Higher fees on Colorado oil and gas production approved amid falling revenues

COGCC faced a multimillion-dollar budget gap as oil prices crashed

An oil pump jack is pictured in the middle of a traffic circle at a new residential development in Weld County on June 24, 2020. (Andy Bosselman for Colorado Newsline)

Facing a revenue shortfall amid plummeting prices and production levels, Colorado regulators have approved a plan to increase the fees paid by oil and gas operators — and, after scaling back their proposed rate hike, did so with the reluctant support of fossil-fuel industry groups.

Members of the Colorado Oil and Gas Conservation Commission voted unanimously on Aug. 4 to raise the mill levy rate on sales of oil and gas from 1.1 mills to 1.5 mills, amounting to a total fee of one-and-a-half dollars for every $1,000 worth of oil and gas sold by Colorado producers, once the new rate takes effect in October.

That’s a smaller increase than the commission’s original proposal, which would have raised the levy to 1.7 mills, the maximum allowed by state law. COGCC staff said the revised rate increase was possible thanks to revenue forecasts that had improved slightly since the agency first proposed the change in June.

“It’s hard to discuss raising fees on folks, but we also have a statutory responsibility, and things that staff have to do to meet our obligations,” Commissioner Karin McGowan said ahead of Tuesday’s vote.

Roughly 70% of the COGCC’s budget comes from the so-called conservation levy, which is assessed based on the market value of the oil and gas sold by Colorado operators on a quarterly basis. But oil prices crashed earlier this year amid a global shutdown caused by the coronavirus pandemic, and many Colorado producers have moved to limit production, raising concerns about the COGCC’s ability to fund its regulatory operations.

Those fears were shared even by the state’s two largest oil and gas industry groups, the American Petroleum Institute and the Colorado Oil and Gas Association. While the groups opposed the COGCC’s original proposal, representatives of both spoke in favor of the modified proposal at Tuesday’s commission hearing, with some reservations.

“Obviously this request during an economic downturn required more consideration,” said Rich Coolidge, director of regulatory affairs for COGA. “We hope to see the mill levy adjusted again when commodity prices recover and the COGCC’s budget is back in order.”

Other changes to the proposal sought by the industry, including a sunset provision and a delay in the effective date of the increase, weren’t adopted by commissioners.

Trisha Fanning, an advocate with Small Operators Society, which represents dozens of smaller oil and gas producers in Colorado, urged the agency to use the revenue from the levy increase to speed up its permitting processes and other regulatory functions, especially for firms that don’t have large compliance staffs.

“The increase right now is burdensome, obviously, for small operators,” she said. “Conducting a mill levy increase amid all of this is just another hit to our industry.”

Environmental groups also supported the mill levy increase, which they said was vital for the COGGC’s ability to protect health, safety and the environment. Later this month, commissioners will begin a series of major rule changes required by Senate Bill 19-181, the landmark oil and gas reform bill enacted by Colorado Democrats last year, and activists are pushing the commission to adopt additional revenue mechanisms, like permit fees, to supplement the conservation levy.

“Getting the rate right means the agency functions correctly,” said Matt Samelson, an attorney representing a coalition of environmental groups, including Conservation Colorado and the League of Oil and Gas Impacted Coloradans. “This is of particular importance as the multitude of rulemakings associated with Senate Bill 181 are (being) promulgated.”

While those upcoming rulemaking processes are likely to prove far more contentious than the mill levy hike, COGCC officials celebrated a rare moment of agreement between environmentalists and oil and gas industry groups on Tuesday.

“We want to thank all the stakeholders for their unanimous support of this mill levy increase,” commission chair Jeff Robbins said in a statement. “COGCC must be good stewards of its finances — both revenues and spending, as local governments and neighborhoods count on us for environmental and public health protections, and operators depend upon us to review permits.”