Co-Mo ends finance relationship with federal government
Wednesday, December 4, 2013
Co-Mo Electric Cooperative recently ended its commitment to the Rural Utility Service, the government agency that helped finance the rural electrification effort in rural America nearly 75 years ago.
On Nov. 20, the cooperative refinanced $38.7 million in debt from the RUS to two cooperatively owned banks, Denver-based CoBank and Dulles, Va.,-based National Rural Utilities Cooperative Finance Corporation.
“It’s really a historic step,” said Co-Mo’s CEO/General Manager Ken Johnson. “Without the RUS and its precursor, the Rural Electrification Administration, it would never have been possible to start and grow Co-Mo Electric Cooperative.”
Attractive interest rates and a desire to move away from reliance on the federal government spawned the decision to refinance the cooperative’s debt with the two banks.
“This allows us to eliminate red tape, gives us more flexibility and streamlines our borrowing,” said Michael Nelson, the cooperative’s Finance Manager.
The REA was created in 1935 by President Franklin Roosevelt, who was searching for ways to bring the country out of the Great Depression. His thought was that a more productive rural America would create jobs and stimulate the economy.
The idea was to offer low-interest loans to for-profit electric utilities to extend lines from the cities and towns they served out into the countryside. To do this, a new government agency was formed — the REA.
But the idea initially failed. Even with the low-interest loans, for-profit utilities found there weren’t enough customers per mile to make enough money.
Enter the farmer.
Tantalized by the benefits of electricity they saw in neighboring cities and towns, farmers asked the federal government if the low-interest loans would be available to them should they organize not-for-profit electric cooperatives whose mission was simply to provide the service to the countryside — not to make money. The answer was “yes,” and farmers got to work traversing the countryside, asking their neighbors for $5 to join the new electric cooperative.
Those $5 membership fees would not be enough to finance the capital-intensive construction of an electric grid. To make the venture work, cooperatives needed an initial infusion of cash to pay for the materials and labor.
In Co-Mo Electric’s case, that infusion was $342,000, received from Washington on May 3, 1939. Less than eight months later — on Dec. 24, 1939 — the cooperative energized its first section of line, bringing an electrically illuminated Christmas to several hundred residents in Cooper County.
Throughout the next 74 years, Co-Mo relied on financing from REA — and, later, RUS — to help expand the grid in its growing service territory.
Johnson expressed his gratitude to the organization that was so important to the success of electric cooperatives.
“The REA, the RUS… they are part of the American story,” he said. “Without them, so much of what has been accomplished in the past 75 years would not have happened.”
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