Years ago, when I was hired by an electric utility company, a VP took me and other new hires out to dinner. He had two messages for us: the first had to do with unions, the second with Rural Electric Coops.
Coops were a sore point for the company. A big storm had cut power to a large rural area. Many of the company’s customers were left in the dark for a long time. However several coops were generating electricity locally, and their customers had their lights on.
REA Coops, the VP explained were an abomination.. As non-profits, they competed unfairly with investor owned private utilities. They were the vanguard of socialism.
President Roosevelt created the REA on May 11, 1935, under powers granted by the Emergency Relief Appropriation Act of 1935. The goal of the REA was to bring electricity to America’s rural areas. Without the REA, many homes would have continued to lack electricity.
How else could the problem have been addressed:
- Private companies could have been paid to provide universal service which they otherwise couldn’t afford to do.
- Regulators could have allowed the utilities to raise everyone’s rates to cover the cost of extending service to a few.
FDR preferred to allow people to join together to solve the problem for themselves.
By mid-century, cities had near universal electric service. Generators, transformers, and wires were in place and had been long depreciated, paid for. As suburbs grew, electric service was extended to new customers over a wide area. To a large extent, existing customers in the cities where rates could have been lower, paid the price. That was unfair; perhaps new customers should have paid more until the companies investment in their behalf was paid off. That didn’t happen.
In some cases, the unfairness issue was addressed by municipal electric systems. Public systems were not-for-profit and needn’t bear the cost of expansion to an ever wider service area. Thus rates could be low. The VP deplored all public owned utilities as unfair competition, socialism.
The unfairness issue comes up in other areas, highways for example. Should the people of a relatively small populous state, MA for example, pay for miles and miles of interstate highways in TX and other western states. Fair or not, they do.
Recently the bipartisan infrastructure bill raises the issue of fairness. This bill proposes to fund expansion of internet service to unserved areas by paying private companies to do so. Public money pays to extend service to relatively few. How else could this problem have been addressed:
- Towns and villages could have been authorized and supported in providing public owned internet service. This was omitted from the bipartisan internet bill probably because it was seen as socialism.
- Regulators could have required universal service with the cost passed on to all customers.
I think the bipartisan solution is workable, but only if the states ensure that private companies use the public money to extend service to those who otherwise couldn’t be economically reached, and that the result is near universal service.