To: Board of County Commissioners
Through: Bryan Weimer, Director, Public Works & Development
Prepared By:
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Ava Pecherzewski, Development Review Planning Manager, Public Works & Development
Jason Reynolds, Planning Division Manager, Public Works & Development
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presenter
Presenter: Jason Reynolds, Planning Division Manager, Public Works & Development
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Subject:
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Amendment of the Land Development Code to Revise the Existing Oil and Gas Regulations (Phase 2B), Planning Case No. LDC23-005
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Purpose and Request:
recommended action
This County-initiated project proposes amending the Land Development Code (LDC), specifically, Section 5-3.6, Use By Special Review, Oil and Gas Facilities. The proposed changes include increased reverse setbacks with an ability to reduce that amount with property owner’s informed consent and recorded notice in the chain of title, additional requirements for air and water quality monitoring, disallowing commercial injection wells, the creation of an inspection program and financial assurance and decommissioning requirements.
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Background and Discussion: In October of 2023, the BOCC directed staff to prepare additional amendments to the Oil & Gas Regulations, including:
- Create requirements for financial assurances;
- Include additional requirements for air and water quality monitoring;
- Disallow commercial injection wells;
- Create an inspection program;
- Increase reverse setbacks (setbacks from new development to oil and gas facilities).
Over the first half of 2024, staff conducted research on best practices to determine the appropriate requirements for Arapahoe County. Staff shared draft changes to the regulations with the BOCC in July of 2023 and the Board directed staff to conduct public outreach and seek comments. These Phase 2B regulations focus on site operations and monitoring; with pending applications, it is important to have additional protections in place before drilling commences for protection of the public health, safety, welfare, and environment. The Board asked staff to share the draft regulations and public comments with the Planning Commission in a study session on October 15, 2024, with a public hearing for a recommendation on November 12, 2024, followed by a public hearing with the Board on December 10, 2024.
After the public outreach and comment period was concluded, staff reported back to the Board on September 24, 2024, what the major themes were in the public and industry comments, and the Board directed staff to make adjustments to the draft regulations based on the feedback. The Planning Commission held a study session on the proposed regulatory changes at their October 15, 2024, meeting. The Planning Commission provided feedback and input regarding the proposed reverse setbacks, the inspection program fines, and recommendations on the amount of financial assurances that should be required for plugging and abandonment (see attached Planning Commission Minutes). Staff brought the Planning Commission’s feedback, along with stakeholder meeting comments, to the BOCC on October 29 and November 4, 2024. The BOCC directed staff to make adjustments to the draft regulations based on Planning Commission and stakeholder comments, which are included herein. The most notable changes, which are detailed below, include an expansion of reverse setbacks from 2,000 feet to 3,000 feet based on Planning Commission feedback; requirements for soils sampling at time of reclamation; changes to aquifer testing and air quality testing requirements; and a requirement for alternative location analysis. The BOCC also directed staff to ask the Planning Commission for a recommendation again on the amount of financial assurances to require.
At their November 12, 2024, public hearing, the Planning Commission listened to 38 members of the public speak both for and against the proposed regulations. The Planning Commission voted 4-3 to recommend approval of the draft regulations; the dissenting voters did not speak on why they were not in support. The Planning Commission was asked to make a recommendation on a financial assurance requirement, between $95,000 (the amount chosen by the BOCC in July and in the draft regulations) and $120,000, an amount shown in staff research to be based on a recent experience with plugging and abandonment adjacent to a school in Adams County, as well as other research. The Commission was not able to come to a consensus on a recommended amount. A motion to recommend $95,000 failed on a vote of 3-4. A subsequent motion to recommend $120,000 also failed on a vote of 3-4. None of the dissenting voters spoke about their reasons for not supporting the proposed amounts. The Planning Commission staff report is attached, however, at time of packet preparation for this General Business Meeting, meeting minutes were not approved yet.
PROPOSED REGULATION SUMMARY AND ANALYSIS
Alternative Location Analysis
During the public comment period, concerns were raised about the potential for oil and gas development near locations with vulnerable populations such as schools and nursing homes. On October 15, 2024, the Colorado Energy and Carbon Management Commission adopted Cumulative Impacts and Enhanced Systems and Practices Rules, which go into effect on December 15, 2024. Those ECMC rules require Alternative Location Analysis if a proposed oil and gas facility is located within one half mile of a residential unit, school facility, or child care center. If those uses are within a disproportionately impacted community, the ALA is required within a one-mile radius. Based on local concerns, the proposed regulations now include an ALA requirement if a proposed facility is located within one mile of a childcare center, hospital, nursing home, or a preschool, elementary, middle, junior, or high school.
Financial Assurances
Financial assurances are often required of oil and gas operators to ensure that costs associated with decommissioning an oil and gas facility are covered, in the event the operator abandons the facility. These financial assurances are typically in the form of a surety bond, but can also appear as an irrevocable letter of credit, or cash deposit. Currently, the State requires financial assurances from oil and gas operators, however, the state permits field or even state-wide bonds covering all wells of an operator which typically results in a lower dollar amount on a per well basis and may not cover the entire costs of plugging and abandonment and surface restoration for a particular well. The BOCC directed staff to update our provisions to require financial assurances for our county based on best practices. Staff reviewed financial assurance requirements in other jurisdictions, completed research on typical costs for plugging and abandonment (“P&A”), and developed a code amendment that requires local financial assurances for new oil and gas well drilling activity. At their July 2024 study session, the Board directed staff to require in the regulations a financial assurance of $95,000 per pad, to cover the cost of P&A, as this appeared to align with other jurisdictions as well as what the ECMC identified as the average cost of P&A, including surface reclamation on and around the pad site. This amount is to be adjusted for inflation annually dependent on the Colorado Construction Cost Index, which is more applicable to P&A construction activities that an overall consumer price index. Additionally, the draft regulations require operators to provide evidence of general liability insurance with a minimum of $1 million per occurrence, and environmental liability coverage of at least $5 million per pollution incident.
General feedback from the public about financial assurances is that the proposed $95,000 in the draft code is not enough to cover the cost of plugging and abandoning a well and suggestions ranged from $120-$130,000 to $500,000 per well. Others commented that the minimum insurance coverage requirements were not enough and should be raised. The American Petroleum Institute (API) and Colorado Oil & Gas Association (COGA) submitted a joint comment letter in which they wished to remind the County that their authority does not include downhole work, including plugging and abandoning, as this is within the jurisdiction of the ECMC. The proposed amendment provisions rely on ECMC’s approval of the manner and adequacy of the plugging and abandoning the well and adequate surface reclamation of the pad site as provided in the regulations for purposes of releasing assurance. If the operator does not plug and abandon the well, the financial assurance will provide funding to pay for the plugging and abandoning of the well in accordance with ECMC rules. The proposed regulations do not purport to regulate any down hole activity associated with the plugging and abandoning of or approval of the method of plugging and abandoning a well. Furthermore, if an operator can verify that they have provided financial assurances for a particular well, then that specific amount can be deducted from the County’s amount and the operator will only need to provide assurances for the difference, to avoid double dipping.
At their September 24, 2024, study session, the BOCC directed staff to discuss the proposed financial assurance amount with the Planning Commission and give them a range of options to discuss and recommend for final approval in the regulations. Staff researched the costs of plugging and abandonment in both Colorado and nationwide and provided information to the Planning Commission at their October 15, 2024, study session (attached). The research included ECMC estimates for P&A (average of $92,710), a real-life case in Adams County, and a research paper from Carbon Tracker. The Planning Commission was asked to make a recommendation on whether to keep the current proposed amount of $95,000, or increase that amount to $120,000 based on a recent case in Adams County, or recommend a higher amount - $150,000 - based on the Carbon Tracker report. There were six Planning Commissioners present (one was absent), and three commissioners recommended that we retain the current proposed amount of $95,000, while three commissioners recommended $120,000 based on the fact this was based on actual costs of a local case. At their October 29, 2024, study session, the BOCC directed staff to ask the Planning Commission to make a final recommendation on the financial insurance amount, and to choose between the original amount proposed ($95,000) and the amount based on the Adams County case ($120,000). As noted above, the Planning Commission was unable to come to a consensus on a recommended financial assurance amount.
Air Quality Requirements
Currently, the State of Colorado requires air and water quality monitoring at oil and gas facilities through the Colorado Department of Public Health and Environment (CDPHE) and the Energy and Carbon Management Commission (ECMC). Feedback from the public at last year’s rulemaking hearings suggested the County enact more protective rules for air quality reporting. The BOCC directed staff to further enhance the County regulations adopted in November 2023 for air quality monitoring, and staff conducted extensive research into additional requirements, in collaboration with staff from the Arapahoe County Public Health Department. The proposed regulations focus on best management practices for avoiding and minimizing (rather than mitigating) releases of emissions which impact air quality. In current regulations, the operator is required to test for air pollutants prior to drilling to measure for a baseline, and conduct continuous air quality monitoring during the drilling, completion, and production phases.
Other suggestions included requiring operators to require electrification in all steps of the process, given ECMC’s recent approval of the Lowry Ranch Comprehensive Area Plan which included a condition requiring electrification for all Lowry Ranch CAP sites. Arapahoe County’s existing regulations encourage the use of electric equipment for noise reduction and require electric-powered permanent production equipment, where available. At their October 29, 2024, study session, the BOCC directed staff to include the use of electric equipment during the drilling phase of operations, and not just during production, when available. This has been added to the draft regulations.
The American Petroleum Institute (API) and Colorado Oil & Gas Association (COGA) submitted a joint comment letter in which they suggested the County clarify what a “health guideline” is when setting benchmarks; staff did consult with Arapahoe County Public Health and changed that to “CPDHE Health Guideline Values.”
At their September 24, 2024, study session, the Board directed staff to add a clause in the regulations noting that the operator and their monitoring consultant are required to provide public access to air quality monitoring data in a manner approved by staff. Staff has added this clause to the draft regulations.
Staff held stakeholder meetings in October and one concern noted from industry was the language in the draft regulations which require an operator to test for 7 days straight when a canister-triggering event occurs (when CDPHE Health Guildeine Values are exceeded). Staff discussed this concern with the BOCC at their November 4th study session and noted that random sampling for 7 days isn’t as reliable as replacing the canister; more accurate data can be captured by testing the triggered canister in a lab, rather than re-sampling the same canister for 7 days straight, which can lead to errors. Staff was directed to change that language when a canister-triggering event happens to require the operator to immediately install a replacement for the triggered canister. Additionally, a previous version of the draft regulations required operators to cease maintenance activities on ozone action days; based on feedback from industry, the BOCC directed staff to allow maintenance on ozone action days when essential to ensure safety. Staff also clarified dust control measures in the access road standards.
Additional Water Quality Monitoring
The proposed regulations require more robust baseline water sampling requirements for both groundwater and surface water by requiring a sampling and monitoring plan, with testing required within a half-mile radius of the facility of both upgradient and downgradient water bodies. Operators are also required to conduct water sampling and monitoring within six months of drilling and every 12 months after production. If contamination is noted, a follow-up test and inspection is required within six months. Operators are required to hire a licensed third-party environmental consultant to complete the testing.
The initial draft regulations specified that water monitoring had to include perennial, intermittent and ephemeral water bodies. The American Petroleum Institute (API) and Colorado Oil & Gas Association (COGA) submitted a joint comment letter in which they suggested the definitions for ephemeral stream and intermittent stream be defined to be more closely in alignment with EPA definitions, and they recommended this section be more refined on when testing of intermittent and ephemeral waters is necessary, and they note that data from that testing is likely to be flawed because these streams are dependent on inconsistent weather conditions. At their September 24, 2024, study session, the Board discussed this with staff and staff noted that it would be more enforceable if we defined the term based on the Colorado definition as “Waters of the State” (as defined in the Colorado Revised Statutes), which includes these water types. The Board directed staff to revise the draft regulations to remove those terms and replace with “Waters of the State”, and these are included in the draft regulations.
The initial draft of the regulations required operators to test all four groundwater aquifers as a baseline prior to commencing operations. Feedback from stakeholder meetings indicated that not only was this extremely costly, it is also unnecessary because of State requirements for casing. And, there was a potential to contaminate the aquifers each time a new well is drilled. Staff consulted with a water supply expert in Colorado who noted that there not been a documented contamination in any groundwater aquifer in Arapahoe County as a result of oil and gas operations. Based on this low risk assessment, the consultant recommended that only testing of the uppermost and lowermost aquifers was necessary. For example, if there is a surface leak, it would only potentially affect the uppermost aquifer, while if a leak occurs below the aquifers, it would be detectable at the lowermost aquifer. Based on direction from the BOCC at their November 4, 2024, meeting, staff has clarified this language in the draft regulations by requiring at-least one down-gradient monitoring well on the well pad for each of the uppermost and lowermost aquifers. Community stakeholders had requested soils sampling; staff has added language, at the direction of BOCC, to require soils sampling as part of the reclamation process, as well as at any location where a spill or release has occurred within the pad and/or moved offsite. The state requires soils sampling for any spills and releases. To prevent spills into waterways from vehicles, the regulations prohibit vehicle and equipment maintenance within 500 feet of State Waters and require refueling on impermeable material.
Commercial Injection Wells
In the course of oil and gas drilling, operators may inject used, contaminated water from the hydraulic fracturing process into underground wells placed underground into deep rock formations for disposal. While these injection wells do have layers of protective casing, concerns remain regarding potential leaks and compromising the water table. Commercial injection wells also generate a significant amount of truck traffic and have the potential to draw that traffic from well sites outside Arapahoe County, which would increase wear on county roads. Finally, commercial injection wells have created seismicity in Colorado. While the state responded to those events by requiring slower injection rates and monitoring, prohibiting commercial injection wells for the disposal of wastewater removes the risk altogether. The BOCC directed staff to prohibit the use of commercial injection wells in Arapahoe County, and staff has added a code section clarifying that this activity is not permitted. The permitted use table has also been updated in the draft regulations.
Reverse Setbacks
The existing regulations set minimum distances that new oil and gas facilities must be set back from existing structures and bodies of water. Reverse setbacks are applicable to new development that is proposed from an existing oil and gas facility. Currently, the Land Development Code requires new developments to be set back 250 feet from an oil and gas facility of any status (permitted but not drilled yet, drilling, completing, producing, active gas storage, injecting, shut-in, temporarily abandoned, dry and abandoned, or plugged and abandoned prior to 2014). The reverse setback for new developments proposed adjacent to a plugged and abandoned oil and gas well that was abandoned in 2014 or later is 150 feet (the state adopted more rigorous P&A standards in 2014). During community discourse last year, there was concern raised that these setbacks were too close, and it was recommended that the reverse setbacks be expanded.
The initial draft regulations proposed expanding the reverse setback requirement from 250 feet to 2,000 feet for oil and gas facilities under application review or permitted but not drilled; or to 1,000 feet for oil and gas facilities that are actively producing, shut-in or temporarily abandoned; or 250 feet from oil and gas facilities that are plugged and abandoned. The larger setback addresses the parts of the oil and gas development process with the highest impact: drilling noise, odors, lighting, traffic, etc. Once a facility is in the production phase, nearby land use impacts are significantly reduced, which is why the proposed production setback is shorter. There is a provision noting that the reverse setback only applies to building permits for occupied structures and does not preclude an owner from filing applications for subdivisions and development in proximity to an oil and gas facility.
Generally speaking, those from the development community are not in favor of increasing the reverse setbacks as this could have implications for their projects. The developer of the Prosper development near Bennett submitted comments that the proposed changes could impact their project since a Preliminary Development Plan was approved with a specified 350-foot reverse setback from existing oil and gas facilities allowed within their development plan. The Sky Ranch developer also provided feedback on the proposed reverse setbacks, noting potentially severe economic impacts to development projects if the setbacks are adopted as originally drafted. Comment letters are attached.
Staff shared this feedback with the BOCC at their September 24, 2024, study session, and the Board directed staff to include administrative ability to reduce these setbacks when a property owner provides an informed consent document that will be recorded as a Notice against the title on the property, but in no case can the setback be any closer than 250 feet. Staff has included this language in the draft regulations, including a requirement that a Notice needs to be recorded against the property to notify future buyers that an oil and gas facility is planned adjacent to their home or parcel.
At their October 15, 2024, study session, the Planning Commission inquired about why reverse setbacks were shorter than setbacks from existing buildings, wondering, if it’s safer to be further away from the home, why wouldn’t it be safer to construct a home further away from an oil and gas facility? Staff shared this feedback with the BOCC at their October 29, 2024, study session, and the Board agreed with this premise and directed staff to increase the reverse setback from approved but unconstructed oil and gas facilities to 3,000 feet, and staff has incorporated that change into the draft regulations.
Inspection Program
Currently, the State of Colorado conducts inspections on oil and gas wells (both ECMC and CDPHE). However, there are relatively few inspectors for the large number of well pads throughout the state. The BOCC directed staff to look into setting up a County inspection program to be funded by operators through fees. While the operators pay the state for inspection, this County program would be an enhancement to the state’s program that is not able to keep up with the inspection demands and therefore increase the level of service (i.e. inspection performed). County inspectors would be responsible for enforcing County regulations. Staff has included a section in the attached code amendment, which allows the County to establish an inspection program. The draft code amendment sets forth fines leaks, spills, and emissions from a pad and sets up an inspection program to assure compliance with adopted operational regulations. Separately from the regulations, the Board will consider an inspections fee schedule.
The draft regulations allow the Public Works Director to shut down activities under emergency situations. The Director is authorized to issue an initial fine of up to $15,000 for each prohibited leak, spill, or emission and up to $15,000 per day for continuing such leaks, spills, or emission from a pad. The draft regulations do not specify how often each oil and gas facility would be inspected. At their October 1, 2024, study session, the BOCC directed staff to add language in this section noting that if inspection fees are in arrears, the applicant may not file any further applications with the County until the fees are paid. At their October 15, 2024 study session, the Planning Commission expressed concern about the flat-rate amount of fines, regardless of infraction, and recommended more detailed clarification. Staff have created a matrix of fines and penalties to further refine that information, and this is reflected in the draft regulations. Language regarding inspection enforcement was also revised to eliminate due process concerns noted in stakeholder meetings with industry.
Regulation Clean-Up Staff have taken the time to clean-up the formatting of the regulations, typos that were found, clarified previous regulations where needed, removed a duplicate section, and moved provisions to more appropriate applicable sections in the regulations (attached).
Review and Outreach Process
The proposed regulations (attached) were posted on the County’s website between July 29 to September 6, 2024, for public comment. The website provided a portal in which the public could submit comments directly to the website or upload a prepared letter. An email blast was mailed out to all stakeholders on July 29, 2024, and advertisement of the draft regulations was posted on the County’s social media accounts and mentioned in County newsletters. In sum, there were a total of 73 comments in the website portal and 22 individual letters submitted from stakeholders (attached). An open house was held at the Arapahoe County Fairgrounds on Tuesday, September 3, 2024, from 5:30-7 p.m. Email blasts and reminders were sent out to stakeholders and the meeting was advertised on County newsletters and social media accounts. Approximately 100 attendees were present. Staff provided “stations” where the public could comment on different aspects of the draft oil and gas regulations by writing down comments/questions on sticky notes. In sum, there were a total of 252 sticky notes with comments from the public (attached). Staff held stakeholder meetings in October with community and industry groups and provided their feedback to the BOCC who in turn, recommended changes to the draft regulations to address those concerns.
Fiscal Impact: Fiscal impact from the proposed inspections program and financial assurances requirement will require staff administration. Recruiting for an Energy Program Manager position is currently underway, and the proposed 2025 budget package includes budget for one full-time oil and gas inspector.
Alternatives: Alternatives for the draft Oil & Gas rules are as follows:
1. Approve LDC23-005 as currently written and recommended by staff and with the Board’s decision on the amount of financial assurance to be adopted with the draft;
2. Approve LDC23-005 with other specific changes; provided that the other specific changes can be said to have been submitted to the Planning Commission for recommendations, the Board may specify the nature of the change and allow staff to finalize language or may direct staff to bring updated language back to the Board for further consideration;
3. Continue the hearing to a date certain for additional information or with direction for additional amendments; or
4. Deny LDC23-005. This would be inconsistent with the Planning Commission recommendation and maintain the currently adopted rules in the Land Development Code.
Alignment with Strategic Plan:
☐Be fiscally sustainable
☒Provide essential and mandated service
☒Be community focused
Staff Recommendation: Staff recommends that the Board adopt the amendments considered by the Planning Commission on November 12, 2024, and determine a financial assurance amount to be included within the draft regulations. The motions include options for financial assurances for the Board to choose from.
Concurrence: The Arapahoe County Public Works Department and the County Attorney have reviewed the proposed regulations. Planning Commission voted 4-3 to recommend approval of the draft regulations without choosing a recommended financial assurance amount.
Suggestion Motion(s): Draft Motions have been included as attachments.
Resolution: A draft Resolutions has been included as attachment.