Out of Darkness

Against industry opposition,
REA helped ‘wire’ farms,
rural areas at remarkable rate

By Anne Mayberry
Rural Utilities Service
USDA Rural Development

Editor’s note: This is the second of two articles
marking the 75th anniversary of the Rural
Electrification Administration (forerunner
of today’s Rural Utilities Service). The first article
appeared in the March-April issue and is available
online at:www.rurdev.usda.gov/rbs/ pub/openmag.htm

“In 1936, we witnessed the most spectacular increase of rural electrification in the history of the United States.” That was how Morris Cooke, the first administrator of the Rural Electrification Administration, began his 1936 report to Congress.

May 2010 marks the 75th anniversary of the creation of the Rural Electrification Administration (REA), established in 1935 by executive order as an independent agency to deliver electric service to rural areas. Cooke had headed the Committee on the Relation of Electricity to Agriculture, established by the electric industry to address rural power issues before being named administrator to the agency.

Despite Cooke’s experience, his was no easy task. The new agency was overwhelmed with requests to bring electricity to farms nationwide. And while Cooke tried to work with the electric industry, opposition by utility companies to building electric infrastructure in rural areas remained strong.

Cooke understood that the new agency needed permanent status and worked with Senator George Norris of Nebraska, often referred to as the champion of public power, on legislation to make REA a permanent agency. The bill passed Congress May 11, 1936. Cooke’s next task was to find a successor.

That successor turned out to be John Carmody, who came to REA from the National Labor Relations Board. He also had experience in the coal and steel industries. Under Carmody’s leadership, the number of farms with electric power tripled.

The REA’s 1937 report noted: “The demand for rural electrification projects far exceeds our ability to supply it…We here at REA believe in the social soundness of the program set up by the Congress…We believe in the economic wisdom of bringing farm families out of the dark into the light...We are fully conscious that the Congress gave us an extremely difficult task….

“We have reminded borrowers that they and REA are really in partnership…We are dealing with public funds, and we must keep our affairs in the open and on the highest possible plane of efficiency.”

Despite challenges, the new agency achieved rapid success. The report noted that one farm in 10 had electricity when President Franklin D. Roosevelt established the REA in 1935. By 1937, the gap was beginning to close — electricity had been extended to one farm in six, or about 18 percent of all farms.

REA sets standards
Reducing the costs of bringing electric power to the countryside was crucial to the success of the effort. REA’s research section looked for ways to reduce costs and implemented standards to make bulk purchases. These standards would also facilitate the ease of working on equipment so that linemen in rural areas nationwide would all use the same materials.

REA was established as an independent agency, but on July 1, 1939, it was transferred to the U.S. Department of Agriculture. The transition was not a smooth one, as the independent agency was not accustomed to following government procedures.

Yet REA continued to loan funds for construction of electric power in rural areas. By the end of 1939, nearly all of the $40 million appropriated to REA had been allotted, most of it to the new rural electric cooperatives which it worked closely with. At this point, 25 percent of the farms in the country had electric service.

Electrification stimulates
rural economy

“REA, its borrowers and the farmers themselves are turning more and more to the productive uses of electricity, tending to reduce farm costs and increase farm income,” the 1939 report to Congress noted.

Among the challenges the new agency faced was how to deliver power to poorer farmers. “As construction lines move forward, REA systems necessarily move from areas which are not densely populated but reasonably prosperous to thinner territory, where low income and limited resources offer a new challenge. REA aims to make that service a reality.”

One solution REA adopted was for farmers to work with REA crews for “payment in kind.”

By 1940, REA assisted rural electric cooperatives in the purchase of electric generating facilities. The 1940 report of the REA administrator noted: “The wholesale power bill is a rural electric system’s heaviest single item of expense. A difference of a few mills per kilowatt hour in the cost of wholesale energy may spell the difference between success and failure of a system.”

From July 1948 to July 1949, the greatest expansion of rural electrification in history was achieved. Nearly 80 percent of all farms in the country now had electricity. Power consumption climbed as rural residents increased their use of electric equipment, both on the farm and in their homes.

By 1950, the newly established rural telephone program was underway and nearly $3.5 million in loans helped provide telephone service as rapidly as the procurement of trained personnel would permit.

In testimony to the House Agriculture Committee on May 3, 1951, REA Administrator Claude Wickard said: “In both the rural telephone program and the electric program, the government is helping local people and small business enterprises help themselves.”

REA looks for capital
By 1969, REA’s focus shifted from expansion of service to finding sources of funding. The administrator’s report that year noted that: “Few projects of the federal government have created benefits to equal those which have flowed from these two programs…. Despite these accomplishments, the need for new investment capital in the two programs is greater now than at any previous time….

“Like the farmer, rural electrification and [telephone service] are never caught up on their work. There is always the next phase of growth to be planned for, financed and carried out.”

The demand for rural electric financing grew rapidly. The administrator’s 1972 report noted that for the first 30 years of REA history, borrowers enjoyed favorable conditions for increasing sales and declining costs.

By the 1970s, those conditions had changed radically. The investment per kilowatt of capacity had doubled, environmental standards required additional investment, transmission costs had increased and the price of fossil fuels had climbed.

On Dec. 29, 1972, REA announced that it would no longer make loans. Instead, funding would be made at higher interest rates under new Farm Bill provisions that created a Rural Development Act. That announcement triggered a strong reaction from rural electric cooperative members, who feared that the change would result in sharply higher rural electric costs. Electric co-op members traveled to Washington to discuss the decision with their members of Congress.

These efforts culminated in the passage of legislation that expanded financial resources available to both rural electric and telephone cooperatives, which was signed by President Richard Nixon in May 1973.

The result was that more than $1.2 billion in financing was available to rural cooperative utilities in 1973, resulting in the highest amount of loans made in the program’s history. “Fiscal 1973 was a remarkable year in the history of the Rural Electrification Administration,” the administrator’s report noted.

By the close of 1980, more than 30 million rural residents were receiving electric power as a result of REA financing. By 1985, 99 percent of farms had electricity and 96 percent had telephone service. The agency’s focus had turned to financial and administrative improvements.

Reorganization of USDA during the 1990s emphasized rural economic development, established new programs and revised funding and regulatory provisions. In October 1994, the REA merged with water and wastewater programs to become the Rural Utilities Service (RUS).

Today, RUS is part of USDA Rural Development, working in partnership with the Rural Housing Service and Rural Business-Cooperative Service to offer a variety of funding programs for rural areas.

The RUS portfolio has grown to more than $50 billion and includes federal financing for electric and renewable energy, water and wastewater, telecommunications and broadband infrastructure projects.

Today, the RUS electric program funds an increasing number of renewable energy projects — such as wind turbines — and new technologies to reduce emissions, including carbon sequestration. “Rural electrification fueled the economy 75 years ago and greatly improved the quality of life in rural America. Actions that USDA Rural Development takes today will continue to drive progress in rural communities,” says RUS Administrator Jonathan Adelstein.

May/June Table of Contents