes of the Firestone explosion through programs to address flowlines and plugging orphaned wells.[16]

Second, Prop 112 supporters argue 2,500-foot setbacks are necessary to protect community health and safety. The proposed distance is based on questionable and discredited research. A 2017 Study conducted by the Colorado Department of Health & Environment found that:

“[O]verall, available air monitoring data suggest low risk of harmful health effects from all substances [emitted from oil and gas operations, and that]…. studies do not indicate the need for immediate public health action.” [17]

Rather, the Colorado Department of Health & Environment suggests and recommends continued monitoring and additional research be conducted.[18] The conclusions of this study directly undermine the evidence offered by the proponents by noting “[t]he majority of findings … were ranked as low quality, primarily due to limitations of the study designs that make it difficult to establish clear links between exposures to substances emitted directly from oil and gas and the outcomes evaluated.” Additional studies similarly conclude that allegations of negative health impacts are unfounded.[19]

Third, the proponents of Prop 112 attribute the oil and gas industry to a seemingly endless list of alleged evils from economic uncertainty, global warming, statutory pooling, increases in ground level ozone, as well as lack of investment in renewable energy.[20] As drafted, the Proposition does nothing to address any of these issues. For example, Prop 112:

  • Does not increase use of renewable energy or funding for it, nor will it curb use of fossil fuels in Colorado,
  • Would have no impact on global fossil consumption, and
  • Does not alter statutes governing statutory pooling or alternative energy funding.

Each of these issues is salient. Each is worthy of discussion and action. However, Prop 112 is not a solution, even indirectly, to any of these issues. In fact, it’s not even a step in the right direction.

  1. Structural Flaws of Prop 112

In addition to disingenuous framing of the law, Prop 112 has structural flaws that undermine effective regulatory approaches. Prop 112 imposes a rigid rule that is inconsistent with a pragmatic approach to regulation. It all but destroys collaborative decision-making processes used by the Colorado Oil and Gas Conservation Commission (“COGCC”). Finally, it undermines the technical expertise needed to implement regulations in a complex industry.

  1. Prop 112 adopts a rigid approach that undermines a flexible and collaborative regulatory process

Prop 112 is problematic because it undermines the flexible, collaborative, and innovative approach that has been the hallmark of Colorado’s regulation of oil and gas production. Over the past several years, the State of Colorado has led the nation in adopting and implementing comprehensive oil and gas regulations.[21] Colorado’s methane capture rule, which provides incentives for reducing emissions as well as monitoring requirements, is lauded as “a leader in reducing methane” and was the model for the EPA’s methane rules.[22] This year, Colorado strengthened rules for “design, installation, maintenance, testing, tracking, and abandoning flowlines.”[23] Governor Hickenlooper also issued an executive order to plug and remediate orphan wells and requiring the implementation of financial assurances to fund these efforts in the future.[24] Notably, all three programs were adopted as collaborative compromises between industry, activists, and politicians.

Colorado oil and gas regulations are pragmatic. They recognize that a one-size-fits-all solution is not going to work in every situation. Within the existing rules, there are already effective mechanisms through which regulations can be adjusted to suit specific circumstances by public meetings, commission hearings, and mutual agreements to waivers.[25] These mechanisms account for the collective interests of the Commission, the industry, land owners, and the community. Prop 112 would destroy this collaborative and pragmatic approach. It would impose a one-size-fits-all regulatory standard on every party, without the ability to adjust the rules to suit the greater good.

Prop 112 also undercuts the fundamental regulatory structure of Colorado. Regulatory decisions addressing issues in the oil and gas industry are complex and dynamic. The COGCC is the regulatory body tasked with overseeing the state’s oil and gas industry. Through a bipartisan effort that includes stakeholder and expert input, the COGCC has developed a regulatory framework based on a technical understanding of this industry, grounded in decades of experience. Taking these decisions away from the experts is foolish and misguided. The industry is too complex and dynamic to be regulated via biennial elections.

  1. Prop 112 is uncertain to such an extent that it would stall Colorado’s economy

In addition to its structural flaws, Prop 112 is inherently uncertain as to whether it is a valid and enforceable law. As a new law, the Proposition’s effect will be uncertain for years to come, as courts and regulators determine how to interpret and apply the elements of the law.

Prop 112 may not be valid because it may be unconstitutional. Attorney General Ken Salazar and Governor Hickenlooper expressed concerns about the law’s constitutionality, noting that Prop 112 may be a regulatory taking under the Colorado Constitution in that it deprives landowners of property rights.[26] A regulatory taking is a government action that goes “too far” in terms of the nature of the action, its economic impact, and its interference with reasonable investment-backed expectations.[27] A thorough constitutional analysis is beyond the scope of this article, however one can easily conceive how and why the law goes “too far” in these three areas.

Additionally, Prop 112 creates uncertainty in its application, as there is no clarity regarding areas and types of activities subject to the proposed setback, nor the process for establishing and implementing vulnerable area protections by state and local governments. Resolving this uncertainty will require substantial litigation before the COGCC and the courts. The results are twofold:

  • First, we cannot completely predict the application of setbacks without seeing how courts will interpret Prop 112’s language. Because of the unpredictable application, it is difficult to gauge the additional repercussions on the industry, ancillary services, and Colorado’s economy.
  • Second, this uncertainty will freeze investment, hiring, and other economic boons to the state’s economy. Economic findings show that uncertainty causes companies to either withdraw from affected markets or postpone investment decisions.[28] These effects are particularly prevalent for capital intensive and non-reversible investment decisions like oil and gas development.

Until uncertainty around Prop 112 is resolved, companies will hold off on making substantial investments in existing assets, including infrastructure development, due diligence, and other activities tied to oil and gas development. Even if Prop 112 is limited, overturned, or amended, it will cause companies to curtail investments in Colorado’s economy for years to come and look to other markets in the interim.

  1. Alternative Approaches

Opposition to Prop 112 should not be viewed as opposition to all regulation in the oil and gas sector. Effective regulation is essential to oil and gas development in Colorado. This regulation should be robust, evidence-based, and responsive to the potential harms caused by oil and gas development. Such an approach requires a deep understanding of the technical and scientific implications of oil and gas. Likewise, this regulation should not be guided by fear or ever-shifting political winds. Rather, regulation should account for the dual ends of protecting the health of Colorado’s population and its economy. General elections are not well-suited for handling the complexity and nuance required to achieve this balance.

There are several alternatives for developing effective and dynamic regulations. First, the COGCC already oversees the statutes and rules governing oil and gas in Colorado, though the Colorado Legislature could expand the mandate of the COGCC by statute. These statutes would give the COGCC general guidelines around specific issues and allow the agency to rely on its expertise to promulgate detailed rules. Second, the Legislature or the Governor could convene a taskforce composed of experts from industry and environmental organizations. This taskforce would issue recommended statutes or rule changes to be acted upon by the Governor, the Legislature, or the COGCC. This approach has been used by the State in the past to develop oil and gas regulations.[29] These approaches would give regulations the flexibility, technical insight, and responsiveness that is lacking in Prop 112. Moreover, rational and sober regulations of this sort would not be subject to the type of political football that unilateral and rigid actions like Prop 112 are almost certain to evoke.


[1] Matt Bloom, Increased Oil, Gas Well Setback Supporters Poised for November Face-Off With Industry, KUNC, Aug. 8, 2018, http://www.kunc.org/post/increased-oil-gas-well-setback-supporters-poised-november-face-industry#stream/0.

[2] Based on 2016 Colorado Oil and Gas Conservation Commission report, the five highest producing counties in Colorado were: Weld, Garfield, Rio Blanco, La Plata, and Las Animas. See Colorado Oil and Gas Conservation Commission, 2500’ Mandatory Setback from Oil and Gas Development, May 27, 2016, https://cogcc.state.co.us/documents/library/Technical/Miscellaneous/Init_78_Proposed_2500ft_Setback_Assessment_Report_20160527.pdf.

[3] Ballotpedia, Colorado Proposition 112, Minimum Distance Requirements for New Oil, Gas, and Fracking Projects Initiative (2018), https://ballotpedia.org/Colorado_Proposition_112,_Minimum_Distance_Requirements_for_New_Oil,_Gas,_and_Fracking_Projects_Initiative_(2018)

[4] Colorado Oil and Gas Conservation Commission, 2500’ Mandatory Setback from Oil and Gas Development, May 27, 2016, https://cogcc.state.co.us/documents/library/Technical/Miscellaneous/Init_78_Proposed_2500ft_Setback_Assessment_Report_20160527.pdf.

[5] 34-60-131(2)(c), Text of Proposition 112, available at https://www.sos.state.co.us/pubs/elections/Initiatives/titleBoard/filings/2017-2018/97Final.pdf

[6] See contributions made by Anne Lee Foster as reported by the Colorado Secretary of State, http://tracer.sos.colorado.gov/PublicSite/SearchPages/ContributionSearch.aspx

[7] Hold Our Ground’s motto according to its webpage is “Protect Boulder County. Not One More Well.”

[8] See Food and Water Watch’s issue page on fracking stating “BAN FRACKING EVERYWHERE,” at https://www.foodandwaterwatch.org/problems/fracking; see also 350’s About page stating “Keep carbon in the ground” as the organization’s primary goal, https://350.org/about/

[9] See contributions made by “350 Action,” “350 Colorado,” “350 Colorado Action,” available at http://tracer.sos.colorado.gov/PublicSite/SearchPages/ContributionSearch.aspx.

[10] About, https://www.foodandwaterwatch.org/about

[11] Policy & Research Library, Food & Water Watch, available at https://www.foodandwaterwatch.org/library

[12] See contributions made by “Food and Water Watch” and “Food and Watch Action Fund,” available at http://tracer.sos.colorado.gov/PublicSite/SearchPages/ContributionSearch.aspx.

[13] “This Section applies to oil and gas development permitted on or after the effective date,” available at https://www.sos.state.co.us/pubs/elections/Initiatives/titleBoard/filings/2017-2018/97Final.pdf

[14] Kevin Vaughn, Uncapped, abandoned gas line caused Firestone home explosion, 9News, https://www.9news.com/article/news/investigations/uncapped-abandoned-gas-line-caused-firestone-home-explosion/73-436094693

[15] Kevin Vaughn, Uncapped, abandoned gas line caused Firestone home explosion, 9News, https://www.9news.com/article/news/investigations/uncapped-abandoned-gas-line-caused-firestone-home-explosion/73-436094693

[16] Executive Order D 2018-012, Directing the Colorado Oil and Gas Commission to Act to Plug, Remediate, and Reclaim Orphaned Oil and Gas Wells and Sites, July 18, 2018, available at https://www.colorado.gov/governor/news/governor-signs-executive-order-addressing-orphaned-wells; COGCC Approves Comprehensive New Flowline Regulations, Feb. 13, 2018, available at https://www.colorado.gov/governor/news/cogcc-approves-comprehensive-new-flowline-regulations

[17] Colorado Department of Health & Environment, Assessment of Potential Public Health Effects of Oil and Gas Operations in Colorado, Feb. 21, 2017, available at https://drive.google.com/file/d/0B0tmPQ67k3NVVFc1TFg1eDhMMjQ/view

[18] Colorado Department of Health & Environment, Assessment of Potential Public Health Effects of Oil and Gas Operations in Colorado, Feb. 21, 2017, available at https://drive.google.com/file/d/0B0tmPQ67k3NVVFc1TFg1eDhMMjQ/view

[19] “Overall, we find that the literature does not provide strong evidence regarding specific health impacts and is largely unable to establish mechanisms for any potential health effects. More study is therefore needed to properly inform communities of risks and also inform policymakers and oil and gas operators of methods for reducing these impacts on communities.” Alan J. Krupnick and Isabel Echarte, Health Impacts of Unconventional Oil and Gas Development, June 2017, http://www.ourenergypolicy.org/wp-content/uploads/2017/07/RFF-Rpt-ShaleReviews_Health_0.pdf

[20] Quentin Young, Editorial: The case for expanded oil and gas setbacks Proposition 112, The Boulder Daily Camera, Sept. 29, 2018, http://www.dailycamera.com/editorials/ci_32173028/editorial-Proposition-112-setbacks-oil-gas-colorado-election

[21] KC Becker, Federal methane guidelines, modeled on Colorado’s rule, also necessary, Aug. 4, 2016, https://www.denverpost.com/2016/08/04/federal-methane-guidelines-modeled-on-colorados-rule-also-necessary/

[22]Id.

[23] COGCC Approves Comprehensive New Flowline Regulations, Feb. 13, 2018, available at https://www.colorado.gov/governor/news/cogcc-approves-comprehensive-new-flowline-regulations

[24] Executive Order D 2018-012, Directing the Colorado Oil and Gas Commission to Act to Plug, Remediate, and Reclaim Orphaned Oil and Gas Wells and Sites, July 18, 2018, available at https://www.colorado.gov/governor/news/governor-signs-executive-order-addressing-orphaned-wells;

[25] See COGCC, Safety Regulations 601 to 609, May 1, 2018, available at https://cogcc.state.co.us/documents/reg/Rules/LATEST/600Series.pdf

[26] Michael Sandoval Colorado City: Prop 112 “’Too Extreme,’ Civic and Business Coalition Opposes ‘Ban’ on Oil & Gas, Western Wire, Sept. 12, 2018; Michael Sandoval, Democrats Divided Over Oil and Gas Setback Measure, July 25, 2018.

[27] Dep't of Health v. Mill, 887 P.2d 993, 1002, 1994 Colo.

[28] Yang, B., Burns, N.D. and Backhous, C.J., Management of Uncertainty through Postponement, International Journal of Production Research (2004).

[29] See e.g. Prepared by the Keystone Center, Colorado Oil and Gas Task Force Final Report, Feb. 27, 2015, https://www.colorado.gov/pacific/sites/default/files/atoms/files/2015%20Oil%20Gas%20Task%20Force%20Report.pdf; Bruce Finley, Colorado Adopts Tougher Air Rule for Oil, Gas Industry, Feb. 23, 2014 see also https://www.denverpost.com/2014/02/23/colorado-adopts-tougher-air-rules-for-oil-gas-industry/

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