CEDAR FALLS - Cedar Falls Utilities has released a full response to a Heartland Institute study that calls the utility a poor investment.

"The author's premise is that in order to be successful, a business must fund all of its capital expenditures out of current year income," said CFU Marketing Manager Betty Zeman. "Our audited financial statements show we are on track to fully recover the cost of our plant years before the end of its useful life."

The study, released Sept. 20 from the nonprofit group that advocates privatization of public services, reports the financial performance of communication municipal utilities in Cedar Falls, Muscatine and Spencer should serve as a warning to other cities considering building similar operations.

"They just got it wrong," Zeman said of the 29-page study.

Ronald Rizzuto, a professor of finance at the University of Denver, authored the report. His conclusion: "None of these municipal systems has achieved a payback of its original investment for the municipal utility, let alone a positive return on investment."

Rizzuto based his notion on free cash flow and internal rate of return, which Zeman said is a flawed outlook.

"This calculation is merely one of dozens of benchmark methods sometimes used to value a business enterprise. Iowa's largest private phone and cable companies would certainly be judged as failures if analyzed in this way," Zeman said.

In 2003, the communications utility had revenue of $6.46 million and a net profit of $981,000. In 2004, it had revenue of $7.05 million and a net profit of $1.03 million.

The fact that a growing business has a negative free cash flow, especially in the early years of operation, doesn't make the business a failure, Zeman added.

Cedar Falls Utilities began offering cable television service in 1996 and home broadband Internet service in 1997.

Contact Brandon Coutre at (319) 291-1402 or brandon.coutre@wcfcourier.com.