Colorado Supreme Court Delivers Win for Oil and Gas Drillers

Regulatory agency correctly declined to consider proposed rule, court says

The Colorado Supreme Court delivered a win for oil and gas drillers Monday with a decision in favor of the state Oil and Gas Conservation Commission. In COGCC v. Martinez, the court ruled the agency was in the right when it declined to consider a proposed rule that would have barred issuing oil and gas drilling permits unless the activity would have no cumulative adverse impact.

The Supreme Court reversed a decision by the Court of Appeals. Judicial review of an administrative agency’s decision about whether to engage in rulemaking is “limited and highly deferential,” wrote Justice Richard Gabriel in the opinion. Also according to the decision, the commission also correctly determined the language of the Colorado Oil and Gas Conservation Act would not allow it to adopt the proposed rule. And when the commission declined to consider the rule, it was already working with the Colorado Department of Public Health and Environment to address the concerns the rule was directed at, and the commission also had other priorities that took precedence.

“The provisions [of the Act] make clear that the Commission is required to foster the development of oil and gas resources, protecting and enforcing the rights of owners and producers,” Gabriel wrote. “And in doing so, to prevent and mitigate significant adverse environmental impacts to the extent necessary to protect public health, safety, and welfare, but only after taking into consideration cost-effectiveness and technical feasibility.”

The decision didn’t pass judgment on the merits of the respondents’ concerns about health and safety, or on the COGCC’s interests. Instead, the ruling focused on analyzing the commission’s decision given its purpose and authority delegated to it by the Colorado Oil and Gas Conservation Act.


Case Background

A group of people petitioned the commission in 2013 to consider a new rule requesting the commission always put public welfare ahead of oil and gas development interests when considering whether to grant permits. The commission held a comment period and hearing but ultimately denied the petition in 2014.

The petitioners appealed in district court. The court concluded the Oil and Gas Conservation Act has clear, unambiguous language requiring a balance between resource development and protection of public health, safety and welfare. The commission did not act arbitrarily when it relied on advice from the attorney general’s office, the court found, and the petition denial was rational based on stakeholder input from both sides.

The Court of Appeals reversed the district court’s findings. The court agreed the statute language is unambiguous but contrary to the district court, ruled the phrase “in a manner consistent with” indicates a condition to be met, not a balancing test. The decision took cues from other contexts that use the phrase, including one familiar to anyone who’s read a court decision: “The case is remanded for proceedings in a manner consistent with this opinion.”

The question on appeal to the Supreme Court was narrow. But judging by the hundreds of people that packed the courtroom for oral arguments, the decision is a highly anticipated one in the realm of oil and gas. Fred Yarger, Colorado’s former solicitor general who argued on behalf of the COGCC, had called a requirement for zero cumulative impact a request that “no human activity could satisfy.”

A Balancing Test, Or Condition to be Met?

In a break with the Iowa court, the Colorado Supreme Court found the statutory language ambiguous because both interpretations were reasonable. Gabriel wrote the limitations on court review of agency rulemaking are intended “to avoid judicial entanglement in abstract policy disagreements, which courts lack both expertise and information to resolve.” Courts have authority to look at agency decisions under Colorado’s Administrative Procedure Act but can only overturn a refusal to engage in rulemaking if the agency made a plain error of law “suggesting that the agency has been blind to the source of its delegated power.”

One relevant provision in the Oil and Gas Conservation Act addresses a public interest to facilitate development of oil and gas resources “in a manner consistent with” protection of public health, safety and welfare, including the environment and wildlife resources. Arguments on both sides of Martinez have zeroed in on the meaning of “in a manner consistent with.” The petitioners have argued it requires a balancing test, while the group of respondents have said its meaning should be interpreted similarly to “subject to,” indicating a condition that has to be met.

The Supreme Court acknowledged both interpretations are reasonable, so the ambiguity prompted the court to turn to the legislature’s intent with the act. It examined several amendments of the act since it passed in 1951 in which the legislature noted the importance of public health, safety and welfare. But the Supreme Court did not interpret the statutory history as an intent by the legislature to condition oil and gas development on having no cumulative adverse impact.

“Rather, we view this history as reflecting a legislative intent to promote multiple policy objectives, including the continued development of oil and gas resources and the protection of public health and the environment, without conditioning one policy objective on the satisfaction of any other,” Gabriel wrote.

Based on its analysis, the Supreme Court decided the COGCC didn’t go outside its discretion when it decided it did not have the authority to adopt the respondents’ proposed rule, nor when it decided not to consider the rule because it already was working with the Colorado Department of Public Health and Environment to address the rules concerns.

As soon as the court released its decision, Colorado lawmakers began sending out statements about their positions on the decison. Several Democratic legislators said the decision puts the ball in their court to address the issues in the case.

“Communities in every corner of our state want to know that their health and safety are being prioritized when it comes to oil and gas operations,” said House Speaker KC Becker in a news release. “This ruling puts the decision back into the hands of lawmakers to take action and we are committed to addressing this concern this legislative session.”

— Julia Cardi

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