Truly a visionary, J.K. Smith’s entire 41-year career was devoted to the electric cooperative industry and he either created or helped bring about some of the most influential institutions to the program both statewide, nationally and internationally.
J.K. retired from the electric cooperative industry in 1979 and lives in Florida. He will celebrate his induction during an April 2003 ceremony in Washington, D.C.
J.K.
Smith's Road to Electric Cooperative Fame
J. K. Smith never encountered a business problem for which he couldn’t find a cooperative solution. This visionary leader spent his entire 41-year career creating cooperatives to serve the needs of rural people and their cooperative institutions. Not satisfied to simply fit into the existing mold for the cooperatives of his day, J. K. Smith blazed new territory and extended the cooperative business model into areas never before considered. Whether at the local, state, regional, national, and even international levels, J. K. Smith led cooperative consumers and cooperative leaders alike into new cooperative enterprises that ultimately benefited millions of people, primarily rural Americans. His reach extended from the technical aspects of providing electricity to rural consumers, to devising legislative strategies to secure cooperative territorial protection; from bridging the financial needs of rural America’s main streets with the expertise of Wall Street, to promoting the cooperative form of business overseas. This truly Renaissance cooperative leader deserves to be recognized among those outstanding American citizens who comprise the Cooperative Hall of Fame.
Rural Roots: The Cooperative Model Takes Hold
J. K., known as Jim to his friends and family, was born in 1916 in rural Meade County, Kentucky, which has as its borders the Ohio River to the north and Fort Knox to the east. Like many rural citizens of that era, J. K. Smith grew up without the benefits of electricity. It was, perhaps, his experience of that hard-scrabble life, without running water or any modern conveniences, and his witnessing the harsh existence of his family and neighbors, that drove him to a career of seeking solutions for rural issues. While on summer vacation from college in 1937, J. K. took a job as a lineman for the newly formed
Meade County Rural Electric Cooperative
Corporation, staking poles and stringing lines to ensure that his fellow rural citizens would have electricity during their next harsh, rural winter. It was his first experience working for a cooperative enterprise, and he found much to like about this people-focused business model.
After graduating from college in the spring of 1938, J. K. took on a more formidable challenge. The farmers over by Flemingsburg, Kentucky, were forming an electric cooperative, just like the one J. K. had worked at the prior summer. He traveled to northeastern Kentucky, about 150 miles from his home, to work as the new co-op’s staking engineer and ended up with the job of general manager. He was all of 21 years old, the youngest general manager ever to run an electric cooperative in the U.S. His youth, however, was not an impairment. J. K. took over what was at the time the largest electric cooperative service territory in the nation and during the next 10 years made it a successful operation. He worked tirelessly to bring the benefits of electricity to thousands of rural Kentuckians, eventually growing the membership base to more than 10,000 accounts, representing approximately 50,000 rural residents.
During that decade as Fleming-Mason Rural Electric Cooperative Corporation’s general manager, J. K. established a reputation as a go-getter—someone who looked for new opportunities to provide cooperative power to rural residents. In 1941, for instance, he became one of the founding members of
East Kentucky Power
Cooperative. Fleming-Mason, like all of the electric cooperatives of its day, purchased power from already-established for-profit power generating companies. None of the electric cooperatives supplied their own power. Their sole task had been to build lines and so that power could be distributed to farm families and rural businesses.
Cooperatives, in essence, were “relying on the kindness of strangers” to supply them with their primary
deliverable - electricity. As early as 1940, this “kindness” was wearing thin. It was apparent to the cooperative leaders of Kentucky that the established, for-profit suppliers of electricity were not expanding quickly enough to meet the demands of the swift-growing electric cooperatives of the state. In addition, owing to the then-monopolistic structure of the electric utility industry, these same suppliers were charging exorbitant rates to deliver electricity to the cooperative sector.
J. K. Smith, along with twelve other electric cooperative mangers in the state, decided action was necessary to break the monopoly and ensure a reliable source of power for the electric cooperative consumers. They created East Kentucky Power Cooperative to begin the process of developing an independent power source for the electric cooperatives in the state. J. K. became East Kentucky’s first Secretary-Treasurer. (He would later briefly serve as interim manager of the organization.)
Fierce legal battles between the cooperatives and the for-profit power companies ensued and halted, for more than a decade, any real progress on the building of cooperative power plants in Kentucky. But J. K. Smith was part of the team of electric cooperative leaders who saw the need for electric generation facilities and envisioned a cooperative solution. Eventually East Kentucky Power Cooperative flourished, building four power stations—one of which is named in honor of J. K. Smith—and generating electricity that is now transmitted to seventeen Kentucky electric cooperatives, which collectively serve nearly half a million rural residents and businesses.
KAEC: A Cooperative Incubator
The fight for the creation of East Kentucky Power Cooperative impressed upon J. K. Smith that without strong legislative representation at the Statehouse, cooperatives would always be a step or two behind their for-profit competitors. J. K. convinced the twenty-four other electric co-op managers in Kentucky at that time that a statewide association was needed if the electric cooperative movement was to advance. To prove his commitment to the concept, J. K. resigned his post at Fleming-Mason to take on the leadership mantle at the newly formed
Kentucky Association of Electric Cooperatives (KAEC).
The idea for an electric cooperative statewide was relatively new at the time. Only a few such organizations had taken hold in other states. For J. K. Smith, however, the statewide would not only provide legislative cover for Kentucky’s electric cooperatives, it would also offer other needed support services that could only economically be provided on a broader scale.
It was at the Kentucky Association that J. K.’s genius for cooperative development emerged. Aside from what would become the typical statewide functions—lobbying, public relations, and safety & training programs for the electric cooperatives—J. K.’s active imagination spun off additional big ideas about how new co-ops might support and advance the electric cooperative business model. When electric equipment manufacturers, under pressure from their for-profit electric company customers, refused to sell the poles, wires, and transformers necessary to extend cooperative lines, J. K. created an equipment sales and manufacturing company to fill the void.
When it became apparent that too many of the region’s electric cooperatives were spending excessive amounts on billing procedures, J. K. formed what would become the Central Area Data Processing cooperative to centralize this essential business function. When Kentucky’s electric cooperatives were having a difficult time attracting members to their annual meetings, J. K. created a traveling road show, hiring the talent and the tents necessary to put on a high-quality meeting at each of the state’s 25 cooperatives.
J. K.’s energy for serving rural people and advancing the cooperative form of business seemed boundless. And many of his ideas have been time-tested. The electric equipment cooperative—first named Statewide Rural Electric Cooperative, later change to
United Utility Supply to acknowledge its regional scope—remains operational today and is the largest cooperatively owned electric material supply operation in the country, serving 230 electric cooperatives in 17 states.
The Central Area Data Processing cooperative, which J. K. formed and oversaw as its first President, recently merged with a similar regional data processing cooperative to become National Information Solutions Cooperative—now serving more than 500 electric cooperatives and telephone systems spanning 46 states.
There are many other examples of J. K.’s creative cooperative entrepreneurship during his 20-year tenure at the statewide association. In 1954, for example, he created
Rural Cooperatives Credit Union for the employees of electric cooperatives in Kentucky—a still-going concern with $34 million in assets. That same year he also established Consumers Credit Rural Electric Cooperative Corporation to assist co-op consumers in purchasing electrical equipment and appliances.
J. K. also formed alliances with like-minded organizations to advance societal progress. In the 1960s he teamed up with the University of Kentucky’s College of Agriculture to educate farmers about the benefits of electrical equipment on the farm. This partnership soon became an annual event, now called the
National Farm and Machinery
Show.
J. K.’s lobbying skills also secured the survival of electric cooperatives in the state. Under his leadership, Kentucky’s electric cooperatives gained legislative territorial protection from encroaching for-profit companies and also found willing allies with the
Kentucky Public Service
Commission.
International Cooperative Development
In addition to his entrepreneurial leadership at the statewide level, during his tenure at President of KAEC, he became interested in spreading the cooperative model abroad. In 1967, upon hearing that the people of Ecuador were having a difficult time affording the type of sophisticated electrical equipment necessary to electrify the rural parts of their country, J. K. put his own organization’s significant resources to work to find a cooperative solution.
Realizing that used electrical equipment often got discarded, J. K. spearheaded a movement to have all KAEC member cooperatives send in their used equipment to the statewide. Once there, J. K.’s equipment manufacturing and repair subsidiary would fix the equipment and prepare it for shipping to Latin America. J. K. even devised a unique plan to deliver the equipment to Ecuador, transporting it to New Orleans on electric cooperative trucks, then transferring it to empty banana boats making their return trips to Ecuador. Even these measures weren’t enough for this cooperative leader. J. K. traveled to Ecuador and assisted in creating the country’s first electric cooperative, Santo Domingo des Colorados Rural Electric Cooperative.
J. K. had an astute understanding of the importance of international relations and the role cooperatives could play, as evidenced by his comments at the time.
“This is a section of our hemisphere that needs our assistance,” he said with characteristic frankness. “Not only can we play an important part in combating unbelievable poverty, but we can play a significant role in assisting U.S. foreign policy…. Through this project we are helping to establish our free enterprise system in an area that is vital to our security. Every cooperative should make an individual effort to assist in any way possible.”
In addition to his work in Ecuador, J. K. also developed a feasibility study to bring the electric cooperative model to the Mekong Delta of Thailand. For these and other efforts, then-U.S. Secretary of State Dean Rusk cited J. K. Smith for special recognition for his outstanding work in bringing rural electrification to other nations of the world. J. K. also received Ecuador’s highest civilian honor from its then-president Otto Arosemena Gomez.
National Leadership: The Creation of CFC
Perhaps the jewel in J. K. Smith’s cooperative crown was the unique leadership role he played in the creation of the private financing arm of the electric cooperative movement. Already recognized as a rising national star for his expanding role at the Kentucky statewide, J. K. Smith was tapped in 1967 by Clyde Ellis, the Executive Vice President of the
National Rural Electric Cooperative Association (NRECA), to spearhead an important national study on the future financing needs of electric cooperatives and to head a group that came to be known as the Long-range Study Committee.
Until that time, electric cooperatives had received all of their funding from the U. S. Department of Agriculture’s Rural Electrification Administration (REA). In the mid-1960s, there was considerable concern that the federal government would not be able to meet the growing capital needs of the nation’s electric cooperatives. NRECA had already introduced legislation for a federally mandated Rural Electric Bank, but that effort had failed, opposed vehemently by the more powerful for-profit utilities. The Long Range Study Committee was charged with finding another way to supplement the federal government’s role in financing electric co-ops.
For J. K., the solution was simple. He had spent his entire career creating cooperatives to meet local, statewide and international needs. He was sure that a financing cooperative was the answer. But how? Electric cooperatives had never had to raise money. They were untested in the capital markets and they were hardly a household name on Wall Street. For J. K., these were all incidentals. He knew the answer. He just had to figure out how to get there.
He found a willing ally in Jerome Katzin, an investment banker at Kuhn, Loeb & Co. (which later became part of Lehman Brothers), who had put a few deals together for some of the larger power supply cooperatives. Katzin believed that if cooperatives pooled their resources, and if they were able to amend their mortgage covenants with REA to accommodate another lender, that he could put together an offering that would be attractive to Wall Street investors.
As head of the Long-Range Study Committee, J. K. worked tirelessly to promote the idea of a finance cooperative for electric co-ops. He traveled cross-country to sell the novel idea to wary cooperative leaders, some of whom were concerned that this new cooperative venture might threaten their lock on future federal funding. But J. K.’s enthusiasm for the new cooperative won over many of the skeptics. In 1969, the NRECA membership voted overwhelmingly to create the new financing cooperative.
J. K. Smith became the first president of what came to be known as
CFC—National Rural Utilities Cooperative Finance
Corporation. Although not expecting to play a larger role, when plans fell through to hire a former banking executive, J. K. decided to step in and run the new organization himself. CFC became the capstone to his incredible cooperative career. From 1970 to 1979, J. K. once again blazed a new cooperative trail: creating supplemental lending criteria for electric cooperatives, forging unprecedented new lending relationships with REA (under the dynamic leadership of Cooperative Hall of Fame inductee David Hamil), and establishing new and lasting ties with Wall Street investors, as well as national and international banking institutions.
During J.K.’s tenure as Governor of CFC, the organization flourished, accepting into membership more than 90 percent of all eligible electric cooperative institutions and growing its asset base to more than $1.3 billion. In addition, by 1979, CFC had sold six bond issues in the capital markets, totaling nearly $500 million and had established CFC as a strong credit on Wall Street. CFC had also begun to develop niche lending services for the capital-intensive electric cooperative industry, helping cooperatives manage their cash resources through its commercial paper program and offering lines of credit for co-op’s emergency cash needs.
Perhaps more importantly, J. K. Smith, in partnership with Dave Hamil, proved that a public-private (cooperative) partnership could work in funding such essential enterprises as electric cooperatives. Together they developed the supplemental financing model that survives to this day, with most cooperatives accessing 70 percent of their cash needs from REA (now
the Rural Utilities Service) and 30 percent from CFC or other private lenders.
J. K. Smith’s centerpiece cooperative has stood the test of time. More than 30 years later, CFC has become a financial powerhouse for rural America, with more than $20 billion in assets. CFC also diversified and spun off several additional financing cooperatives:
Rural Telephone Finance Cooperative to fund the needs of rural telephone cooperatives (as well as their commercial counterparts), and
National Cooperative Services
Corporation—a taxable cooperative—to assist with the specialized financing needs of electric cooperatives. CFC is a full partner with RUS and NRECA in bringing economic development to rural areas. And together, CFC and NRECA have spawned several new cooperative ventures, most notably the
National Rural Telecommunications Cooperative (NRTC), which provides electric and telephone cooperatives an entry into the twenty-first century’s digital age.
A Cooperative Leader for the Ages
None of this would have been possible without the extraordinary vision, the gritty, committed leadership, and focused determination of one forcefully committed cooperative believer, J. K. Smith. His extraordinary faith in the cooperative business model led him from one successful new cooperative venture to another and left in his wake an array of cooperatives at the local, state, national, and even international levels that still provide essential services to millions of cooperative consumers to this day. There can be no doubt that such a man as J. K. Smith belongs in the esteemed Cooperative Hall of Fame. He was truly an inspired cooperative leader for the ages.
J.K.
Smith's Road to Electric Cooperative Fame
written by Mike O'Brien, CFC
Kentucky Association of
Electric Cooperatives, Inc.
4515 Bishop Lane * Louisville, KY 40218
502-451-2430 * FAX: 502-459-3209 Terms of Use
J.K. Smith – the founder and first executive manager of the
