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A historic program that pays for itself

By National Rural Electric Cooperative Association from August 2013 Issue

The REA helped power the countryside—its successor continues the cost-effective mission

The federal government provides financial support to all three kinds of electric utilities. But the effect of these subsidies on the national budget varies. Looking at all three, financial support from the Rural Utilities Service, which began in the 1930s as the Rural Electrification Administration, works out as a bargain.

The highest federal subsidies (mostly as tax breaks) go to publicly owned municipal electric systems. When these utilities issue tax-exempt bonds, the federal government loses income. In 2003 (the most recent data available) the cost to the government was $909 million.

The Rural Electrification Administration of the 1930s, which later became the Rural Utilities Service, provides loans that are repaid, with interest, for electric co-op power projects. The beginning of one of those projects is shown in this historic photo, at the 1952 dedication of a power plant in North Dakota.
Photo Credit: NRECA

The next highest subsidies (also in the form of tax breaks) go to for-profit, investor-owned utilities. In 2011 (the most recent data available) the cost for this subsidy was $4.8 billion.

However, federal subsidies to rural electric co-ops actually earn money for the U.S. Treasury. When electric cooperatives need to spend large amounts of money to build new generators, new transmission lines, and other parts of the power grid, they shop around for the best interest rates. When the rates from commercial lenders are too high, rural electric cooperatives can borrow money for their projects from the RUS.

But these loans are not interest-free. Although its interest rates are lower than commercial bank rates, the RUS charges rates that are slightly higher than the government's costs to provide the money. The federal government earns money on its RUS loans–$274 million in fiscal year 2012, and a projected $369 million income for 2013. 

Mike Ganley, director of Strategic Planning & Analysis for the National Rural Electric Cooperative Association, the national trade organization for America's electric cooperatives, says, "RUS electric loans do not cost taxpayers a single penny."