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COMMENTARY ARCHVES
   

SEPTEMBER COMMENTARY
by Share Brandt

REA/RUS: The Mission Lives On

The mission the Rural Electrification Administration (REA) set out to accomplish in 1935 was not only to make electricity available in previously unserved areas but to make it affordable, reliable, and safe for country people without the inherent handicaps of the higher cost to serve in lower population density areas. The mission extended to improved quality of life and the ability to conduct business in rural areas.

REA became the Rural Utilities Service (RUS) in 1994, but the mission continues, and the value RUS continues to bring to rural America extends beyond electricity to broadband development and investment in community services. The RUS program is not a grant program; it is a loan program for which not-for-profit cooperatives pay interest in return for the borrowed capital.

Paying Its Way

In fact, in fiscal year 2012 the RUS Electric Loan Program is projected to earn more than $300 million for the federal government, and in FY 2013 it is projected to put more than $369 million in the federal treasury.

Nationwide, electric cooperatives’ lines and poles span more than 75 percent of the nation’s landmass while serving only 12 percent of American consumers. Member-owned and operated electric cooperatives have invested in more than 2.4 million miles (or 43 percent) of the nation’s distribution line-miles to serve this vast geographic area. A comparison of electric utilities shows:

            • Co-ops serve an average of 7 consumers per mile of line
               with annual revenues of $10,565 per mile of line;

            • Investor-owned utilities average 35 customers per mile of
              line and collect $62,665 in revenue per mile of line;

            • Publicly owned utilities, or municipals, average 47
              consumers and collect $86,302 in revenue per mile of line.

A minimal federal investment leverages more than $6 billion in RUS electric loan investment. The small federal investment in the RUS Electric Loan Program over the years, coupled with strong management of the cooperative businesses, keeps rural electric infrastructure strong and viable today. The infrastructure that was built prior to 1966 would not meet the needs of rural America today. The growth of agricultural, small manufacturing and ancillary service businesses requires higher quality rural electric infrastructure to keep pace with the new technology deployment that has taken place.

In Wisconsin, electric cooperatives serve on average 5.5 consumers per mile of line and own 46,970 miles of distribution line. Because the RUS Electric Loan Program is available to the most rural and lowest income areas of the state, non-for-profit, member-owned electric cooperatives have been able to keep rates relatively affordable. Any margins earned are returned to the member owners. These dollars in turn leverage more spending in local rural economies.

Still the Answer

The notion that the Rural Utilities Service program is no longer needed simply because people have electric service available is misguided. Investor companies were given the option to use REA financing to extend electric service in rural areas and they declined the offer because the profit margin was not attractive. Today only 19 percent of the nation’s population live in rural areas and the profit margin to provide electric and telecommunications services is still not impressive.

That is why not-for-profit cooperative businesses are still the answer for country people to have affordable services—the same types of services that are profit centers for investor companies in highly populated areas. The mission is to level the playing field for affordable and reliable services where a profit motive does not exist.

 

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