May 23, 2017

Colorado Court of Appeals: Oil and Gas Commission Has Authority to Issue Rule at Petitioner’s Request

The Colorado Court of Appeals issued its opinion in Martinez v. Colorado Oil and Gas Commission on Thursday, March 23, 2017.

Oil and Gas Conservation ActColorado Oil and Gas Conservation CommissionPublic Health and Safety.

Petitioners filed a petition for rulemaking pursuant to the Colorado Oil and Gas Conservation Commission’s Rule 529(b). Petitioners proposed a rule requesting that the Commission not issue permits for drilling oil and gas wells unless certain conditions were met to demonstrate that the drilling would not have specified adverse effects. The Commission ultimately denied the petition, concluding that (1) the proposed rule mandated action that exceeded the Commission’s statutory authority; (2) the requested third-party review contradicted the Commission’s nondelegable duty to promulgate rules; and (3) the public trust doctrine, which petitioners relied on to support their request, has been expressly rejected in Colorado. The district court affirmed the Commission’s order after concluding that the Commission rationally decided to deny the petition after considering input from stakeholders on both sides of the fracking issue in accordance with the Oil and Gas Conservation Act’s requirement of a balance between the development of oil and gas resources and the protection of public health, safety, and welfare.

On appeal, petitioners contended that the district court and the Commission erred in interpreting the Act. The Colorado Court of Appeals determined that the plain meaning of the statutory language indicates that fostering balanced development, production, and use of natural resources is in the public interest when that development is completed subject to the protection of public health, safety, and welfare. Therefore, the Commission erred in interpreting C.R.S. § 34-60-102(1)(a)(I) as requiring a balance between development and public health, safety, and welfare.

The district court’s and Commission’s orders were reversed and the case was remanded for further proceedings.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Summary Judgment Affirmed Where No Evidence Presented of Conspiracy to Monopolize

The Tenth Circuit Court of Appeals issued its opinion in Buccaneer Energy (USA) Inc., v. Gunnison Energy Corporation; SG Interests I, LTD.; SG Interests VII, LTD. on February 3, 2017.

Buccaneer Energy (USA) Inc. (Buccaneer) sued SG Interests I, Ltd.., SG Interests VII, Ltd. (together, SG), and Gunnison Energy Corporation (GEC) (collectively, Defendants) alleging that Defendants had conspired in restraint of trade in violation of § 1 of the Sherman Act and that Defendants had conspired to monopolize in violation of § 2 of the Sherman Act. The district court granted summary judgment for the Defendants and the Tenth Circuit affirmed due to Buccaneer’s failure to present sufficient evidence to create a genuine issue of fact on one or more elements of each of its claims.

Defendants each granted each other the option to participate equally in the construction and ownership of any pipeline initiated by the other party. GEC exercised this option to participate in the Bull Mountain Pipeline, which traveled from the Ragged Mountain Area (RM Area) located in Delta and Gunnison Counties, Colorado, to the Questar Interstate pipeline. GEC and SG also equally had ultimate control over the Ragged Mountain Gathering System (RM System), which transported natural gas from the RM Area to the Rocky Mountain natural Gas Pipeline (Rocky Mountain Pipeline).

Buccaneer acquired the Riviera Drilling and Exploration Company’s (Riviera) leases in the RM Area. Buccaneer pursued a means for transporting its expected gas production from GEC on the RM System. GEC offered a rate of $1.52 per MMBtu for interruptible service. Buccaneer countered, revising the interruptible service language but keeping the rate the same. GEC responded raising the rate to $3.92 per MMBtu, and reinserting the interruptible service provisions. Buccaneer did not counteroffer again. Buccaneer failed to secure a transportation agreement and Riviera terminated the Lease Agreement.

Buccaneer filed this case on June 21, 2012 and alleged that the “RM System was essential to effective competition for production rights and the sale of natural gas from the Ragged Mountain Area.” It further claimed that because Defendants refused to provide Buccaneer with access to the RM System, Defendants violated §§ 1 and 2 of the Sherman Act by engaging in a conspiracy in restraint of trade and a conspiracy to monopolize.

The district court granted summary judgment for Defendants on both of Buccaneer’s antitrust claims because Buccaneer did not present evidence to show that Defendants caused, or could cause, injury to competition in a defined market. Buccaneer also did not demonstrate its own preparedness to enter the market. The Tenth Court affirmed, concluding that Buccaneer failed to present sufficient evidence to survive summary judgment on either of its claims.

Section 1 of the Sherman Act prohibits “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. This provision has been construed to forbid only restraints of trade that are unreasonable. The Tenth Circuit analyzed the Defendants’ conduct under the rule of reason because Buccaneer did not allege a per se rule violation.

First, the Tenth Circuit dismissed Buccaneer’s allegation that the Defendants unreasonably denied it access to the RM System, which was Buccaneer claimed was “essential” to Buccaneer’s ability to compete. Buccaneer failed to prove the second element of the “essential facilities doctrine,” a competitor’s inability to duplicate the facility. Here, the relevant facility is the RM System, and while it may be difficult to duplicate, Buccaneer did not present any evidence on the matter. Buccaneer focused on the Bull Mountain Pipeline, which was not at issue in this case.

Next, the Tenth Circuit held that Buccaneer did not adequately establish its claim under the rule of reason. Under the rule of reason, the plaintiff has the initial burden of showing an agreement had a substantially adverse effect on competition. The burden then shifts to the defendant to show pro-competitive virtues of such conduct. Then the plaintiff must show that such conduct was not reasonably necessary to achieve the legitimate objectives.  A court must then weigh the harms and benefits of such conduct to determine if it is reasonable.

A plaintiff must show an adverse effect on competition in general, not just that the conduct adversely affected the plaintiff’s business. Buccaneer failed to meets its burden of showing that the challenged conduct had anticompetitive effects. Buccaneer did not present any evidence of actual anticompetitive effect; such as fewer production rights being acquired in the RM Area or that Defendants’ position allowed them to pay less than competitive prices.

The Tenth Circuit next addressed whether Buccaneer had shown harm to competition by Defendants’ possession of market power in the relevant market. The “relevant market” consists of both the product area and the geographic area. The product market consists of products that are sufficiently substitutable with each other based on the purpose for which they are produced, as well as their price, use, and quantities. The geographic market encompasses the area in which competition occurs. Once the relevant market has been identified, a plaintiff must show market power by demonstrating that the defendants had either the power to control price or the power to exclude competition.

Buccaneer asserted that the first relevant product was “production rights” and the relevant geographic market was the RM Area. The Tenth Circuit held that Buccaneer did not adequately define either market. Buccaneer did not offer its own definition of the product market for “production rights,” for which it bore the burden of defining. Buccaneer also failed to establish the relevant geographic market with any precision; it simply stated the area and did not define its boarders. Therefore, the Tenth Circuit held that Buccaneer failed to meet its burden of establishing either the product or the geographic market. The district court therefore did not err when it dismissed the claim for failure to allege a legally sufficient market.

Further, even if Buccaneer did define a relevant market, it did not establish that Defendants possessed market power. Market share, or size, is not enough to establish market power, and the absence of market share creates a presumption that market power does not exist. Buccaneer did not present evidence to demonstrate Defendants’ market share. It did not allege what percentage of the “production rights” market that Defendants possessed. Additionally, Buccaneer did not present evidence that that Defendants created any barriers of entry into the relevant market for competitors. Therefore, Buccaneer failed to satisfy its burden of showing market power and also failed to establish any anticompetitive effect in the alleged market for production rights.

Buccaneer next alleged that the second relevant product was natural gas, which was undisputed. The Tenth Circuit held that Buccaneer’s defined relevant market, which was “the market for downstream sales of gas,” was insufficient to address that market for considerations relevant under the rule of reason analysis. Buccaneer also failed to show that the Defendants possessed market power in any relevant market. The Tenth Circuit held that Buccaneer did not set forth facts from which a jury could find that the Defendants possessed market power in that market.

Finally, the Tenth Circuit quickly dismissed Buccaneer’s § 2 conspiracy claim because such a claim requires proof of a relevant antitrust market. As with Buccaneer’s § 1 claim, it did not establish a relevant market, so its § 2 claim fails for the same reasons as its § 1 claim.

In conclusion, the Tenth Circuit held that, because Buccaneer failed to present evidence from which a jury could conclude that Defendants’ conduct actually or potentially harmed competition in a relevant antitrust market, both its § 1 and § 2 Sherman Act claims fail. The Tenth Circuit affirmed the district court’s order granting summary judgment in favor of Defendants on that basis.

Colorado Court of Appeals: Trial Court Lacked Jurisdiction to Order Declaratory Relief Because Ordinances Were Not Final Actions

The Colorado Court of Appeals issued its opinion in Public Service Co. of Colorado v. City of Boulder on Thursday, September 22, 2016.

At the November 2011 election, Boulder residents approved an amendment to the Boulder Home Rule Charter to authorize the creation of a new light and power utility if the Council could demonstrate that the new utility could acquire the existing utility and charge rates that do not exceed those charged by Xcel Energy by more than 25%. In August 2013, the Council approved an ordinance to carry out the legislation (the first ordinance). In May 2014, the Council approved another ordinance to establish the utility (the second ordinance). Twenty-eight days later, Xcel filed a complaint with respect to the second ordinance, seeking declaratory judgment under C.R.C.P. 57 or, alternatively, judicial review under C.R.C.P. 106(a)(4). The City filed a motion to dismiss Xcel’s complaint under C.R.C.P. 12(b)(1), arguing Xcel’s complaint attempted to challenge the first ordinance by challenging the second ordinance. The trial court granted the City’s motion and dismissed the complaint for lack of subject matter jurisdiction due to time bar.

On appeal, Xcel argued the trial court wrongly dismissed its complaint for lack of jurisdiction with respect to the 28-day limit in C.R.C.P. 106(a)(4). Xcel argued the first ordinance was not final and was legislative, not quasi-judicial, which made C.R.C.P. 106 inapplicable. The Colorado Court of Appeals first addressed finality. As to the first ordinance, the court found it was not final because (1) it did not establish the utility, (2) it referenced additional revisions to be made in planning the utility, and (3) the City made those additional revisions after the ordinance was passed.

The court evaluated Rule 106 and found that it governed “final decisions of the body or officer.” The court determined that neither the first nor the second ordinance was final for purposes of Rule 106 appeal. Because neither ordinance was final, judicial review under Rule 106 was premature. The court of appeals disagreed with the district court’s conclusion that Xcel’s complaint was time-barred, finding instead that it was premature.

The court also found that the district court could not enter a declaratory judgment under C.R.C.P. 57(b). The court noted that the lack of finality for the Rule 106 review also applied to declaratory judgments under Rule 57, and therefore it was premature for a declaratory judgment to issue.

The court declined to address whether the claims were quasi-legislative or quasi-judicial, and vacated the judgment of the district court.

Uniform Trust Decanting Act, Governing Law for LLCs, Funding Marijuana Research, and More Bills Signed

On Monday, June 6, 2016, Governor Hickenlooper signed 34 bills into law. Governor Hickenlooper vetoed a bill on Thursday, HB 16-1231, “Concerning the Limited Use of Automated Vehicle Identification Systems Designed to Detect Disobedience to a Traffic Signal.” To date, the governor has signed 251 bills and vetoed one bill this legislative session.

The bills signed Monday include a bill enacting the Uniform Trust Decanting Act, a bill amending requirements for limited liability companies, a bill limiting the applicability of the statute of frauds to partnerships, a bill allowing appropriations from the marijuana cash fund to finance marijuana research, and more. The bills signed Monday are summarized here.

  • HB 16-1040 – Concerning Auxiliary Emergency Communications in the State, and, in Connection Therewith, Establishing the Auxiliary Emergency Communications Unit in the Office Of Emergency Management in the Department of Public Safety, and Making an Appropriation, by Rep. Jonathan Singer and Sen. Chris Holbert. The bill creates the Auxiliary Emergency Communications Unit, which can establish programs for training auxiliary emergency communications across the state.
  • HB 16-1142 – Concerning the Creation of a Credit Against the State Income Tax for Rural Primary Care Preceptors Training Students Matriculating at Colorado Institutions of Higher Education, by Reps. Perry Buck & Joann Ginal and Sens. Larry Crowder & John Cooke. The bill creates a state income tax credit for licensed Colorado health care professionals who provide uncompensated personalized instruction, training, and supervision to one or more graduate students seeking a medical degree at a Colorado institution for higher education.
  • HB 16-1177 – Concerning the Continuation of the Council of Higher Education Representatives, by Rep. Janet Buckner & Brittany Pettersen and Sen. Owen Hill. The bill extends the sunset of the Council of Higher Education Representatives until September 1, 2021.
  • HB 16-1186 – Concerning the Allocation of a Portion of Fee Revenues Collected from Public Utilities to Meet Colorado’s Grant Match Obligations Under Federal Law Governing the Funding of Fixed Rail Guideway Safety Oversight Programs, and, in Connection Therewith, Making an Appropriation, by Rep. Max Tyler and Sen. Randy Baumgardner. The bill diverts $150,000 of the public utility fees from the General Fund to the Fixed Utility Fund.
  • HB 16-1287 – Concerning a Requirement that the Department of Labor and Employment Study the Integration of Alternative Training by Colorado Businesses, by Reps. Paul Rosenthal & Jim Wilson and Sens. John Cooke & Andy Kefalas. The bill requires the Department of Labor and Employment to review its regulations that may impact the availability of apprenticeship and pre-apprenticeship programs in Colorado businesses by July 1, 2017.
  • HB 16-1329 – Concerning Laws Governing Limited Liability Companies Codified in Article 80 of Title 7 of the Colorado Revised Statutes, by Rep. Pete Lee and Sens. Mark Scheffel & Rollie Heath. The bill changes state law regarding limited liability companies, including removing the requirement that a partner’s contribution to the LLC is a prerequisite to becoming a member of the company, limits the statute of frauds, and reconciles various partnership and LLC acts.
  • HB 16-1330 – Concerning Authority to File a Correction Statement with the Secretary of State if a Document Previously Filed was Delivered to the Secretary of State for Filing in Error, by Rep. Pete Lee and Sens. Mark Scheffel & Rollie Heath. Under current law, an entity may file a statement of correction with the Secretary of State’s Office to revoke a previously filed document under certain conditions. This bill allows statements of correction to also be filed for a document that was delivered and filed in error.
  • HB 16-1332 – Concerning Modifications to the Income Tax Credits for Alternative Fuel Motor Vehicles, and, in Connection Therewith, Fixing Specified Dollar Amounts for the Credits, Allowing the Credit to be Assigned to a Financing Entity, Requiring Vehicle Identification Number Tracking of the Motor Vehicle for which the Credit is Claimed, and Making an Appropriation, by Reps. Crisanta Duran & Daneya Esgar and Sens. Ray Scott & Michael Johnston. The bill changes two refundable income tax credits in current law: the innovative motor vehicle credit and the innovative truck credit.
  • HB 16-1333 – Concerning Laws Governing Partnerships Codified in Title 7 of the Colorado Revised Statutes, by Rep. Pete Lee and Sens. Mark Scheffel & Rollie Heath. The bill limits the applicability of the statute of frauds to partnerships and specifies which laws govern limited partnerships.
  • HB 16-1348 – Concerning a Specific Crime of Cruelty to a Certified Police Working Dog, by Rep. Su Ryden and Sen. Nancy Todd. The bill creates the crime of cruelty to a law enforcement service animal as a class 6 felony for a first offense and a class 5 felony for subsequent offenses.
  • HB 16-1349 – Concerning Continuation of the Voluntary Contribution to the Military Family Relief Fund, by Reps. Su Ryden & Dan Nordberg and Sen. Morgan Carroll. The bill extends the voluntary contribution designation benefitting the Military Family Relief Fund through tax year 2020.
  • HB 16-1368 – Concerning the Codification of Current Practice for the Management of Records of Governmental Agencies, by Rep. Max Tyler and Sen. Beth Martinez Humenik. The bill clarifies and codifies the current practices of the state archivist in the Department of Personnel and Administration related to the storage and retention of state archives and public records.
  • HB 16-1373 – Concerning Requiring School Districts to Adopt a Policy Permitting the Use of Medical Marijuana by Students Authorized to Use Medical Marijuana, by Rep. Jonathan Singer and Sens. Chris Holbert & Vicki Marble. The bill allows school districts to adopt policies allowing medical marijuana use by students authorized to use medical marijuana.
  • HB 16-1375 – Concerning Changes to Dates for Submitting Reports that Involve the Department of Higher Education, by Reps. Jeni James Arndt & Jim Wilson and Sens. Nancy Todd & Owen Hill. Under current law, the Department of Higher Education and Department of Education are required to submit a joint report on February 1 annually. The bill changes the due date to April 1.
  • HB 16-1458 – Concerning Measures to Effectuate the Conservation of Nature Species in Colorado, and, in Connection Therewith, Making Appropriations from the Species Conservation Trust Fund for Purposes Recommended by the Department of Natural Resources, by Reps. Ed Vigil & Don Coram and Sens. Jerry Sonnenberg & Leroy Garcia. The bill appropriates $3.0 million from the Species Conservation Trust Fund for programs that are designed to conserve native species that have been listed as threatened or endangered under state or federal law, or are likely to become candidate species.
  • HB 16-1465 – Concerning Modifications to the Colorado Low-Income Housing Tax Credit, and, in Connection Therewith, Extending the Period During which the Colorado Housing and Finance Authority may Allocate Low-Income Housing Tax Credits, by Reps. Crisanta Duran & Jon Becker and Sens. Jessie Ulibarri & John Cooke. The bill extends the number of years, from two to five years, in which the Colorado Housing and Finance Authority may allocate low-income housing income tax credits.
  • SB 16-003 – Concerning Increased Methods to Reduce Wildfire Risk, by Sens. Ellen Roberts & Matt Jones and Rep. KC Becker. The bill adds broadcast burning to the types of projects and methods for which the Department of Natural Resources may award grants from the Wildfire Risk Reduction Cash Fund, and authorizes the transfer of a total of $3.0 million into the cash fund.
  • SB 16-041 – Concerning Data Collected by the Division of Criminal Justice in the Department of Public Safety Concerning the Study of Marijuana Implementation, by Sen. Randy Baumgardner and Rep. Dan Pabon. Currently, the Department of Criminal Justice is required to study law enforcement activities and costs related to the personal use and regulation of marijuana. This bill repeals the section of statute that requires the study to examine law enforcement costs and repeals the requirement that the study contain information concerning marijuana-initiated contacts by law enforcement, broken down by judicial district and by race and ethnicity.
  • SB 16-085 – Concerning the “Colorado Uniform Trust Decanting Act,” by Sen. Pat Steadman and Rep. Yeulin Willett. The bill enacts the Uniform Trust Decanting Act in Colorado, which allows a trustee to reform an irrevocable trust document within reasonable limits that ensure the trust will achieve the settlor’s original intent. The act prevents decanting—a term to describe the distribution of assets from one trust into a second trust—when it would defeat a charitable or tax-related purpose of the settlor.
  • SB 16-087 – Concerning Funding for the Highway-Rail Crossing Signalization Fund, and, in Connection Therewith, Making an Appropriation, by Sen. Randy Baumgardner and Rep. Max Tyler. The bill creates a one-time state transfer of $240,000 from off-the-top Highway Users Tax Fund (HUTF) revenue to the Highway-Rail Crossing Signalization Fund in FY 2016-17. In FY 2017-18 and each year thereafter, the bill creates a state diversion from the General Fund.
  • SB 16-104 – Concerning Incentives to Become a Teacher in a Rural School District in Colorado, and, in Connection Therewith, Making an Appropriation, by Sens. Nancy Todd & Jerry Sonnenberg and Rep. Jon Becker. The bill creates several new programs to provide incentives for individuals to become teachers in rural school districts, and to support the needs of professional educators in rural school districts.
  • SB 16-132 – Concerning Clarifying that Test Results Relating to Certain DUI Offenses are Not Public Information, by Sen. John Cooke and Rep. Mike Foote. The bill requires the Colorado Department of Public Health and Environment to keep all personal identifying information related to blood alcohol content test results confidential, and specifies that the test results may only be released to the individual who is the subject of the test, his or her attorney, a named party in a civil or criminal case to which the test results are directly related, or a prosecuting attorney, law enforcement officer, state agency, or state and local public official legally authorized to use such information to carry out his or her duties.
  • SB 16-135 – Concerning a Pharmacist’s Provision of Health Care Services that have been Delegated by Another Health Care Provider, by Sen. Irene Aguilar and Rep. Joann Ginal. The bill allows health insurance plans to provide coverage for health care services provided by a pharmacist as part of a collaborative pharmacy practice agreement if certain conditions are met. Specifically, the health plan must provide coverage for the same service if it is provided by a licensed physician or an advanced practice nurse and the pharmacist must be included in the insurers network of participating providers.
  • SB 16-146 – Concerning Modernizing Statutes Relating to Sexually Transmitted Infections, by Sen. Pat Steadman and Rep. Daneya Esgar. The bill updates state law concerning sexually transmitted infections (STIs) and allows for all STIs to be treated uniformly. It removes language specifically criminalizing HIV infection.
  • SB 16-171 – Concerning Modification and Clarification of the Statutes Pertaining to the New Energy Improvement District, by Sens. Beth Martinez Humenik & Mark Scheffel and Reps. Max Tyler & Jon Becker. The bill requires treasurers of counties that have authorized the New Energy Improvement District program to retain a 1 percent collection fee for each NEID special assessment that it collects. The bill also requires such treasurers to distribute NEID special assessments to the NEID in the same manner, less the collection fee, as property taxes are distributed.
  • SB 16-189 – Concerning the Nonsubstantive Revision of Statutes in the Colorado Revised Statutes, as Amended, and, in Connection Therewith, Amending or Repealing Obsolete, Imperfect, and Inoperative Law to Preserve the Legislative Intent, Effect, and Meaning of the Law, by Sen. Ray Scott and Rep. Mike Foote. The bill amends or repeals obsolete, unclear, or conflicting laws. The bill also clarifies statutory language, but does not change the intent or meaning of existing statute. The bill’s appendix explains the reasons for each amendment.
  • SB 16-191 – Concerning Marijuana Research Funded by the Marijuana Tax Cash Fund, and, in Connection Therewith, Making an Appropriation, by Sen. Pat Steadman and Rep. Bob Rankin. The bill authorizes the General Assembly to appropriate money from the Marijuana Tax Cash Fund to the Board of Governors of the Colorado State University System to fund scientific and social science research at CSU-Pueblo concerning marijuana and other matters that impact the state and its regions.
  • SB 16-193 – Concerning the Duties of the Safe2Tell Program, and, in Connection Therewith, Making an Appropriation, by Sens. Bill Cadman & Mark Scheffel and Reps. Dickey Lee Hullinghorst & Crisanta Duran. The bill requires the Department of Law to provide Safe2Tell program materials to Colorado preschools, elementary schools, middle schools, high schools, 4-H extension offices, and boys and girls clubs by August 1 of each year, beginning on June 30, 2017.
  • SB 16-195 – Concerning the Annual Appropriation of Money in the Central Fund for Veterans Centers to the State Department of Human Services, by Sen. Kevin Grantham and Rep. Bob Rankin. The bill grants the Department of Human Services continuous spending authority from the central fund for the direct costs of the operation and administration of veterans centers, and for capital construction in connection with the centers.
  • SB 16-196 – Concerning the Creation of a Pilot Program for Inclusive Higher Education for Persons with Intellectual and Developmental Disabilities, and, in Connection Therewith, Making an Appropriation, by Sens. John Cooke & Bill Cadman and Reps. Lois Landgraf & Dave Young. The bill creates a pilot program aimed at establishing higher education programs for students with intellectual and developmental disabilities. The program will operate from FY 2016-17 through FY 2020-21 at three institutions: the University of Northern Colorado, the University of Colorado-Colorado Springs, and Arapahoe Community College.
  • SB 16-203 – Concerning the Evaluation of State Tax Expenditures, and, in Connection Therewith, Making an Appropriation, by Sen. Kent Lambert and Reps. Millie Hamner & Bob Rankin. The bill directs the Office of the State Auditor to conduct evaluations of all state tax expenditures, and requires the evaluations to include descriptions of the expenditure’s purpose and intended beneficiaries, whether it is accomplishing its goal, costs and benefits of the expenditure, similar expenditures in other states, other businesses or programs accomplishing the expenditure’s goals, recommended changes, and performance measures used in the evaluation.
  • SB 16-204 – Concerning the Higher Education Revenue Bond Intercept Program, by Sen. Kent Lambert and Rep. Bob Rankin. The bill modifies the legislative and executive branch review and conditions of participation in the higher education revenue bond intercept program.
  • SB 16-205 – Concerning Payment for Expenses of Indigent Parents, by Sen. Kent Lambert and Rep. Millie Hamner. Under current law, the Office of the State Court Administrator receives funding to pay for an indigent parent to retain one expert witness and to obtain a transcript of the trial during a parent-child termination proceeding. Given that responsibility for retaining counsel for indigent parents in such cases is now managed by the Office of the Respondent Parents’ Counsel (ORPC), this bill clarifies that funding for these expenses are to be appropriated to the ORPC.
  • SB 16-209 – Concerning Authorizing a School District Board of Education to Construct a Building for Lease to a State Institution of Higher Education, by Sens. Nancy Todd & Chris Holbert and Reps. Janet Buckner & Kevin Priola. The bill authorizes a school district board of education to lease school district property to a state institution of higher education and to accept in-kind services (such as tuition reduction or scholarships for their students) from the institution as all or part of the lease payments.

For a complete list of Governor Hickenlooper’s 2016 legislative decisions, click here.

SB 16-171: Enacting Modifications to New Energy Improvement District Program

On March 22, 2016, Sen. Martinez and Rep. Tyler introduced SB 16-171Concerning Modification and Clarification of the Statutes Pertaining to the New Energy Improvement District. The bill was assigned to the Senate Local Government Committee, where it was referred, unamended, to the Senate Committee of the Whole for Second Reading. The bill passed Second and Third Readings in the Senate with no amendments and was referred to the House Committee on Transportation & Energy. The bill passed through the House with no amendments and is awaiting signature.

The New Energy Improvement District (“NEID”) is a statewide district operating a program to facilitate private financing of energy and water improvements to eligible real property. This bill modifies and clarifies the statutes that pertain to the NEID as follows:

Section 2 of the bill, C.R.S. § 32-20-105, requires the county treasurer of a county that has authorized the operation of the NEID Program (“Program”) to retain a one percent collection fee for each NEID special assessment that is collected. The bill also authorizes such a county to revoke its authorization for the operation of the program so long as the county meets all of its program financing obligations existing on the effective date of the deauthorization until all fees have been paid in full to the NEID.

Section 3 of the bill, C.R.S. § 32-20-106, does three things. First, it repeals the authority of the NEID to reduce the amount of any special assessment with the consent of the owner of the property where the special assessment is levied. Second, it clarifies that delinquent special assessment installments incur interest charges at the same rate as delinquent property taxes. Third, it requires the county treasurer to distribute NEID special assessments to the NEID in the same manner, less the collection fee, as property taxes are distributed.

Section 4, C.R.S. § 32-20-107, repeals an existing prohibition against county assessors that prohibited them from taking into account, when valuing real property, an increase in market value resulting from an energy or water improvement financed through the NEID program. Section 4 also repeals the existing authority for the NEID to initiate a civil action for foreclosure.

Mark Proust is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

HB 16-1430: Implementing Recommendations of Governor’s Oil and Gas Task Force

On April 1, 2016, Rep. Steve Lebsock and Sen. Mary Hodge introduced HB 16-1430Concerning the Implementation of a Recommendation of the Oil and Gas Task Force Regarding the Sharing of Oil and Gas Operators’ Development Plans with Affected Local Governments. The bill was assigned to the House Transportation & Energy Committee, where it was amended and referred for Second Reading with the House Committee of the Whole. The bill was again amended on Second Reading but passed Third Reading with no further amendments. It was introduced in the Senate and assigned to the Agriculture, Natural Resources, & Energy Committee.

The Colorado Oil and Gas Conservation Commission recently promulgated several rules to implement two of the recommendations of the governor’s oil and gas task force. The bill codifies some of the essential elements of one of the recommendations.

First, the bill states a local government must register with the Commission a statement of its intent to be covered by the bill in order to be qualified to receive from oil and gas operators the information specified in the bill.

Second, each operator shall register with the Commission and with each registered local government in whose jurisdiction it has an approved drilling unit, a pending or approved permit to drill, or an application for a new or amended oil and gas location.

Third, an operator registers with a local government by: (1) complying with the registration process established by the local government; or (2) if no local registration process exists, delivering a current copy of its Commission registration to the local government.

Fourth, a registered local government may request a registered operator to provide the following information: (1) an estimate of the number of wells the operator intends to drill in the next five years; and (2) a map showing the location of the operator’s existing well sits, sites for which the operator has approved or has submitted applications for drilling, and potentially developable sites for which no application has been submitted.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

Colorado Supreme Court: Cost of Capital Deductible from Severance Tax

The Colorado Supreme Court issued its opinion in BP America Production Co. v. Colorado Department of Revenue on Monday, April 25, 2016.

Tax Law—Tax Deduction—Severance Tax.

Colorado’s severance tax statute levies a tax on income derived from the sale of natural gas extracted from real property in Colorado. The statute permits taxpayers to deduct “any transportation, manufacturing, and processing costs” from revenue in valuing oil and gas resources for tax purposes. Here, BP America Production Company sought to deduct the cost of capital because it is a cost associated with transportation and processing activity. The Supreme Court held that the plain language of the severance tax statute authorizes a deduction for any transportation, manufacturing, and processing costs and that the cost of capital is a deductible cost that resulted from investment in transportation and processing facilities.

Summary provided courtesy of The Colorado Lawyer.

HB 16-1310: Increasing Potential Liability of Oil and Gas Operators Beyond Interference with Surface Use

On March 2, 2016, Rep. Joseph Salazar and Sen. Morgan Carroll introduced HB 16-1310Concerning Liability for the Conduct of Oil and Gas Operations. The bill was introduced in the House Health, Insurance, & Environment Committee, where it was referred, unamended, to the House Committee of the Whole. The bill passed Second Reading with amendments and Third Reading with no amendments. In the Senate, the bill was assigned to the Agriculture, Natural Resources, & Energy Committee.

Under current law governing relations between surface landowners and oil and gas operators, to prevail on a claim a surface owner plaintiff must present evidence that the operator’s use of the surface land materially interfered with the surface owner’s use of the surface of the land. This bill increases the potential liability of operators beyond interference with the owner’s use of the surface by allowing a plaintiff to present evidence that the oil and gas operations caused bodily injury to the surface owner or any person residing on the property of the surface owner, or that the operations damaged the surface owner’s property.

The bill also holds oil and gas operators strictly liable if the operations, including a hydraulic fracturing treatment or reinjection operation, cause an earthquake that damages real or personal property or injuries an individual, wherever the person or property is located. A plaintiff establishes a prima facie case of causation in this context if the plaintiff shows: (1) An earthquake has occurred; (2) the earthquake damaged the plaintiff’s property or injured the plaintiff; and (3) the oil and gas operations occurred within an area that has been determined to have experienced induced seismicity by a study of induced seismicity that was independently peer-reviewed. The strict liability established by this bill is not waivable by contract, and a plaintiff has five years after discovery of the damages or injury to file an action.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

DOR Beneficiary Designation Bill, Medical Marijuana Testing Facility Licensing Bill, and More Signed

On Wednesday, March 23, 2016, Governor Hickenlooper signed 13 bills into law. To date, the governor has signed 59 bills this legislative session. The bills signed Wednesday include a bill requiring the Department of Revenue to create its own beneficiary designation form for vehicle ownership transfer on death, a bill allowing local licensing authorities to issue medical marijuana testing facility licenses, and more.

  • HB 16-1051 – Concerning the Issuance of Beneficiary Designation Forms to Facilitate the Transfer of Ownership of a Vehicle Upon the Death of an Owner, by Rep. Kevin Van Winkle and Sen. Chris Holbert. The bill requires the Department of Revenue to create its own beneficiary designation form for the transfer of vehicle ownership.
  • HB 16-1064 – Concerning Local Licensing of Marijuana Testing Facilities, by Rep. J. Paul Brown and Sen. Ellen Roberts. The bill allows a local medical marijuana licensing authority to issue medical marijuana testing facility licenses.
  • HB 16-1091 – Concerning a Change to the Biennial Filing Date for Rate-Regulated Electric Utilities to Submit Their Plans for Transmission Facilities to the Public Utilities Commission and, in Connection Therewith, Deleting the Requirement that the Commission Issue a Final Order within One Hundred Eighty Days After an Application for the Construction or Expansion of Transmission Facilities is Filed, by Reps. Dan Thurlow & Diane Mitsch Bush and Sen. Jerry Sonnenberg. Current law requires rate regulated electric utilities to submit plans and other documents to the PUC by October 31 of each odd-numbered year. The bill changes the requirement so that the PUC can set the date for plan submission.
  • HB 16-1119 – Concerning a Modification to the Number of Days that an Aircraft May Remain in the State After it is Purchased for Purposes of the Sales and Use Tax Exemption on the Purchase of Certain Aircraft, by Rep. Dan Thurlow and Sen. Chris Holbert. The bill expands the sales and use tax exemptions for aircraft.
  • SB 16-055 – Concerning the Conduct of Elections to Choose the Board of Directors of a Cooperative Electric Association, by Sen. Kevin Grantham and Rep. Dominick Moreno. Currently, cooperative electric associations may exempt themselves from regulation by the PUC, and may contract with third parties to collect and count the ballots for board elections. The bill allows the ballots to be mailed directly to the third party.
  • SB 16-063 – Concerning the Authority of a Local Government to Enter Into an Intergovernmental Agreement with an Out-of-State Local Government to Provide Critical Public Services, by Sen. Ellen Roberts and Rep. Edward Vigil. The bill authorizes local governments to contract with local governments in bordering states to provide emergency services.
  • SB 16-089 – Concerning the Establishment of an Alternative Maximum Reserve for the Department of State Cash Fund, by Sen. Kent Lambert and Rep. Millie Hamner. The bill allows an alternative maximum reserve for the Department of State Cash Fund equal to 16.5 percent of total expenditures plus an amount equal to any unexpended moneys from the previous year.
  • SB 16-090 – Concerning the Ability of the Department of Public Health and Environment to Collect Data on Marijuana Health Effects at a Regional Level, by Sen. Pat Steadman and Rep. Dave Young. The bill allows data regarding marijuana health effects to be reported at the regional level instead of only the county level.
  • SB 16-091 – Concerning Timing of the Statewide Discovery Sharing System, by Sen. Kent Lambert and Rep. Millie Hamner. The bill delays the start of the statewide eDiscovery sharing system from November 1, 2016 to July 1, 2017.
  • SB 16-092 – Concerning the Authorization of the State to Act Pursuant to the Federal “Oil Pollution Act of 1990,” by Sen. Kevin Grantham and Rep. Bob Rankin. The bill allows money recovered for damages pursuant to the federal Oil Pollution Act to be deposited in the Natural Resource Damage Recovery Fund.
  • SB 16-093 – Concerning Transfer of the Oversight of Independent Living Services from the Department of Human Services to the Department of Labor and Employment, by Sen. Kent Lambert and Rep. Dave Young. The bill transfers oversight of independent living services for persons with disabilities to the Department of Labor and Employment.
  • SB 16-095 – Concerning the Five-Year Appropriations Requirement for Bills that Change the Periods of Incarceration in State Correctional Facilities, by Sen. Pat Steadman and Rep. Dave Young. The bill modifies the manner in which fiscal notes and appropriations affecting the Department of Corrections are made.
  • SB 16-107 – Concerning the Regulation of Voter Registration Drive Circulators and, in Connection Therewith, Requiring Circulators to Complete Mandatory Training, by Sen. John Cooke and Rep. Dan Pabon. The bill requires voter registration drive circulators to meet training requirements established by the Secretary of State prior to circulating any voter registration applications.

For a complete list of Governor Hickenlooper’s 2016 legislative decisions, click here.

Colorado Court of Appeals: Post-Marketability Transportation Costs of Oil and Gas Are Deductible if Reasonable

The Colorado Court of Appeals issued its opinion in Lindauer v. Williams Production RMT Co. on Thursday, March 10, 2016.

Oil and Gas Leases—Royalties—Transportation Costs.

In a case of first impression, the Court of Appeals held that costs incurred to transport natural gas to markets beyond the first commercial market do not have to enhance the value of that gas such that actual royalty revenues increase in order to be deductible from royalty payments.

Plaintiffs (lessors) own royalty interests under oil and gas leases for wells operated by Williams Production RMT Company n/k/a WPX Energy Rocky Mountain, LLC (WPX) (lessee). They brought this class action in 2006 challenging WPX’s calculation and payment of royalties. The parties reached a partial settlement agreement in 2008. The reserved claim before the Court was plaintiffs’ assertion that WPX improperly deducted transportation costs incurred beyond the first commercial market when calculating royalties on natural gas.

WPX incurred costs to transport natural gas on lands subject to plaintiffs’ leases from the wellhead to the “tailgate” of the processing plant, where the gas entered a large mainline pipeline. The costs of processing and transporting the gas to the point it reached the tailgate were not deducted from royalties paid to plaintiffs. Although there is a commercial market for gas at or near the tailgate, WPX sold some of the gas in “downstream” markets where higher prices were sometimes available. WPX entered into long-term contracts with pipeline companies to reserve capacity on the mainline pipelines to transport gas from the tailgate to those downstream markets.

The downstream transportation charges involved two charges: (1) a “demand charge” to reserve space on the pipelines, which was paid regardless of whether the pipelines were used to ship gas and was only deducted from royalties in months when gas was shipped; and (2) a “commodity charge,” which was paid by WPX per unit volume actually shipped on the pipelines and was deducted from revenues before paying royalties. The leases were silent as to allocation of these costs.

Plaintiffs argued that to deduct these charges from royalties, WPX had to show enhancement on a month-by-month basis by comparing downstream prices at the point of sale to the price of gas at the tailgate; because actual royalty revenues did not always increase in proportion to the transportation costs, they should not have been deducted in any month in which the additional transportation costs exceeded any increase in royalty revenue achieved from the downstream sales. The district court agreed and found no enhancement of royalties in 35 months during the eight-year period at issue, and based on the price differentials, entered judgment against WPX.

On appeal, WPX argued that the enhancement test does not apply to post-marketability transportation costs and it was error to look at the enhancement on a month-by-month basis instead of over the entire term of the leases. The Court agreed, holding that post-marketability transportation costs are deductible if they are reasonable and that lessees are not required to establish that such costs enhance the value of the gas or increase royalty revenues. Plaintiffs conceded that the costs were reasonable, thus the Court concluded they were deductible.

The judgment was reversed.

Summary and full case available here, courtesy of The Colorado Lawyer.

HB 16-1035: Limiting Public Utility Securities to Electricity or Gas Services

On January 13, 2016, Rep. Jon Keyser introduced HB 16-1035Concerning the Scope of Statutes Making the Issuance of Securities by a Public Utility Conditional on Approval by the Colorado Public Utilities Commission, and, In Connection Therewith, Clarifying That the Approval Requirement Applies Only to Electric and Gas Utilities. The bill was assigned to the House State, Veterans, and Military Affairs Committee.

This bill introduces an amendment to an already existing bill and aims to narrow the statue, requiring advance approval by the public utilities commission for the issuance of securities to fund property acquisitions, facilities, repairs, and other expenditures, to apply only to electric and gas utilities.

The only amendment to C.R.S. § 40-1-104 is the addition of subsection (b) under the rule. Subsection (b) is proposed to read as follows: “The requirements of this section apply only to public utilities providing electricity or gas service.”

Mark Proust is a 2016 J.D. candidate at the University of Denver Sturm College of Law.

Tenth Circuit: Diversity Jurisdiction Requires Complete Diversity of Parties

The Tenth Circuit Court of Appeals issued its opinion in Grynberg v. Kinder Morgan Energy Partners, L.P. on Monday, November 2, 2015.

Celeste Grynberg, individually and on behalf of several trusts of which she is trustee, and Jack Grynberg petitioned the U.S. District Court for the District of Colorado to vacate an arbitration award entered against them in favor of Kinder Morgan Energy Partners L.P. and Kinder Morgan CO2 Company L.P. (Kinder Morgan entities). The Grynbergs alleged diversity jurisdiction since the amount in controversy was over $75,000, they were residents of Colorado, Kinder Morgan Energy Partners (KMEP) was a Delaware limited partnership with its principal place of business in Texas, and Kinder Morgan CO2 Company (KMCO2) was a Texas limited partnership with its principal place of business in Texas. The district court issued an order to show cause that said the Grynbergs’ petition did not adequately allege diversity jurisdiction because it did not properly identify the citizenship of the Kinder Morgan entities as of the filing date. In response, the Grynbergs explained that KMEP was a publicly traded Delaware master limited partnership (MLP) and KMCO2 was a Texas limited partnership wholly owned by KMEP. The Kinder Morgan entities responded and explained that KMEP had unitholders who were citizens of Colorado. The district court dismissed the action without prejudice based on lack of diversity jurisdiction.

On appeal, the Tenth Circuit analyzed the jurisdictional statutes and the citizenship of MLPs. The Tenth Circuit noted it could only find diversity jurisdiction if no plaintiff is a citizen of the same state as any defendant. The Tenth Circuit turned to the citizenship of MLPs and determined that an MLPs citizenship consists of its unitholders’ citizenship. First, the Tenth Circuit analyzed the long-standing rule regarding citizenship of corporations and unincorporated entities, finding that under Carden v. Arkoma Associates, 494 U.S. 185 (1990), an unincorporated entity’s citizenship is determined by the citizenship of its members. The Tenth Circuit next found that the narrow exception set forth in Puerto Rico v. Russell & Co., 288 U.S. 476 (1933), did not apply because the entity at issue in Russell was wholly unique to Puerto Rico and resembled a corporation more than an unincorporated entity. The Tenth Circuit noted that the Supreme Court had declined to apply the Russell exception to any entities other than the type enunciated in Russell. Finally, the Tenth Circuit addressed the Grynbergs’ argument that applying Carden would preclude jurisdiction over MLPs, noting that these policy arguments were best addressed to Congress.

The Tenth Circuit affirmed the district court’s dismissal without prejudice.