September 2003 Consumer Newsletter

Know The Truth About YOUR Utility

The Truth About YOUR Utility - GEUS

After months of investigation, a local newspaper recently wrote a series of articles and editorials about GEUS, Greenville's municipally-owned provider of electric, cable TV and high speed Internet services. In these publications, the newspaper questions items such as the 112-year old utility's debt payment history, GEUS' authority to govern and the utility's authority to not release some competitive information. The articles also question GEUS' entry into the cable and Internet business, electric rate comparisons and GEUS' wait and see approach to electric deregulation.

It is GEUS' opinion that these articles contained incomplete and misleading statements. GEUS' first reaction was to ignore the articles and not be lured into a newspaper-selling exchange of rebuttals. After further thought, GEUS has decided that it cannot stand back and allow the Utility's citizen-owners to only have one side of the story.

The local newspaper felt much differently a few years ago when they published an editorial praising GEUS. A portion of this editorial is listed below.

Greenville Herald Banner, Friday, September 3, 1993
Opinion/Essay Page
No joke
Electric department deserving of award
"…The award was said to recognize the significant improvements in reliability and consumer service. "Greenville is a great example of how a locally owned and managed utility works for the benefit of the community," said Mike Williams, TPPA director. We must agree with Williams. The strides made by the utility, the oldest municipally owned in Texas, can be attributed to both the residents who approved making it a separate entity from the city government, and to those who have administered the operation. GEUS has become a source of pride and a resource for growth over the past few years. Certainly there are those who still pooh-pooh the system and continue to think of it in negative terms, but progress is being made and more importantly, it's being recognized. We'd like to add our congratulations to those responsible for a job well done." This entire editorial can be accessed at www.geus.org/news.htm#essay.

This editorial was written in 1993. GEUS asks the question, "What has changed over the past ten years to cause the local newspaper's opinion to change so dramatically toward GEUS?".

Another article written by the Publisher appeared on the editorial page on April 6, 2002, questioning Greenville's more than 110 years of electrical system ownership by stating, "As former Soviet-bloc countries sell off their government-owned industries, isn't it odd that we have a municipality in the electric power business, let alone the Cable TV business?". The Publisher admitted in the article that he had only lived in Greenville two months at the time.

The Publisher is entitled to his opinion, but GEUS would like to clarify some facts concerning some recently published information in the local paper.

Texas Municipal Power Agency (TMPA)

8/31/03 article headlines stated,
"GEUS' DEBT HAS GROWN TO $136.4 MILLION SINCE IT BECAME AUTONOMOUS"

Clarification - This figure includes TMPA's debt, which was created long before the formation of GEUS as an autonomous board. The principal on the local debt was $22.6 million when the public formed the autonomous board in the late 80s. The principal on that debt is now $9.4 million. The TMPA debt has been paid down also during this period of time and is currently 77% of what it was in 1988. Both GEUS and TMPA have seen improvements in their bond ratings during this period of paying off debt.

8/31/03 article stated,
"But unlike TXU customers, Greenville residents are responsible for $136.4 million in debt or $13,255 for each of GEUS's customers."

Clarification - GEUS is contractually obligated to pay its share of all TMPA expenses, which includes debt. GEUS' share of the principal of the TMPA debt is approximately $110 million and GEUS has $9.4 million of local debt. GEUS' ratepayers are responsible for approximately $119.4 million in principal on the TMPA and GEUS debt. The TXU analogy is a classic case of an apples to oranges comparison. TXU is a for-profit utility owned by stockholders. GEUS is a not-for-profit utility owned by the citizens it serves. The TMPA and local now outstanding debt will be paid off in accordance with its terms in only 15 years. At that point, the TMPA generation plant is expected to have another 15 years of useful life. TMPA calls this, "Life After Debt". After 2018, Greenville citizens will still have access to low cost coal-fired energy as they do today, but it will be coming from a debt-free generation plant.

8/31/03 article stated,
"Since then TMPA has issued new bonds to replace existing debt six different times."

Clarification - TMPA was formed in 1975 during a period of very high interest rates. Portions of TMPA's debt were refinanced at lower interest rates to lower the annual principal and interest payments on portions of the debt. This is similar to refinancing your home mortgage during periods of low interest rates to take advantage of lower monthly principal and interest payments.

9/3/03 editorial asks the following question,
"Who is ultimately responsible for the GEUS debt, GEUS customers or Greenville taxpayers?"

Answer - The citizens own GEUS. Ratepayers generate revenue and revenue is used to pay debt obligations. The debt obligation is revenue bonds, which are secured by the revenues of the System. GEUS is not a taxing entity.

While natural gas prices are at near record highs, GEUS' access to TMPA's coal-fired generation is expected to save local consumers $2.4 million or 6% in the coming year.

8/31/03 article stated,
"Although citizens are the ones ultimately responsible for this debt, the City of Greenville has no direct say in how GEUS manages its finances."

Clarification - Every GEUS Board Member is appointed by the City Council.

8/31/03 article stated,
"That's because city officials decided in 1988 to move in the direction of giving the board complete control over utility operations."

Clarification - A 15-member committee of Greenville citizens made this recommendation to the Council.
The Council placed it on the ballot for the people to decide. The GEUS Board's autonomy came with the 4-1 approval by the citizens of Greenville and the Texas Legislature passing it into law in 1989.

8/31/03 article stated that one of Austin Attorney Barney Knight's recommendations was, "Giving the Council power to appoint utility board members".

The article also quoted a local resident as saying, "That board appoints itself. It's a buddy system.."

Clarification - Every board member that has ever served on the GEUS Board has been appointed by the City Council and past Council minutes should clearly document this fact.

8/31/03 article stated that,
"Knight recommended city officials amend the Charter to assume control of GEUS."

Clarification - City Officials do not have the authority to amend the Charter. The City Charter can only be amended by a vote of the people as was done in 1988 when the GEUS Board was created by a 4-1 vote of the people.

8/31/03 article reported that a local resident said,
"Most people thought that all we were going to have was a change with a separate board that would be subject-like all boards in the city-to the city council."

Clarification - The wording on the City Charter Amendment ballot was quite clear by stating the following,
"PROPOSITION NO. 1 Shall the City Charter of the City of Greenville be amended to Include Article XI-A, establishing an autonomous Electric Utility Board…" This was explained further in the proposition by saying, "…providing that the Board shall be an independent body…"

Secrecy

9/7/03 article states,
"The citizens are not alone. The Herald Banner has also made numerous requests for records regarding the cable and Internet business. GEUS attorneys have repeatedly blocked those requests, also."

Clarification - Any individual has the right to request information from a public entity. The public entity has ten days to decide to release this information or gather the information and send it to the State's Attorney General explaining why it should not be released. Some of the local paper's requests for cable and Internet information have been denied by GEUS. On each of these occasions, the Attorney General has issued opinions supporting GEUS' right not to disclose information to the local newspaper that was considered competitive. GEUS attorneys do not have the authority and have never blocked a request for information.

9/7/03 article states,
"A study conducted by the Herald Banner found that the GEUS board has spent nearly two-thirds of its time discussing business matters behind closed doors over the past four years."

GEUS' Response - More than two-thirds of GEUS' business is deemed confidential by law-Texas Government Code, Section 551.086: Certain Public Power Utilities Competitive Matters

9/7/03 editorial states,
"Unfortunately, when the city or GEUS uses attorneys, the taxpayers are forced to pick up the tab."

Clarification - GEUS is not a taxing entity. GEUS' expenses are paid for out of the rates it collects from its ratepayers.

9/7/03 editorial states that,
"They (GEUS) operate under a veil of secrecy, with 'executive session' meetings that are closed to the public. Even some city council members are left in the dark."

Clarification - Competitive matters are protected by law. GEUS Board Members and City Council Members are responsible for protecting citizen's interests in all meetings. GEUS is required by Charter, and willingly complies, to update the City Council on GEUS activity twice each year. City Council members are welcomed and encouraged to attend GEUS regular and executive session meetings. The City Council is free to request information from GEUS at any time. No City Council Member should ever feel uninformed about GEUS activity.

9/7/03 editorial asks,
"Additionally, we'd like to know how much the city and GEUS spend in legal fees each year, and what these expenses cover."

Answer -GEUS provided this information to the local paper's reporter in early June.

9/7/03 article states,
"…..it (GEUS) would not disclose how many of its customers are business versus residential. Nor would GEUS provide a breakdown of its cable-versus-Internet customers."

GEUS' Response - Greenville citizens have entrusted GEUS to operate and manage their community-owned electric, cable TV and Internet operation. It would be irresponsible on GEUS' part to divulge information that is of a competitive nature. The article states our case by quoting GEUS' General Manager, Tom Darte as saying, "We are in competition and we are not going to disclose information that would adversely impact our ability to compete." Unfortunately, GEUS is unable to disclose information to our citizen owners without disclosing that same information to our competitors.

Cable & Internet

9/7/03 article stated,
"Darte said the GEUS cable and Internet business has been "better than expected by all measures of success". Yet Darte acknowledged that it has failed to turn a profit since it began operating in 2001. And he refused to disclose when it expected to see one."

Clarification - Tom Darte's response when that question was asked was, "Typically, a start-up overbuild starts paying for itself in four to five years and as I have already said we are ahead of schedule".

9/7/03 article states,
"They (GEUS) claimed it (cable & Internet) would be profitable."

Clarification - GEUS is a not-for-profit utility and never claimed cable and Internet would be profitable. GEUS has always maintained that cable and Internet would eventually be self-supporting. In most cases, this usually happens after about 5 years. It appears that the GEUS operations will reach this point earlier than expected.

9/7/03 article states,
"Darte said GEUS now has 3,000 customers-a number that exceeds its 2-year projections."

Update - That number was provided to the local paper about 4 months ago during an interview. The number of subscribers now exceeds 3300 or approximately 10% more cable and Internet subscribers than when originally asked.

9/7/03 article questions whether the election that authorized GEUS to enter the cable and Internet markets was representative of the whole community's views on the subject by writing,
"But the percentage of total votes was small-the 1,003 residents who voted "yes" in May 2000 represented less than 7 percent of Greenville's 14,447 qualified voters."

GEUS Opinion - GEUS believes that the citizens of Greenville have the ability to understand issues and cast reasonable and informed votes. On a side note, Greenville citizens continue to vote daily on this issue. At the present time, over 3300 homes and businesses are choosing to use GEUS for cable TV and\or Internet.

9/3/03 article quotes Clayton Gillette, a New York University professor, concerning the appropriateness of an electric utility entering the cable and Internet business. "The private market seems to be operating just fine, which leads to the question: Does this satisfy a public purpose?".

Answer - How much knowledge and history does Mr. Gillette have specifically about the Greenville cable TV and Internet markets of 1999? Would he still say that things were "operating just fine" if he had been aware that the Mayor at that time requested that SBC consider deploying DSL in Greenville? SBC's response to that 1999 request was, "At this time the Greenville Exchange is not included in our business case deployment.". Another company that was capable of bringing high speed Internet to Greenville was Time Warner through cable modem delivery. Susan Patton, Vice President of Time Warner Cable Southwest Division, was asked if there were any future Internet plans for Greenville at a Cable TV and Internet Public Input Committee meeting held on February 7, 2000. Ms. Patton responded by saying that she hoped that Time Warner would be able to provide Internet service to Greenville in the future, but was unable to confirm if or when this would happen. Was the cable TV market "operating just fine" in Greenville circa 1999? Greenville's Standard Cable TV rates had risen 9 out of the last 10 years for a whopping 93% increase. Time Warner was only offering 54 channels and none were digital. The Disney Channel and Fox Sports Southwest were premium channels that cost subscribers additional monthly fees. ESPN 2 was not being offered to Greenville subscribers at all. Mr. Gillette asks the question, "Does this satisfy a public purpose?". Actually it was the public that authorized GEUS to provide these services by a 3-2 charter vote of the public in May of 2000.

9/7/03 article states,
"But Gillette said it is risky for a municipal utility company to compete in the private sector where it has little experience or expertise."

Clarification - GEUS' experience in fiber optics technology began in 1996 and currently has over 81 man-years experience in its Cable and Internet department alone. It should also be noted that over 100 municipals across the nation have now entered the cable TV and\or Internet markets.

9/3/03 editorial makes the statement and asks the following question,
"…GEUS chief Tom Darte said, "Revenues from the two-year old (cable\Internet) operation are expected to cover 96% of its operations and maintenance expense for 2003-2004". What does that mean? Is the cable-Internet venture profitable, or isn't it? What are the other expenses beyond operations and maintenance?"

Answer - GEUS is a not-for-profit entity. GEUS expects, as with most start up ventures, that this new segment of their business will lose money in the early years. GEUS' cable and Internet sign ups have progressed much faster than were expected and the project is about a year ahead of schedule. GEUS' cable and Internet revenues are expected to cover 96% of its expenses this year. In coming years when revenues begin to exceed expenses, excess revenues can be used to pay for capital replacements or to reduce rates.

9/3/03 article quotes New York Professor Clayton Gillette as saying,
"This could easily be an activity…that is not going to be profitable for a long period of time, which means that the electric utility rates will have to go up to subsidize cable and Internet.".

Clarification - Mr. Gillette probably was not aware when he made this statement that, "GEUS' cable and Internet revenues are expected to cover 96% of its operations and maintenance expenses in the coming year" and that GEUS' base rates for electricity have not increased in 16 years.

Electric Rates and Deregulation

8/31/03 article stated,
"Today, Greenville residents pay about the same amount for electricity as TXU customers."
Then the 9/3/03 editorial asks the following question, "…it was reported that, 'GEUS customers can expect to pay a little less for electricity than consumers of TXU.' The question is, is the utility comparing their residential rates to TXU's residential rates, or are they comparing their total average rates with TXU's residential rates?"

Answer - GEUS' residential rates are expected to be 7.9% less than TXU's residential rates during the next 6 month period. It is GEUS' opinion that 7.9% is a substantial savings.

Electric deregulation is an expensive and yet unproven experiment in Texas. The Electric Reliability Council of Texas (ERCOT) has been tasked with implementing and then managing this new electric market. ERCOT's cost to set up and then maintain this complex system has cost, and will continue to cost, tens of millions of dollars. The Texas electric market has already seen similar market manipulation like that seen in California a couple of years ago. California's experience with deregulation has resulted in it being recalled.

Texas Legislators recognized the importance of allowing citizen-owned electric systems to decide whether they want to participate in deregulation or continue to operate in the standard manner. Since implementation in January of 2002, no municipally-owned power system has chosen to participate in this deregulated market place. It's important to realize that once a system opts in, it is in forever.

GEUS has dramatically lowered and maintained very competitive rates since the early 90's. Its present and future access to the low-cost coal-fired TMPA generation ensures that Greenville will have competitive power for years to come. With this in mind, your citizen representatives on the GEUS Board have chosen to take a "wait and see" approach concerning participation in deregulation.

Nation-Wide Natural Gas Prices since Sept. 1997

General Manager Notes

Dear GEUS Owners,

I have attempted, through my recent visits with various service clubs in Greenville and this newsletter, to report the substantial progress that GEUS has made in its 15-year history since the creation of the GEUSBoard.

This Board was formed through a Charter Amendment vote of the public by a 4 to 1 margin after considerable publicity and public hearings. The Charter was amended and legislation was approved in 1989 to create the fully autonomous Board, which is a citizen Board that regulates the operation of GEUS. The citizens then voted in 2000 to create the first municipally-owned cable TV and high-speed Internet system in Texas. This was done after five public hearings, creation of several citizen groups and much opposition from the incumbent cable provider. In the end, the citizens voted it wanted GEUS to provide these services.

I believe with all my heart that the citizens of a community have a right to determine for themselves what services they want their citizen-owned utility to provide. You have spoken and we are listening and acting on your behalf through the citizen Board.

Sincerely,
Tom Darte
GEUS General Manager

Greenville Evening Banner February 13, 1922

Mayor Joseph F. Nichols was referring to Greenville's electric, water and sewer plants when he stated,

"Your attention is directed to the fact that these plants must be taken out of politics. Politics destroys the efficiency of Municipal ownership. Large interests outside of Greenville and doubtless private interests within the city would rejoice if these plants become the football of politics, so that municipal ownership be discredited in Greenville."

9/3/03 editorial asks the question,
"Is someone trying to hide something?"

Answer - GEUS has nothing to hide.

Thank you for allowing GEUS to provide this community
with electric, cable TV and high speed Internet.