Electrifying Rural America: How during Great Depression, communities formed cooperatives to bring electricity to rural areas

Super article by Tim Sablik of Richmond Fed. He narrates how US initiated its rural electrification program during Great Depression. As they say don’t let a crisis go waste.

The electric industry that powers so much of modern life was originally born out of a desire for better lighting. At the turn of the 19th century, people relied on candles or oil and gas lamps to light their homes. While these sources produced some light, they also gave off heat and smoke and required fuel and regular maintenance. The introduction of electric lighting, first arc lamps in the 1870s for city streets followed by the incandescent light bulb in the 1880s, heralded a much brighter future.

Electricity was initially a novelty for the rich, but utility companies soon discovered ways to take advantage of economies of scale in power generation and distribution, making it more affordable and accessible. Inventors created new machines using electric power in factories and homes, spurring growing demand. As a result, by the end of the Roaring ’20s, most American cities were electrified. City dwellers enjoyed brightly illuminated homes and streets, indoor heating, and modern appliances like electric stoves.

Access to electricity was far from universal, however. By 1930, nearly nine in 10 urban and nonfarm rural homes had access to electricity, but only about one in 10 farms did.

It wasn’t that farmers had no use for electricity. In 1923, the National Electric Light Association, a trade organization of electric companies, conducted a study in Red Wing, Minnesota, where a handful of farms were given access to electricity and electric appliances. Those households reported significantly higher productivity and happiness.

It required a government order to get things going. That too in Great Depression:

In May 1935, President Franklin Roosevelt issued an executive order creating the Rural Electrification Administration (REA) “to initiate, formulate, administer, and supervise a program of approved projects with respect to the generation, transmission, and distribution of electric energy in rural areas.” The REA was part of the suite of public works projects under the New Deal designed to counteract the Great Depression. Congress set aside $100 million ($1.88 billion in 2020 dollars) for the new agency, enabling it to make loans to finance the construction of electricity generation and transmission to rural areas.

Initial meetings between REA leaders and private utilities seemed promising. But when the utilities submitted their proposal to the government, it exceeded the $100 million budget and fell short of the government’s goal of widespread coverage. The utilities also maintained that without assistance to help finance the wiring of rural homes and the purchase of electric appliances, farmers would not have enough demand for electricity to make the service sustainable.

Congress would ultimately take that suggestion to heart; in 1936, the Rural Electrification Act formally established the REA as a government agency and authorized it to also make loans to wire homes and to outfit them with lights and appliances. But by then, private utilities had become increasingly reluctant to work with the REA.

“There was some unfavorable language in the loan offers to the private utilities that placed restrictions on what they could do if they took the money, and they couldn’t work those details out,” says Carl Kitchens, an economic historian at Florida State University who has studied rural electrification.

With private utilities reluctant to get involved, the REA turned to another vehicle that was quite familiar to farmers: the cooperative, commonly referred to as a co-op.

“When you read books from that era, one of the things people always talk about is how rural communities can solve different problems by forming a co-op,” says Price Fishback, an economic historian at the University of Arizona whose research focuses on New Deal programs. “Every county had several co-ops of varying sizes.”

A co-op is an organization that is collectively owned by its members, making them both customers and shareholders. Co-ops had a long history in agriculture. Farmers had banded together to share resources and improve their bargaining power for inputs like seed, fertilizer, and equipment. But there were few examples of co-ops designed to distribute electricity — only 33 electric co-ops existed in the United States in 1930.

Once the REA decided to work with co-ops to accomplish its goals, it set about helping farmers organize. Many states did not have laws in place to govern electric co-ops. So, in 1937, the REA drafted a model Electric Cooperative Corporation Act that states could use as a template for laws authorizing electric co-ops and establishing rules for their governance. The model stated that co-ops were to be nonprofits and governed by member-elected boards, with each member having one vote.

Fascinating. Now this idea is being used to push broadband in rural areas.

 

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