Rural Electrification Act

What Is the Rural Electrification Act?

The Rural Electrification Act, passed by Congress on May 20, 1936, was one of the most important parts of President Franklin D. Roosevelt’s New Deal—a huge series of programs, public works projects, financial reforms, and regulations that went into effect between 1933 and 1939 and aimed to relieve the economic hardship of the Great Depression. The Rural Electrification Act allocated federal loans for the installation of electricity for Americans living in remote, rural areas.

The act was a huge success and long outlasted its initial goal. The primary mechanism through which electrification was promoted—via loans from the federal government—lasted until 1993. Even after this date, however, the act continued to be adapted to bring other important infrastructure to rural Americans. 

In 2008, for example, President George W. Bush amended the act to promote access to the rural broadband telecommunications network and rural Internet services. four years later President Barack H. Obama signed an amendment that established a pilot program to build a nationwide high-speed broadband network.

Understanding the Rural Electrification Act

The first electric lighting was introduced in the U.S. in the 1870s, as street lighting and light bulbs started to appear in wealthy neighborhoods and homes in the 1880s. But at the turn of the 20th century, most Americans still lit their homes using candles and gas lamps, even if they lived in large, wealthy cities.

Most cities in the U.S. were connected to the national electrical grid by the end of the 1920s, but most farms remained unconnected. By 1930, nearly 90% of urban dwellers had some access to electricity, but only one in 10 farmers in rural areas did.

It wasn’t that farmers had no need for electricity—or that bringing it to them was particularly difficult. Rural Americans had limited access because private companies claimed it wasn’t economically feasible to run power lines out to them. Most companies were skeptical about being able to recoup the upfront costs of the infrastructure needed to complete the project.

Politicians were not so skeptical. In fact, some members of Congress had long seen their purpose— elegantly expressed by President Abraham Lincoln in a speech to Congress on July 4, 1861—as partly “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."

The Homestead Act of 1862, signed by President Lincoln, was one of the first and most powerful examples of the U.S. government trying to do just this. But during the Great Depression, it became apparent that the descendants of homesteaders and other people living in rural America were not getting that "fair chance."

Creating co-ops to electrify the country

The initial Rural Electrification Act was drafted by two prominent policymakers of the era—Rep. Sam Rayburn, D-Texas, and Sen. George Norris, R-Ne. (It’s worth noting that Norris, who supported public utilities, was forced to run independently for reelection in 1936 after he was forced out of the GOP by the pro-business faction of the party).

In 1935, President Roosevelt issued an executive order creating the Rural Electrification Administration (REA) as a means to supervise the distribution of electric energy to remote regions of the United States. Via the act, Congress gave the REA the power to make loans that could be used to finance the construction of equipment for generating and distributing that electricity.

At first, the plan was to give these loans to companies in order to help them build electricity infrastructure in rural areas—a plan that proved too costly. So instead, lawmakers chose a type of organization well known to farmers: the cooperative, or co-op. The idea was that if farmers could organize themselves into co-ops, the REA could distribute loans to them at very low interest rates—between 2% and 3%, depending on their state—to build electricity infrastructure.

It was an ambitious idea and not without difficulties. Though farmers were familiar with co-ops, few had experience in planning electricity infrastructure. They also worried about how taking loans from the federal government might jeopardize their properties and farms in the event the co-ops were to fail. And, at least in the early years, they also complained that joining fees, at $5 (about $100 today), were too high.

The REA helped by hiring engineers to assist in designing and building new power lines and used its economic heft to negotiate bulk-purchase rates for co-ops. Loans could also be used to fund appliances for rural farms and homes.

All these factors combined to significantly reduce the cost of building power lines in rural areas of the country. By the end of the 1930s, the cost of erecting power lines in rural America had dropped to $825 per mile, much less than the $2,000 per mile the electricity companies had estimated at the beginning of the decade.

In addition, power companies started competing to provide power to co-op-run grids across the country. In those cases, private companies shouldered the upfront cost of increasing power production.

Advantages of the Rural Electrification Act

Overall, the REA program was a striking success. Although the progress of electrification slowed slightly during World War II, it continued apace afterward. By the end of the 1940s, approximately half of all farms had access to electricity. By 1953, rural Americans could access electricity as easily as urban dwellers could. In just two decades—with more than 90% of homes and farms having been wired in—the REA had electrified a nation.

Many factors explain the success of the act. It gave farmers the power to decide where and how to use electricity and explicitly provided for the installation of electricity to light their homes as well as run their machines. Not only did this make life more pleasant for farmers, but it also offered health and productivity benefits. Fewer farmers inhaled toxic fumes from kerosene lamps, and washing machines saved hours on housework that could then be devoted to more productive tasks.

Above all, however, the REA succeeded because farmers immediately saw the potential benefits of having electricity on their farms. It greatly improved productivity for dairy farmers, for example, largely due to the common use of refrigerated storage tanks and milking parlors (both of which required electricity to run), which kept losses to an absolute minimum. 

Gains in productivity meant that farmers made more money and were able to pay back the REA loans. The default rate on these loans was less than 1%. In other words, the government managed to provide electricity to its rural population essentially for free.

An Enduring Legacy

Although most farmers got access to electricity by the 1950s, the impact of the REA continued long after that date. In 1949, the act was extended to permit loans to phone companies to extend their connections to rural places in the country.

The act persisted in much the same form through 1993, when new amendments restructured the direct loan programs for rural electricity, telephone cooperatives, and the energy conservation market.

The act survives in a number of different ways, though. Nearly 900 of the energy co-ops founded under the act still exist today, and still provide electricity to their members. In fact, the REA itself still exists, albeit under a different name—it is now called the Rural Utilities Service, or RUS, and operates under the Department of Agriculture.

The rapid and enormous success of the act, as part of the broader economic effects of the New Deal, is the clearest indication of its influence. Arguably, by providing access to electricity so quickly, the act allowed the U.S. to grow rapidly in the postwar period and to attain the position of economic dominance it now enjoys. 

By investing in the development of the country, and by protecting citizens from financial ruin through the Securities Act of 1933, the New Deal provided an economic springboard that propelled America ahead of other nations from the 1930s onward.

The REA methodology continues to be actively adapted, as well. The success of the co-op model, which provided electrical infrastructure to Americans much more quickly than in other nations, has led many analysts in the intervening period to propose using the same model to roll out other types of infrastructure improvements. 

In 2017, for instance, the Federal Communications Commission (FCC) unveiled the Connect America Fund to finance extending universal Internet service to homes in rural areas of the country. Co-ops from many different states are likewise taking action to improve broadband Internet access to rural regions just as electricity was brought to those same spots almost a century ago.

Finally, there is also what could be called the “mythological” impact of the REA. For three generations of Americans of both political parties, programs like the REA have come to represent not just the inherent potential of the U.S., but also its responsibility to help the least affluent segments of society help themselves. As a result, the REA continues to exert a powerful psychological influence on U.S. politics—and continues to be mentioned in relation to the Green New Deal and other new policy proposals.