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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/
Federal Reserve Bank H St. Louis
of W i l r s

SELF-LIwUIDATING LOANS F R RURAL ELECTRIFICATION
O
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, 47 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

€