Major Announcement in Oil & Gas:  Colorado Supreme Court Decision on Hydraulic Fracturing Bans

Major Announcement in Oil & Gas: Colorado Supreme Court Decision on Hydraulic Fracturing Bans

On Monday, May 2, the Colorado Supreme Court announced decisions holding invalid and unenforceable two separate ordinances enacted by the Cities of Fort Collins and Longmont, respectively, which prohibited the use of hydraulic fracturing for gas extraction.  These decisions establish precedent regarding what has been an on-going battle in the regulation of the Colorado oil and gas industry that favours the oil and gas operators in Colorado.  This stands in sharp contrast to the New York State Court of Appeals, which upheld the validity of municipal bans on hydraulic fracturing against a preemption challenge in Wallach v. Town of Dryden and Cooperstown Holstein Corp. v. Town of Middlefield in 2014.[1]

In November 2012, Longmont citizens passed a voter-initiated ban on the practice of hydraulic fracturing.  Similarly in 2012, voters in Fort Collins approved an amendment to the city code prohibiting the “use of hydraulic fracturing to extract oil, gas or other hydrocarbons” within the city for the next five years “in order to fully study the impacts of this process on property values and human health.”

Through the Colorado Oil and Gas Association (“COGA”), the oil & gas industry filed complaints against both cities alleging that the bans attempted to regulate technical aspects of oil and gas operations reserved to the State, and that the prohibition on fracturing operates as an illegal, de facto ban on oil and gas drilling.

In the summer of 2015, the oil and gas industry seemed to gain early ground in the battle when the district courts in both cases granted summary judgment in favor of COGA, overturning the bans on the basis that regulation of hydraulic fracturing is under the purview of the State’s regulatory body—the Colorado Oil and Gas Conservation Commission.  However, the municipalities appealed.

In the decisions announced on Monday, May 2nd, the Colorado Supreme Court affirmed both lower court rulings.  It concluded that the regulation of oil and gas operations in Colorado is a matter of mixed State and local concern.  Therefore, both the Longmont ban and Fort Collins moratorium are preempted because each substantively impedes what the Court determined to be the State’s expressed strong interest in the uniform regulation of hydraulic fracturing. The Court also held that, in almost all cases, pre-emption disputes should be resolved by a facial review of the relevant statutes and ordinances rather than an evidentiary hearing.  This holding will make it much easier for oil and gas operators to go to court and obtain meaningful relief when their operations are curtailed by overreaching local regulation.  Finally, the Court distinguished Robinson Township v. Commonwealth, 83 A.3d 901 (Pa. 2013), on the grounds that Colorado’s State constitution does not presently have an environmental rights provision of the type relied on by the Pennsylvania Supreme Court.

These decisions will help Colorado oil and gas operators. Tracee Bentley, executive director of the Colorado Petroleum Council, stated that the Court’s decision “curtails arbitrary bans on hydraulic fracturing that could cost local jobs, deprive state and local governments of much-needed tax revenues, and limit access to critical energy resources.”  While a decisive victory for the industry, the importance of which cannot be overemphasized, additional challenges remain.  It is possible that Colorado voters may be asked to vote this fall on ballot measures aimed at amending the Colorado Constitution to change the pre-emption balance.

The New York Court in 2014, found such bans to not be expressly preempted by state law, specifically the New York State Oil, Gas and Solution Mining Act (“NY OGSML”). Despite plaintiffs’ arguments that such bans conflicted with the language and policy objectives of the NY OGSML and thus were conflict preempted, the New York Court refused to address the conflict preemption question.

Two states and two different outcomes. The West Firm in NY, representing oil and gas interests suggests that “The profound differences in the approaches taken and the results reached by the Colorado Supreme Court versus the New York Court of Appeals – evaluating legally indistinguishable statutes/regulatory regimes under legally indistinguishable conflict preemption doctrines – demonstrates just how strongly political vagaries control legal outcomes in New York State.”

When laws and regulations are clear and understood, rule of law prevails. When inconsistencies or lack of direct applicability of law or regulation set the rule, political pressure on either side of the aisle can tip the scales. In either case, as other states and localities consider the environmental impacts and economic development potential of fracking, such court battles will continue to play out.

[1] See Wallach v. Town of Dryden, 23 N.Y.3d 728 (2014); Cooperstown Holstein Corp. v. Town of Middlefield, 23 N.Y.3d 728 (2014).

Paul DeCotis is a senior director in West Monroe Partners’ Energy & Utilities practice, based in New York City. He leads the firm’s Energy & Utilities team on the East Coast and is a leader for the Energy & Utilities regulatory offering. He has more than 30 years of experience as an executive, consultant, and educator and an exemplary track record for applying business and technology expertise to address the needs of an industry in transformation.

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