Oil and gas violations could be costlier

Legislative committees approve raise in fines
The Colorado Statesman

With the majority of gun control bills in the rearview mirror, Democrats have set their crosshair on regulating the energy industry. Committees of both the House and Senate on Thursday advanced key oil and gas agenda items, readying for another fight with Republicans under the Gold Dome.

Senate Bill 202, sponsored by Sen. Matt Jones, D-Louisville, would require the Colorado Oil and Gas Conservation Commission to use a risk-based strategy for inspecting well sites, and have enough inspectors to inspect each location once per year. The Senate Agriculture, Natural Resources and Energy Committee sent the bill to appropriations on a party-line vote of 3-2.

House Bill 1267, sponsored by Rep. Mike Foote, D-Lafayette, would increase industry maximum fines from $1,000 per day to $15,000 per day, and set a minimum fine of $5,000 per violation per day. The measure would also repeal the current maximum total fine cap of $10,000. The House Transportation and Energy Committee sent the measure to finance on a party-line vote of 8-5.

It is significant that the measures come from two Front Range lawmakers representing the Boulder County area, where an increase in oil and gas activity, and fears around the controversial drilling process known as hydraulic fracturing, or fracking, have set off a relative panic.

Longmont voters this past November supported a ban on fracking, which is currently being challenged in court. Nearby Lafayette residents are also considering a ban. And in neighboring Larimer County, Fort Collins recently backed a ban on the drilling process.

Fracking employs the pressure of a fluid — often times including chemicals, sand and water — to increase extraction rates. Concerns have grown that water can become contaminated, especially as the process has made its way to the heavily populated Front Range. There are also noise, congestion, air pollution and resource fears.

Both Jones and Foote pointed to a 2006 test of groundwater at the abandoned Rider No. 1 gas well, operated by TOP, near Longmont’s Trail Ridge Middle School. The site tested for benzene levels nearly 100 times the state limit.

“There was a plan put in place to cleanup the mess, and the bottom line was the operator that was responsible for the mess didn’t clean up the mess for two years,” Foote pointed out in stating his case for increasing fines. “At the end of the two-year period, COGCC finally put a fine of $10,000 for two years of not cleaning up the mess.”

Supporters of increasing fines argue that if penalties are too low, oil and gas companies won’t have enough incentive to take environmental and health precautions. They point out that the fines haven’t been updated since 1955.

“What it basically is with the fines set at what they’re at right now, it’s the cost of doing business for them,” testified Rod Brueske, a well-known Boulder County anti-fracking activist who lives on a three-acre farm that is within a half-mile of three well pads.

Jim Cole, lobbyist for the Colorado Oil and Gas Association, said his organization would continue to discuss HB 1267 with Foote. Much of his organization’s concern surrounds language in the bill that would base violations around “significant adverse impact” on public health and environment.

“The finding of significant … is also going to have an effect of a more realistic analysis about what significant is … and that will be a beauty is in the eye of the beholder,” commented Cole.

The COGA lobbyist had the support of Rep. Ray Scott, R-Grand Junction, whose Western Slope district has dramatically benefited by revenue and jobs generated from the oil and gas industry. He believes there are still too many questions unanswered, such as how the fines would equate to adverse impact.

“It’s very bothersome when we have something coming this quick, this fast. For what reason?” asked Scott, before voting “absolutely no” on the legislation. “I don’t know. It sounds like punitive damages… People just aren’t ready to talk about this bill yet.”

Increasing inspections

Tied to the debate is the notion of inspections at well sites. Jones pointed out that there are currently 53,000 wells in Colorado, which is expected to increase.

The COGCC currently employs only 13 oil and gas inspectors and three supervisors, resulting in each well inspected about once every three years. The Joint Budget Committee, however, recently approved an increase of five inspectors for the upcoming fiscal year.

But in order to more adequately inspect wells once per year under Jones’ measure, the COGCC would need a total of 50 inspectors in Fiscal Year 2013-14 and 52 inspectors in Fiscal Year 2014-15, as well as seven new supervisors, according to a fiscal analysis. That number represents an increase of 32 and 34 inspectors for FY 2013-14 and FY 2014-15, respectively.

The addition — which would cost about $8.2 million the first year and $7.1 million the following year — would be paid for through a mill levy increase that is charged on the market value at the well site. The current levy is set at 0.7 mills, but it would likely be raised to as much as 1.5 mills.

Jones is also hoping to target troublesome wells directly by requiring the COGCC to use a so-called “risk-based” strategy for inspecting locations, targeting operation phases that are most likely to experience spills and excess emissions.

Matt Lepore, director of the COGCC, believes his commission is already targeting specific wells, and is worried that the influx could be difficult to manage.

“We would welcome the opportunity to bring on… new staff, but that will take some effort on our part to hire, train and integrate those folks into our staff,” he testified, adding that the commission is already grappling with recently finalized rules increasing well setbacks to a statewide universal 500 feet, and requiring water quality sample testing both before and after a well is drilled.

“We are supportive of Sen. Jones’ concept of the risk-based analysis… But we think we do that now intuitively,” added Lepore. “We also think we have the tools available with our database to do more rigorous analysis…”

Sen. Greg Brophy, R-Wray, came to the aid of the industry, pointing out that the measure includes language for “oil and gas locations,” not the wells themselves. He wonders if there would be enough funding to expand inspections to a sprawling location, rather than just the wells.

“I think if you wanted to go so far as to inspect each oil and gas location… I’m wondering if that was clear to the fiscal note analyst…” he remarked.

Clare Pramuk, who prepared the fiscal note, acknowledged that locations could be more than expected.
“We may have to have you take a look at this again…” responded Brophy.

He is also concerned that the measure would do little to quickly remediate accidents, pointing out that at the site near Trail Ridge Middle School, the problem still has taken years to address, despite being identified.

“It seems that adding inspectors may not address the problem we had in Longmont, that we need to have a process where once contamination is found, it’s remediated to the best extent possible in a timely manner,” added Brophy.

But Sen. Gail Schwartz, D-Snowmass Village, still pointed to a recent leak in Parachute, where operators have recovered at least 5,838 gallons of oil and at least 86,478 gallons of contaminated groundwater near a creek that runs into the Colorado River. The contamination was found when workers were excavating for a new pipeline.

“I’m so glad the Front Range is finally catching up on the fact that for decades we’ve had Parachutes, we’ve had the Western Slope and the impacts, and the Rifles, and we’ve been moving, I think, a regulatory structure along… But we are still subject to spills, flaring, pits — all of which we need to better identify the potential risks and hazards…” commented Schwartz.

Her remark irked Sen. Ted Harvey, R-Highlands Ranch, who as a Front Range lawmaker was insulted to hear Schwartz say that the Front Range has been uninvolved.

“You are a freshman compared to me, and I’ve been dealing with this issue for a long time…” Harvey said to Schwartz. “To imply that those of us on the Front Range who have been on this committee for 12 years have not been dealing with this issue is an inappropriate conclusion.”

In closing, Jones sought to drive the issue away from politics and back to policy. He successfully amended the measure on a party-line vote to include inspections for both new and producing wells.

“Bottom line, people need to have confidence that we’re doing our job as a state; they need to know we have adequate oversight; and that these companies operate responsibly and accountably,” declared Jones. “I don’t think we’re there.”

Democrats plan to drill other bills home

The two bills heard in committee are only the start of the Democrats’ energy agenda. On March 28, the House Transportation and Energy Committee is scheduled to hear another bill sponsored by Foote, House Bill 1269, which seeks to reduce conflicts of interest with the COGCC.

Currently, the COGCC may include at least three commissioners who are employed by the energy industry. The measure would prohibit a newly appointed commissioner from being an employee, officer, or director of an oil and gas operator, or company.

But Doug Flanders, spokesman for COGA, likened the bill to “the man behind the curtain,” referring to how the Great and Powerful Oz was really just a normal person hidden behind a curtain in the 1939 movie “The Wizard of Oz.”

“This bill is a little bit like the pay no attention to the man behind the curtain… The shiny object is, look at the conflict of interest for the commissioners… But the man behind the curtain is the other parts of this that actually will do tremendous damage, not just to the oil and gas industry, but also to mineral rights owners,” opined Flanders.

HB 1269 would also redefine “waste” to exclude reduced production that results from compliance with government regulation.

“When you redefine waste to exclude reduced production due to compliance with government regulation, that basically gives an exemption to the government to regulate without any accountability whatsoever to the costs by which you are doing this,” said Flanders. “It means that production lost from this new definition of waste can allow the state and local government to implement whatever regulation without any concern whatsoever to the mineral rights owners.”

Beyond the three bills that have already been scheduled in committee, Democratic leadership has also promised legislation increasing setbacks beyond the 500 feet recently set by the COGCC, and stricter
water and air quality sampling requirements.

House Bill 1275, sponsored by Rep. Joann Ginal, D-Fort Collins, would authorize a review of health data related to the effects of oil and gas operations in Larimer, Weld, Boulder and Arapahoe counties.

The measure was introduced on Thursday.

It would pay for the study with use of the mill levy on oil and gas production.

The purpose of the study would be to determine whether the state should prohibit further oil and gas operations. The legislation would require the state to prohibit continued emission of air pollutants from producers if the report finds adverse health data and the De-partment of Public Health and Environment recommends so. Ginal’s measure also would extend the requirements to the discharge of water pollutants.

The measure had yet to be scheduled in committee as of press time on Thursday.

Peter@coloradostatesman.com