IEEE Power & Energy Magazine - July/August 2014 - 36

There is universal consensus that rural electrification
is vital for the development of rural areas in developing
countries, as it was in the experience of the United States.
United States
the United States has advanced significantly in rural electrification, although 80 years ago, rural development lagged
significantly behind metropolitan areas. in the mid-1930s, electrification of rural households was barely 10%, compared with
almost 85% of urban households; the situation then resembled
that of many of today's developing countries. it was recognized
that for rural areas, development was slow, lagging behind in the
areas of health care, nutrition, education, and income.
extending power to rural areas and remote communities
was not profitable for the large power companies that dominated the industry, a barrier that is present in most countries
worldwide. the utilities' focus was primarily on commercial
agriculture rather than use in households or for small cultivation, where it had to compete with mechanized, animal,
or human labor. Poor urban and rural consumers remained
dependent on wood, coal, and kerosene. economic depression, rural poverty, and the unfamiliarity of rural populations
with new electric appliances further inhibited demand. Population densities as low as a dozen or two per square mile were
also a major obstacle to the electrification of rural areas.
in the late 1920s and early 1930s, it became a federal
government priority to further rural development. As early
as 1909, President theodore roosevelt advocated sustaining agriculture and the rural economy because they helped
guarantee the U.S. food supply and military security. it was
not until the administration of Franklin d. roosevelt in the
mid-1930s, however, that federal involvement in rural electrification became a reality. on 11 May 1935, roosevelt
created the rural electrification Administration (reA) as
an emergency relief organization, by means of an executive
order. this empowered the federal government to make
loans to power companies as well as to local and public
organizations. But in what was to prove a turning point,
the existing private utility companies vigorously opposed
such arrangements. the utilities rejected expansion of rural
electrification for social or developmental purposes, arguing that lending on current commercial terms and sales
at current prices had already electrified all the farms that
were economically feasible. Appeals to the utilities to take
advantage of federal lending for rural electrification were
ineffective in the face of their hardening opposition to the
democratic administration and congress, which they saw
as perpetrating intrusive regulation and social engineering.
the reA was thus left almost wholly dependent on cooperatives for the implementation of public-private collaboration in rural electrification.
36

ieee power & energy magazine

the rural electrification Act of 1936 codified the terms
under which the reA could finance rural electrification. the
act empowered the reconstruction Finance corporation to
lend the reA US$50 million per year at 3% annual interest for the first year and the average rate of long-term U.S.
obligations thereafter. the loans thus did not incorporate a
significant subsidy. the reA was technically empowered to
lend for construction of generation and transmission capacity
as well as for distribution lines and home wiring, but early
on it disbursed funds largely for the latter two purposes. the
terms of the distribution loans were 25 years, but the reA
administrator could extend them by five years. the terms for
interior household electrification loans were for a maximum
of 66% of the life span of the appliances financed but with a
cap of five years.
in its first five years, the reA focused on its mandate
to serve the less populated and less electrified rural areas.
What the reA put into action was a fulfillment of its legislative mandate of "furnishing electricity to persons in rural
areas"-that is, a proactive policy of full-area coverage, as
opposed to "cream skimming," or cherry-picking high-profit
consumers. in this, the reA aimed not only at giving its staff
the satisfaction of helping farmers group together to string
distribution lines into their homes but also at the broader role
of cooperative economic development in rural areas.
A major function of the reA was to provide guidance
for utility formation, design, and operation. rural electrification in the United States required government financing and
technical assistance, but it did not require massive subsidization. it also did not require the federal government to appropriate for itself a large or permanent part of the distribution
sector to make power available. the guarantee of lending
at low rates was necessary to overcome private finance's
unwillingness to support investments it considered marginal
from a profit viewpoint. it is also important to note that this
federal assistance was limited to establishment of the cooperative utility and for loans and technical assistance for capital improvements. Funds for operation, maintenance, and
debt service were to come from member payments for the
services provided, in the form of 1) rates paid for the electric
service itself, 2) the repayment of loans for individual home
wiring assistance on a monthly basis, and 3) payments made
for actual electricity usage.
the earliest rural electricity cooperatives in the United
States were formed in 1914, in Minnesota and Washington State, without public sponsorship. Along with several
other cooperatives that originated in the upper Midwest
july/august 2014



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IEEE Power & Energy Magazine - July/August 2014 - Cover3
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