Jim Cole and Garin Vorthmann
The Colorado General Assembly is controlled by two caucuses that are as different as night is from day except in one respect; dedication to their “cause.” Each chamber’s majority—Democrats in the House, Republicans in the Senate—run their agenda through this filter. This difference, in Colorado as it was across the country, was expressed in very predictable ways. This basic dynamic played itself out on multiple fronts: energy, banking, agriculture, and construction, to name a few. The upside to having opposite parties in control of each house is that the legislation that passes is vetted, finds compromise, and meets the expectations of both sides of the aisle.
This year had only a handful, but aggressive, anti-oil and gas industry bills. The bills introduced sought to reverse decades of settled case law, undo Colorado Supreme Court decisions, or add superfluous regulation. These legislative efforts reflect the radical nature of the numerous anti-industry ballot measures that have been filed for possible consideration on this November’s statewide ballot.
There were three troublesome bills for the industry: HB 16-1310, HB 16-1355, and HB 16-1430. HB 16-1310, sponsored by Rep. Joe Salazar (D-Thornton) would have attached strict-liability to the production of oil and gas, which under tort law, is an imposition of liability without a finding of fault. HB 16-1310 passed out the State House, but was ultimately voted down in the Senate Agriculture, Natural Resources, and Energy Committee on a bipartisan vote of 8-1. The second bill, HB 16-1355 was sponsored by Representatives Mike Foote (D-Boulder) and Su Ryden (D-Aurora) in the House, and Senators Jesse Ulibarri (D-Westminster) and Matt Jones (D-Louisville) in the Senate. HB 16-1355 would have allowed local governments to regulate oil and gas development through “1041” powers without having to work with the state first. This bill was an attempt to get in front of the two Colorado Supreme Court cases that were under consideration at the time of its proposal. HB 16-1355 was defeated on a bipartisan vote and never reached the Senate. The final bill, HB 16-1430, would have required operators to register in the counties within which they operate and provide projections of how many wells they plan to drill over a five-year period. Both Governor John Hickenlooper’s Oil and Gas Task Force and the Colorado Oil and Gas Conservation Commission (COGCC) examined this issue and independently came to the conclusion that this method of mandated projection was not necessary. HB 16-1430 passed in the State House, but ultimately died in the Senate Agriculture and Natural Resources Committee on a party line vote with the Republicans standing with industry.
The Senate Agriculture and Natural Resources Committee, chaired by Senator Jerry Sonnenberg (R-Sterling), also defeated a bill by Senator Matt Jones (D-Louisville) that would have drastically changed the mission of the COGCC. With support by environmental groups, SB 16-129 and sought to change the word “foster” to “administer” in the Oil and Gas Conservation Act thus changing the COGCC mission and de-legitimizing the Commission.
Late in the 2016 legislative session, the Colorado Supreme Court issued a decision in BP America v. Colorado Department of Revenue. The decision overturned state practice of not allowing oil and gas producers to deduct any costs for transportation, manufacturing, and processing when valuing severed minerals for tax purposes, despite state law clearly allowing these types of deductions. This decision meant that the state could be liable for the denied severance deductions by oil and gas companies. Two bills were introduced to address this issue, one (SB 16-218) stipulate how the denied deductions would be paid to companies, and a second (HB 16-1468) that was intended to overturn the Supreme Court’s decision by stating that oil and gas producers would be allowed to deduct only their direct costs for the transportation, manufacturing, and processing of identifiable and measureable oil and gas.
HB 16-1468, introduced by Speaker of the House Dickey Lee Hullinghorst (D-Boulder) and Representative KC Becker (D-Boulder),did not define “direct costs” and would have led to years of litigation over the term. Additionally, language in the bill that stipulated all costs must be “actually paid by the taxpayer” would have had the effect of eliminating all deductions for royalty owners and non-operating working interest owners since they do not actually pay the costs. The bill was rushed through the State House Affairs Committee but met a roadblock of House Republicans who let the debate drag on until the waning hours of the session, ensuring there was not enough time for the bill to pass. SB 16-218 passed both chambers in the final days of the session and was signed by the Governor on June 10, 2016.
COGA will continue to work with Interim committees. We will be monitoring discussions within the Water Resources Review Committee regarding funding for water projects, which largely come from severance tax funds. Plus we will be working with the Joint Budget Committee, and the Department of Revenue regarding state funds to pay severance tax refunds per SB 16-218.