Electric Cooperatives in a Deregulated Market

Lindenberg, Steven P., Forum for Applied Research and Public Policy

With the help of applied research, electric cooperatives are expanding their horizons beyond rural America.

Sixty-five years ago, the federal government passed the Rural Electrification Act, promising rural Americans that they, too, would enjoy the benefits of electric power. That promise, however, stopped short of explaining exactly how it was supposed to happen. The legislation that created the Rural Electrification Administration (REA) was more of an open appeal to encourage the construction and operation of generating plants, electric transmission lines, and distribution systems to serve rural areas. In return, those constructing such operations could expect low-interest loans from the federal government.

There weren't a lot of takers, at least at first. While financing a rural electric-system was a concern, the real showstopper was that electric utilities are complex, technical businesses, and the challenges of designing, constructing, and operating electric transmissions and distribution in rural American was something no existing organization wanted to tackle.

Those already in the electric utility business knew that the economics of providing affordable power to isolated farm families held out little hope of cost recovery, let alone profits within normal return-on-investment time requirements. In addition, the capital-intensive nature of the business and the commitment of investor-owned utilities to regulatory realities and rate structures that locked them into particular markets discouraged the risk of extending service beyond urban centers. As tax-based entities, municipal utilities did not feel it their responsibility to embrace anything outside city limits. Faced with those harsh realities, it wasn't long before it became clear that solving the problem of serving rural America required the development of new engineering approaches and an entirely new and innovative financing mechanism.

The grand experiment with the cooperative structure began as a grassroots effort, strongly supported by the federal government. In the end, it became one of America's most dramatic success stories. Dedicated local residents and capable federal employees shared the responsibility for design, construction, and operations.

In the late 1930S, rural America possessed few of the skills required to create and manage an electric utility, but there was plenty of determination. With REA supplying the engineering standards and guidelines, based on contemporary practice and adjusted for rural settings, and with the local community providing the labor and oversight through democratically elected directors, the result was a rural America that was almost entirely electrified …

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Publication information: Article title: Electric Cooperatives in a Deregulated Market. Contributors: Lindenberg, Steven P. - Author. Journal title: Forum for Applied Research and Public Policy. Volume: 15. Issue: 2 Publication date: Summer 2000. Page number: 41. © Not available. COPYRIGHT 2000 Gale Group.

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