Court calls county gas regs ‘valid’ in SG lawsuit

County refunds Gunnison Energy Corporation $20,000

Gunnison County walked away from a legal exchange with SG Interests I Ltd. with an affirmation from the court that its current regulation of oil and gas operations is valid, but found it couldn’t charge gas developers for the inspection or monitoring of their operations. The new ruling could also open a legal door to county inspections of the natural gas infrastructure, if the state allows.

Barbara Green, special counsel to the county, told the Board of County Commissioners on Tuesday, September 20, “The order clarified a very important thing for the county. That is, the temporary oil and gas regulations, which are the regulations that we have been applying to different oil and gas operators are, on their face, valid.”
In the lawsuit it filed in June, SG argued that the county’s regulations had no effect because they were titled as “temporary regulations for oil and gas operations,” and hadn’t been made permanent with an official action. The county countered that the regulations were constantly being revised, making each version only “temporary.”
SG’s lawsuit also claimed the county’s regulations were preempted by state and federal laws. The county defended itself—successfully, for the most part—against similar claims related to preemption in a 2003 lawsuit from BDS International.
The order, filed Friday, September 16 by District Judge Steven Patrick, said, “The Court is persuaded that BDS is still viable and has not been limited or reversed …” in a way that would preempt the county regulations.
Judge Patrick went on to say the amended Colorado Oil and Gas Conservation Commission rules, which SG argued were the county’s opportunity to participate in industry regulation, “do not demonstrate that the state wholly occupies the field of oil and gas operations.”
Instead, Patrick pointed to a “legislative declaration that the Oil and Gas Conservation Act shall not affect existing land use authority of local governments,” as proof of the “General Assembly’s intent to allow local governments to issue land use permits that included conditions affecting oil and gas operations,” not to preempt “all regulation of oil and gas.”
On the other hand, while the court agreed that the County could include conditions of approval with a permit application, Patrick disagreed with the County’s assertion that the state granted counties sufficient land use authority to charge a fee from gas developers to pay for an independent inspector to monitor flowback pits being planned for in the Bull Mountain Unit in northwest Gunnison County, or their components.
The court said such inspections would involve the county too heavily in the technical aspects of the operation; “conflict with the role, responsibility and determination of COGCC; and such [inspection] duties have not been delegated by COGCC to Gunnison County.”
That is, the state has not yet delegated inspection duties to the county. In discussions between the COGCC and Gunnison County, both sides have been trying to work through boundary issues related to the regulation of oil and gas operations.
“So what do we do now?” County Attorney David Baumgarten asked the commissioners. “A fair reading says the county can’t charge money for inspections but it doesn’t talk about whether you could conduct the inspections.”
A draft Memorandum of Understanding, being proposed by the county and considered by the state, would consider moving inspection authority from the state to the County, which would allow local regulators to keep some tabs on the natural gas infrastructure in the North Fork Valley.
In denying the County’s opportunity to collect the fee from gas operators, Judge Patrick went on to say that although SG “successfully exercised the administrative process with respect to the operational conflict in at least one instance,” they didn’t go far enough in the administrative process. He pointed to part of the county regulations that could have allowed SG a waiver from the fees.
Had SG taken the county’s process further, Patrick suggested, it might not have mattered.
He wrote that the correspondence between attorneys for SG and the County “has unequivocally demonstrated [the county] would deny such a waiver such that exhaustion of any administrative remedy under these facts would be futile as the parties have a dispute as to a question of law.”
Judge Patrick’s ruling that the county cannot charge gas companies for inspections put the county in a predicament, since it had already collected about $20,000 from Gunnison Energy Corporation. After discussing the matter in executive session, the commissioners, noting the good working relationship they’ve had with the company, voted to return the inspection fees.
The commissioners directed staff to request that the court allow the county to take another look at the regulation requiring the inspection fee, so it could come into line with the court order. The court will conduct a status conference Friday, September 23, which will allow the county and SG to discuss the lawsuit.