HomeMy WebLinkAbout2009/11/17 Item 15
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CITY COUNCIL
AGENDA STATEMENT
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ITEM TITLE:
SUBMITTED BY:
REVIEWED BY:
NOVEMBER 17, 2009, ltem~
PUBLIC HEARING: TO CONSIDER THE TERMINATION OF
THE FRANCHISE AGREEMENT BETWEEN THE CITY OF
CHULA VISTA AND NEXHORIZON COMMUNICATIONS INC.,
(NEXHORIZON) FOR FAILURE TO COMPLY WITH MATERIAL
PROVISIONS OF THE FRANCHISE AGREEMENT
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA DIRECTING STAFF TO COMMENCE.
TERLVlINA TION OF THE NEXHORIZON FRANCHISE
DOZ. OF CONSE1:~N & ENVIRONMEN1AL SERVICES ~
CITY MANAGE
ASSISTANT CITY . NAGER 7~
4/5THS VOTE: YES D NO I X I
SUMlVL\R Y
NexHorizon Communications, Inc. has failed to meet certain material provisions of the
Franchise Agreement, and after reasonable attempts to cure such provisions staff has
executed the notice required to aUow the City Council to consider possible termination of
the Franchise Agreement (Attachment A). The Ordinance and Agreement require the
City to provide the Franchisee with notice of the material provisions and 30 days to cure
those items. Staff provided NexHorizon with that notice on August 19, 2009 (Attachment
B) and has been working with NexHorizon to successfully cure some but not aU the
material issues for which the Franchisee has not complied. The public hearing has been
set for November 17, 2009 for the City Council to review the material provisions and
consider termination of the Franchise Agreement.
ENVIRONMENTAL REVlEW
The Environmental Review Coordinator has reviewed the proposed project
for compliance with the California Environmental Quality Act (CEQA) and has
determined that the project qualifies for a Class 8 categorical exemption pursuant to
Section 153218 [Actions by Regulatory Agencies for Lease Pennit or Agreement] of the
State CEQA Guidelines. Thus, no further environmental review is necessary.
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NOVEMBER 17,2009, Item}2
Page 2 of3
RECOlVIMEi'<'DA nON
City Council adopt the resolution, review the status ofNexHorizon's commitments under
the Franchise Agreement and August 19, 2009 Notice of Violation, and consider
termination for failure to meet certain material provisions of the Franchise Agreement.
BOARDS/COMMISSION RECOiVIMENDA nON
Not Applicable
DISCUSSION
On May 20, 2008, the City Council approved the assignment of the Chula Vista Cable
Franchise Agreement, to NexHorizon. Pursuant to the terms of that assignment,
NexHorizon assumed all of the obligations of the Franchise Agreement, and agreed to
comply with and be bound by the terms and conditions of the Franchise Agreement.
Since that time, the City staff has become aware that NexHorizon has failed to comply
with certain material provisions of the Franchise Agreement.
Section 3.c. of the Franchise Agreement provides, in pertinent part:
"The Franchise may be terminated at any time by the City Council in the event
the Council shall have found, after notice and hearing, that:
(1) The Grantee fails to comply with any material provision of this
Agreement; however, termination proceedings shall only be commenced
in a public meeting affording due process, if, after thirty (30) days from
written notification from the City stating with particularity the grounds
upon which the City relies, Grantee fails to correct stated violation. In the
event the stated violation is not reasonably curable within thirty (30) days,
termination proceedings shall not be commenced if the Grantee provides,
within the said thirty (30) days, a plan, satisfactory to the City Manager to
remedy the violation and continues to demonstrate good faith in seeking to
correct said violation."
In accordance with Section 3.c., on or about August 19, 2009 staff provided NexHorizon
Inc., with a detailed list of the material provisions within the Franchise Agreement that
NexHorizon has failed to comply with (Attachment B). Staff is working diligently with
NexHorizon to provide them with every reasonable opportunity to cure those provisions
and meet their obligation under the Franchise Agreement prior to the proposed public
hearing. The Agreement and Municipal Code provide for 30 days to cure the issues and
additional time when the Franchisee has demonstrated a plan to cure issues that cannot be
cured within the 30 day period. Staff has worked closely with NexHorizon over the past
year and extensively over the past 92 days since the official notice of failure to meet
certain material provisions of the Agreement was delivered to NexHorizon. If
NexHorizon fails to meet their obligations as prescribed in the Agreement, staff will be
prepared at the public hearing to provide the City Council with an update of the status of
their efforts.
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NOVEMBER 17, 2009, Item IS
Page 3 of3
DECISION MAKER CONFLICT
Staff has determined that the recommendations requmng Council action are not site-
specific and consequently the 500- foot rule found in California Code of Regulations
section 18704.2(a)(I) is not applicable to this decision.
CURRENT YEAR FISCAL IMPACT
The City has not received Franchise Fee or Utility User's Tax payments for the current
fiscal year and the total payments are estimated to be approximately $60,000.
Additionally, staff has invested resources in the development and bid implementation
process for two (2) 20a utility undergrounding projects. These costs for these projects are
recoverable through an allocation pursuant to the Public Utilities Commission and funded
by local ratepayers. The projects represent a value to the citizens of Chula Vista and to
the extent the projects arc not completed, costs increase or are duplicated by failurc of the
Franchisee to meet thc obligations in a timely fashion, the City would either absorb those
costs or the project would not be completed and the community would 'not receive the
benefit of their investment.
ONGOING FISCAL IMPACT
The Franchise Agreement contains mutual benefits to, the Franchisee, ratepayers and City
of Chula Vista which would not be realized if the Franchisee fails in their obligation and
the Franchise is terminated. Those include the payment of an estimated $60,000 per year
in Franchise Fee and Utility User's Tax that fund public services, in-kind support and
telecommunications support that contribute to the cost effective operation of the City.
The Franchise Fees and Utility User's tax would be paid by AT&T or Cox
Communications if the estimated 1,500 current NexHorizon cable, telephone and internet
customers migrated to AT&T or Cox Communications for their service. These customers
also have the option of transitioning to satellite television service which is not currently
required to pay the Franchise Fee for television service.
A TT ACHMENTS
A. Public Hearing Notice
B. Thirty-day notice to cure to the Franchisee
Prepared by: J\1ichael T. /ivleacharn, Director, Conservation & Environmental Services
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NOTICE OF PUBLIC HEARING
BY THE CITY COUNCIL
OF THE CITY OF CnULA VISTA, CALIFORt'IIA
ATTACHM:ENT A
NOTICE IS HEREBY GIVEN THAT A PUBLIC HEARING WILL BE HELD BY THE CITY COUNCIL of the City
of Chula Vista, CA, in City Council Chambers located in the City Hall Building, Chula Vista Civic Center, 276 Fourth
Avenue, Chula Vista to consider the fo][owing project:
CONsmERA TION DATE:
LOCATION/TIME:
DESCRIPTION:
November 17,2009
276 Fourth Avenue, Chula Vista/4:00 p.m.
Notice of Violations of Franchise Agreement - NexHorizon Communications, Lnc.
and Potential Termination of the Franchise as a Result of the Violations
The City Council of the City of Chula Vista will conduct a Public Hearing to consider violations of the Franchise
Agreement between the City of Chula Vista and NexHorizon Communications, Inc. (NexHorizon). The Council may
determine to take action, up to and including termination proceedings for failure to comply with material provisions of
the Franchise Agreement.
The City previously provided NexHorizon with a written notice stating the particular grounds that the City is relying on
in considering possible termination of the franchise. A copy of that letter is on file in the office of the City Clerk, and
available to the public.
Any written comments or petitions to be submitted to the City Council in connection with this matter must be received in the
Conservation and Environmental Services Departtnent no later than noon on the date of the hearing. Please direct any
questions or comments to the Conservation Director, Michael Meacham, in the Conservation and Environmental Services
Departtnent, Public Services Building 300, Chula Vista Civic Center, 276 Fourth Avenue, Chula Vista, CA 919[0, or by
ca][ing (619) 409-5870.
If you wish to cha][enge the City's action on this application in court, you may be limited to raising only those issues you or
someone else raised at the public hearing, or in written correspondence delivered to the Conservation and Environmental
Services Departtnent at or prior to the public hearing described in this notice.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT (ADA)
The City of Chula Vista, in complying with the American \Vith Disabilities Act, requests individuals who require special accommodation to
access, attend and/or participate in a City meeting, activity or service request such accommodation at lease 48 hours in advance. for meetings, and
5 d:l)'s for scheduled services and activities. Please contact Diana Vargas for specific information at (619) 691-5101. Service for the hearing
impaired is available at 585-5647 (TOO).
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(Attachment B)
Calvin D. Smiley, Chairman/CEO
NexHorizon Communications Inc.,
973 7 Wadsworth Parkway
Westminster, CO 80021
August 18, 2009
RE: Notice of Violations of Franchise Agreement
Dear Mr. Smiley
This letter is sent to provide NexHorizon Communications, Inc. ("NexHorizon") notice,
pursuant to Section 3.c.1 of the Franchise Agreement between the City of Chula Vista
("City") and NexHorizon that NexHorizon has failed to comply with material provisions of the
Franchise Agreement. By this notice, the City is providing NexHorizon thirty days to correct
the violations described below. If NexHorizon fails to do so, the City shall hold a public
hearing on October 6, 2009, at 4:00 p.m., in the City Council Chambers, City Hall, Building
100, located at 276 41h Avenue, Chula Vista, California, to consider termination of the
Franchise Agreement.
The specific material provisions of the Franchise Agreement which NexHorizon has
violated, and the grounds on which the City is relying are as follows:
Section 5. "Franchise Pavments:"
Section 5, requires NexHorizon to make specified payments to the City, so long as the
Franchise Agreement is in effect. The City approved the assignment of the Franchise
Agreement from Chula Vista Cable to NexHorizon on May 20, 2009. Since that time, the
City has not received any payments from NexHorizon, as required by Section 5. The
City's records indicate that the last payment received from Chula Vista Cable
NexHorizon was $4.920 on April 7, 2008 for the 2007 reconciliation payment. The City
has no record of having received franchise fee payments or the corresponding late fees
from Nexhorizon for the period from the first quarter of 2008through June 30, 2009.
With penalties and late fees we estimate that amount to be approximately $50,000. An
additional quarterly payment for 2009 is also due no later than September 30, 2009.
Section 14. "Changes Required bv Public Improvements" and
Section 15. "Failure to Perform Street Work:"
These Sections of the Franchise Agreement require NexHorizon to, among other things,
relocate Franchise Property below ground, at NexHorizon's expense, when required by the
City Engineer. Pursuant to these provisions, the City has requested, both verbally and in
writing that NexHorizon fulfill its responsibilities for participating in a trench agreement with
the Utility as part of a 20a power line and utility undergrounding project. Copies of that
written correspondence are attached as Exhibit 1.
Section 16. Faithful Performance Bond.
NexHorizon has not renewed and transmitted and executed bond to the City.
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NexHorizon Franchise Default Notice
August 18, 2009
Page 2
Section 17. Indemnification to the City
The City has not received an insurance endorsement documenting that NexHorizon has
maintained the insurance limits required under the Agreement since the assignment.
(Exhibit 2)
Section 8. "Services to City and Public Schools:"
NexHorizon has not complied with any of the requirements of this section.
Section 10. "Establishment of Service:"
NexHorizon has failed to diligently pursue installation and extensions of the Cable
System to completion and plans submitted to the City for under grounding appear to
eliminate service to some residential areas.
Section 11. "Location of Franchise Properties (bY'
NexHorizon has failed to place Franchise property underground in a timely manner as
described under Section 14 and 15.
Section 18. Regulation of Service:
Failure to provide cable services to any group of potential cable residential subscribers
because of the income of the residents of the residents of the local area in which such
group resides. NexHorizon appears to have made plans to reduce their service extension
as part of the transition from overhead to underground service.
Section 19. Filings and Communication with regulatory Agencies:
Failure to provide the City with a copy of any communications to State or Federal
agencies at the same time such communications are submitted to the respective agencies.
The City has not received an annual report or other FCC filings.
The City requests that NexHorizon immediately cure its violations of the Franchise
Agreement.
Over the years the City of Chula Vista has demonstrated patience and flexibility when
working with Ultonics, Chula Vista Cable and Nexhorizon to bring the potential value of
a cable and communications over-builder to the City's consumers. The City is under a
declared economic emergency and more than ever has a responsibility to all its citizens to
protect their interests and ensure cost effective and efficient use, and proper maintenance
of the Right of Way by all users. The City has worked diligently to ensure that all
franchisees are working in a collaborative manner that extends their services to all
citizens in as competitive a manner as possible, and does not unnecessarily add to the cost
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NexHorizon Franchise Default Notice
August 18, 2009
Page 3
of maintaining the right of way or their respective rates. Nexhorizon has failed to do its
part to meet the intent and spirit of that Franchise Agreement, cooperate in a timely
maImer in planning and implementing right of way projects or
communicate resolution of those issues effectively with the City. It is for those reasons
and the material provisions stated above that I am compelled to send this 30 day notice.
Please contact me immediately if you have any questions regarding how to respond to
these concerns.
1:
Sincerely,
Michael T. Meacham, Director
Conservation & Environmental Services
(Utility Services)
6194095870
mmeacham@ci.chula-vista.ca.us
Cc:
Daniel M. Smith, Chief Financial Officer
JeffVaglio, Chula Vista Office
Scott Tulloch, Assistant City Manager
Jill Maland, Deputy City Attorney
Maria Kachadoorian, Finance Director
Richard Hopkins, Public Works Director, City Engineer
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Jeffrey T. Vaglio
NexHorizon Communications
(OTC BB: NXHZ)
581 C Street
Chula Vista, CA 91910
(Exhibit 1 page 1)
October 3, 2008
File #KY078
DEADLINE ON PARTICIPATION IN L STREET UNDERGROUNDING DISTRICT
As City and San Diego Gas and Electric (SDG&E) staff have discussed with you for
many months, the design for the L Street Undergrounding District from Monserate
Avenue to Nacion Avenue is now complete. On May 20, 2008, the Chula Vista City
Council approved the assignment of the Chula Vista Cable Franchise Agreement. Since
that date, the City and SDG&E have been waiting for the submittal of the Joint Trench
Offer for L Street by NexHorizon. SDG&E informed the City at the beginning of
August that they were ready to proceed with the construction process for the L Street
District. Because the inclusion of NexHorizon's facilities would involve some design
changes, waiting for NexHorizon's Joint Trench Offer has held up the construction
process.
Since NexHorizon has been given ample opportunity to submit a Joint Trench offer
acceptable to SDG&E, the City does not want any further delays in the construction
process. Therefore, NexHorizon has seven working days from the date of this letter to
submit a Joint Trench Offer acceptable to SDG&E. This includes resolution of any
outstanding financial issues on the Fourth Avenue Undergrounding District that would
affect SDG&E's acceptance of the Joint Trench Offer on L Street. Please work with
SDG&E Governmental Liaison Planner, Dave Emerson, as quickly as you can. He may
be reached at (858) 654-1136.
On the specified date of October 15, 2008, the City of Chula Vista will direct SDG&E to
proceed with the construction process. If NexHorizon has not complied with the above
requirements by that date, NexHorizon's facilities within the boundaries of the L Street
Utility Undergrounding District may not be installed underground. Since overhead
facilities within the district will be removed, this could reduce the ability of NexHorizon
to serve customers within Chula Vista.
Please contact Elizabeth Chopp, Senior Civil Engineer, at (619) 691-5046 if you would
like to discuss this issue.
RICHARD A. HOPKINS
CITY ENGINEER
Cc: Calvin D. Smiley and Daniel M. Smith, NexHorizon Communications Inc., 9737 Wadsworth
Parkway, Westminster CO 80021
David J. Emerson, SDG&E, 8315 Century Park Court CP22A, San Diego CA 92123-1548
Michael Meacham, Frank Rivera, Elizabeth Chopp
J:IEngineerIADVPLANIUUDISTIL StreetILetter to NexHorizon.doc
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(Exhibit 1 page 2)
January 5, 2009
File #KY078
Jeffrey T. Vaglio
NexHorizon Communications
(OTC BB: NXHZ)
581 C Street
Chula Vista, CA 91910
FINAL NOTICE ON PARTICIPATION IN L STREET UNDERGROUNDING
DISTRICT #134
As City of Chula Vista statY has informed you by certified mail dated October 3, 2008
and bye-mail dated December 1, 2008 (attached), on October 15,2008 the City directed
San Diego Gas and Electric (SDG&E) to commence construction on the L Street
Undergrounding District from MonserateAvenue to Nacion Avenue. You were informed
that NexHorizon would need to submit a Joint Trench Offer acceptable to SDG&E by
October 15 in order to assure that NexHorizon's facilities within the L Street
Undergrounding District would be installed underground.
Since that date, it is our understanding that your firm submitted a signed Joint Trench
Offer by FAX on December 5, 2008. However, we understand that SDG&E requires an
original signed Joint Trench Offer with design plans in order for it to be valid.
Additionally, SDG&E has also informed us that you have not yet settled the outstanding
financial issues on the Fourth Avenue Utility Undergrounding District, which is a
requirement for acceptance of your Joint Trench Offer.
You should be aware that Section 15.32.160 of the Chula Vista Municipal Code states
that, "it shall be unlawful for any person or utility company to erect, construct, place,
keep, maintain, continue, ovm, employ or operate poles, overhead wires and associated
overhead structures in the district on and after the date when overhead facilities are
required to be removed by the resolution". The approximate date of pole removal was set
at December 31, 2008 by Council Resolution on May 22, 2007. However, we have not
been able to meet this date, initially because of the time required to approve the
agreement to assign the cable franchise agreement to NexHorizon. After Council
approval of this agreement on May 20,2008, the City and SDG&E have been waiting for
the submittal of a complete and acceptable Joint Trench Offer for L Street by
NexI-Iorizon.
In order to allow NexHorizon as much time as possible for compliance with this
requirement, SDG&E has awarded the construction contract for the individual service
laterals. However, since NexHorizon has been given ample opportunity to submit a Joint
Trench offer acceptable to SDG&E, the City does not want any further delays in the
construction process. SDG&E has submitted the main conduit undergrounding project to
their scheduling staff on December 18,
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(Exhibit 1 page 2)
2008. In order to participate in the Joint Trench, NexHorizon has until January 14,2009
to submit a Joint Trench Offer acceptable to SDG&E. This includes resolution of any
outstanding financial issues on the Fourth Avenue Undergrounding District that would
affect SDG&E's acceptance of the Joint Trench Offer on L Street. Please work with
SDG&E Governmental Liaison Planner, Dave Emerson, as quickly as you can. He may
be reached at (858) 654-1136.
!fNexHorizon has not complied with the above requirements by that date, your firm will
need to provide its own trench and conduit installation if it still wishes to serve properties
within the L Street Undergrounding District.
Please contact Elizabeth Chopp, Senior Civil Engineer, at (619) 691-5046 if you would
like to discuss this issue.
RICHARD A. HOPKINS
CITY ENGINEER
Cc: Calvin D Smiley and Daniel M. Smith, NexHorizon Communications Inc., 9737 Wadsworth
Parkway, Westminster CO 80021 (certified mail)
David J. Emerson, SDG&E, 8315 Century Park Court CP22A, San Diego CA 92123-1548
Michael Meacham, Frank Rivera, Elizabeth Chopp
J:IEngineerIADVPLANIUUDlSTIL StreetlSecond Letter to NexHorizon.doc
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-----Original Message-----
From: Emerson, David (mailto:DEmerson@semprautilities.com]
Sent: Monday, August 18, 2008 3: 19 PM
To: Calvin D. Smiley
Cc: Beth Chopp
Suhject: RE: L Street
Thanks for the heads-up Cal,
I'll let the City know where you are on these projects via this E-mail. I know they want to get
construction going on the L St conversion project as soon as possible.
David J. Emerson
Governmental liaison Planner - SDG&E
Demerson@SempraUtilities.com
858-654-1136 (office)
619-417-9577 (cell)
From: Calvin D. Smiley [mailto:cdsmiley@nexhorizon.us]
Sent: Monday, August 18, 2008 8:43 AM
To: Emerson, David
Subject: RE: L Street
I am expecting a call from my group today or tomorrow to provide me
with the details. 1 will call you the moment 1 hear and discuss how we
should move forward. I will also be speaking with JeffVaglio to get an
update on the L Street design work.
From: Emerson, David [mailto:DEmerson@semprautilities.com]
Sent: Friday, July 18, 2008 1:58 PM
To: Beth Chopp
Cc: cdsmiley@nexhorizon.us; Zumaya, Maria
Subject: 4 th SI. JTO
Hi Beth,
I got your voice mail from earlier today Attached is a PDF copy of the Joint Trench Offer we
received from Chuia Vista Cable for the 4th St conversion project NexHorizon can use it as a
template for L St if they want
The other attached PDF is a copy of 50% billing we sent to Chuia Vista Cable (dated 8/13/2007)
per the Joint Trench agreement, along with a letter from Vee Pitt to Cal Smiley regarding
NexHorizon's position on this issue vis-a-vis their acquisition of Chula Vista Cable. To date,
SDG&E has not received payment on this invoice. Since trenching is now complete, the
remaining balance will be due once we send the As-built to Nexhorizon. This should happen in
the next few weeks. .
At this point, SDG&E has assumed ownership of the conduit system which was installed for
Chula Vista Cable. We will release the ownership to NexHorizon when we receive full payment
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Let me know if you have any questions. Thanks
David J Emerson
Governmental Liaison Planner - SOG&E
Oem erson@SempraUti!ities.com
858-654-1136 (office)
619-417-9577 (cell)
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RESOLUTION NO. 2009-
RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF CHULA VISTA DIRECTING STAFF TO
COMMENCE TERMINA nON OF THE NEXHORIZON
FRANCHISE
WHEREAS, NexHorizon has failed to meet certain material provisions of the
Franchise Agreemcnt, and after reasonable attempts to cure such provisions staff has
executed the notice required to consider possible termination of the Franchise
Agreement; and
WHEREAS, on or about August 18, 2009, staff provided NexHorizon with a
detailed list of the material provisions within thc Franchise Agreement that NexHorizon
has failed to comply; and
WHEREAS, staff has worked diligently with NcxHorizon and has provided it
with every rcasonable opportunity to satisfy its obligations under the Franchise
Agreement prior to the public hearing; and
WHEREAS, NexHorizon has not cured its failure to comply with certain material
provisions of the Franchise Agreement; and
WHEREAS, the City has not received Franchise Fee and Utility User's Tax
payments for the current fiscal year and the total payments are estimated to be
approximately $60,000; and
WHEREAS, additionally, staff has invested resources in the development and bid
implementation process for two (2) 20a utility under grounding projects; and
WHEREAS, these costs for these projects are recoverable through an allocation
pursuant to the Public Utilities Commission and funded by local ratepayers; and
WHEREAS, the projects represent a value to the citizens of Chula Vista and to
the extent the projects are not completed, costs increase or are duplicated by failure of the
Franchise to meet the obligations in a timely fashion, the City would either absorb those
costs or the project would not be completed and the community would not receive the
benefit of their investment; and
WHEREAS, the City has complied with Section 3.c. of the Franchise Agreement,
regarding termination of the Agreement.
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Resolution No. 2009-
Page 2
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Chula Vista that City staff is directed to commence termination of the Franchise
Agreement between the City of Chula Vista and NexHorizon Communications Inc. for
failure to comply with material provisions of the Franchise Agreement.
Michael T. Meacham
Director of Conservation and
Environmental Services
Approved as in form by
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