What Is the Rural Electrification Act? What It is, How It Works

What Is the Rural Electrification Act?

The Rural Electrification Act—part of President Franklin D Roosevelt’s sweeping package of programs (a ‘New Deal’) enacted between 1933 and ’39 to relieve the hardship imposed by the Great Depression—assured federal funding for bringing electricity to Americans in isolated rural communities. Congress passed the enabling legislation on 20 May 1936.

The act was an unqualified success, one whose legacy far exceeded its original purpose. Federal loans were the primary vehicle that promoted electrification until 1993. But even after 1993, under each successive president, the act was adapted to bring other forms of essential infrastructure to rural America.

For instance, the act was amended in 2008 by president George W Bush to promote the availability of the rural broadband telecommunications network and rural internet services, and by president Barack H. Obama in 2012 to create a pilot programme to construct a nationwide broadband network.

Key Takeaways

On 20 May 1936, the US Congress put its stamp on the trend when it passed the Rural Electrification Act: it promised federal loans to help finance electrical distribution systems for up to 6 million rural Americans.

This was a component of the New Deal, a series of programmes, public works projects, financial reforms and regulations introduced between 1933 and 1939 by President Franklin D Roosevelt to alleviate the economic suffering of the Great Depression.

The programme began under the Rural Electrification Act, however these numbers are staggering. By the end of the 1940s, half of all farms had electricity.

By 1953, rural Americans could access electricity as easily as urban dwellers could.

The co-op model set up under the act has been used for other projects, including proposals to expand affordable broadband Internet into rural parts of the US.

Understanding the Rural Electrification Act

Electric light first became available in the US in the 1870s, with lightbulbs and streetlamp installations emerging in wealthy neighbourhoods and homes in the 1880s. However, at the turn of the 1900s most Americans continued to light their homes with candles and gaslights, no matter how large or wealthy the cities in which they lived.

By the end of the 1920s, most US cities were linked to the national electrical grid – yet nearly all farms remained excluded. Recalled a man who came of age when Rural Electrification was just beginning in the 1930s, ‘Ninety per cent of the people owned radios, and phonographs. And you’d still have many farm families that didn’t have electricity.’ Even by 1930, nearly 90 per cent of urban residents enjoyed some kind of electric service – yet fewer than one in 10 US farmers enjoyed that privilege.

It wasn’t like farmers didn’t use electricity: it wasn’t like rural electrification was especially challenging to accomplish. Nor was it a case of private companies simply declining to bring electricity to rural Americans. Rather, private firms argued it wasn’t economically feasible to run power lines from the cities to the sticks. They weren’t convinced they would ever be able to recoup the cost of the infrastructure needed to make rural electrification a going concern.

Politicians were far less cynical. Many members of Congress had long viewed their mission – as congenially expressed by Abraham Lincoln in an address before Congress on 4 July 1861 – as in part ‘to elevate the condition of men; to lift artificial weights from all shoulders; to clear the paths of laudable pursuit for all; to afford all, an unfettered start, and a fair chance, in the race of life.’

It was one of the earliest and most forceful interventions by the US government to accomplish what liberals have been up to ever since. The Homestead Act of 1862 signed by Lincoln, for example. The homesteaders forgave the repo-men and the cattle-rustlers, and they accepted that the cowboy who once symbolised liberty was in fact a Manifest Destiny ne’er-do-well But by the Great Depression, it of homesteaders and other white people all across rural America were not in fact getting that ‘square deal’.

By 1930, electricity was available to almost nine in 10 city dwellers but to only one in 10 farmers in the countryside.

Creating co-ops to electrify the country

The original Rural Electrification Act was crafted by two of the era’s most powerful policy-makers, Rep Sam Rayburn, D‑Texas, and Sen George Norris, R−NE (who, it should be noted, got booted from the GOP by the pro-business faction of his party as he enthusiastically supported public utilities, and had to run as an Independent for re-election in 1936).

In 1935, President Roosevelt issued an executive order that created a Rural Electrification Administration (REA) to supervise the distribution of electric to rural areas across the United States. Under the act, Congress gave the REA authority to issue loans that could be used for the purchase or construction of equipment for creating and distributing that electricity.

Under this plan, the REA was supposed to provide loans to companies to build electricity infrastructure in rural areas, but the companies were too expensive, so lawmakers turned instead to an organisation that farmers recognised: the cooperative, or co-op. The logic was that if farmers could organise themselves into co-ops, the REA would be able to loan them money, at an extremely low interest rate – 2 to 3 per cent, depending on the state – to build electricity infrastructure.

It was a bold aspiration and not without its challenges. Farmers were familiar with co-ops, but few had experience in planning electricity infrastructure. They also worried about how borrowing from the federal government to fund co-ops might put their property and farm at risk if the co-ops failed. And, at least in the early years, they also argued that joining fees ($5, which is about $100 in 2020) were too high.

It could also employ engineers to help co-ops design new power lines and build them. The REA stood as a third-party guarantor, offering bulk-purchase rates to rural co-ops. With that, loans could finance the farm or home appliances.

These factors together brought power line costs in the rural parts of the country down drastically. By the end of the 1930s, four to five cents per kilowatt-hour had brought erection costs of power lines in rural America down to $825 per mile, versus the $2,000 per mile electricity companies had told stockholders they’d require at the start of the decade.

Moreover, through competition, private power companies sought to supply power to the grids of various co-ops (or electric cooperatives) spanning the country. In those cases, private companies bore the upfront costs of enhancing the supply of power.

Advantages of the Rural Electrification Act

In sum, the REA programme was a stunning triumph. While electrification slowed during the Second World War, it accelerated afterward. By the end of the 1940s, more than half of farms had electricity; by 1953, rural Americans could access it as easily as urban ones did. In little more than one generation — with more than 90 per cent of homes and farms electrified inside of two decades — the REA had lit a nation.

What is the reason behind the success of the act? First, it allowed farmers to have a local say in the placement and use of electricity, and it explicitly provided for the installation of electricity ‘for the purpose of illuminating the home together with all appliances thereto belonging’ as well as for powering machines. The result was not just a more pleasant rural life, but health benefits and productivity gains as well. Fewer farmers inhaled deadly fumes from kerosene lamps; laundries saved hours of housework time, free for new allocations to other productive tasks.

$2,400

They calculated how much farmers would pay for it, per farm – a sum equivalent to 24 per cent of a typical farm’s income – for the benefits brought them by electricity.

Above all, however, the REA was successful because farmers immediately recognised the productivity gains associated with access to electricity on the farm. For dairy farmers, these gains were substantial and stemmed principally from the widespread utilisation of cold storage tanks and milking parlours (both of which were electrified) to minimise losses.

As productivity increased, farms could afford to repay the REA loans. Default rates on the loans were less than 1 per cent. In other words, the government extended electricity to the rural population at effectively zero cost.

An Enduring Legacy

While most farmers had arrived on to the electrical grid by the 1950s, the REA’s legacy extended far beyond this date. In 1949, the act was expanded to allow loans to phone companies to extend their networks into America’s rural backcountry.

The practice continued along similar lines through to 1993, by which point the programmes for rural electricity and telephone co-ops, and the energy conservation market, had been reorganised under new amendments.

That act lives on in many ways. Almost 900 of the energy co-ops founded under its auspices are still with us, still selling electricity to their members. Indeed, the REA still exists, if under a different name. Today it is known as the Rural Utilities Service or RUS, and it belongs to the Department of Agriculture.

Indeed, its success – quick and terminal – evidences its dominance, in parallel with the rapid, gigantic change of the broader economic shift techniques brought about by the New Deal era. Perhaps, by opening the struggling US electricity market so fast, the act opened the enormous and accelerated postwar US growth, as well as granting the US its present economic status.

Through investing in the nation’s future, and by robbing Wall Street of its power to leave a trail of financial barbarism, the New Deal launched a rocket that lifted the US past the rest of the world in the 1930s and far into space.

The REA approach is also still being actively adapted; the co-op model, which brought electricity to Americans far more swiftly than its counterparts in other countries, has since been held up by many commentators over the years as a model for rolling out other types of infrastructure as well.

Indeed, in 2014 the Federal Communications Commission (FCC) announced the Connect America Fund – a measure that will ultimately span a decade and fund bringing broadband Internet access to the homes of the nation’s rural population. Across many states, meanwhile, co-ops are moving to bring broadband Internet to rural areas the same way electricity came to the same areas almost 100 years ago.

Third, there is the ‘mythological’ influence of the REA: for generations of Americans of both political parties, programmes such as the REA have symbolised not just the innate potential of the US, but also its duty to enable even the least wealthy members of society to help themselves. They continue to have a powerful psychological influence on US politics to this day – and, of course, continue to appear in reference again to Green New Deal and other new policy proposals.