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Issue 6

Why did investor-owned electric utility companies bypass farms while providing service to towns and cities during the 20s and 30s?

IOUs have many rural customers, and some of these customers date back to the early days of electric service in North Dakota. In spite of this fact, we've all heard stories about investor-owned utilities refusing service to farms unless the farmers paid the full price of the installation up front, with no opportunity to amortize the cost of the installation through payments on their power bills. Some of those stories are true. But they're true for a reason!

The reason is a simple one, one upon which our nation's economic system is based: A business-any business-must show a profit if it is to remain in existence. Without the expectation of profit no individual or group of investors would put at risk the capital needed to build a new company or grow an existing one. That's as true for an investor-owned utility as for any other business.

During the 1930's, economic conditions in North Dakota were in shambles. Banks were failing and taking depositors money with them. Poor farming practices and drought had combined to create the Dust Bowl. And the pesticides and herbicides that might have improved the yield of those few crops that were surviving were not available.

Those devastating agricultural conditions, coupled with the stock market crash of 1929, created an incredibly tight money market. Remember, federally supported loan programs did not exist at that time, so bankers required large equity positions before they would grant loans either to farms or to businesses. That made borrowing money all but impossible for the majority of farmers, and put expansion capital in tight supply for all businesses, including investor-owned utilities.

With expansion capital in tight supply, the IOU's had little choice but to expend what little expansion funds they had on towns and cities. There, the cost of building the poles and wires needed to serve a community of several hundred customers was a small fraction of the cost of serving a few farms located several miles apart, making it possible to earn a moderate profit. Any other strategy would have been economic suicide.

Of course, the same economic conditions led to the federal government's decision to bring electric service to farms and sparsely populated areas through the Rural Electrification Act. Today, however, with the entire nation electrified, USND opposes continued taxpayer-financed government subsidies to serve population centers.