State governments were unprepared for the rapid mobilization of the federal rural electrification program in the 1930s. None had statutes specifically authorizing electric cooperatives, although three states—Washington, Oregon, and Nebraska—had passed laws governing public utility districts, close cousins of co-ops.
“But the farmers could not wait until the state legislatures could, or would, act, and the first necessity was to find a foothold in existing laws and practices under which cooperatives could organize,” wrote REA Administrator Harry Slattery in 1940.
Once a foothold had been gained, the next big question was: “Is a rural electric cooperative a public utility in the legal sense?” Should co-ops be regulated like private power companies?
REA’s legal staff thought not. Consumers didn’t need protection from not-for-profit utilities providing electric service at cost. Besides, regulation would slow things down, thwarting the co-ops’ ability to pay back their government loans on time.
In 1936, most states, according to Slattery, required co-ops to secure a Certificate of Convenience and Necessity from their public utilities commission before putting up lines. “It may seem amusing that the farmers should have to take time out and employ lawyers to demonstrate that electricity was either a convenience or a necessity to them,” he wrote in his 1940 book, America Lights Up.
Certificates of Convenience and Necessity were a classic run-around welcomed by the big power companies, which were ferociously protective of their local monopolies and had put a lot of time and money into courting public utility commissioners.
But co-ops had their own allies, and REA and co-op lawyers celebrated on July 10, 1939, when the Washington Supreme Court ruled in the case of Inland Empire Rural Electrification, Inc. v. Department of Public Service that, in Slattery’s words, an electric co-op is not an electric utility and thus not subject to regulation.
“It does not conduct its operation for gain for itself or for the profit of investing stockholders,” the court said. The corporate entity and the persons being served are one and the same. “It is a league of individuals associated together in corporate form for the sole purpose of producing and procuring for themselves a needed service at cost.”
The lawyers celebrated again the following March when the Utah Supreme Court ruled that there is “no need for the regulation of true cooperatives,” because the consumers, not the corporation, are in the driver’s seat. If rates are too high or service is bad, the consumers can elect new directors and demand changes.
Still, legal snags slowed progress, so much so that REA pushed for uniform state enabling laws for co-ops. The legal staff drafted a model law in 1937 and then updated it in 1939.
Some states adopted the model law wholesale; others used it to tinker with their own laws, and others ignored it.
In all, about 2,000 legal opinions had been written, and around 1 million easements had been papered in furthering co-ops’ legal foothold.
“REA attorneys, in collaboration with several hundred local counsel employed by the cooperatives, have virtually created a new body of law in the past years,” Slattery concluded in a chapter titled, “Fighting for a Legal Right to Live.” “It may properly be described as ‘the law of rural electrification through cooperative enterprise.’ And the end is not yet.”