‘The Colorado way’ or a ‘backroom deal’? Democrats advance oil-for-transit fee, pollution rules

Colorado Democrats are moving quickly to pass a last-minute package of compromise air quality legislation with support from environmental groups and large oil and gas companies — but not everyone is happy with what some on either side of the issue called a “backroom deal.”

Senate Bills 24-229 and 24-230 both advanced out of their first committee hearing on party-line votes on Thursday, as the clock ticks down toward the end of the 2024 legislative session on May 8.

The bills were unveiled by Gov. Jared Polis, Senate President Steve Fenberg and House Speaker Julie McCluskie earlier this week, concluding what Fenberg said on Thursday were months of negotiations between state officials, environmental groups and the oil and gas industry. SB-230 would levy a new fee on oil and gas production that would raise roughly $138 million annually for public transit and wildlife conservation, while SB-229 would make relatively minor changes to state permitting and enforcement of air pollution rules.

“(SB-230) really is about making sure that the state is doing what we can to partner with the industry, so that we have sufficient revenue to help mitigate the impact of oil and gas production in our state,” Fenberg told members of the Senate Finance Committee. “It is a large part of our economy. There are a lot of benefits for a lot of communities, but there are also impacts.”

As part of the deal — similar to others brokered by state leaders in 2014 and 2020 — the oil and gas industry and environmental groups agreed to withdraw competing sets of initiatives they had sought to put on Colorado’s November ballot. And Democratic lawmakers agreed to drop several air quality bills that contained more substantial changes to permitting and enforcement, and which had drawn intense industry opposition, including proposals for a summertime pause on drilling and fracking and increased penalties for “repeat violators” of clean-air laws.

Parties to the agreement, according to the governor’s office, include Occidental Petroleum, Civitas Resources and Chevron, the three producers that dominate Colorado’s oil and gas industry, along with a half-dozen environmental groups. Polis touted such consensus-building as “the Colorado way,” but Thursday’s committee hearing showed little sign that the state’s long-running oil and gas wars have been settled for good, with advocates on both sides offering muted praise or outright rejection of the surprise deal announced this week.

Dan Haley, president of the Colorado Oil and Gas Association, told the committee his organization wanted changes to SB-229, objecting to a provision directing regulators to assess an operator’s “compliance history” in determining penalty amounts for rule violations.

“Perhaps you can empathize with why we’re cautious of major bills being introduced so late in the season,” Haley said. “However, if these bills bring a meaningful period of stability and predictability … and we’re not back here talking about further legislation that moves the goalposts yet again, then that will be a win for Colorado.”

Jan Rose, an environmental activist, told lawmakers that they should reject what she called a “secret agreement” that tossed aside months of work by lawmakers and advocates to evaluate and address the state’s ozone pollution problem. She argued the state could raise far more revenue than estimated through SB-230’s production fee by raising or removing exemptions to the state’s severance tax, which is lower in Colorado than in many other states.

“I am strenuously opposed, because there’s some sort of backroom deal associated with this bill,” Rose said. “I would urge you to request from the governor a copy of this Faustian bargain.”

State Sen. Faith Winter, a sponsor of SB-229 and several of the ozone bills that were indefinitely postponed on Thursday as part of the agreement, rejected that characterization.

“We’ve been working a lot both with disproportionately impacted communities, with the regulators and with industry,” said Winter, a Thornton Democrat. “I would say it wasn’t a backroom deal, but rather 12 months of hearing concerns from all sides, and it came together in (SB-)229 and (SB-)230. And it’s going to make a difference.”

Oil-for-transit fees

SB-230’s production fees would be adjusted quarterly based on benchmark prices for oil and natural gas. At current prices, the maximum fee would be 36 cents per barrel, equivalent to a surcharge of about 0.5%. Eighty percent of the revenue would be directed towards public transit, with a particular focus on assisting local transit agencies like the Denver-area Regional Transportation District with operational costs as they aim to hire more drivers and increase frequency of service.

But the bill also contains language stating that RTD “shall prioritize completion” of the B Line between Denver and Longmont, a commuter rail project decades behind schedule, and the N Line to Adams County. RTD would be required to submit a formal report to the Legislature next year detailing its plans to complete the lines.

Transit advocates say a new source of state funding for multimodal transportation has been a long time coming. Colorado ranks 44th in the nation in the share of transit funding contributed by the state. Matt Frommer, a transportation advocate with the Southwest Energy Efficiency Project, said that the funding in SB-230 would improve that rank to 22nd.

“We’ll need even more funding in the future as we continue to expand transit, but this is certainly a good start,” Frommer said.

The production fees put a spotlight on a divide within the oil and gas industry between large and small producers. Over the last several years, a wave of consolidation has concentrated more than 85% of Colorado’s oil output in the hands of its top three producers. Smaller operators and natural gas drillers on the Western Slope will take a far greater hit from the new fees than the corporate oil giants who agreed to this week’s deal, they told the Finance Committee.

“Large public oil companies on the Front Range have somehow negotiated for us to pay an additional $2.7 million (in fees),” said Jeter Thomas, president of Caerus Oil and Gas, which operates natural gas wells in western Colorado and eastern Utah.

“Since when did Big Oil get in bed with government? When did the environmental groups all of a sudden come running to support Big Oil?” said Ed Ingve, owner of Renegade Oil and Gas, a smaller operator. “Once again, small producers get killed. We get left out of any discussion, or any input that we have is completely disregarded, to the benefit of several big producers.”

Both SB-229 and SB-230 will need to speed through the Senate and then the House before the General Assembly adjourns for the year on Wednesday. Fenberg acknowledged concerns about the legislation, but expressed hope that it could mark a turning point in the state’s battles over oil and gas pollution and air quality.

“It’s not perfect,” he said prior to Thursday’s committee vote on SB-230. “But I think it will go a long way in not only improving our air, but also hopefully getting some voices that often never agree on things to the table, to start communicating better together and to work on mitigating some of the big problems facing our state.”

Editor's note: This story was updated at 10:45 a.m., May 7, 2024 to correct a chart that perviously misstated the production fees paid under SB-230.