ORDINANCE No. 177075

* Authorize stipulation agreement with Qwest Communications Corporation for disputed franchise fees (Ordinance)

The City of Portland ordains:

Section 1.  The Council finds:

1.  In 1997, Qwest Communications Corporation (“Qwest CC”) applied to the City of Portland for permission to use the public right-of-way to build and operate a limited-use, “point-to-point” telecommunications system as a competitive telecommunications provider. Qwest CC sought authority to use a limited amount of the right-of-way to build a single route to a fixed location within the City, in order to link its long-distance system with local facilities. On December 31, 1997, the City Council approved Ordinance No. 171914 granting a franchise to Qwest CC to construct, operate and maintain a telecommunications system using the City’s streets along a fixed route. The franchise became effective on March 1, 1998.

2.  Under Section 3.1. of the franchise, Qwest CC agreed to pay the City of Portland a franchise fee as compensation for Qwest CC’s use and occupation of the City’s streets. The amount of the franchise fee is calculated upon the length of its facilities in the streets, measured linearly along the fixed route established in the franchise.

3.  In 1999, Qwest Corporation (“Qwest Corporation”), the parent corporation of Qwest CC, purchased US West Communications. After the completion of the corporate merger, Qwest Corporation and Qwest CC represented to the City that they continued to exist as separate operating business entities.

4.  In 2001 Qwest Corporation filed a lawsuit in federal court to determine the legality of the City’s franchise fees. Qwest Corp. v. City of Portland, No. 01-CVB-1005-JE (D. Or.). After filing the litigation, Qwest Corporation notified the City that it would withhold future utility license and permit fee payments to the City, as these payments became due and owing. At approximately that same time, Qwest CC also notified the City that it would withhold payments of its franchise fees to the City.

5.  In March 2002 the federal court issued an opinion upholding the legality of the payments to the City by Qwest Corporation. Following the issuance of the court’s ruling, Qwest Corporation entered into a stipulated order with the City, in which it agreed to pay the monies previously withheld from the City and to make future payments as they came due. Qwest Corporation reserved the right to seek recovery of those sums, if the district court’s ruling was reversed on appeal. Qwest Corporation has appealed the lower court ruling, and the appeal is currently pending in the Ninth Circuit.

6.  Qwest CC’s withholding of payments to the City was not otherwise addressed in the stipulation between Qwest Corporation and the City. Qwest CC has continued to withhold past franchise fees. Representatives of Qwest CC have indicated to City staff that Qwest CC would be willing to pay the outstanding fees, and to resume regular payment of future fees as they come due, if the City and Qwest CC enter into an agreement similar in terms and conditions to the stipulation entered into between Qwest Corporation and the City.

7.  City staff and Qwest CC have negotiated the terms and conditions of a stipulation agreement for the payment of Qwest CC’s outstanding franchise fees.

NOW, THEREFORE, the Council directs:

a.  The Director of the Office of Cable Communications and Franchise Management, or the Director’s designee, is authorized to enter into a stipulation with Qwest Communications Corporation in a form substantially similar with that attached as Exhibit A.

Section 2. The Council declares that an emergency exists because delay in entering into the agreement will cause further delay in receipt of the withheld payments, and unnecessary disruption in the City’s budget process, which would be harmful to the public welfare; therefore this Ordinance shall be in full force and effect from and after its passage by the Council.

BACKING SHEET INFORMATION

AGENDA NO. 1391-2002

ORDINANCE/RESOLUTION/COUNCIL DOCUMENT NO. 177075