SENATE 3rd Reading Unamended February 24, 2015 SENATE Amended 2nd Reading February 20, 2015First Regular Session Seventieth General Assembly STATE OF COLORADO REENGROSSED This Version Includes All Amendments Adopted in the House of Introduction LLS NO. 15-0346.01 Bob Lackner x4350 SENATE BILL 15-093 SENATE SPONSORSHIP Sonnenberg, HOUSE SPONSORSHIP Becker J., Senate Committees House Committees Agriculture, Natural Resources, & Energy A BILL FOR AN ACT Concerning compensation to be awarded to owners of mineral interests for a diminution in the value of their property rights caused by regulatory restrictions on mineral extraction operations. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Whenever a local government adopts or implements an ordinance, resolution, rule, regulation, or other form of official policy concerning mineral extraction operations that has the effect of reducing the fair market value of the owner's mineral interest by at least 60%, the bill specifies that the owner's interest is deemed to have been taken for a public use. In such circumstances, the bill allows the owner to obtain compensation from the local government for the full diminution in the fair market value of the owner's interest caused by the regulatory impairment of the local government. The procedures under the bill are intended to supplement and are not intended to displace or supersede existing rights, powers, and responsibilities provided by law for the payment of compensation where private property is taken for a public use. Not less than 63 days before an owner intends to undertake new mineral extraction operations within the territorial boundaries of a local government, the owner must notify in writing the local government of its intent to so act. Upon receiving the notice, if the local government intends to adopt or implement an ordinance, resolution, rule, regulation, or other form of official policy concerning mineral extraction operations that has the likely effect of reducing the fair market value of the owner's mineral interest by at least 60%, the matter is to be set for a hearing before a board of commissioners or a jury in accordance with existing procedures for resolving claims for compensation where private property is taken for a public use. Any owner with a potential claim in the matter may elect to have the matter resolved by a district court if the owner does not want to have the matter resolved by a board of commissioners or jury. The purpose of the hearing is to make a preliminary value determination of the owner's interest. The hearing must be set not less than 7 days following service of the notice. Not less than 10 days following the hearing, the board of commissioners, jury, or district court, as applicable, is required to issue a preliminary value determination of the owner's interest that has been affected as a result of the regulatory impairment. The owner may challenge the preliminary value determination on the basis that the award is too low, but the local government is not permitted to challenge the preliminary value determination on the basis that the award is too high. The local government may proceed with implementing the ordinance, resolution, rule, regulation, or other form of official policy concerning mineral extraction operations that constitutes the regulatory impairment if it tenders the full amount of the preliminary value determination to the owner within 7 business days after the hearing. The amount tendered must also include the owner's reasonable attorney fees and costs. If the local government fails to tender the full amount by that date, the local government is precluded from implementing such ordinance, resolution, rule, regulation, or other form of official policy. The bill permits the local government to appeal the preliminary value determination if it posts a bond for the full amount of the award or deposits with a financial institution the full amount of the damages award in escrow in an interest-bearing account. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add part 4 to article 20 of title 29 as follows: PART 4 COMPENSATION FOR REGULATORY IMPAIRMENTS ON MINERAL EXTRACTION OPERATIONS 29-20-401. Legislative declaration. (1) The general assembly hereby finds, determines, and declares that: (a) The right to own and use private property, including the right to extract minerals, is a fundamental right that is enshrined in the federal and state constitutions and integral to the well-being of a free society; (b) Over the past few years, a number of local governments across the state have enacted various regulatory restrictions on mineral extraction operations within their territorial boundaries, including, in some instances, a ban on the conduct of such operations altogether; (c) Government regulation of mineral extraction operations, while motivated by a desire to protect the public health and safety, must be carried out in a manner that appropriately balances the needs of the public with the rights and legitimate expectations of individual property owners; and (d) The various regulatory restrictions on mineral extraction operations already imposed or contemplated will reduce the fair market value of the owners of mineral interests affected by such regulations. (2) The general assembly further finds and declares that the owner of mineral interests should not be required, as a consequence of police power regulation, to bear burdens for the public good that should be borne more appropriately by the public at large. Accordingly, it is fair and appropriate that the local government compensate the owner of mineral interests for the diminution in the value of the owner's mineral interests caused by the regulatory impairment of the owner's property rights. (3) By enacting this part 4, the general assembly intends to establish a fair and equitable process to compensate the owners of mineral interests for the diminishment in the value of their mineral interest caused by regulatory restrictions on mineral extraction operations. It is the intent of the general assembly that this part 4 be liberally construed to protect and preserve the fundamental constitutional rights of individuals when their property rights are diminished by regulatory overreach on the part of local governments. (4) In the alternative to the creation of a fair, consistent, and expeditious process for awarding compensation to owners of mineral interests affected by regulatory impairments on mineral extraction operations, the industry and owners of property rights will continue to be buffeted by inconsistent local regulatory restrictions that will inhibit the development of natural resources and that will unfairly diminish the fundamental property rights at issue. Accordingly, the fair, consistent, and expeditious procedures for addressing this issue at the state level in the manner contemplated by this part 4 make this a matter of statewide concern. 29-20-402. Definitions. As used in this part 4, unless the context otherwise requires: (1) "Local government" means a county, home rule or statutory city, town, territorial charter city, county, or city and county. (2) "Owner" means any person possessing a right to a share of the revenues generated from the production or potential production of oil, gas, and associated hydrocarbons, including, without limitation, any owner of a working interest, royalty interest, overriding royalty interest, net profits interest, or volumetric production interest. 29-20-403. Compensation to owners of mineral interests. Whenever a local government adopts or implements an ordinance, resolution, rule, regulation, or other form of official policy concerning mineral extraction operations that has the effect of reducing the fair market value of the owner's mineral interest by at least sixty percent, the owner's interest is deemed to have been taken for a public use. In such circumstances, the owner has the right to obtain compensation from the local government for the full diminution in the fair market value of the owner's interest caused by the regulatory impairment of the local government. 29-20-404. Process for awarding compensation. (1) Except as expressly provided in this part 4, this part 4 is intended to supplement and is not intended to displace or supersede existing rights, powers, and responsibilities provided by law for the payment of compensation where private property is taken for a public use. (2) On or after the effective date of this subsection (2), not less than sixty-three days before an owner intends to undertake new mineral extraction operations within the territorial boundaries of a local government, the owner must notify in writing any such local government of the proposed extraction operations. (3) (a) Upon receiving the notice specified in subsection (2) of this section, if the local government has adopted or implemented or intends to adopt or implement an ordinance, resolution, rule, regulation, or other form of official policy concerning mineral extraction operations that has the likely effect of reducing the fair market value of the owner's mineral interest by at least sixty percent, the matter must be set for a hearing before a board of commissioners or a jury in accordance with existing procedures for resolving claims for compensation where private property is taken for a public use. Any mineral interest owner with a potential claim in the matter may elect to have the matter resolved by a state district court with appropriate jurisdiction if the owner does not want to have the matter resolved by a board of commissioners or jury. The purpose of the hearing is to make a preliminary value determination of the owner's interest. (b) The hearing referenced in paragraph (a) of this subsection (3) must be set not less than seven days following service of the notice referenced in subsection (2) of this section. The local government shall notify in writing any owners with a potential claim in the matter of the hearing. Any such owner may be heard at the hearing on the determination of value. (4) Not less than ten days following the hearing referenced in paragraph (b) of subsection (3) of this section, the board of commissioners, jury, or district court, as applicable, shall issue a preliminary value determination of the owner's interest that has been affected as a result of the regulatory impairment. The owner may challenge the preliminary value determination on the basis that the award is too low, but the local government shall not challenge the preliminary value determination on the basis that the award is too high. (5) The local government may proceed with implementing the ordinance, resolution, rule, regulation, or other form of official policy concerning mineral extraction operations that constitutes the regulatory impairment if it tenders the full amount of the preliminary value determination to the owner within seven business days after the hearing. The amount tendered must also include the owner's reasonable attorney fees and costs. If the local government fails to tender the full amount by the date specified in this subsection (5), the local government is precluded from implementing such ordinance, resolution, rule, regulation, or other form of official policy. (6) The local government may appeal the preliminary value determination if it posts a bond for the full amount of the award or deposits with a financial institution the full amount of the damages award in escrow in an interest-bearing account. (7) If there are multiple owners in a single parcel, the full amount of the compensation to be awarded such owners must be equitably apportioned between or among the mineral interests owners taking into account each party's ownership interest in the mineral estate and any existing oil and gas lease terms. If additional analysis of the preliminary value determination is necessary to make an equitable apportionment of the compensation due to such owners, any additional cost or expense in performing the analysis must be incurred by the owners of the mineral estate. SECTION 2. Act subject to petition - effective date - applicability. (1) This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 5, 2015, if adjournment sine die is on May 6, 2015); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2016 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor. (2) This act applies to any ordinance, resolution, rule, regulation, or other form of official policy adopted or implemented by a local government concerning mineral extraction operations on or after the applicable effective date of this act.