Colorado Supreme Court Strikes Down Local Fracking Bans
Summer 2016
In City of Fort Collins v. Colo. Oil and Gas Ass’n1 and City of Longmont v. Colo. Oil and Gas Ass’n2 the Colorado Supreme Court unanimously struck down two attempts by city governments to ban fracking and the storage and disposal of fracking waste within their city limits. In an opinion authored by Justice Richard Gabriel, the Court’s junior member, the Court determined that state law preempted the fracking bans and thereby rendered them invalid and unenforceable.
Given the deliberately narrow scope of the decisions and current low prices of oil, it seems unlikely that the decision will have a large short-term impact. The decisions nevertheless signal a friendly stance toward oil and gas development in Colorado and affirm the state’s policy directive toward production up to the maximum efficient rate.
“Fracking,” the oft-used term for “hydraulic fracturing,” is a technique used to stimulate production in oil and gas wells. This stimulation is achieved by injecting a fracking fluid (typically, water mixed with solid materials such as sand) at high pressures into wellbores to create fractures in underground oil- or gas-bearing rock formations. The solid particles hold the cracks open once the pressure is removed, thereby allowing oil and gas to flow to the well.
Oil and gas producers have engaged in commercial fracking since the 1950s, but the practice has recently risen to prominence in connection with other advances in oil and gas production such as horizontal drilling. Fracking is now used in as much as 90 percent of new oil and gas wells nationwide.3
Fracking plays a particularly important role in oil and gas production in Colorado. Ancient seabeds underlie much of the state, forming deep underground shale formations rich in oil and gas deposits to which horizontal drilling and fracking have opened access to oil and gas producers. The state’s 50,000 active oil and gas wells produced over 80 million barrels of crude oil in 2014, placing Colorado at 7th in the nation in oil production. Over 80 percent of this oil was produced in the Denver-Julesburg basin, located in the northeastern part of the state just east of the eastern foothills of the Rocky Mountains. The basin also underlies much of the heavily populated Denver metropolitan area (including the cities of Denver, Fort Collins, and Longmont).4
The advances in oil and gas production and the now widespread use of fracking in American oil and gas wells have spurred a number of environmental concerns, centering on fracking’s potential to contaminate groundwater and increase seismic activity in the surrounding areas. Reacting to these concerns, Longmont’s citizens voted in 2012 to add an article to the city’s charter prohibiting the use of hydraulic fracturing to extract oil, gas, or other hydrocarbons, or the storage or disposal of fracking waste, within city limits. The next year, Fort Collins’s citizens followed suit, though rather than imposing a permanent ban, they voted to place a five-year moratorium on fracking and the storage or disposal of fracking waste within city limits.
Shortly after the cities enacted their respective fracking restrictions, the Colorado Oil and Gas Association sued the cities seeking to permanently enjoin the restrictions on the basis that Colorado’s Oil and Gas Conservation Act, §§ 34-60-101 to -130, C.R.S., preempted the local ordinances. Intervenors quickly joined in both suits and on both sides of the issue. In both cases, the Association moved for summary judgment and the motions were granted. When the cities appealed the district courts’ orders, the appellate courts requested to transfer the cases directly to the Colorado Supreme Court before judgment under Colorado Appellate Rule 50. This is an unusual procedure used only in specific situations such as when “the case is of such imperative public importance as to justify the deviation from normal appellate processes and to require immediate determination in the Supreme Court.”5
On May 2, 2016, the Colorado Supreme Court announced its decisions affirming the orders of the district courts in both cases. The primary basis for the decisions was the relationship between the cities and the state as structured in the Colorado Constitution. Both Longmont and Fort Collins are “home-rule cities,” to which the Colorado Constitution recognizes a measure of sovereignty. As provided in the Colorado Constitution, the charters of home-rule cities (and ordinances made pursuant thereto) “shall supersede within the territorial limits and other jurisdiction of said cit[ies] or town[s] any law of the state in conflict therewith” as they relate to “all [their] local and municipal matters.”6
The Constitution thus places two important constraints on the sovereignty of home-rule cities: territorial limits and subject matter restrictions. As the Court noted, a home-rule city’s ordinance supersedes a conflicting state statute “in matters of local concern,” but “when a home-rule ordinance conflicts with state law in a matter of either statewide or mixed state and local concern, the state law supersedes that conflicting ordinance.”7
A preemption claim in Colorado requires a two-part inquiry. First, the court must consider whether the ordinance in question involves a matter of statewide, local, or mixed statewide and local concern. If the ordinance involves matters of statewide or mixed statewide and local concerns, then the court must determine if state law preempts the home-rule ordinance—whether “expressly”; “impliedly”; or because of an operational conflict,” such that “the effectuation of a local interest would materially impede or destroy a state interest.”8
In these cases, the Court determined that the fracking regulations constituted matters of mixed state and local concern “because it implicates the need for uniform statewide regulation and the extraterritorial impact of a fracking ban, on the one hand, and the local government’s traditional authority to exercise its zoning authority over land where oil and gas development occurs, on the other.”9
Because the state has an interest in the subject matter of the regulations (i.e., fracking), the Court next considered whether state law—specifically, the Oil and Gas Conservation Act—preempted the home-rule ordinances “either expressly, impliedly, or because of an operational conflict.”10 The Court agreed with the parties that the Oil and Gas Conservation Act did not expressly preempt the regulations. Guided by its prior holdings, the Court concluded that the Act did not impliedly preempt the local regulations either. To the contrary, the Court held that the Legislature had recognized the propriety of local land use ordinances relating to oil and gas development.11
But the Court did find that the local fracking regulations presented operational conflicts with the Oil and Gas Conservation Act. The Act, the Court noted, declares its intent and purpose “to permit each oil and gas pool in Colorado to produce up to its maximum efficient rate of production, subject to the prevention of waste, consistent with the protection of public health, safety, and welfare.”12 Pursuant to the Act, the Colorado Oil and Gas Conservation Commission is empowered to make and enforce rules, regulations, and orders pertaining to oil and gas production in the state, including comprehensive regulations of the fracking process.13 The cities’ fracking regulations, the Court noted, would render the Commission’s rules superfluous and thus “materially impede[] the effectuation of the state’s interest in the efficient and responsible development of oil and gas resources.”14
This was true, the Court noted, even of Fort Collins’s more limited five-year moratorium. Throughout its duration, the moratorium would “interfere[] with the many operators who have determined that fracking is necessary to ensure productive recovery,” and in turn “materially impede[] the state’s goal of permitting each oil and gas pool in Colorado to produce up to its maximum efficient rate of production, subject to the prevention of waste and consistent with the protection of public health, safety, and welfare.”15 Though more limited in duration than Longmont’s permanent ban, the Court observed, Fort Collins’s five-year moratorium “freezes a practice that . . . has come to be prevalent across the state,” and did so for five years—hardly the “temporary time-out” Fort Collins characterized the moratorium to be.16 The Court therefore determined that the moratorium “(1) deleteriously affect[ed] what is intended to be a state-wide program of regulation and (2) impede[d] the goals of the Oil and Gas Conservation Act . . . as well as the state’s interest in fracking as reflected in the Act and the rules and regulations promulgated pursuant thereto.”17
For these reasons, the Supreme Court affirmed the orders of the district courts permanently enjoining the local fracking restrictions.
It seems unlikely that the short-term impact of the decisions will be substantial. Two other Colorado cities have enacted similar ordinances restricting fracking and the storage of fracking waste, as has Boulder County. Presumably, the Court’s decisions would invalidate these ordinances as well. But these local governments cover a small segment of the oil and gas industry in Colorado. More importantly, with oil prices already in a slump nationwide, the incentive to stimulate production through techniques such as fracking is already stunted. The decisions will not likely unleash pent-up demand to immediately ramp up production.
The legal implications of the decisions may also be limited. The Court was careful to emphasize the narrow scope of the decisions, which embraced the limited question of whether the particular regulations in question were preempted by a particular section of state law.18 And given the decisions’ dependence upon the nature of the relationship between Colorado and its home-rule cities as specified in its Constitution, the grounds to distinguish the decisions from cases in other states are abundant.
Ultimately, the decisions are most important as a reflection of Colorado’s long-term commitment to maximize the production of oil and gas within the state. In invalidating local government restrictions on fracking, the Court did not purport to weigh in on the advantages of fracking or its environmental and health-related consequences. But neither would the Court permit local governments to interfere with the operations of the state agencies charged under the laws of the state to maximize efficient and responsible oil production. To the extent the balance between production, safety, and environmental protection stands in need of subsequent adjustment, the existing statutory regime, as interpreted in Fort Collins and Longmont, require those changes to be made at the state level. Insofar as the state has prioritized maximum efficient production, Colorado will likely continue with its friendly stance toward the oil and gas industry.
Douglas N. Marsh is an associate in the Denver office of Armstrong Teasdale. The views set forth herein are the personal views of the author and do not necessarily reflect those of the law firm with which he is associated.
Endnotes
1 2016 CO 28 (“Fort Collins”).
2 2016 CO 29 (“Longmont”).
3 Congressional Research Service, “Hydraulic Fracturing and Safe Drinking Water Act Regulatory Issues,” July 13, 2015, available at: https://www.fas.org/sgp/crs/misc/R41760.pdf
4 Colorado Energy Office, “Petroleum,” available at: https://www.colorado.gov/pacific/energyoffice/petroleum-0
5 C.A.R. 50(a)(3).
6 Colo. Const. art. XX, § 6.
7 Fort Collins, ¶¶ 13–14; Longmont, ¶¶ 17–18.
8 Fort Collins, ¶ 21; Longmont, ¶ 36.
9 Fort Collins, ¶ 16; Longmont, ¶ 31.
10 Fort Collins, ¶ 18; Longmont, ¶ 33.
11 Fort Collins, ¶¶ 24–25 (quoting Voss v. Lundvall Bros., Inc., 830 P.2d 1061, 1066 (Colo. 1992) (“[N]othing in the Oil and Gas Conservation Act manifests a legislative intent to expressly or impliedly preempt all aspects of a local government’s land-use authority over land that might be subject to oil and gas development and operations within the boundaries of a local government.”); Longmont, 45–46 (same).
12 Fort Collins, ¶ 27 (quoting § 34-60-102(1)(b), C.R.S. (2015)); Longmont, ¶ 50 (same).
13 Fort Collins, ¶¶ 28–29; Longmont, ¶¶51–52.
14 Fort Collins, ¶ 30; Longmont, ¶ 53.
15 Fort Collins, ¶ 33 (citing Longmont, ¶ 23).
16 Fort Collins, ¶ 35.
17 Fort Collins, ¶ 37.
18 Fort Collins, ¶ 1; Longmont, ¶ 2.