Energy companies will face fines generally ranging from $200 to $15,000 per day of rules violation under a new penalty structure passed by the Colorado Oil and Gas Conservation Commission Monday.
The agency adopted the new fines structure after the state legislature last year raised the daily penalty limit from $1,000 to $15,000 for each violation. It also was responding to an order by Gov. John Hickenlooper to review its enforcement and penalty assessment procedures.
Monday’s action came on a 5-3 vote, with some commissioners worrying that the fines established for less-severe violations are too hefty.
“I think it’s going to create issues,” Commissioner DeAnn Craig said.
She fears the potential for higher fines could lead to some smaller companies deciding to abandon lower-producing wells, leaving the responsibility of plugging them to the state.
Commissioner Mike King, also executive director of the state Department of Natural Resources, said while abandonment of wells is a concern for the state, it’s a separate issue from fines and involves companies showing “no responsibility whatsoever.”
Commissioner Rich Alward of Grand Junction told fellow commissioners the higher fines will transfer the risks of spills from state residents to the companies.
“Operators will find ways to avoid violating our rules if there are real consequences,” he said.
The newly adopted schedule establishes standard penalties that include a $15,000 daily fine in the case of violations that create a high risk of health, safety and environmental impacts, and in which those impacts actually occur. The $200 fine is for violations of paperwork or other rules presenting no direct risk of causing harm, and in which no impacts occur. Commission staff had recommended a $500 standard fine for these violations.
The majority of commissioners stood by the staff–recommended fines for other lesser-level violations, however, despite a call by a few of them for lower fines.
With the exception of the $15,000 worst-offense fine that can go no higher under state law, the newly established fine amounts can be raised or lowered based on aggravating factors such as knowing and willful misconduct and mitigating ones such as self-reporting of a violation.
Craig argued that the high-end standard penalty should be less than $15,000, which should be reserved for egregious cases where the commission would be trying to make a point in imposing the maximum. With the commission’s action, she said, there are likely to be a number of instances where mitigating factors drive fines down from $15,000, and she worries about how that will be perceived.
“Is the public going to feel that we’re cutting too much slack to the industry? It may not be the case, but it may be an optics issue,” she said.
But Alward said he doesn’t think there would be that many instances where violations would meet the criteria for a $15,000 fine to begin with. And he said such a fine is appropriate for such worst-case violations.
“That’s exactly where we want to throw the book at somebody,” he said.
The new rules give the commission director latitude in some instances to waive fines altogether. But attorneys for environmental groups argued that fines should be required in the case of violations creating a high risk of health, safety and environmental impacts even if they don’t occur. Commissioners on Monday agreed, prohibiting the director from waiving fines in such cases.
Until last year’s legislation, the commission also had been limited to a maximum cumulative fine of $10,000 per violation, regardless of the number of days involved, except in circumstances including where a significant impact to health, safety or welfare has occurred. That cap no longer exists under the new rules. In an interview Monday, Alward said that means companies will have motivation to address violations to keep fines from continuing to go up after 10 days.
“I’m really pleased that we’re going to have a pretty rigorous penalty rule now and I really hope that it has the deterrence effect — especially that it encourages operators to address problems immediately and get things back on the right page,” he said.
The Colorado Oil and Gas Association industry group supported last year’s legislation. But in a hearing last month, some industry representatives worried that with the commission able to determine that a violation continued much longer than 10 days, companies could be hit with much higher fines that in some cases could shut them down.
Association official Doug Flanders said in a statement Monday, “Overall, we’re on the same page with the COGCC and have the same goal, which is to ensure consistency, clarity and certainty as to how the new rules will be enforced, how penalties will be calculated, and how both will (be) applied to all stakeholders.
“Colorado already has the strongest oil and gas rules in the country and continues to hold the industry to the highest standard in the nation,” Flanders continued. “We expect that the COGCC will implement the new rules in a way that protects stakeholders while providing a predictable business environment.”
COGCC director Matt Lepore said in a news release, “This is yet another step forward in our long-running and continuing work to build a regulatory approach that stands as a model across the country.”
The COGCC noted in that release that since 2011 Hickenlooper’s administration also “has crafted rules to increase setbacks, reduce nuisance impacts, protect groundwater, cut emissions, disclose hydraulic fracturing chemicals and increase spill reporting.”
Jon Goldin-Dubois, resident of the Western Resource Advocates conservation group, said in a news release, “We applaud the Commission passing these stronger standards with consistent mandatory penalties for significant offenses. This is a step forward in holding the industry accountable. It is critical that Coloradans have certainty that their communities, health, clean air, and water are protected. Residents across Colorado have been looking for more oversight and these new rules are important progress.”
