This article traces the legislative origins, administrative development, and operational history of the Rural Electrification Administration (REA), from its establishment in 1935 through its reorganization as the Rural Utilities Service in 1994. For background on the broader policy context, see New Deal - History.

At the close of the nineteenth century, electric power spread rapidly through American cities, driven by private utility companies that found urban density profitable. Rural areas lagged far behind. By 1930, fewer than one in ten American farms had access to electricity, compared to roughly nine in ten urban households. Private utilities generally declined to extend service to sparsely populated areas, citing, as they argued, the high cost of stringing transmission lines across long distances to serve relatively few customers.

Several states had experimented with publicly owned utilities or rural cooperatives before federal action. Nebraska established a statewide public power system in the 1930s. Agricultural advocates and progressive politicians had long argued that the disparity between urban and rural electrification represented a structural failure of the private market to serve the countryside.

President Franklin D. Roosevelt created the Rural Electrification Administration by executive order on May 11, 1935, under authority granted by the Emergency Relief Appropriation Act of that year. The REA was initially housed as a relief agency, reflecting the Depression-era logic of combining infrastructure investment with employment.

Roosevelt appointed Morris Llewellyn Cooke as the REA's first administrator. Cooke, an engineer and longtime advocate for public power, had studied rural electrification in Europe and believed cooperative ownership was the appropriate vehicle for extending service to American farms. He moved quickly to survey rural conditions and test financing models.

Early REA lending went primarily to municipal utilities and public power districts. By the end of 1935, Cooke had concluded that existing utilities were unlikely to reach the most isolated farm customers and began redirecting REA resources toward newly formed farmer cooperatives.

Congress placed the REA on permanent statutory footing with the Rural Electrification Act of 1936, signed by Roosevelt on May 20. The act authorized the REA to make self-liquidating loans at low interest rates - initially two and a half percent over twenty years - to borrowers constructing electric distribution systems in rural areas. Borrowers could be public bodies, cooperatives, or private utilities, though cooperatives became the dominant vehicle.

The act did not create a nationalized utility. It created a federal lending program. The borrowing cooperatives were member-owned, locally governed, and responsible for their own construction and operations. The REA's role was financial and technical, not managerial.

John M. Carmody succeeded Cooke as administrator in 1937. Under Carmody, the REA standardized construction specifications, trained cooperative employees, and developed educational materials on farm wiring and appliance use - all aimed at ensuring that loans would be repaid and that electrification would translate into genuine productivity gains on farms.

The pace of rural electrification accelerated sharply after 1936. By 1939, REA-financed cooperatives were serving roughly 25 percent of American farms. By 1942, the figure had risen to approximately 50 percent.

World War II interrupted construction. Materials and labor were diverted to the war effort, and the REA's lending activity slowed considerably between 1942 and 1945. Cooperatives that had been organized but had not yet completed their distribution lines faced extended delays.

After the war, construction resumed and the REA extended its mandate. Congress amended the Rural Electrification Act in 1949 to authorize REA loans for rural telephone service, recognizing that telephone infrastructure in the countryside suffered from the same market failures that had originally justified federal intervention in electricity.

By 1953, roughly 90 percent of American farms had access to electricity, a figure often cited as marking the essential completion of rural electrification as an infrastructure project.

As rural cooperatives matured, they confronted a new problem: the wholesale power suppliers they depended on - typically large private utilities - held pricing leverage over them. Cooperatives sought to develop their own generating capacity to reduce dependence on outside suppliers.

Congress authorized REA loans for generation and transmission (G&T) cooperatives beginning in the early 1950s. G&T cooperatives pooled resources from multiple distribution cooperatives to build or acquire power plants and high-voltage transmission lines. This further integrated the cooperative sector into the broader electric power system.

Several large G&T cooperatives constructed coal-fired and, later, nuclear power plants during the 1960s and 1970s. The expansion of cooperative generation capacity created both greater independence and new financial risks, as some nuclear construction projects ran far over budget.

The 1970s brought rising interest rates and energy costs that strained REA borrowers. Congress had maintained the two and a half percent loan rate for decades, and by the mid-1970s the gap between REA rates and market rates had become a significant federal subsidy rather than a modest financing incentive.

The Federal Financing Bank Act of 1973 shifted REA loan funding through the Federal Financing Bank, altering the program's financing structure. Subsequent congressional action in 1984 and 1987 modified interest rates for different classes of borrowers, introducing tiered lending in place of the flat low rate.

Some G&T cooperatives that had committed to nuclear construction encountered severe difficulties. The most prominent case was the Washington Public Power Supply System (WPPSS), whose default on municipal bonds in 1983 was at that time the largest municipal bond default in American history. Several REA-borrowing G&T cooperatives were WPPSS participants and faced resulting financial stress.

The Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 abolished the REA as a standalone agency and transferred its functions to a newly created Rural Utilities Service (RUS) within the United States Department of Agriculture. The RUS consolidated REA's electric and telephone lending with water and waste disposal programs previously administered elsewhere in USDA.

The REA had been housed in USDA since 1939, when Roosevelt transferred it from its original independent status, but had maintained a distinct administrative identity for more than five decades before the 1994 reorganization.

Some historians argue that private utilities could have extended rural service without federal intervention had regulatory barriers to cooperative formation been removed; see REA - Debate.

The degree to which REA lending constituted a genuine subsidy versus a self-liquidating loan program is disputed among economists; see New Deal Economics - Consensus.

Whether the expansion of G&T cooperatives into nuclear generation reflected sound governance by cooperative members or capture by professional managers is contested in the cooperative sector's own literature; see REA - Cooperative Governance Debate-viewpoint.

1. Roosevelt, Franklin D. Executive Order 7037, May 11, 1935.
2. Rural Electrification Act of 1936, Pub. L. 74-605, 49 Stat. 1363 (May 20, 1936).
3. Cooke, Morris L. “National Plan for the Advancement of Rural Electrification Under Federal Leadership and Control.” 1934. (Cooke's pre-REA memorandum to Roosevelt.)
4. Tobey, Ronald C. Technology as Freedom: The New Deal and the Electrical Modernization of the American Home. University of California Press, 1996.
5. Brown, D. Clayton. Electricity for Rural America: The Fight for the REA. Greenwood Press, 1980.
6. Pence, Richard A. ed. The Next Greatest Thing. National Rural Electric Cooperative Association, 1984. (NRECA institutional history; cooperative sector self-account.)
7. Federal Financing Bank Act of 1973, Pub. L. 93-224, 87 Stat. 937.
8. Leigland, James, and Robert Lamb. WPPSS: Who Is to Blame for the WPPSS Disaster?. Ballinger Publishing, 1986.
9. Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994, Pub. L. 103-354, 108 Stat. 3178.
10. U.S. Department of Agriculture. A Brief History of the Rural Electric and Telephone Programs. USDA Rural Utilities Service, 2000.