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RURAL ELECTRIFICATION PROGRAM This prooorsal c a l l s for a reorganisation of the present Kural K l e e t r l f i c a t l o n administration, *hieh would #ive t h a t agency the a u t h o r i t y t o borrow i n the open market and t o operate on *vhe b a s i s of a r e v i v i n g fund in a nanner s i n i l a r t o nhich the Commodity - r e d i t Corporation now o p e r a t e s . The proposal c a l l s for an appropriation by Congress of | f P m i l l i o n and power t o borrow five or ten times t h a t amount, depending upon the scale of operations t h a t t n i s a u t h o r i t y If expected to fewHMl during the next ten yeare• http://fraser.stlouisfed.org/ W Louis ilrs Federal Reserve Bank H of St. SELF-LIwUIDATING LOANS FOR RURAL ELECTRIFICATION In the ere at that additional funds might be made a v a i l a b l e , the Rural E l e c t r i f i c a t i o n Administration requests t h a t $110,000,000 be provided for s e l f - l i q u i d a t i n g loans for rural e l e c t r i f i c a t i o n , i n accordance with the following summaryt 1110.000,000 i s t o t a l for loans. I 72,000,000 for loans for l i n e construction. terms: s e l f - l i q u i d a t i n g within a period of twenty-five years. Interest rate approximately 2^ per cent. $ 2,000,000 for loans for construction of generating plant and equipment. terms: s e l f - l i q u i d a t i n g within a period of twenty-five years. Interest rate approximately 2 j per cent. I 5,000,000 for the i n s t a l l a t i o n of farm wiring. terms: s e l f - l i q u i d a t i n g within a period of seven years. Interest rate 1 per c e n t . I 4,500,000 for the acquisition and i n s t a l l a t i o n of plumbing and water systems. terms: s e l f - l i q u i d a t i n g within a period of seven years. Interest rate 1 per cent. $ 24,000,000 for financing the purchase of e l e c t r i c appliances for farm and home u s e . terms: s e l f - l i q u i d a t i n g within a period of seven years. Interest rate 1 per cent. f 2,500,000 for the construction of cold storage locker plants. terms: s e l f - l i q u i d a t i n g within a period of seven years. Interest rate 1 per cent. - 2 The Current Status of Rural Electrification The Edison Electric Institute reports that on December 31, 1938, there were approximately 1,4.06,000 farms in the United States receiving central station electric service* One farm in five in the United States had electricity at the beginning of this year. This contrasts with a ratio of one farm in ten, four years ago, when the federal rural electrification program was started. Since the creation of the Rural Electrification Administration in May 1935> there has been unprecedented progress in extending electric service in rural areas and the number of farms receiving electric service has doubled. Requests for Loans Exceed Available Funds For some months the Rural Electrification Administration has discouraged applications for loans in order to avoid finding itself burdened with a large number of disappointed applicants to whom loans could not be made because sufficient funds would not be available. Despite this unreceptive attitude, applications for loans have continued to pour into the Rural Electrification Administration. Applications on hand and reported to be in the course of preparation are some $60,000,000 in excess of the Rural Electrification Administration's regular appropriation for loans for the fiscal year 194Q. If a reasonable prospect for additional funds were to make it possible for the Rural Electrification Administration to encourage applications, - 3 there would be no question of i t s a b i l i t y to lend the $72,000,000 r e quested for the construction of rural electric lines and the $38>OOO,OOO for wiring, appliances, running water systems, e t c . , needed to insure adequate use of e l e c t r i c i t y and, by so doing, help close the gaps between the living standard of the farmer and that of his city cousin. Fifty millions of the $72,000,000 i s in demand for financing the construction of rural lines in just 13 s t a t e s . This demand i s d i s - tributed as followst Arkansas Georgia Illinois Indiana Iowa Kansas $2,000,000 $2,000,000 $7,000,000 $5,000,000 $7,000,000 $2,000,000 Kentucky Minnesota Missouri Nebraska Pennsylvania Texas Wisconsin $2,000,000 $5,000,000 $3,000,000 $3,000,000 $2,000,000 $7,000,000 $3,000,000 Program Popular - Outlet for Private Power This demand affords an indication of the strength of the rural electrification movement. The rural electrification program of the feder- al government i s proving i t s e l f universally popular with the farmer and a steady stream of l e t t e r s t e s t i f i e s to the favor with which i t is r e garded by farmers, educators, public officials, manufacturers and labor. I t has been heartily endorsed by every national farm organization. The new rural electric distribution lines provided for by appropriations made t o date will make electricity available t o more than half a million farm homes in forty-four states. The nationwide character of t h i s program may be readily seen by reference to Appendix A .As these new lines have been energized and as a quarter of a million rural - A families have had the benefits of e l e c t r i c i t y for the first time, the favor with which the program i s regarded has increased and the demands for further extensions of service have been intensified. Four years ago, practically the only opposition t o t h i s program came from some of the private u t i l i t y companies. Today, except in very few states,-most of this opposition i s rapidly disappearing as the private u t i l i t y companies find a profitable market for their surplus energy in the demands of rural electric cooperatives for wholesale power. The majority of the rural electric line projects financed t o date by the Rural Electrification Administration purchase the energy which they distribute from private power companies. Evidencing t h i s change of attitude, the Georgia Power Company, of the Commonwealth and Southern system, advertises with pride that among the many services which i t i s rendering the State of Georgia one of the foremost i s the supplying of wholesale energy t o twenty-two REA-financed rural electric c ooperat ive s• No Competition with Private U t i l i t i e s The non-competitive feature of the rurual electrification program i s assured by Section U of the Rural Electrification Act of 1936, which provides that "The Administrator i s authorized and empowered to make loans — for the furnishing of electric energy t o persons in rural areas who are not receiving central station service. n added). (Underlining There has been a painstaking observance of t h i s non-competitive - 5 injunction of the statute and i f the requested funds for loans for rural electrification are made available, they w i l l be used t o bring e l e c t r i c i t y t o those people in rural areas who are without service* Industry Benefits from Rural Line Construction It i s anticipated that approximately 65 per cent of the funds requested w i l l be used for loans for the construction of rural electric lines. The program to date of the Rural Electrification Administration has demonstrated the wide distribution of benefits arising from the construction of these rural l i n e s . The map attached as Appendix B shows the origin of many of the materials used* The keen competition of fabricators and vendors of the various materials used in rural line construction for an increasing portion of the total volume of business i s explained by the fact that for every 1100,000,000 loaned for rural line construction, approximately |12,500,000 goes into poles, £3,000,000 into line hardware and cross-arms, $500,000 into insulators, $12,000,000 into transformers, $8,000,000 into lightning arresters, cut-outs and brackets, $500,000 into grounding equipment $3,500,000 into guy wires, clamps, rods, and anchors, $1,000,000 into service wire, $2,500,000 into meters, and into conductors, the largest single item, almost $21,500,000 t o be d i s tributed among the copper, aluminum and steel interests. Generating Plants for Isolated Areas In connection with the request for $2,000,000 for loans for the construction of generating plants or generating equipment, i t i s pertinent - 6 to note that less than 2 per cent of the funds of the Rural Electrification Administration have been allotted for these purposes. It is desirable to have a limited amount available for these purposes in order to be able to provide sources of energy for remote rural areas* Equipment Loans Benefit Projects and Industry In its endeavor to acquaint the fanner who is receiving electricity for the first time with the many profitable uses of electricity and in its endeavor to make it possible for the farmer to use electricity extensively in the farm home and in farming operation, the Rural Electrification Administration is creating social values and is at the same time improving the quality of its loans through increasing the gross revenues of the projects it has financed. In order to achieve these desirable social and financial goals, it is necessary that loans be made to enable the farmer to install adequate wiring, to purchase needed electrical equipment for his farm and family, and to put iQ sanitary running water systems serviced by electric pumps. The Rural Eelectrification Administration has found that on the average the fanner spends approximately $100 for wiring and $200 for electric appliances. The average farm plumbing installation costs about $200 and it is anticipated that, by group installation and by mass production, this figure can be cut in half. Appropriations to date will provide electric service for approximately 500,000 farms and - 7the requested additional £72,000,000 would provide t h i s service for more than 150,000 additional farms. The foregoing figures provide a gauge as to the size of the virgin market being opened up for wiring, electric appliances, plumbing and water systems. Manufacturers, wiring contractors, appli- ance distributors, and labor will benefit by the manufacture, d i s t r i bution and installation of the equipment purchased by the farmer as a direct result of having electricity available to him for the first time. A survey of 74 rural electric line projects showed t h a t , efter an average length of electric service of only six months, 86 per cent had purchased radios, 81 per cent had purchased hand irons, 4-7 per cent had purchased washing machines, 25 per cent had purchased regrigerators, 17 per cent had purchased water pumps and 9 per cent had purchased small motors. The recent development of the cold storage locker pl&nt has decreased the living costs of the farmer, improved hip diet and helped t o diversify his farming operations. The f2,500,000 requested for loans for the construction of these plants would provide approximately 100 of these plant?-' in carefully selected locations. These loans would be self-licuidfcting through the medium of the rentels charged for the lockers and since they are substantial consumers of electricity they would strengthen the rural electrific: tion projects whose lines would service them. - 8 Legal Aspects The Rural Electrification Act of 1936 authorizes the Rural Electrification Administration to engage in the activities covered by this request for additional funds, although to date most federal financing of electrical appliances has been done by the Electric Home and Farm Authority. A broader program encouraging the acquisition of electric appliances for the farm and for the rural home will require the Rural Electrification Administration to finance many of these acquisitions. It is desirable that any bill making available the requested funds should provide an exemption from paragraphs (c) and (d) of section 3 of the Rural Electrification Act of 1936, which provide a formula for making mandatory allotments of a certain proportion of the loans to each state. Granting this exemption would expedite the program by making it possible to lend the funds in those states where they cen be used vithout delay. It is also desirable that such a bill should provide a 1 per cent rate of interest on loans *hose maturities do not exceed seven yeers, Such a provision, reducing the cost of financing, will materially aid the appliance industry by stimulating appliance sales. Provision must also be made for a substantial increase in administrative expenses to enable the Rural Electrification Administration to carry the ne?; program forward effectively and expeditiously. Scneduling of the Program Based on the three following conditions, it is anticip&ted that - 9 the following schedule could be achieved: 1) Provided th&t there was sufficient assurance byearly August 1939 of the likelihood of new funds being available for loans by January 1, 1940, t o permit building up an increased staff and i n i t i a t ing preparatory field work, and 2) Provided that loan contracts could be executed legally by January 15, 1940, and 3) Provided that adequate administrative funds are available. All figures are cumulative. Allotments Made Construction, Installation or Loan Contracts Acquisition Funds Executed Completed Advanced By March 3 1 , 1940 | 80,000,000 f 40,000,000 f 5,000,000 | 2,500,000 By June 3 0 , 1940 f 90,000,000 $20,000,000 $10,000,000 By September 3 0 , 1940 1100,000,000 155,000,000 $35,000,000 By December 3 1 , 1940 $110,000,000 180,000,000 $60,000,000 $110,000,000 Balance of program t o be completed i n the f i r s t s i x months of 1 9 / 1 . Loans Are Reasonably Secure The Rural E l e c t r i f i c a t i o n Act of 1936 provides that these loens s h a l l be s e l f - l i q u i d a t i n g and that t h e y s h a l l not be made "unless t h e Adm i n i s t r e t o r finds and c e r t i f i e s that in h i s judgment the s e c u r i t y t h e r e f o r i s reasonably adequate and such loen wi^.1 be repaid within t h e time agreed, n While i t may be t o o e a r l y t o pass f i n a l judgment as t o these l o a n s , i t i s noteworthy that over 90 per cent of t h e borrowers are meeting t h e i r - 10 payments on loans for lines and for generating plants, and approximately 98 per cent of the borrowers are meeting their payments on loans for wiring and plumbing* June 12, 1939 APPENDIX A RURAL ELECTRIFICATION ADMINISTRATION PROJECTS AS OF JUNE 3C, 1938 CONSTRUCTION STARTEO B SOURCES OF MATERIAL USED IN REA CONSTRUCTION CJl Copper M nes Copper Srr.f ters Copper Refinery Copper W A l u m num Aiuminum A!urp:ni:m re U r a « n ^ P l a n t Mines Smc'ter W.re D r a * : n ^ Po!c Treating P l a n t Fransformer Manufacturer - Line Hardware Manufacturer Mt'le r Manufacturer A Ditsel Engine Manufacturer €
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