Oil and Gas Fracking Recommendations Made to Mixed Response Setting Stage for Battle at Legislature and Ballot Box

Last fall, the threat of ballot initiatives which endangered the oil and gas industry in Colorado prompted Governor John Hickenlooper to cut a deal which resulted in the formation of an Oil and Gas Task Force charged with finding common ground on policies that would resolve the tension between anti-fracking activists and the industry. Last week, the Task Force reported its recommendations to the Governor. The recommendations were received with a mix of reaction from both sides of the issue and the aisle leaving a strong likelihood of 2016 ballot question despite the attempts to avert such an outcome.
There were mixed reactions in response to the final nine recommendations of the task force. Opinions about the recommendations fell primarily along party and interest group lines with Democrats and the environmental community believing the Task Force failed to address the primary issues and did not go far enough in their recommendations to stop ongoing disputes between landowners and oil companies. Republicans and the oil and gas industry were satisfied that the recommendations reflected the lack of major changes needed to regulate the industry.
The difference of opinion sets the stage for a legislative battle and most certainly a 2016 ballot question.
In establishing the Task Force on State and Local Regulation of Oil and Gas Operations, the Governor called on members to reach consensus agreement policies which “1) benefit of oil and gas development for the state’s economy; 2) protect public health, water resources, the environment and wildlife; 3) avoids duplication and conflict between state and local regulations; and 4) fosters a climate that encourages responsible oil and gas development.”
The task force was further allowed to address issues related to the location and setbacks of well heads, whether local governments shall have more or less strict rules than the state, how surface owners and energy companies would interact when planning and locating facilities, operational methodologies, inspections, fees, fines, among other issues.
The recommendations primarily focused upon increasing between local governments and the industry and between local governments and the state. Proposals to give local governments the power to make their own rules didn’t make the two-thirds consensus cut.

Senator Matt Jones (D-Louisville) called the recommendations a “failure and do nothing to give cities and counties more power over moving drilling rigs away from homes and schools”. The issue is contemplated in the Task Force’s Minority Report, however. He plans to introduce his own legislation to address the issue of increasing setbacks from drilling rigs.
Speaker of the House Dickie Lee Hullinghorst, (D-Gunbarrel) is reviewing the recommendations but indicated her disappointment that none of the recommendations “truly increased the power of local governments to determine setbacks from homes and schools.” She has not decided if she will introduce any legislation on the House side to address the issue.
Senate President Bill Cadman (R-Colorado Springs) noted the recommendations’ goals of operational transparency and better cooperation between energy producers and local communities “seem reasonable and thoughtful on initial review.” He cautioned, however, that the threat of a statewide fracking ban ballot question still exists from outside interest groups. Hullinghorst has said she does not support a statewide ban.
For his part, the Governor remarked that attempts to give local governments more control over oil and gas drilling but be balanced with the rights of those surface owners and those who own underground mineral rights. He further remarked that he was supportive of the recommendations but said he would not tell the Legislature or regulators whether or not the recommendations should be enacted.
Meanwhile, Republicans’ attempts in the House to compensate mineral owners for a reduction in the value of their property were met with a defeat last week. Representative Perry Buck’s (R-Windsor) House Bill 05-1119 was killed by the House State Affairs Committee on a party line vote.

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NCLA Board Weighs in on Construction Defects and Affordable Housing

On the heels of the introduction of a proposal aimed at making the construction of affordable housing more viable, the NCLA Board of Directors to a position last week to support the effort and to make the issue among its priority issues. Senate Bill 15-177 proposes to make changes to current law regarding construction defects in hopes of easing legal burdens that proponents argue have hindered the construction of condominiums and other affordable housing units due to concerns of liability.

The introduction of Senate Bill 15-177 was long-awaited as a similar effort was thwarted by then-Senate President Morgan Carroll (D-Aurora) when Democrats held the majority in the Senate. SB 177 is sponsored by a bi-partisan group of legislators including House Minority Leader Brian DelGrosso (R-Loveland).

Despite the bi-partisan support of the bill, it has a significant hurdle to overcome in the House as House Speaker Dickie Lee Hullinghorst is a vocal critic and opponent of any reform effort. DelGrosso has expressed optimism that Hullinghorst will give the legislation a fair opportunity to be considered in the House despite her opposition. The committee assignment of the bill in the House, a decision of the Speaker, will be the telling indicator about the whether the bill has a chance of passage in the House.

The issue of construction defect reform has historically been a clash between builders and trial lawyers. The issue, however, has garnered the attention and concern of affordable housing proponents, municipal leaders and economic developers who have rallied to develop and support SB 177. They have framed the issue as a struggle to re-start a largely non-existant condominium market in which just 4 percent of new housing stock in Colorado is multi-family homes for sale.

SB 177 proposes to require a majority of owners in a condominium homeowners association to vote to proceed with a class-action defects lawsuit. Under current law, only a majority of an HOA’s board members must vote to proceed. SB 177 would also require that an HOA can not unilaterally remove any provision requiring them to go through mediation or arbitration before filing a lawsuit while also limiting builders from casting proxy votes in any lawsuit election for condos in a development they still own.

The bill will start its legislative path in the Senate where it is expected to pass easily under the sponsorship of Senate Majority Leader Mark Scheffel (R-Douglas County) and Democrat Senator Jessie Ulibarri (D-Commerce City). A hearing has not yet been set.

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Compensation for Mineral Owners Take Steps Forward

The Colorado Senate isn’t awaiting recommendations from the Governor’s Oil and Gas Task Force before moving solutions to the fracking battle forward. This week the Senate approved a measure to compensate mineral owners for the lost value of their mineral rights in communities that ban fracking.

The measure, Senate Bill 15-093, is sponsored by Senator Jerry Sonnenberg, a Sterling Republican who has significant concerns about protecting property rights when a local government imposes restrictions on the extraction of the minerals, thereby diminishing the value of the property. His proposal would require local governments to compensate the owner should the value be diminished by 60% or more.

The measure passed the Senate Agriculture, Natural Resources and Energy Committee on a 5-4 party line vote. It proceeds to the full Senate for action.

On the House side, Republican Representative Perry Buck of Greely faced an uphill battle in front of a hostile committee this week on a similar measure she introduced in the House. Buck’s proposal, House Bill 15-1119 would make a local government that bans fracking liable to the royalty owners for the value of the lost royalties due to the ban.

A few weeks ago, legislative leadership informed Buck that no bills relating to oil and gas would be heard until the oil and gas task force had completed its work. Despite the bill’s assignment to the House State Affairs Committee, the committee situated by leadership to assure defeat of certain measures, Buck called for a hearing on the measure. The committee, with testimony and committee discussion, considered the bill. Action on the bill, however, was delayed until a later date.

Both bills face an uphill battle in the House. The task force reports its recommendations for policy changes by February 27th setting the stage for spirited debate on a hot issue.

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GOP Reverses Pre-Majority Democrat Initiatives

Senate Republicans took advantage of their newfound majority this last week by reversing, on initial action, gun laws passed in 2013 and rural area renewable energy mandates also imposed in 2013.  The action, is likely shortlived, however, as the measures face an uphill battle in the Democrat controlled House.

In 2013, the Democrat controlled legislature passed a law that forced rural electricity providers to join their urban counterparts in getting 30 percent of their electricity from renewable sources by 2020.  Republicans have long argued the mandate was unfair.  Senate Democrats, led by Senator Morgan Carroll (D-Aurora), argue that the standard has helped lower the cost of renewable energy, which they say now is cheaper than coal or natural gas to produce electricity. The proposed change only affects rural areas, leaving Xcel Energy and other urban providers to comply with the renewable energy standard.  The Senate passed Senate Bill 44 on a party-line 18-17 vote.  The bill moves to the House where it faces one of the sponsors of the 2013 legislation, Representative Dickie Lee Hullinghorst, now Speaker of the House.  NCLA opposed the 2013 measure.

The passage of a myriad of gun control measures in 2013 spelled the demise of three State Senators and contributed to the shift in majority to Republicans in the 2014 election cycle.  This week, Republicans went to work on reversing several of the gun control measures and began bring a few Democrats into the fold in the process.   Republicans efforts to reverse several of the measures were defeated in the Democrat-controlled House this week but they found success in passage of a measure repealing the expanded background check requirements on private and online gun sales.

Hickenlooper Oil and Gas Panel Floats 57 Ideas

After months of hearings and enduring changes to the political landscape, the Governor’s oil and gas task force began the process of floating and winnowing ideas for addressing concerns about drilling in Colorado.  The task force is charged with making recommendations to the Governor and to the Legislature by February 27th setting the stage for vibrant debate in March on the volatile issue.

The task force has 57 proposals before it with two-thirds vote of the commission required to include the proposal among the list of recommendations from the task force.  The proposals run the gamut from increased state oversight of oil and gas operations, a study of health impacts to increased local control of operations and disclosure of drilling chemicals.

Increased state oversight of operations garnered a sufficient amount of task force member support to move to the next phase in the process.  A measure which sought to increase setbacks for operations depending upon the number of wells and tanks, however, was rejected by 57% of the task force on a straw vote.

The task force was formed last year by Governor Hickenlooper in a deal that kept four measures off the November ballot, two of which would have restricted hydraulic fracturing.  Congressman Jared Polis was behind the two restrictive measures and has indicated he will pursue ballot initiatives in 2016 if he is not satisfied with the task force recommendations and legislative action on the issue.

The legislature will receive the recommendations from the task force in March and will consider any legislative action necessary.

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Health Care Exchange to Undergo Scrutiny

The Colorado Health Benefit Exchange is a step closer to undergoing additional scrutiny with the passage of a pair of legislative proposals last week.   The health benefit exchange, doing business with Colorado consumers under the name Connect for Health, is the state-compliant exchange under Obamacare and has been the subject of criticism for high costs and logistical issues with the consumer interface.

The bills, SB 15-019 and SB 15-052, propose to build in legislative oversight of the exchange, oversight that is currently absent from its statutory and regulatory framework.

SB 92 by Senator Jerry Sonnenberg (R-Sterling) and Representative Dan Norberg (R-Colorado Springs) provides authority for the Office of the State Auditor to conduct periodic and comprehensive audits of the exchange.   A recent limited performance audit found discrepancies in financial management and unexpected cost overruns in certain segments of the implementation of the exchange.   SB 19 authorizes deeper and more comprehensive audits to assure sufficient transparency and accountability to consumers and state lawmakers.  The NCLA supports SB 19 and the bill passed the Senate Health and Human Services Committee on a unanimous vote.

SB 52 by Senator Larry Crowder (R-Alamosa) responds to a controversial bonus that the Connect for Health board was planning to give the Executive Director at the time while the first year roll out of the exchange was still struggling to implement.    SB 52 wouldrequire that the Legislative Health Benefit Exchange Implementation Review Committee vote on any bonuses proposed for Connect for Health employees.  The bill was also passed by the Senate Health Committee but the issue drew a partisan response and was passed on a 3-2 vote.

Both bills move to the full Senate for debate in the coming weeks.

Pot Revenues could Benefit Transportation Funding

While Republicans and Democrats dig in their heels on the question of whether TABOR surpluses should be returned to the taxpayers (generally, the Republican point of view) or retained for other state purposes (generally, the Democrat point of view), legislators may be finding common ground on asking voters for permission to retain the overage of revenue generated by marijuana sales taxes, and the unintended beneficiary could be transportation.

A year after Amendment 64 was passed in 2012, voters approved a 10% state sales tax upon the sale of recreational marijuana.  Although the revenues haven’t kept pace with the $70 Million in projected revenue, the $50 million in actual revenue is contributing to the “surplus” revenue to the state, revenues that are generated by all sources.

A transportation funding mechanism in SB 09-228 was hoped to push over $200 million in funds to transportation projects this year but a quirk in the mechanism when taken with TABOR surpluses will mean no funds will be directed toward transportation projects.  Unless, however, fewer surpluses are refunded to taxpayers.

There appears to be general agreement on both sides of the aisle that when voters passed Amendment 64 and the referendums of 2013 related to pot taxation that they did so with the expectation that revenue generated from the sale of legal marijuana would be reinvested in the various needs in Colorado, including education, prevention and enforcement of the marijuana laws.

Should the $50 million in revenue to retained, those dollars will be free to be spent on a multitude of state budget items but the move could also mean the SB 228 trigger will kick in, allowing a portion of the $200 million to flow.

Three things have to occur for those funds to flow, however: 1) A referred measure to keep the pot revenues would have to pass a 2/3 vote hurdle by the legislature, 2) the voters in November would have to approve the referendum and finally, 3) economic projections in March would have to show no additional anticipated TABOR surpluses.

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