Moongate Water Co., Inc. v. City of Las Cruces

Citation: 2013 NMSC 18Docket: 33,182

Court: New Mexico Supreme Court; May 9, 2013; New Mexico; State Supreme Court

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Moongate Water Company, Inc. was granted a certificate of public convenience and necessity (CCN) by the Public Regulation Commission (PRC) to supply water outside the city limits of Las Cruces, New Mexico. Subsequently, Las Cruces annexed land within Moongate's certificated area and decided to provide water services there. Moongate contested this move, raising two primary legal questions: whether it had the exclusive right to supply water in the annexed area and whether it was entitled to compensation for an alleged unlawful taking of its property rights. 

The court ruled negatively on both counts. It determined that Las Cruces, as a home-rule municipality, was not bound by the Public Utilities Act, thus allowing it to provide water services despite Moongate’s CCN. Additionally, the court found that Moongate had not demonstrated it had infrastructure or customers in the annexed area, which is essential to claim just compensation for a regulatory taking. Consequently, the court affirmed the Court of Appeals' decision and reversed the district court's ruling, which had initially granted Moongate some relief.

Moongate appealed to the Court of Appeals concerning damages, while Las Cruces contested the district court's ruling that Moongate held exclusive rights and that a taking had occurred. The Court of Appeals overturned the district court's finding that Moongate's Certificate of Convenience and Necessity (CCN) guaranteed exclusive service rights, stating that the district court erred in granting summary judgment based on this assumption. Moongate subsequently sought certiorari from a higher court.

Moongate asserts that its CCN constitutes a valuable property right granting it exclusive water service in its designated area. It contends that while the Public Regulation Commission (PRC) cannot regulate municipalities like Las Cruces operating outside the Public Utility Act (PUA), these municipalities cannot infringe upon the rights of public utilities granted by the PRC. Moongate argues that Las Cruces can only take over its certificated area by either submitting to PRC regulation or exercising eminent domain. Furthermore, Moongate claims that Las Cruces’ actions constitute a taking, which necessitates just compensation.

The case relies heavily on statutory interpretation, which is reviewed de novo by the court. The court's role is to discern and implement the Legislature's intent, beginning with the statute's plain meaning. The PUA establishes a regulatory framework granting the PRC authority over public utilities, which must acquire CCNs before operating. Municipalities, however, are generally exempt from the PUA unless they choose to be regulated or meet specific population criteria. Since Las Cruces has not opted to come under the PUA and does not meet the population threshold of 200,000, it remains outside PRC jurisdiction, allowing it to compete with Moongate in the certificated area.

Municipalities are governed by specific statutes (NMSA 1978, Sections 3-23-1 to -10 and 3-27-1 to -9) that delineate their regulatory framework, which excludes the Public Regulation Commission (PRC) from overseeing municipal-owned utilities. The PRC has exclusive jurisdiction over public utilities but cannot regulate municipal utility rates or services. If Las Cruces were subject to the Public Utility Act (PUA), a defined process would address conflicts when a municipality extends water or sewer lines into an area covered by a Certificate of Convenience and Necessity (CCN) awarded to a public utility. The PRC would investigate complaints from the public utility regarding such intrusions. However, since the relevant statute specifies that only municipalities with populations over 200,000 are considered, Las Cruces does not fall under this regulation. The Legislature intentionally excluded smaller municipalities from these restrictions. Moongate contends that the policy articulated in another statute (NMSA 1978, Section 62-3-2.1) supports a prohibition against Las Cruces encroaching on Moongate's CCN area until Las Cruces opts into the PUA, ensuring equitable treatment of both systems by the PRC and preventing interference in utility services, essential to maintaining fair rates and the overall welfare of the state.

The discussion centers on the interpretation of statutory language regarding municipal competition with public utilities. The Legislature aimed to prevent unreasonable municipal encroachment into areas served by public utilities but did not effectively enact enforceable provisions aside from Section 62-9-1.1. This section excludes municipalities with populations under 200,000, meaning Las Cruces is not prohibited from competing with Moongate in the relevant certificated area. Las Cruces can provide water services in this area because it has annexed it and is authorized to extend services beyond its corporate boundaries under Section 3-27-8(A). 

The document references a similar case, Morningstar, which established that a municipality could operate outside an exclusive service area previously held by a water users’ association without invoking PUA protections, as the municipality was not subject to the PUA. Moongate’s claims for protection under the PUA fail because Las Cruces is not governed by its provisions. Legislative concerns about municipal encroachment are acknowledged, but the protections of the PUA only apply to municipalities under limited circumstances. Additionally, while a Court of Appeals case (Fleming v. Town of Silver City) suggests that municipalities cannot operate within a regulated utility's area without PUA regulation, the PUA clearly excludes municipalities from its scope. The interpretation remains straightforward, and any future inclusion of smaller municipalities in the PUA would require legislative amendment.

Moongate's Certificate of Convenience and Necessity (CCN) grants it exclusive service rights only against utilities under the jurisdiction of the Public Regulation Commission (PRC). The PRC cannot restrict municipal utilities, like Las Cruces, which fall outside its regulatory authority. Therefore, a CCN issued by the PRC does not limit the city’s ability to compete in the certificated area, affirming the Court of Appeals' conclusion that Moongate's CCN does not afford it exclusive rights against Las Cruces.

Regarding Moongate's regulatory taking claim, the district court wrongly concluded that the CCN conferred exclusive service rights over Las Cruces. A taking can still occur if Moongate can demonstrate that it had established infrastructure and was serving customers in the area affected by the municipality's actions. Under Article II, Section 20 of the New Mexico Constitution and the Fifth Amendment, private property cannot be taken for public use without just compensation. 

Regulatory takings are defined as government regulations affecting land use without transferring property title. Such a taking occurs if a regulation is not reasonably related to a legitimate purpose or deprives the property owner of significant beneficial use of their property. If a regulatory taking is established, the remedy lies in inverse condemnation, applicable when property is taken or damaged by a governmental entity without just compensation or proper condemnation procedures.

Municipalities possess the authority to condemn privately operated water facilities for public use, necessitating just compensation for public utilities when tangible property is taken. In this case, Moongate's claim centers on whether the City of Las Cruces could take its exclusive service rights without compensation. Moongate contends that it deserves compensation for the fair market value of its lost potential to serve. However, the district court found that Moongate had not lost significant customers due to the City’s actions, had no infrastructure or physical assets in the relevant areas, and could not serve the Dos Suenos subdivision without substantial improvements. Consequently, the court deemed Moongate's claims of lost profits speculative and based on hypothetical scenarios.

Furthermore, the court concluded that no taking occurred, as Moongate's rights were not exclusive, and it lacked tangible assets in the certificated area. The situation would differ if Moongate had invested in infrastructure that Las Cruces then took over or competed against, potentially justifying compensation under stranded assets theory. Stranded assets refer to costs incurred by utilities that are recoverable through rates, which may be jeopardized by market competition. Moongate did not prove it had such stranded assets, nor did it demonstrate any actual loss, leading to the conclusion that it was not entitled to compensation.

Moongate claims that its alleged “exclusive service rights” warrant just compensation due to Las Cruces' actions. However, Moongate does not identify any tangible asset impacted by these actions. Hence, the court concludes there is no taking under the law, asserting that without evidence of tangible loss—such as physical taking or stranded costs—a public utility is not entitled to compensation when a municipality lawfully operates within its certified area. Moongate references case law from other jurisdictions suggesting that municipalities engaging in such invasions typically constitute a taking requiring compensation. The court finds these cases distinguishable, noting that both cited examples involved actual customers and infrastructure. In the City of Jackson case, a taking was confirmed due to the city's invasion of an area where a public utility had established infrastructure and was already servicing customers. Conversely, the court emphasizes that merely losing the right to serve, without tangible loss, does not constitute a compensable taking. The district court's summary judgment in favor of Moongate is deemed erroneous, and the Court of Appeals' ruling—that Moongate’s CCN does not ensure exclusive service rights against Las Cruces—is affirmed. The matter is remanded for judgment in favor of Las Cruces.