It would be nice to have cooperatives in the mix, but if a federal rural electrification program was going to move fast, investor-owned utilities would have to take the lead. They had the expertise, the experience, the equipment, the personnel …

That was the thinking on May 11, 1935, the day President Franklin D. Roosevelt signed an executive order creating the Rural Electrification Administration as a Depression relief agency.

Nine days later, Morris L. Cooke, the man FDR chose to head REA, invited IOU leaders to meet with him in Washington, certain that low-interest government loans and a sense of public duty would win them over.

According to an article in Encyclopedia.com, a research service of the University of California at Santa Barbara, they were “friendly and seemed to indicate a spirit of cooperation.” They left the meeting “agree[ing] to study ways by which they could work with the REA to develop rural electrification.” 

But beneath the surface, old disagreements smoldered.

“The power companies still did not believe that rural service would be immediately profitable and did not want the federal government to dictate terms and control rates,” the article says.

When the IOU men returned to Washington on July 24, they submitted a report in which they proposed using REA loan funds to build rural lines at an estimated cost of $1,356 per mile. This was greatly disappointing to Cooke, whose 1931 study for the State of New York projected construction costs as low as $300 per mile. He was also disappointed because he understood the IOUs’ rates would be too high for farmers and other rural people. 

It was the same old “lack of faith that service to smaller household users through area coverage could be made profitable,” the article notes.

The meeting was a turning point for REA.

Another came in November, when Cooke met for two days with 152 representatives of municipal utilities in 17 states. 

Before the end of the first day, the muni managers made it clear they were “worried about possible rate increases if they extended service into the countryside, and expressed concerns that rural expansion would bring adjacent cities into conflicts about jurisdiction over intervening territory. There was even anxiety about possible legal disputes between cities and state legislatures.” 

The final blow came when Cooke had to reject a loan application from Wisconsin Power and Light Co., an IOU that had displayed an unusual interest in rural electrification but did not “adequately address the issues of affordable rates and area coverage” in its application.  

At the same time, Cooke and his staff were paying close attention to Alcorn County Electric Power Association, an experimental co-op in Corinth, Mississippi, that was exceeding economic expectations even though its members were poor and included many tenant farmers.

ACE Power, as the co-op was known, got off the ground in June 1934 with a $154,000 loan from the Tennessee Valley Association. Once power lines had been extended from the town to the surrounding rural area, the co-op began distributing retail power bought wholesale from TVA.

Rural homeowners, with help from a new federal loan program, the Electric Home and Farm Authority (EHFA), immediately began buying electrical appliances sold to them by Corinth merchants. Surprisingly, farmers began using even more electricity than townspeople, which helped pay for the cost of building the rural lines. 

ACE Power thus became the model for the electric co-op-driven rural electrification program Cooke and his successors spread across the country.