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New Mexico Gas Co. v. Board of County Commissioners of Bernalillo County

United States District Court, D. New Mexico

October 16, 2019

NEW MEXICO GAS COMPANY, PUBLIC SERVICE COMPANY OF NEW MEXICO, and QWEST CORPORATION d/b/a CENTURYLINK, Plaintiffs,
v.
BOARD OF COUNTY COMMISSIONERS OF BERNALILLO COUNTY, NEW MEXICO, Defendant.

          MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON COUNT II

         THIS MATTER comes before the Court upon a Motion for Summary Judgment on Count II of Plaintiff's Complaint, filed by Defendant Board of County Commissioners of Bernalillo County, New Mexico (“Defendant” or “County”) on December 29, 2017 (Doc. 142). Having reviewed the parties' pleadings and the applicable law, the Court finds that Defendant's motion is well-taken and, therefore, is granted.

         BACKGROUND

         I. Procedural Background

         Plaintiffs New Mexico Gas Company (“NMGC”), Public Service Company of New Mexico (“PNM”) and Qwest Corporation d/b/a CenturyLink filed this lawsuit challenging the “Taxpayer Protection and Right-of-Way Ordinance” and related fee resolutions adopted by the County which require utilities to enter into right-of-way use agreements and to pay right-of-way use fees. In this summary judgment motion, the County seeks a ruling that the Ordinance and Resolution are lawful and enforceable.

         Based on this Court's previous rulings, Count II is the only remaining claim in this case, and is asserted only by Plaintiff CenturyLink[1] (“Plaintiff” or “CenturyLink”). The state law claims in this case were dismissed without prejudice under 28 U.S.C. §1367(c)(1) and (2). Doc. 42 at 12.[2] The complaint was then amended to conform to the Court's rulings, to include only two counts, both of which are federal claims: Count I of the Second Amended Complaint (Doc. 45) seeking a declaration that the Ordinance is unconstitutionally vague and violates due process under 42 U.S.C. §1983; and Count II in which CenturyLink seeks a declaration that the Ordinance and Resolutions violate 47 U.S.C. §253 and are therefore preempted by the Supremacy Clause of the United States Constitution. Doc. 45 (Sec. Am. Compl.). On September 12, 2014, the Court denied Plaintiffs' Motion for Judgment on the Pleadings as to Count I of the Second Amended Complaint, and subsequently granted Defendant's motion for the same. See Docs. 60 & 81.

         The “Taxpayer Protection and Right-of-Way Ordinance” (“Ordinance” or “Bernalillo County Ordinance”) and related fee resolutions (“Resolutions”) were adopted by the County in 2014. The Ordinance requires utilities with facilities and equipment in the public right-of-way in unincorporated areas of Bernalillo County to execute a Right-of-Way Use Agreement with the County and, as part of such agreement, to pay a right-of-way use fee as provided in such Agreement. CenturyLink claims that the intended fee, or “franchise fee, ” has the effect of prohibiting CenturyLink from providing its telecommunications service and therefore violates §253 because the intended fee will limit CenturyLink's investment in infrastructure and will restrict its ability to provide competitive services.[3]

         CenturyLink's position in Count II is that the County may only charge a fee designed to recoup costs incurred in the administrative act of granting a franchise, and it alleges that the County has not performed a cost study to assess those costs. Sec. Am. Compl. (Doc. No. 45), ¶ 53. Plaintiff also complains of a “massive increase” in fees, alleging unfettered discretion” and “onerous non-fee provisions” imposed by the County, id., §57, 62-63, and seeks an order from the Court enjoining the County from enforcing against Plaintiffs the fee and related provisions of the Ordinance and the Resolutions. The Second Amended Complaint seeks a declaration that the Ordinance and Resolutions are unlawful under §253 and are therefore unenforceable.

         Defendant counters that §253 does not limit the County to recouping only limited costs incurred in granting a franchise, and also denies that it has “massively increased” the right-of-way use fee. Rather, it points out that it has properly imposed such a fee for the first time, and that this fee is based on a thorough cost study, allocated according to the extent users occupy the rights-of way. The County also claims that the fee amount is consistent with (or lower than) fees charged by at least one other governmental entity, giving the City of Albuquerque as one such example. The County disagrees with Plaintiff that the Ordinance materially inhibits its ability to provide services, and even so, the Ordinance falls within the safe harbor of §253(c) because the County is properly exercising its right to manage the public right-of-way and the fee seeks fair and reasonable compensation on a competitively neutral nondiscriminatory basis.

         Federal jurisdiction over Count II of the Second Amended Complaint is proper, as the claim is alleged as a challenge under the Supremacy Clause. See Qwest Corp. v. City of Santa Fe, New Mexico, 380 F.3d 1258, 1266 (10th Cir. 2004) (“Santa Fe II”) (“a party may bring a claim under the Supremacy Clause that a local enactment is preempted even if the federal law at issue does not create a private right of action”).[4]

         II. Facts[5]

         The Court includes both parties' facts in this section, noting where factual disputes exist, if any. The Court also omits reference to supporting exhibits except where necessary, since they are included in the parties' briefs, and will also omit facts which are not material or relevant.

         A. Century Link: Background and Use of Public Right-of-Way

         CenturyLink is the incumbent local exchange carrier (“ILEC”) in parts of New Mexico, including the unincorporated portion of Bernalillo County. The services provided by CenturyLink and its predecessors date back to 1911, which predates statehood. CenturyLink provides local exchange service, long distance service, high speed Internet service, data services and managed services.

         CenturyLink has approximately 14, 575 customers in the unincorporated portions of Bernalillo County. CenturyLink's telecommunications services benefit and contribute to the health, safety and quality of life of the residents in the unincorporated areas of the County. The County receives benefits from CenturyLink's services in the form of increased property values, economic development, property taxes and gross receipts tax revenues, among other benefits.

         As a wireline carrier, CenturyLink locates portions of its network facilities in the public right-of-way, including portions managed by the County. CenturyLink's facilities in the public right-of-way include: telephone poles and the telephone wires and cables that are installed on these poles as well as on the poles installed by other utilities; cables and wires that are buried in the public right-of-way, usually alongside roadways; and pedestals and cross-boxes that are often seen adjacent to roadways.

         Historically, CenturyLink installed and maintained its cables and wires mostly on poles. More recent techniques, including trenching and directional boring, have allowed CenturyLink to efficiently migrate much of its network below-ground, without disturbing roads and the facilities of other utilities in the public right-of-way. Trenching and directional boring have become so commonplace that CenturyLink has not cut into the pavement of a road in unincorporated Bernalillo County in at least the past five years. However, as Defendant notes, these new techniques do not change the fact that CenturyLink still continues to occupy public rights-of-way, even with some of its network below-ground. It would be impractical, and in some cases impossible, for CenturyLink to provide services without access to the public right-of-way in the unincorporated areas of the County.

         B. Use of Public Right-of-Way by CenturyLink's Competitors

         CenturyLink's competitors include wireless carriers, competitive local exchange carriers (“CLECs”), voice-over-Internet-protocol (“VOIP”) carriers, and cable television companies. The term “competitive local exchange carrier” comes from the 1996 Telecom Act to describe a wireline competitive provider that competes with an ILEC provider such as CenturyLink. Wireless carriers transmit and receive voice or data without the use of wires between the end user's handset and the wireless antenna located on a cell tower. Wireless carriers and resale providers generally use a wireline provider like CenturyLink for transporting their customers' calls and data between towers. Defendant adds that CenturyLink receives compensation from its wireless competitors for this service.

         Use of the public right-of-way by a wireless carrier is minimal and such carriers are generally not subject to right-of-way fees. Conversely, wireless companies that do make use of public rights-of-way would be subject to the Ordinance, while wireline competitors that do not use public rights-of-way would not be required to pay fees under the Ordinance. Some CLECs place facilities in the public right of way, which are called “facilities-based CLECs.” They are subject to public right-of-way fees. Other CLECs, termed “resale CLECs, ” lease facilities or access from CenturyLink that are located in the public right-of-way, and they are not subject to public right-of-way fees. Defendant points out that while entities lease facilities from CenturyLink may not be responsible for paying right-of-way use fees directly to the respective governmental entity, the lease fees paid to CenturyLink could take into account the right-of-way use fees paid by CenturyLink.

         VOIP providers transmit voice service over the Internet using the Internet Protocol. There are approximately 117 VOIP providers in New Mexico (including Vonage, Ooma, and Magic Jack). A VOIP user needs an Internet connection, but a VOIP provider usually does not provide the Internet connection. These VOIP providers are therefore not subject to public right-of-way fees. Comcast is the cable television company in the County. It also provides Internet access service and VOIP service. Comcast pays a franchise fee to the County of 5% of revenues from video services. However, Comcast is not required to pay the separate public right-of-way fee that is the subject of this litigation because federal law prohibits franchising authorities from imposing franchise fees on broadband or VOIP revenue.[6]

         CenturyLink states that since the 1996 Telecom Act and the advent of competition, CenturyLink has lost substantial market share to competitors, particularly wireless companies. CenturyLink now has less than half of the number of “access lines” (meaning live connections to customers) as it did in 2001. During this period, the number of New Mexico households with voice service has remained relatively steady. As of 2016, 53.8% of New Mexico adults over the age of 18 have “cut the cord” and use only wireless for voice service. Defendant does not dispute these facts but relies on the opinion of its expert, William Fitzsimmons, Ph.D., to point out that a decrease in the number of customers does not necessarily translate into a decrease in profitability.

         C. CenturyLink's Public Right-of-Way Fees in New Mexico

         CenturyLink states that its fees for use of the public right-of-way in New Mexico differ between municipalities and counties (Add'l Fact Y), but Defendant disputes this fact to the extent that it infers that municipalities and counties should be treated differently in considering §253, and the Court agrees that such an inference is not permitted by the statute.

         Most of the municipalities in which CenturyLink provides service impose an annual franchise fee. The annual franchise fee is based on a percentage of revenues derived from certain of CenturyLink's telecommunications services. Since the advent of competition, CenturyLink has resisted efforts by municipalities to increase these franchise fees. CenturyLink has twice challenged efforts by the City of Santa Fe to increase its franchise fee, and each time CenturyLink prevailed.

         Century Link claims that in contrast to municipalities, no county in New Mexico has imposed a franchise fee or other annual fee on CenturyLink. Instead, the Counties generally impose permit fees. The permit fees are not annual fees, but instead are imposed each time a utility accesses the public right-of-way. Permit fees are not based on a percentage-of-revenues, but instead are designed to recover the County's costs for administering and supervising the specific activity. Defendant objects to Plaintiff's inference that permit fees are a substitute for franchise fees. According to its records, the average amount of permit fees that CenturyLink has paid the County for 2015, 2016, and the first six months of 2017 is less than $15, 000 annually.

         D. County's Design Review Fee Resolution

         On August 13, 2013, the Board of County Commissioners of Bernalillo County (“the Board”) adopted, on a three to two vote, the Design Fee Resolution, which imposes a $750 fee for the design review of utility construction drawings where construction costs were under $250, 000, and a fee of 1.5% of the construction costs for costs over $250, 000.

         E. The Ordinance

         On January 28, 2014, the County enacted its Taxpayer Protection and Right of Way Use Ordinance. See Ex. A to Sec. Am. Compl., Doc. 45). The Ordinance notes that the County “owns, maintains, and/or is responsible for its roadways, easements, and rights-of-way within the unincorporated areas of the County” and states that the County must be “compensated for the reasonable costs involved in the use of the right-of-way, for administrative expenses incurred in the processing of the necessary permits, as well as for the required monitoring of the progress of work and protection of the public health, safety and welfare.” Id., section 1.3. The Ordinance requires that any person including business entities, such as CenturyLink, currently using the public right-of-way must pay an annual “use fee” to the County for the “use and occupancy” of the public right-of-way.

         According to the Ordinance, the Board requires parties wishing to use County right-of-way to execute right-of-way use agreements which will include provisions requiring payment of an annual use fee. Those utilities wishing to obtain a right-of-way use agreement would be required to submit certain information (including identifying information, a statement of the purpose for the use of the right-of-way, a drawing of the location and dimensions of the proposed use, the method by which the proposed use will be accomplished, a map or schematic of utility systems currently occupying the right-of-way, and proof of membership in the New Mexico One Call system) (collectively referred to as “non-fee” provisions). The Ordinance further requires entities wishing to occupy public rights-of-way to submit proof of adequate insurance, and to agree to indemnify “the county and its officers, agents and employees, against all claims, losses and damages to person or property on account of or resulting from the intentional or negligent conduct on the part of the person's use of the County right-of-way, or any work, duties, or obligations performed pursuant to the terms of [the] Ordinance.” The applications are reviewed by the County, which reserves the right to deny applications or proposed uses of the rights-of-way, or to impose appropriate terms and conditions.

         To support passage of the Ordinance and to calculate the annual franchise fee to be charged the public right-of-way occupants, the County initially prepared a Financial Analysis Form dated January 28, 2014 (“FAF”). The FAF set out total annual costs purportedly incurred by the County of about $6.8 million. The FAF was based on a single-page cost study performed by County personnel. CenturyLink contends that the FAF did not include an allocation of these costs among users of the public right-of-way, so there was no way for an occupant to know for what share it would be responsible. Defendant does not dispute that the FAF did not allocate costs among users of the public rights-of-way because it was only a preliminary analysis not meant to allocate fees to be charged each user of the rights-of-way under the Ordinance.

         F. The Cost Study

         To calculate the annual-use fees contemplated by the Ordinance, the County performed a cost study to determine the costs it incurs in managing and maintaining its public rights of way. The study is based on the costs actually incurred by the County in 2013 in managing and maintaining the public rights of way, but is designed to reflect the County's ongoing costs of managing and maintaining the public rights of way. The County intends to allocate the costs calculated through the cost study to different users of the public rights of way based on their actual, physical, cubic-foot occupation of the right-of-way. The 2013 Cost Study identifies three categories. The first category, entitled “Operating Expenses, ” calculates annual costs at almost $15, 000.00. This category includes costs for County departments that perform activities “directly” related to the public right-of-way. The second category is entitled “Depreciation Expenses, ” calculated at an annual cost of $9, 384.896; and the third category is for “Interest Costs Allocated to [public right-of-way] Assets” which reflect interest on borrowings for public rights-of-way assets. The total annual costs calculated for these three categories for “owning, maintaining and managing” the public rights-of-way is over $27.3 million. CenturyLink makes the observation that the 2013 County budget indicates that the budget for its General Fund was $230 million, making the alleged public right-of-way costs more than 10% of all General Fund expenditures. ...


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