A New Day from the New Deal
President Franklin Roosevelt signed an Executive Order in 1935 to establish the Rural Electrification Administration (REA), giving an entire sector of the U.S. the chance to finally have something that we take for granted as an essential of life today. The REA was granted $100 million in available loans to kick start electrification of the rural U.S. Driven by a willingness to do the work themselves, cooperatives took full advantage of the opportunity, claiming 70 percent of the loans. By 1941, the REA had granted $434 million in loans.
In 1939, cooperatives could build a mile of single phase electrical line for an average of $538. At the same time it was costing investor owned utilities (IOU's) $1,800 to $3,000 per mile. People began to realize that cooperatives worked, and in most cases, better than an IOU, which scared them. To combat cooperatives that threatened their business model, IOU's spiked the wholesale price of energy to un-affordable prices, putting many cooperatives out of business. The REA caught wind of this tactic and documented nearly 200 cases of what they coined "cream skimming." While visiting his home-state to assess what he could do, REA Deputy Administrator, John Carmody, found a way to fix his problem. He recalled his dilemma during an interview with the NRECA in 1960.
"At the hotel that evening, a young reporter for a newspaper in the area, a man with eagerness written all over his face, wanted to know what I thought REA could do about bringing rural electrification to that part of the state. I didn't know what I was going to say, but I knew from my talks with farmers and others that the reason the co-op was having so much trouble [getting established] was the high price it had to pay for wholesale power.Then, like a flash, the answer came to me. 'Young man, the Rural Electrification Administration is going to build a generating plant right here, and that plant will produce electricity to take care of all rural needs at a price far lower than anything the co-op can get from the power companies. The next day, the headline in the local morning paper shouted: "REA To Build Big Generator Here." The article went on to quote Carmody, "The construction of lines here has been held up considerably due to indecision as to the source of power. This is the first [co-op] project under construction without definite power rates. We have ample funds for the construction of a generating plant, and unless a decision is reached soon with electric companies for suitable rates we will proceed with construction work." Within a week, Pennsylvania Electric Company slashed its wholesale rate to Northwestern REC from 3 cents per kWh to 1.3 cents per kWh."