Natural gas developer sues county over proposed rules

Company wants relief from the regulations

SG Interests I Ltd., one of the biggest producers of natural gas working in the North Fork Valley, filed a lawsuit Thursday, June 2, aiming ultimately at putting an end to the county’s regulation of the oil and gas industry.

The Houston-based company named the Gunnison Board of County Commissioners, Ramon Reed in his official capacity as Planning Commission chairman, and Neal Starkebaum in his role as assistant planning director as defendants in the suit.
Over the course of the 35-page complaint, the company calls into question the county’s legal standing for regulating the gas industry—something it sees as being squarely in the state’s jurisdiction—and accuses the county of drawing out and delaying its review process.
The complaint starts, “A dispute has arisen between the parties with regard to the County’s attempts, through a County-made regulatory muddle, to delay unreasonably oil and gas development in Gunnison County.
“The County’s actions are contrary to Colorado law. As to the particular oil and gas operations described below, the County’s Regulations are void and its regulatory authority preempted by state and federal law.”
The preemption question has been discussed at length among the county attorney, David Baumgarten, and members of the Planning Commission and the public. Consistently, the county has taken the stance that preemption is never assumed or implied in the law unless a local regulation comes into conflict with some higher authority.
Baumgarten has also taken the position that the county should take an active role in regulating industries that could have a negative impact on the health and welfare of the county’s inhabitants, human or otherwise.
SG Interests, on the other hand, believes the state is already doing a thorough job of regulating industry through the Colorado Oil and Gas Conservation Commission (COGCC) rules, amended in 2008 with Gunnison County’s participation, and is asking the court to sort out the conflict.
If the company gets what it’s asking for in the suit, the county’s oil and gas regulations will become “invalid and of no force and effect.”
If the court won’t grant the request in full, SG is willing to bargain a little.
On the table are the company’s current obligations to pay for experts (of the county’s choosing) to review documents and the preemption of specific county rules.
The complaint also asks the court to allow SG to continue with operations that have already been permitted by the state. In a couple of cases—including a permit application for the Pasco Spadafora #3 gas well and another for a pair of water containment ponds—the county’s review process has been drawn out longer than the company would like.
A further delay for the application came last month, when the Planning Commission was shaken by the early and unexpected exit of its chairman. The remaining commissioners voted not to approve the well until more information could be gathered.
 “The singular and cumulative actions and inactions of the Defendants and the excessive scope of the County Regulations interfere with SG’s ability to coordinate and schedule drilling operations and drilling rigs … and are causing SG irreparable harm for which it does not have an adequate remedy at law,” the complaint reads.
SG wants the court to make the county stop the review altogether or force it to move the process along. The complaint later adds, “Such delays significantly impact the State of Colorado’s policy of promoting a timely, efficient and predictable permitting process for oil and gas operations.”
Even Baumgarten told the Planning Commission in early May to move the process along. As for the other claims made in the complaint, the county attorney has experience fending off assaults on the county’s regulation.
The county’s “attempt,” as the complaint puts it, at regulating the industry started in mid-2003 when the county commissioners adopted the Temporary Regulations for Oil and Gas Operations.
The same year, the county went to court in Board of County Commissioner of Gunnison County v BDS International LLC. In that case, which ended up in the Colorado Court of Appeals, gas companies BDS International and Gunnison Energy Corporation, along with the COGCC, made many of the claims about preemption that SG is making now.
When the ruling came down in that case, no one got everything they wanted, although the county, the court ruled, wasn’t preempted most of the time. Until now the county has stood on the legal ground the appellate court ruling has provided without any major challenges.
The current “dispute” identified in the complaint between the county and SG Interests had only become publicly visible since the county Planning Commission took up a process to amend the regulations last year.
Although it was SG that had asked for the amendment process initially, as the rules started coming out of Planning Commission work sessions the company started raising the alarm that the amendments were going too far.
While the suit makes no mention of the amendments currently being considered, SG’s operations and land manager Eric Sanford and other representatives of the company would attend planning commission meetings and, when appropriate, let the commission know that they thought the regulations were unnecessary.
In one case at a Planning Commission work session late last year, Sanford told the commissioners, “The big picture here for me is that we still strongly disagree with both the county attorney and with this presentation that many of the proposed amendments are preempted by state rules,” Stanford said. “I think the argument that the state’s 2008 rulemaking process was somehow incomplete may or may not be the case, but they are the rules.”
A new decision about whether the county gets to make separate but complementary rules of its own could be months away and until then, Baumgarten says, nothing will change in the way the county operates. The functions of the Community Development Department and the Planning Commission will continue reviewing applications under the Regulations for Oil and Gas Development, he says.
The suit also claims the county’s rules are void because the word “temporary” was used in the title of the regulations. According to the suit, that means the regulations “may be valid, but only for a period of six months.” The county only recently dropped the word “temporary” from the title.
Baumgarten is preparing a response to the complaint by the end of the month, due June 23 and possibly a motion to dismiss. He will hold a special meeting with the county commissioners to discuss the suit going forward Thursday, June 9.