Full opinion text
OPINION AND ORDER ASHMANSKAS, United States Magistrate Judge. OVERVIEW OF COMPLAINT The City of Portland (City) filed a complaint against Electric LightWave, Inc. (ELI), for breach of contract for failing to pay franchise fees due and owing under a municipal franchise (Franchise Agreement) the City and ELI entered into eight years ago. Under the Franchise Agreement, the City granted ELI the right to construct and operate a telecommunications system, “in, under, and over the surface of the City’s streets.” In return, among other things, ELI agreed to pay the City compensation of 5% of its “gross revenues” earned from telecommunications services in the City. ELI responded to the complaint that it is no longer required to comply with the terms of the contract under the Federal Telecommunications Act of 1996, 47 U.S.C. § 253 (FTA or Act). The parties filed cross-motions for summary judgment. The City seeks judgment on its breach of contract claim and asks the court to strike or dismiss all eight of ELI’s affirmative defenses and all five of ELI’s counterclaims. The City also seeks summary judgment on certain contract interpretation issues. Conversely, ELI seeks summary judgment against the City’s breach of contract claim and in favor of its first, fourth and fifth counterclaims, all based on its theory that the Franchise Agreement is preempted by the Act. The parties also filed motions to strike portions of the other’s summary judgment submissions. BACKGROUND In 1990, the City and ELI entered into the Franchise Agreement that allowed ELI to use city streets for the purpose of providing telecommunications services to ELI’s customers in exchange for ELI’s payment of a franchise fee to the City. The 1990 Franchise Agreement was amended and updated during the spring of 1996. On June 19, 1996, the City passed Ordinance 170283, granting ELI a telecommunications franchise for 10 years. The Franchise Agreement was approved by the City Council in July 1996, and reaffirmed and validated by the City Council in January 1999. Specifically, on January 6, 1999, the City enacted Ordinance 172996 (Ratifying Ordinance), which ratified the City’s June 19, 1996 grant of a franchise to ELI. Section 21 of the Ratifying Ordinance required ELI to file a written acceptance of the Ordinance within 30 days and provided: “Such acceptance shall be unqualified and shall be construed to be an acceptance of all the terms, conditions and restrictions contained in this ordinance and Ordinance No. 170283.” Section 21 of Ordinance No. 170283 is virtually the same. ELI sent the City an “Acceptance of Franchise Ordinance 172996” on January 7, 1999. The Ordinance required ELI to return an acceptance of the Franchise Agreement to the City within 30 days after the date of the Ordinance or it would be null and void. The City neglected to send out the acceptance and, as a result, the acceptance was never returned. To remedy this error, the City ratified the Franchise Agreement on January 6, 1999, with the Franchise Agreement to be effective as of September . 19, 1996. ELI signed a document accepting the terms and provisions of the Franchise Agreement on January 7, 1999, as required by the Ordinance and the Portland City Code. After City of Auburn v. Qwest Corp., 247 F.3d 966, amended and superceded by, 260 F.3d 1160 (9th Cir.2001), was decided in 2001, ELI notified the City, by letter dated July 25, 2001, that numerous sections of the Franchise Agreement, including most of those sections at issue here, appeared to have been impacted by the decision in City of Auburn, and asked the City to meet to discuss that impact and to renegotiate the Franchise Agreement pursuant to Section 17, which sets forth terms for renegotiation of the Franchise Agreement. By way of a letter dated August 1, 2001, the City refused to renegotiate the Franchise Agreement. On August 15, 2001, ELI advised the City that it believed several aspects of the Franchise Agreement violated the FTA. ELI stopped paying Franchise fees as required under the Franchise Agreement and, instead, made payments pursuant to a formula that it felt was appropriate under the terms of the Act. The amounts otherwise due were deposited in an escrow account which, at the time this action was filed held approximately 2.2 million dollars. The City then filed this action for breach of contract based, in part, on ELI’s failure to pay the Franchise fee pursuant to the terms of the Franchise Agreement. LEGAL STANDARD Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(a). The materiality of a fact is determined by the substantive law on the issue. T.W. Electrical Serv., Inc. v. Pacific Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir.1987). The authenticity of a dispute is determined by whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324, 106 S.Ct. 2548. Special rules of construction apply to evaluating summary judgment motions: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. T.W. Electrical, 809 F.2d at 630. DISCUSSION By way of historical information, the court notes that the City is a municipal corporation in existence since its first legislative charter became effective in 1851. To date, the City had granted 26 telecommunications franchises. The City represented at oral argument that it has never rejected a telecommunications franchise. Indeed, in his sworn affidavit, David Olson, the Director of the City’s Office of Cable Communications and Franchise Management (Franchise Office), testified that “[i]n the years that I have served as the Director of the Franchise Office [since 1983], the City has (a) never denied a telecommunications franchise to any applicant; (b) never refused to renew or extend the term of a telecommunications franchise when requested by the franchisee; and (c) never declined to approve a change in ownership or control of a telecommunications franchise.” Id. In addition, the City has franchise agreements with various energy utilities and other companies with extensive facilities in the City streets. Declaration of David C. Olson. ELI operates in the State of Oregon as a “competitive telecommunications provider” under a Public Utility Commission grant of authority. See Or. Rev. State. § 759.005(2). Declaration of Mary Beth Henry. As mentioned above, the City granted its first franchise to ELI in 1990. That Franchise Agreement provided that ELI would pay the City a Franchise fee of 5% of its gross revenues, as defined in the Franchise Agreement. ELI has operated under the current Franchise Agreement since 1996. ELI provides 21 different kinds of telecommunications services to customers in Portland, and by its own admission, there are no telecommunications services which ELI offers elsewhere in the United States but not in Portland as a result of the 1996 Franchise Agreement. ELI’s Response to City’s Interrogatory No. 3, Exhibit 1 to Thatcher Deposition. ELI provides no residential telecommunications services in the City. ELI’s 1990 Franchise Agreement was the first such franchise granted by the City to a competitive telecommunications carrier. Id. Subsequent to ELI’s first Franchise Agreement, many other competitive telecommunications carriers have sought and obtained franchises or other authority to occupy City streets. Id. In fact, the City has issued 13 franchises similar to that granted to ELI to other competitive telecommunications providers. Declaration of Mary Beth Henry. Qwest Corporation (Qwest) is the successor to the former Bell system telecommunications monopoly provider, Pacific Northwest Bell, later U.S. West. Qwest operates as a telecommunications utility as defined under Or.Rev.Stat. § 759.005(1), providing, among other things, local telephone service. Qwest provides telecommunications service in Portland and occupies City rights of way under the terms of a revocable permit granted by the City. Qwest provides the bulk of residential telecommunications services in Portland. Qwest permit fees for use of City rights of way are set at 7% of revenues earned by Qwest in the City from the sale of exchange access service. This is identical to the privilege tax the City is authorized to levy on Qwest under Or.Rev.Stat. § 221.515. The terms of Qwest’s permit and ELI’s Franchise Agreement have several similarities. In its filings with the City, Qwest recently declared annual exchange access revenues earned within Portland city limits of approximately $80 million. Qwest provides the vast bulk of residential telephone service in Portland. In fact, it is estimated that Qwest competitors have only about six percent of the residential market in the Portland metropolitan region. Id. (citing findings by the Oregon Public Utilities Commission). I. Cross-Motions for Summary Judgment The City seeks partial summary judgment in its favor on questions of liability raised in this case. Specifically, the City requests an order: (1) declaring that ELI has breached its contractual obligations under the Franchise Agreement and the City is due damages to be determined at a later stage; (2) declaring that ELI’s affirmative defenses are insufficient to excuse ELI’s failure to comply with the terms of the Franchise Agreement; (3) dismissing ELI’s counterclaims against the City; and (4) declaring that revenues earned by ELI from collocation services, finance charges, and Carrier Access Billing System (CABS) and Local Access Billing System (LABS) billings are gross revenues under the terms of the ELI Franchise Agreement. Conversely, ELI seeks summary judgment on the City’s claim for breach of contract, on ELI’s first counterclaim for violation of sections 253(a) and (c) of the Act, on ELI’s fourth counterclaim for breach of contract and on ELI’s fifth counterclaim for declaratory judgment. The essence of ELI’s motion is that the Franchise Agreement imposes numerous burdensome requirements and revenue-based fees that are invalid under the FTA and the Ninth Circuit’s decision in City of Auburn. ELI maintains that the City’s Franchise Agreement is similar in scope and substance to those preempted in City of Auburn, because it prohibits or may prohibit ELI from providing telecommunications services. A. Preemption by the Telecommunications Act of 1996 Congress passed the FTA, in order to “promote competition among and reduce regulation of telecommunications providers.” City of Auburn, 260 F.3d at 1170. In furtherance of this goal, Congress implemented restrictions on the authority of local governments to limit the ability of telecommunications companies to do business in local markets. See AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 371, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). Section 253 of the FTA “embodies the balance between Congress’ new free market vision and its recognition of the continuing need for state and local governments to regulate telecommunications providers on grounds such as consumer protection and public safety.” TCG New York, Inc. v. City of White Plains, 125 F.Supp.2d 81, 87 (S.D.N.Y.2000), aff'd in part, rev’d in part on other grounds, 305 F.3d 67 (2d Cir.2002)(quotation and citations omitted). The plain terms of section 253 preempt many local laws; however, notwithstanding this general prohibition, local governments retain some regulatory authority. Under section 253, all state and local regulations that prohibit or have the effect of prohibiting any company’s ability to provide telecommunications services are preempted unless such regulations fall within either of the statute’s two “safe harbor” provisions, sections 253(b) and (c). See City of Auburn, 260 F.3d at 1175. The parties agree that only section 253(c), pertaining to local regulation of rights of way, is applicable to the case at hand. See id. at 1176. Thus, to resolve the present claims, the court must first determine whether the City’s regulations fall within the proscription of section 253(a) and, if they do, the court must then determine whether certain provisions are nevertheless permissible under section 253(c). See, e.g., City of Auburn, 260 F.3d at 1175-1180; City of White Plains, 305 F.3d at 77. 1. Section 253(a) — Does the City’s Franchise Agreement Prohibit or Have the Effect of Prohibiting Telecommunications Services? As mentioned above, section 253(a) places limits on the City’s authority to regulate telecommunications services. Specifically, section 253(a) provides that no “local statute or regulation ... may prohibit or have the effect of prohibiting the ability of any entity to provide ... telecommunications service.” 47 U.S.C. § 253(a). In Qwest v. City of Portland, Magistrate Judge Jelderks considered the plain wording of the statute to determine the scope of the prohibition on local regulation of telecommunications. 200 F.Supp.2d 1250, 1255-1256 (D.Or.2002), aff'd, in part, rev’d, in part, 385 F.3d 1236 (9th Cir.2004), cert. filed, 544 U.S. 1049, 125 S.Ct. 2300, 161 L.Ed.2d 1089 (2005). Judge Jelderks determined, and this court agrees, that the statute provides only that “no local requirements may: (1) prohibit the ability to provide service, or (2) have the effect of prohibiting the ability to provide service.” Id. at 1255. Judge Jel-derks rejected Qwest’s argument that the prohibition in section 253(a) included regulations that actually prohibit the entity’s ability to provide telecommunications services and those that may have the effect of prohibiting the provision of such services. Id. (emphasis added). Judge Jelderks reasoned that Congress used the word “may” simply as a synonym for “is permitted to” and ruled that if the challenged requirements do not prohibit or have the effect of prohibiting the provision of telecommunications services, the FTA does not preempt the requirements. Id. at 1255-1256. The Ninth Circuit reversed this decision by our court and stated without explanation that “ ‘[s]ection 253(a) preempts regulations that not only prohibit outright the ability of any entity to provide telecommunications services, but also those that may have the effect of prohibiting the provision of such services.’ ” City of Portland, 385 F.3d at 1240-1241 (emphasis added)(quoting City of Auburn, 260 F.3d at 1175 (citation, alteration, and internal quotation marks omitted)); see also Qwest Corp. v. City of Santa Fe, 380 F.3d 1258, 1270 n. 9 (10th Cir.2004) (“Section 253(a) bars any legal requirement which may have the effect of prohibiting the ability of an entity to provide telecommunications service.”). Moreover, the Ninth Circuit emphasized that a provider is not required to make an actual showing of “a single telecommunications service that it ... is effectively prohibited from providing.” City of Portland, 385 F.3d at 1241. Rather, under Ninth Circuit law, regulations that may have the effect of prohibiting the provision of telecommunications services are preempted. Id. In addition, the district court must consider the cumulative effect of a regulatory scheme. See City of Auburn, 260 F.3d at 1176 (“The ordinances at issue in the present case include several features that, in combination, have the effect of prohibiting the provision of telecommunications service.”) The Ninth Circuit’s interpretation of the scope of section 253(a) appears to depart from the plain meaning of the statute and extend the barrier for local regulation of telecommunications services beyond what Congress intended. Regardless, the Ninth Circuit has instructed the district courts to analyze franchise provisions both individually and cumulatively to determine whether they prohibit or “may” prohibit the provision of telecommunications services. As instructed, the court will consider each provision of the Franchise Agreement between the City and ELI to determine whether it violates section 253(a). If a provision or combination of provisions are found to violate section 253(a), the court will then consider whether the offending requirement is protected by the safe harbor provision of section 253(c). Finally, if the requirement(s) violates section 253(a) and is not saved by section 253(c), the court will consider whether it is feasible to sever the offending provision(s) and keep the remainder of the Franchise Agreement in effect. Section 1 of the Franchise Agreement is titled “NATURE AND TERM OF GRANT” and it grants the Franchise to ELI and allows it to provide services. By this provision, the City granted ELI its special occupancy rights for ten years. ELI appears to contend that the very fact that the City requires a Franchise Agreement in order to provide telecommunications services violates the FTA as that statute was construed by the Ninth Circuit in City of Auburn. For example, during oral argument, ELI stated “[T]he very fact that they require a franchise or that they require anything under Auburn is preemptive .... ” Transcript of Proceedings at p. 17. However, the Ninth Circuit has expressly acknowledged that a franchise requirement per se is not preempted by the FTA. See City of Auburn, 260 F.3d at 1176 & n. 11 (“[0]ur conclusion is based on the variety of methods and bases on which a city may deny a franchise, not the mere franchise requirement, or the possibility of denial alone.”). Subsection 1.5 of the Franchise Agreement is titled “Charter and General Ordinances to Apply” and it subjects the Franchise Agreement to the City’s Charter and general ordinance provisions affecting matters of general City concern and not merely existing contractual rights of the grantee. In other words, both the City and ELI must abide not only by the terms of the Franchise Agreement, but by all the ordinances and codes of the City. The Franchise Agreement incorporates all requirements of Chapter 10 of the City’s Charter, which are applicable to all public utilities. The Charter grants the City “general supervision and power of regulation of all public utilities within the City of Portland.” City Charter § 10-105. ELI contends that subsection 1.5, subjecting it to all requirements of Chapter 10 of the City Charter, must be preempted. According to ELI “such broad sweeping powers to regulate and restrict telecommunications ‘interfere with, or a contrary to’ the fundamental legislative purpose of the Act.” City of Auburn, 260 F.3d at 1175 (citation omitted). In City of Portland, the Ninth Circuit considered this precise issue; namely, a challenge to the City’s “general franchise requirements that apply to all public utilities” and determined that: Portland’s franchising process is not the result of a single, uniform ordinance regulating telecommunications providers. Rather, the city’s franchising process includes a number of provisions adopted over the course of many years and are applicable to utilities generally.... We doubt whether City of Auburn can be read so broadly as to apply to ordinances that are not specific to the telecommunications permitting process. Base on the record before us, there is no indication, that Portland .... [has] passed ordinances that are specific to the telecommunications process and apply to all telecommunications providers attempting to enter the market.[ ] Therefore, to the extent that Qwest challenges these ordinance provisions, it is questionable whether § 253 even applies. 385 F.3d at 1242. Thus, the Ninth Circuit has informed this court that City Charter provisions are not “telecommunieations-specific” and it is “questionable” whether section 253 even applies. See id. at 1241-1242; compare City of Auburn, 260 F.3d at 1170 (Each of the challenged ordinances specifically addressed the provision of telecommunications services and was adopted after the enactment of the FTA in 1996.). Under the circumstances, this court is bound by precedent and therefore must find that the provisions of the City Charter, incorporated into Ordinance No. 170283, are not preempted by section 253(a) of the FTA. Finally, regarding subsection 1.5 of the Franchise Agreement, the court notes that the City has contracted to “fetter” its discretion when applying its general Charter provisions; the Charter provisions apply only to the extent authorized by law. The City acknowledges its authority under the Franchise Agreement is limited by both state and federal law. The court concludes that section 1 of the Franchise Agreement does not violate section 253(a). Section 2 of the Franchise Agreement is titled “DEFINITIONS” and it defines the terms used in the Franchise Agreement. There is no contention by ELI that this provision should be preempted. The court finds that section 2 of the Franchise Agreement does not violate section 253(a). Section 3 of the Franchise Agreement is titled “COMPENSATION AND AUDITING” and it sets forth, among other things, the basic monetary compensation ELI pays in return for its grant of authority to occupy the City’s property. Specifically, ELI challenges the following requirements of section 3 as preempted by the FTA; the requirement: (1) to pay a Franchise fee of 5% of gross revenues (subsection 3.1); (2) to provide the City ELI’s most-favored rate by prohibiting ELI from charging the City more than ELI charges other entities for similar telephone services (the City refers to this provision as a non-discrimination clause)(subsection 3.2); and (3) to provide written reports as to gross revenues in a form satisfactory to the City as well as ELI’s books, maps, records, and its calculation of Franchise fee payments for the City’s inspection upon no less than 48 hours notice (subsection 3.8). The court will consider each of these requirements in turn to determine if they are preempted. Subsection 3.1 is titled “Amount of Compensation” and sets forth the 5% revenue-based fee. ELI challenges this provision in two ways; first, ELI argues that this provision is a barrier to entry and it is prohibited by section 253(a). The revenue-based fee is part of a larger regulatory scheme by the City to prohibit telecommunications providers from using city streets to provide service unless they unconditionally accept the terms of the Franchise Agreement. In essence, ELI’s position is that when Congress enacted this legislation it intended that local governments would step away from any regulation of telecommunications providers except to recover costs for the use of the local rights of way. Secondly, ELI asserts that section 253 prohibits the City from basing rights of way fees on ELI’s gross revenues. ELI submits that the Franchise fee is not fair or reasonable, as required by section 253(c), because it is based on ELI’s gross revenues, which is unrelated to the City’s cost of managing its rights of way. The court will consider ELI’s second argument below only after it determines whether this provision violates section 253(a). In challenging revenue-based fees under section 253(a), ELI relies on a statement from the Ninth Circuit in City of Auburn: “Some non-tax fees charged under the franchise agreements are not based on the costs of maintaining the right of way, as required under the Telecom Act.” 260 F.3d at 1176. ELI does not argue that the 5% fee imposes an economic hardship, i.e., the fee will render them unprofitable or unable to participate in the market place. Indeed, ELI maintains that its competitive position in the market place is irrelevant. Rather, ELI argues that the fact alone that the City has the power to prohibit ELI from using City streets to provide service unless it unconditionally accepts the terms of the Franchise Agreement, including the revenue-based fee, requires preemption as a matter of law. ELI bears the burden of showing that the City’s compensation violates section 253(a). See Pacific Bell Telephone Co. v. Calif. Dept. of Trans., 365 F.Supp.2d 1085 (N.D.Cal.2005). Indeed, like the requirement that a telecommunications provider obtain a franchise, there is no basis to suggest that a compensation requirement by the municipality based on a percentage of gross revenue is per se preempted by the FTA. While ELI is not required to make an actual showing that it is effectively prohibited from providing telecommunications services, it must at least demonstrate that the requirement is or may be a “barrier to entry” into the City’s telecommunications market. City of Portland, 385 F.3d at 1241. While the Ninth Circuit has not yet ruled on whether fees imposed on telecommunications providers must be cost-based, this court previously determined that when the Ninth Circuit referred to “non-cost-based fees,” in City of Auburn, it specified application fees, not rights of way fees. City of Portland, 200 F.Supp.2d at 1257 (citing City of Auburn, 260 F.3d at 1179 n. 19.). Judge Jelderks explained that in the City of Auburn litigation, the Ninth Circuit had no reason to address whether section 258 preempted the municipalities’ six percent revenue-based “gross receipts tax.” Qwest had expressly conceded the tax’s validity. 260 F.3d at 1176 n. 10 (“The parties agree that Washington law allows for a six percent gross receipts tax.”). A fair reading is that the issue of revenue-based fees for the use of rights of way was not directly before the court in City of Auburn. Thus, this court cannot agree with ELI’s contention that the revenue-based fee is, on its face, prohibited by section 253(a) of the FTA. See AT & T Communications of the Pacific Northwest, Inc. v. City of Eugene, 177 Or.App. 379, 410, 35 P.3d 1029 (2001)(It is error to presume that the only legitimate exercise of local regulatory authority under section 253(a) is to recover the costs of the use of local rights-of-way.). Section 253(a) does not address revenue-based fees, much less categorically forbid them. City of Portland, 200 F.Supp.2d at 1256 (citing TCG Detroit v. City of Dearborn, 206 F.3d 618, 624-25 (6th Cir.2000)(Section 253 does not preempt a franchise fee equal to four percent of gross revenues.)). Further, there is no evidence in the record that the 5% Franchise fee charged by the City, standing alone, is a barrier to ELI providing services. Indeed, at the present time at least 13 other telecommunications companies are paying an identical 5% fee. Based on the record before it, the court finds that ELI has not produced sufficient evidence to demonstrate that the City’s revenue-based fee is a prohibition within the meaning of section 253(a). The court finds that subsection 3.1 of the Franchise Agreement does not violate section 253(a). Moreover, even if it could be said that this fee “may prohibit” an entity from the provision of telecommunications services, either standing alone or in combination with other Franchise Agreement provisions, the fee would be saved from preemption by section 253(c) since the fee is compensation for use of the rights of way (see discussion at A.2. below). Subsection 3.2 of the Franchise Agreement is titled “City Use of Telecommunications Services and/or Telecommunications Systems” and requires ELI to offer services to the City at the “most favorable rate offered at the time of the City’s request charged to a similar user within Oregon.... ” ELI again relies on the decision in City of Auburn to argue that this provision is preempted under section 253(a). See City of Auburn, 260 F.3d at 1179 (Court analyzes a “most-favored-community” provision under section 253(c) and determines that is unrelated to rights of way management.). The City responds that this is simply a non-discrimination provision to protect the City. Moreover, the City does not purchase telecommunications services from ELI. Finally, the City contends that subsection 3.2 does not give it “unfettered discretion” to constrain ELI’s general operations and, in fact, there is no showing by ELI of any economic impact whatsoever by this provision. The court finds that subsection 3.2 of the Franchise Agreement is preempted by section 253(a). While the City does not currently purchase services from ELI, nothing in the terms of the Franchise Agreement prevent it from doing so over the ten year term of the Franchise Agreement. Also, there are no restrictions on the extent or amount of services that may be required by the City. Rather, pursuant to subsection 3.2, it appears that ELI must be prepared at all times to provide the City with whatever services they request, at a most-favored rate. This regulation “may prohibit or have the effect of prohibiting” the provision of services. The court finds that subsection 3.2 of the Franchise Agreement violates section 253(a). Subsection 3.8 of the Franchise Agreement is untitled but it requires ELI to provide “books, maps, and records directly concerning its Gross Revenues under this Franchise and its calculation of Franchise fee payments to the City ... upon no less than 48 hours prior written notice ... to determine the amount of compensation due the City under this Franchise.... ” ELI relies on the decision in City of Santa Fe to argue that this provision is preempted under section 253(a). See City of Santa Fe, 380 F.3d at 1269-1270 (Court analyzes the informational requirements of the registration process and lease application and determines that they are preempted by section 253(a).). The court disagrees. Above, the court determined that the City was permitted under the FTA to seek reasonable compensation based on gross revenues for use of its rights of ways. The requirements of subsection 3.8 simply require ELI to keep accurate records of fees owed and allow the City to audit those records and confirm payment. It would be ineongruent for the court to find that the fees were permissible under the FTA, but prohibit the City from any accounting for the payment of those fees. The court finds that subsection 3.8 of the Franchise Agreement does not violate section 253(a). Moreover, even if it could be said that the requirements of this subsection “may prohibit” an entity from the provision of telecommunications services, either standing alone or in combination with other provisions, subsection 3.8 would be saved from preemption by section 253(c) since it is in furtherance of permissible compensation for use of the rights of way (see discussion at A.2. below). Section 4 of the Franchise Agreement is titled “GENERAL FINANCIAL AND INSURANCE PROVISIONS” and it requires ELI to carry insurance and post bonds. There is no contention by ELI that this provision should be preempted. The court finds that section 4 of the Franchise Agreement does not violate section 253(a). Section 5 of the Franchise Agreement is titled “COVENANT TO INDEMNIFY AND HOLD THE CITY HARMLESS” and it requires ELI to indemnify the City if its use of the streets causes harm to others. There is no contention by ELI that this provision should be preempted. The court finds that section 5 of the Franchise Agreement does not violate section 253(a). Section 6 of the Franchise Agreement is titled “CONSTRUCTION AND RELOCATION” and it sets out the basic rules for ELI’s construction activities and relocation obligations. There is no contention by ELI that this provision should be preempted. The court finds that section 6 of the Franchise Agreement does not violate section 253(a). See also City of Auburn, 260 F.3d at 1166-1170 (“long-established and unbroken rule ... that the utility company must pay relocation costs”). Section 7 of the Franchise Agreement is titled “RESTORATION OF STREETS” and it requires ELI to restore City streets that its operations damage. There is no contention by ELI that this provision should be preempted. The court finds that section 7 of the Franchise Agreement does not violate section 253(a). Section 8 of the Franchise Agreement is titled “RESERVATION OF CITY STREET RIGHTS” and it reserves the public’s rights to continue to use the streets occupied by ELI. There is no contention by ELI that this provision should be preempted. The court finds that section 8 of the Franchise Agreement does not violate section 253(a). Section 9 of the Franchise Agreement is titled “CITY FIBER OPTIC PAIRS AND USE OF DUCTS BY CITY” and it provides additional “in-kind” compensation to the City by requiring that ELI provide telecommunications duet and cable for the City’s use. The City explains that this is part of its compensation package and it is directly related to management of the rights of way. In support of its claim that they are permitted “in-kind” compensation, the City cites the Second Circuit’s decision in City of White Plains, as follows: [Municipalities] also retain the flexibility to adopt mutually beneficial agreements for in-kind compensation. Neutrally applied most-favored-vendee provisions that require services providers to offer their best rates to the city or requirements that service providers allow the city free use of conduit space or similar treatment are at least potentially permissible. 305 F.3d at 80. At oral argument, the City represented that is has never used any of the fiber, and it uses only a couple of blocks of duct to run traffic signals, which is directly related to rights of way management. Moreover, the City has submitted the declarations of Matthew Lampe and Mary Beth Henry in support of its assertion that the City has exercised its rights under the Franchise Agreement’s duct provision in only one instance, in order to run traffic signal cable for a few blocks in the Lloyd business district. The Declaration of Matthew Lampe provides: Under its telecommunications franchise granted by the City, ELI was directed to provide the City both fiber and conduit. No ELI fiber has been used by the City, including by IRNE. The City does use one segment of conduit provided by ELI, from NE 6th and Everett to NE 7th and Pacific, for traffic management purposes. No IRNE traffic traverses this conduit. The Declaration of Mary Beth Henry provides: “The City does use a run of conduit provided by ELI near the Lloyd District to carry City communications related to traffic signals. Other than that, the City uses no ELI facilities for its own communications purposes.” Relying on the appellate courts’ decisions in City of Auburn and City of Santa Fe, ELI insists that section 9, requiring that ELI install extra optical fibers for the City’s use; to build and install fiber optic connections to the City at cost plus 10%; to provide the City with free use of surplus ducts and conduits; and, to affix and maintain the City’s wires and equipment at cost plus 10%, violate the FTA. See City of Auburn, 260 F.3d at 1179 (Under section 253(c) the court determined that “ordinance requirements that companies provide free or excess capacity ... for the use of the cities or other users goes beyond management of the rights-of-way.”); City of Santa Fe, 380 F.3d at 1271, 1273 (“[T]he excess conduit installation requirements are not competitively neutral because they place risk on the party who fist installs any conduit.”) In City of Santa Fe, the district court was able to determine that the conduit provision in the excess conduit requirements could increase the provider’s (Qwest) installation costs by 30 to 59%. Contrast here where ELI again asserts that evidence of economic viability is irrelevant to the analysis. To wit, ELI states: “Under Auburn, ELI is not required to prove that, as a matter of fact, the City’s regulations prevent ELI from providing any particular telecommunications service.” Memorandum in Support of Motion for Summary Judgment at 7. ELI insists that the court is required to analyze the legality of the regulatory framework, not the provider’s factual competitive position. ELI frames the issue as “whether the City’s franchise requirements ‘prohibit or have the effect of prohibiting’ ELI’s ability to provide services.” Memorandum in Support of Motion for Summary Judgment at 8. The court is not persuaded that it is required to analyze these provisions in a vacuum with no regard to economic impact on the provider. Indeed, what other benchmark would be used to determine whether a particular provision may have the effect of prohibiting a telecommunications provider from entering the market? Regardless, the court agrees that under existing law, section 9 of the Franchise Agreement violates section 253(a). Section 10 of the Franchise Agreement is titled “STREET VACATION” and it mandates that if City vacates one of its streets, ELI must vacate that street as well. The City agrees, however, to assist ELI in locating a new place for its lines. There is no contention by ELI that this provision should be preempted. The court finds that section 10 of the Franchise Agreement does not violate section 253(a). Section 11 of the Franchise Agreement is titled “MAINTENANCE OF FACILITIES” and it requires ELI to properly maintain its facilities that occupy City streets so that they do not become a nuisance. There is no contention by ELI that this provision should be preempted. The court finds that section 11 of the Franchise Agreement does not violate section 253(a). Section 12 of the Franchise Agreement is titled “COMMON USERS” and it sets up a system whereby ELI and other public utilities must share conduits and ducts if there is insufficient room for all utilities to have separate facilities. In those instances, ELI is required to allow other providers to use their surplus duct for a fee. In the event the duct is no longer surplus to ELI, they may reclaim it. There is no contention by ELI that this provision should be preempted. The court finds that section 12 of the Franchise Agreement does not violate section 253(a). Section 13 of the Franchise Agreement is titled “DISCONTINUED USE OF FACILITIES” and it establishes rights and responsibilities in case ELI discontinues the use of facilities in the streets. There is no contention by ELI that this provision should be preempted. The court finds that section 13 of the Franchise Agreement does not violate section 253(a). Section 14 of the Franchise Agreement is titled “HAZARDOUS SUBSTANCES” and it requires ELI to protect the City rights of way from hazardous substances. There is no contention by ELI that this provision should be preempted. The court finds that section 14 of the Franchise Agreement does not violate section 253(a). Section 15 of the Franchise Agreement is titled “CITY’S WRITTEN CONSENT REQUIRED FOR ASSIGNMENT, TRANSFER, MERGER, LEASE OR MORTGAGE” and it grants the City authority to review and consent to ELI’s transfer of the Franchise or its facilities to another entity. ELI challenges subsection 15.4 of this Franchise Agreement provision under section 253(a) on the ground that the City retains unfettered discretion to deny transfers for any reason. See, e.g., Auburn, 260 F.3d at 1176, 1178 (Court preempted ordinance that regulated, among other things, the transferability of ownership.); City of White Plains, 305 F.3d at 82 (“[A] provision of sweeping breadth whose main purpose is to force each new telecommunications provider to receive [the city’s] blessing before offering services ... is invalid.”). For the purpose of determining whether the City will consent to any assignment, transfer, merger, lease or mortgage, the City may inquire into the qualifications of the prospective party. The Grantee shall assist the City in any such inquiry. The City may condition any sale, assignment, transfer, merger, lease or mortgage upon such conditions as it deems appropriate. The City insists that subsection 15.4 can be distinguished from the transfer provisions that were preempted in Auburn and City of White Plains on two grounds. First, under Oregon law, the Franchise Agreement is a mutually binding contract, subject to state law governing contracts, including the duty to operate in good faith. Under Oregon law, absent a contrary intent, a contract term requiring a party’s consent prior to assignment is construed to included the requirement that consent shall not be unreasonably withheld. See, e.g., Pacific First Bank v. New Morgan Park Corp., 319 Or. 342, 353, 876 P.2d 761 (1994)(“[T]here is engrafted on this language by implication the phrase which consent shall not be unreasonably withheld.” (Quotations and citation omitted)). In addition, the duty of good faith requires that “[w]hen one party to a contract is given discretion in the performance of some aspect of the contract, the parties ordinarily contemplate that discretion will be exercised for particular purposes. If the discretion is exercised for purposes not contemplated by the parties, the party exercising discretion has performed in bad faith.” Best v. U.S. Nat. Bank of Oregon, 303 Or. 557, 563, 739 P.2d 554 (1987). Secondly, the Franchise Agreement itself bars the City from implementing it in a way that would violate either state or federal law. Subsection 20.1(A) states that: “Both Grantee and the City shall comply with all applicable federal and state laws.” Thus, the City must comply with the FTA when determining whether to grant a transfer of ownership and is barred, by both federal and state law, from denying such transfer for “any” reason at all. The court agrees with the City’s characterization of the extent of its discretion, under the Franchise Agreement, to restrict transferability of ownership. The expectation of the parties is that the City will comply with all state and federal laws in exercising its discretion to grant or deny a transfer. Thus, the City is barred from turning away “any” provider without restriction as was the case in City of White Plains, 305 F.3d at 82; see also TC Systems, Inc. v. Town of Colonie, New York, 263 F.Supp.2d 471, 486 (N.D.N.Y.2003). Indeed, the court in City of White Plains expressly noted that: A more limited franchise transfer provision could be reasonably related to regulating the use of the rights-of-way. For example, a transfer limitation, if applied neutrally to all franchisees, might permit rejection of a transferee on the basis of insufficient assurance of ability to pay reasonably imposed fees for use of rights-of-way. 305 F.3d at 82. In the present case, subsection 15.4 permits the City to inquire into the qualifications of the prospective party and requires ELI to assist in that inquiry. Further, while that provision does allow the City to condition a transfer “upon such conditions as it deems appropriate,” the City may not unreasonably withhold consent in accordance with Oregon law. These factors restrict the “breadth” of the provision and limit the City’s discretion. Furthermore, ELI has a contract remedy in the event the City unreasonably withholds its consent. Thus, subsection 15.4 is distinguishable from the provisions that were preempted in City of Auburn and City of White Plains. The court finds that section 15 of the Franchise Agreement does not violate section 253(a). Section 16 of the Franchise Agreement is titled “FORFEITURE AND REMEDIES” and it establishes contractual remedies in case of a breach, including notification and opportunity to cure. ELI challenges the penalty of forfeiture for failure to submit timely reports to the City regarding the calculation of its revenue-based Franchise fee set forth in subsection 16.1(B)(2). In addition, ELI disputes the remedies of financial payment of up to $1,000 per violation, or suspension of ELI’s Franchise Agreement rights set forth in subsection 16.2. ELI maintains that both of these provisions must be preempted because they may prohibit the provision of telecommunications services. See, e.g., Auburn, 260 F.3d at 1176; City of Santa Fe, 380 F.3d at 1269-1270. Relying on the Sixth Circuit’s decision in City of Dearborn, the City responds that since Congress did not take away the power of localities to require franchises, it could not have intended to preempt stipulated damages or penalties for franchise violations. See 206 F.3d at 624. The City defends the provisions as necessary to enforcing the contract — accurate reporting of compensation owed under the terms of the contract. As discussed above, the fact of a franchise requirement does not violate section 253(a). See City of Auburn, 260 F.3d at 1176 & n. 11 (“[O]ur conclusion is based on the variety of methods and bases on which a city may deny a franchise, not the mere franchise requirement, or the possibility of denial alone.”). Neither the Act itself, nor subsequent case law, supports such a conclusion. Moreover, the court determined above that the requirement that ELI keep accurate records of fees owed and allow the City to audit those records and confirm payment set forth in subsection 3.8 was a permissible method of auditing the moneys owed under the Franchise Agreement. Like subsection 3.8., subsection 16.1 is in furtherance of permissible compensation for use of the rights of way. It is simply a remedy available to the City in the event ELI elects not to comply with the terms of the Franchise Agreement — accurate reporting of moneys owed under the contract. The court finds that section 16 of the Franchise Agreement does not violate section 258(a). Section 17 of the Franchise Agreement is titled “RENEGOTIATION” and it sets forth procedures for renegotiation of contractual provisions that are declared invalid. There is no contention by ELI that this provision should be preempted. The court finds that section 17 of the Franchise Agreement does not violate section 253(a). Section 18 of the Franchise Agreement is titled “EXPIRATION” and it establishes procedures at the expiration of the ten year franchise grant. Essentially, ELI must reapply for the Franchise and it will be granted. There is no contention by ELI that this provision should be preempted. The court finds that section 18 of the Franchise Agreement does not violate section 253(a). Section 19 of the Franchise Agreement is titled “PUBLIC RECORDS” and it identifies the City’s obligations under Oregon public record laws, but specifies that ELI may identify information submitted to the City is confidential and not subject to disclosure. There is no contention by ELI that this provision should be preempted. The court finds that section 19 of the Franchise Agreement does not violate section 253(a). Section 20 of the Franchise Agreement is titled “MISCELLANEOUS PROVISIONS” and it contains a series of miscellaneous provisions related to severability, force majeure, notice and litigation. There is no contention by ELI that this provision should be preempted. The court finds that section 20 of the Franchise Agreement does not violate section 253(a). Section 21 of the Franchise Agreement is titled ‘WRITTEN ACCEPTANCE” and it requires that ELI accept the Ordinance in writing for its grant to become effective. There is no contention by ELI that this provision should be preempted. The court finds that section 21 of the Franchise Agreement does not violate section 253(a). In sum, the court has determined that the following provisions of the Franchise Agreement either individually or in combination may have the effect of prohibiting ELI and other companies from providing telecommunications services: subsection 3.2 titled “City Use of Telecommunications Services and/or Telecommunications Systems;” and section 9 titled “City Fiber Optic Pairs and Use of Ducts by City.” Moreover, in an abundance of caution, the court will assume that the following provisions are preempted by 253(a) and consider below whether they nevertheless are saved by the safe harbor of 253(c): subsection 3.1 titled “Amount of Compensation”; and untitled subsection 3.8 (documents required to calculate the Franchise fee). Finally, the court finds that all other provisions of the Franchise Agreement do not violate section 253(a) and remain in effect. 2. Section 253(c) — Are the City’s Regulations Nevertheless Permissible? Once the court finds that some of the City’s regulations are preempted by section 253(a), it must consider whether the preempted Franchise Agreement provisions fall within the savings clause of section 253(c). City of Auburn, 260 F.3d at 1177. Subsection (c) of section 253 creates a “safe harbor” for certain types of state and local requirements. Thus, even if a provision would “prohibit or have the effect of prohibiting” under subsection (a), it will not be preempted by section 253 if it falls within the scope of (c). Section 253(c) expressly authorizes local communities to manage their rights of way and receive “fair and reasonable” compensation “on a competitively neutral and nondiscriminatory basis” for their property. Local regulations that seek to regulate a city’s rights of way are permissible, while local regulations that seek to regulate the provision of telecommunications services or the telecommunications providers themselves, are impermissible. Section 253(c) provides: STATE AND LOCAL GOVERNMENT AUTHORITY — Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government. 47 U.S.C. § 253(c). The court will turn now to consider whether the provisions at issue in this case can be saved by section 253(c). Regarding subsection 3.2, titled “City Use of Telecommunications Services and/or Telecommunications Systems,” the court is convinced that this is an impermissible regulation of the telecommunications provider. There is no argument by the City that this provision is related to management of its rights of way. Rather, the City responds that it does not purchase telecommunications services from ELI and, in any event, the provision is permitted by section 253(c) as part of “fair and reasonable compensation”. Similarly, section 9 titled “City Fiber Optic Pairs and Use of Ducts by City” cannot stand. Again, the City does not argue that these in-kind contributions manage the rights of way; rather, they are fair and reasonable compensation for use of the rights of way. The court finds that under existing Ninth Circuit law, these provisions cannot be saved by section 253(c). The Ninth Circuit stated that “[t]hese ordinances bear no relation to management of the rights-of-way, but focus solely on rates, terms and conditions of services.” Id. (Court invalidated requirements that the franchisee offer the best available rates and terms and provide free or excess capacity.); see also City of White Plains, 305 F.3d at 81 (Court affirms the district court’s invalidation of the most-favored-vendee clause.); Santa Fe, 380 F.3d at 1273 (Court was convinced that “excess conduit installation requirements [were] not competitively neutral.”). These provisions, subsection 3.2 and section 9, have the effect of regulating a company’s rates, terms and conditions of services, are unrelated to rights of way management, and the City has not shown them to be permissible compensation. Accordingly, these provisions are invalid and must be stricken from the Franchise Agreement. The court will consider below whether these invalid provisions may be severed from the Franchise Agreement or whether the Franchise Agreement must be declared invalid because the preempted provisions are an integral part of the agreement between the parties (see discussion at A.B. below). Regarding subsection 3.1, titled “Amount of Compensation,” the court must determine whether revenue-based rights of way fees are permitted under section 253(c). ELI’s position is straight forward&emdash;it interprets the term “fair and reasonable compensation” set forth in 253(c) to mean cost. Moreover, to be fair and reasonable the fee must be based on the actual cost of maintaining the rights of way. ELI maintains that the City has no idea what it costs to maintain the rights of way and, therefore, the Franchise fee could not possibly be grounded in the cost or even cost, plus. Rather, the Franchise fee is based on ELI’s gross revenues, unrelated to the City’s cost of managing its rights of way and, therefore, not fair and reasonable as a matter of law. The City contends that this case is really about the Franchise fee and other compensation provisions in the Franchise Agreement. In fact, the case is before the court because ELI has refused to pay the Franchise fee required by the contract. The City explains that in return for use of its rights of way, the City expects ELI, among other things, to pay 5% of its gross revenues earned within Portland to the City. The City argues that the legislative history reveals Congress’ intent to protect a municipality’s long tradition of charging utilities a gross revenues fee as fair compensation for occupation of public rights of way. Essentially, the rights of way are the property held by the citizens, with the local municipality acting as their representative. Moreover, the City argues that the record before the court is silent on the issue of economic impact on ELI from the imposition of a 5% fee on gross revenues. As such, there is no evidence in the record that the 5% gross revenues fee either does or may bar entry for the provider of telecommunications services. As a threshold matter, the court is reminded that section 253(c) is not an independent substantive prohibition that operates to limit the City’s right to receive compensation for use of its rights of way. Rather, it is well-established that section 253(c) is a “safe harbor” that provides “even if’ relief for the cities. See, e.g., City of Auburn, 260 F.3d at 1175, 1177 (Court repeatedly refers to section 253(c) as a “safe harbor” provision.). Subsection (c) is not a limit on state and local government regulatory authority. See City of Eugene, 177 Or.App. at 406, 35 P.3d 1029 (Court concluded that city’s requirement that telecommunications providers pay a fee for use of city property did not bar entry.). Thus, section 253 preempts rights of way fees only if they would effectively prohibit provision of a telecommunications service and, even then, such fees are not preempted by section 253(c) if they qualify as fair and reasonable compensation for use of the rights-of-way. Thus, the issue for the court is the meaning of “fair and reasonable compensation” under section 253(c). Unfortunately, this term is not defined by the FT A Nevertheless, it is clear that the City is expressly authorized under section 253(c) to demand some type of “compensation” from telecommunications providers “for use of public rights-of-way.” 47 U.S.C. § 253(c); see also TCG Detroit, 206 F.3d 618 (Court upheld a gross revenues franchise fee.). To determine whether the 5% of gross revenues fee charged here is fair and reasonable compensation, the court will consider briefly the legislative history of section 253(c). The legislative history supports the conclusion that the purpose of section 253(c) is to enable local governments to recoup their investments in public rights of way by imposing “fair and reasonable” user fees on telecommunications companies, apportioned according to the companies’ actual physical use of the rights-of-ways. See 141 Cong.Rec. H8460 (daily ed. Aug. 4, 1995)(statement of Rep. Stupak). In offering the amendment, Rep. Stupak cited statistics showing that cities in the United States spent approximately $100 billion each year on public rights-of-way, but received only about $3 billion in return in user fees. Id. Congressman Stupak stated: “It simply is not fair to ask the taxpayers to continue to subsidize telecommunications companies.” Id. The telecommunications bill as originally proposed permitted local governments to charge telecommunications companies for use of the public rights-of-way; however, the bill would have required cities to impose the same fees on all telecommunications providers, “regardless of how much or how little they use the right-of-way or rip up our streets.” Id. Rep. Stupak opposed this “parity” provision, arguing that, in setting user fee levels, cities “must be able to distinguish between different telecommunications providers” based on the extent and intensity of their right-of-way use. As the Congressman explained, “if a company plans to run 100 miles of trenching in our streets and wires to all parts of the cities, it imposes a different burden on the right-of-way than a company that just wants to string a wire across two streets to a couple of buildings.” Id. Congressman Barton stated a similar intent: [The amendment] explicitly guarantees that cities and local governments have the right to not only control access within their city limits, but also to set the compensation level for the use of that right of way.... The Chairman’s [Manager’s] amendment has tried to address this problem. It goes part of the way, but not the entire way. The Federal Government has absolutely no business telling State and local governments how to price access to their local right of way. Id. (Statement of Rep. Barton). Opponents to the amendment, such as Congressman Dan Schaefer, made many of the same arguments that the telecommunications industry has since made in petitions to the FCC and the courts. See, e.g., id. (statements of Schaefer)(The Barton-Stupak amendment “is going to allow the local governments to slow down and even derail the movement to real competition.”). Moreover, objections to the Barton-Stupak language assumed that a fee based on a percentage of gross revenues, not simply recovery of costs, was intended by the amendment. See, e.g., id. at H8461 (statement of Rep. Fields)(“When a percentage of revenue fee is imposed by a city on a telecommunications provider for use of rights-of-way, that fee becomes a cost of doing business for that provider and, if you will, the cost of a ticket to enter the market.”). Representative Stupak’s colleagues ultimately agreed with him and the parity provision was defeated. See AT & T Com munications of Southwest, Inc. v. City of Dallas, 8 F.Supp.2d 582, 594 (N.D.Tex.1998). The House rejected the Schaefer-Fields arguments in favor of the MFS parity language, and adopted the Barton-Stupak language, which was the same as the Senate language with respect to fair and reasonable compensation for use of the rights of way. As one legal commentator concluded that, in so doing: [T]he House overwhelmingly endorsed the propositions that the local government is the appropriate body to make compensation decisions, and also that differential compensation based on market valuation is not discriminatory. There is no trace of an assumption that the compensation determined by a local community would be limited to costs. On the contrary ... [legislative history shows that] the discussion assumed it would not. Property Rights, Federalism, and the Public Rights-of-Way, 26 Seattle U.L.Rev. 475, 524 (2003). The court agrees that legislative history supports the conclusion that there is a legitimate distinction between the terms cost and compensation and that local municipalities are permitted to base rights of way fees on gross receipts as “fair and reasonabl