Bill to clarify state engineer’s authority passes House Ag

The Colorado Statesman

A battle pitting landowners protecting their water rights against oil and gas companies that want to avoid getting water permits may be heating up at the Capitol.

Monday, the House Agriculture, Livestock and Natural Resources Committee gave its unanimous approval to House Bill 11-1286, which on its face appears simple: to clarify the authority of the state engineer, within the Department of Natural Resources, in regard to rules on nontributary water.

That’s a mouthful. Here’s the simpler explanation, as provided in the bill’s fiscal note and from a presentation made by Dick Wolfe, the state engineer, last year.

The state is made up of groundwater basins, designed by the Colorado Ground Water Commission. Nontributary groundwater is located outside those basins, and is defined as places where water withdrawal, within 100 years, will not “deplete the flow of a natural stream at an annual rate greater than one-tenth of one percent” per year. It is water that is so deep and isolated from surface water that the impact of its withdrawal would be minimal.

More importantly, nontributary groundwater is not subject to the doctrine of prior appropriation. That’s a fundamental concept within Colorado water law, and in its simplest form says whomever was there first gets the water right. According to the HB 1286 fiscal note, nontributary groundwater “is based on ownership of the overlying land and a 100-year aquifer life expectancy.”

According to Wolfe’s presentation, a domestic water well generally drills down to about 300 feet. An oil or gas well may need to drill down by 3,000 feet or more, and in Southwestern Colorado, they’re drilling for coal bed methane at levels up to 7,000 feet deep.

When an oil or gas well is drilled, it results in “produced water.” That’s water that is removed from a geologic formation during the extraction process of mining for oil or gas. Once the water reaches the surface it must be separated from the mineral.

If the state engineer determines that groundwater is coming from a tributary source, then the oil and gas company must get a water permit. No permit is needed if the water comes from a nontributary source.

According to a three-part series published last year in the Durango Herald, two landowners in Southwestern Colorado sued the state engineer in 2005 to protect their water rights from oil and gas development, and on April 20, 2009, the Colorado Supreme Court ruled in their favor, saying that coal bed methane wells that remove produced water are extracting the water for beneficial use, and hence the oil and gas companies must obtain water permits from the state engineer.

That becomes a huge workload issue for the state engineer, because there are more than 40,000 wells in Colorado, and under Vance v. Wolfe, every well would need a permit, or at least a determination from the state engineer that the water source is nontributary.

As that court decision was coming down, the General Assembly went into action, and they passed House Bill 09-1303, which directed the state engineer to write rules regarding the withdrawal of nontributary groundwater to facilitate oil and gas development.

HB 1303 was signed into law in June 2009, but with an effective date of March 31, 2010, to allow oil and gas companies to react to Vance. The law allowed for three additional “transition” years for wells drilling for coal bed methane that produce tributary water.

However, under HB 1303 and beginning April 1, 2010, the state engineer could begin promulgating rules that would designate areas where water is either tributary or non-tributary for oil and gas production purposes.

That got Wolfe sued again.

A group that includes the city of Sterling, the original Vance plaintiffs, and other water rights holders in the San Juan and South Platte basins sued Wolfe in state water court, claiming the rules were insufficient to protect the member water rights. The case is now pending in Greeley; no hearings are currently scheduled.

Now comes HB 11-1286.

Rep. Jerry Sonnenberg, R-Sterling, told the Ag committee on Monday that the bill would clarify the authority of the state engineer to make rules about groundwater in nontributary areas for mineral production. In any situation that winds up in water court, under HB 1286, the court would give credence to the state engineer’s authority in any challenge of the maps.

Mike King, executive director of DNR, said after the Vance decision the state engineer promulgated new rules, as directed by HB 09-1303, and got sued by the same Vance plaintiffs.

“These are brutally difficult economic times,” King said. “One of the chief economic engines in Colorado is our energy production,” and he also pointed out that DNR gets a significant portion of its funding from severance taxes produced by oil and gas wells.

The court cases are a direct challenge to the authority of the state engineer, and “our position is that this Legislature authorized those rules to be promulgated. We want an affirmation of that authority, to remove all doubt,” King said.

After an extensive effort, with millions spent on water modeling, it’s in everyone’s best interest to have a degree of certainty, King explained, including one that applies to water court. Water users could still challenge the rules in water court, he said, and they could also petition to challenge the rules through the Administrative Procedures Act.

The rules adopted were based on the best available information, King said.

Philip Lopez of the law firm White & Jankoski, which represented the Vance plaintiffs, testified against HB 1286. Lopez said the bill’s timing was suspect; it was introduced the previous Thursday and scheduled for hearing just four days later. “It’s not sufficient time for other water users to comment and discuss it,” he said.

Given that there are cases pending in state water court, Lopez said, the bill appears to attempt to legislate around existing judicial decisions. It also appears to be a classic case of a “solution in search of a problem,” he said, pointing out that no oil or gas wells have been shut down as a result of Vance or the new rules, and that it shifts the rules to favor of oil and gas companies. If a rancher or farmer wanted to challenge nontributary designations, they would have the burden of proof, but oil and gas companies wouldn’t have that same burden, since HB 1286 only deals with the rules as they apply to mineral extraction.

Rep. Randy Fischer, D-Fort Collins, got into a somewhat testy exchange with Lopez over the possibility that thousands of wells would need to get permits under Vance.

“Are you advocating that the state engineer issue a permit for every oil and gas well in the state, and go to water court to adjudicate the water right if the water is being put to beneficial use?” asked Fischer, one of the bill’s co-sponsors. Lopez responded that the mineral producers would have to get a permit if they were using nontributary water for beneficial use. Whether they choose to have it adjudicated in water court was another matter, he said.

Fischer then asked if an individual oil and gas well should go through the determination that the water is nontributary, and Lopez said it should be determined to be nontributory to protect vested senior water rights, and acknowledged he was talking about a large number of wells.

Fischer later said the state needed to have flexibility in its prior appropriation doctrine, and said he was frustrated with people who want to take everything to water court. “The division of water resources has technical expertise and good judgment to make these decisions” and “­­­we need to have a little trust in the state engineer. If we don’t start saying yes to innovative ideas…we’re doomed” to situations where everything will have to go through water court.

King later told The Colorado Statesman that this will create a process where the state engineer can effectively manage water rights “between the senior water rights that are tributary and oil and gas uses that are nontributary.” This will clarify the authority the state engineer already has, King said, but whether HB 1286 applies to the more recent case, Pawnee Well Users v. Wolfe, is yet to be determined.