Federal Financing of Rural Utilities

Abstract

IHE PROVISION of electric and telephone service to the rural areas of the United States has presented problems of financing for more than 50 years. The extent to which rural utility services are economically feasible has been a matter of continuing controversy. Demands for service have consistently been ahead of the availability of private capital to finance rural expansion. The comparatively higher costs of rural service and the lack of appreciation for the potential use of electric power and communication services by farmers sharply retarded early development. Many small companies, self-service organizations, and municipal systems developed to fill some of the demands. The financing of most of the early rural telephone service was done by local subscription and small stock companies. Organizations were crudely established, few were incorporated, and little attention was given to longterm needs. Depreciation reserves, bookkeeping, and other requisites of good management were practically nonexistent. Although some educational assistance was offered by the U.S. Department of Agriculture,1 the depression of the 1930's, obsolescence, and the lack of maintenance led to the rapid deterioration of many rural telephone systems and farmer lines. Central station rural electric service was slower to develop than rural telephony. Technical progress did not make long distance transmission and rural distribution of electric energy feasible until after the turn of the century. Except for irrigation pumping in certain localities and occasional rural industries, it was felt that farmers would use electricity only for lighting. Consumption was not expected to justify the cost. Industry leaders apparently were prone to judge the potentials of rural service too much in terms of urban costs and returns. As has been noted in more recent years, they failed to anticipate the potential utilization of power on farms; they were too fearful of farm depressions that would ruin their investments, and construction standards were too rigid to permit lowering costs. As a result, the capital contributions required for the provision of service stymied any substantial expansion. Although a few small rural companies and cooperatives were organized, only minor progress was made toward farm electrification. The result was that only