As CFC celebrates its 50th year of serving rural electric systems, we honor Vincent Slatt, former general manager of Inland Power & Light Company in Washington who served as a member of the NRECA Long-Range Study Committee (1967-69) that built the foundations of CFC. Vince, an original CFC incorporator and the organization’s first board president (July 1970-February 1977), passed away in March at age 99.
After that, he worked as a technical advisor with the NRECA Management Services Department and partnered with renowned business consultant Peter Drucker on improving the effectiveness of electric cooperatives.
The following article was crafted from excerpts of an interview Vince sat down for in 1985, where he discussed the factors that led to CFC’s creation.
By the early 1960s, electric cooperative leaders, through NRECA, recognized that affordable financing alternatives to the federal Rural Electrification Administration (REA) were needed. During the series of NRECA regional meetings held in late summer and fall 1963, cooperatives adopted resolutions to research the feasibility of obtaining funds from private capital markets.
NRECA’s resulting “Rural Electric Financing Study Report,” published in 1965, recommended Congress create a Federal Bank for Rural Electric Systems (FBRES). FBRES bills were introduced in the U.S. House and Senate in 1966. The House and Senate Agriculture Committees held hearings on the proposals, but consideration died when the 89th Congress adjourned. When the legislation was submitted again in 1967, investor-owned utility opposition had stirred. In no time, the bill was amended to the point that it became unacceptable to electric cooperatives.
“Even as FBRES failed twice, REA was facing difficulty—too few dollars to meet loan requests,” Slatt recalled. “The agency considered limiting co-ops that were selling electricity at a rate lower than neighboring investor-owned utilities to receive less than 100 percent—perhaps none—of their loan request until they brought their rates up; they could self-finance construction in the meantime.”
In response, NRECA formed a 15-member Parity of Rates Committee to look at how to best “divide the REA loan pie,” which eventually suggested 35 means-testing criteria.
“Sifting through that many ideas seemed like a huge lift, until we began looking at the cooperative network as a whole,” Slatt explained. “When you considered how co-ops had uniformity in specifications and accounting plus a collective size that made us the largest utility in the nation, it became clear the issue to solve wasn’t rate parity, it was financing.”
In turn, the Parity of Rates Committee expanded to 22 members and in August was renamed the Long-Range Study Committee. Slatt was named as chairman of its Financing Subcommittee, with a mission to supplement REA loans.
Early in its deliberations, Slatt and his panel approached the Farm Credit System (FCS) as an avenue for financing. At an initial 1967 meeting, the FCS governor at the time, Robert B. Tootell, informed Slatt and his delegation that FCS had no interest in the “problems of the electric cooperatives.”
In January 1968, the full committee went back to FCS and got the same answer, although at that get-together Tootell explained that the Johnson administration—struggling with government budget deficits caused by the Vietnam War―had asked FCS in fall 1966 to restrict its borrowing in capital markets. In addition, he noted FCS was reluctant to get involved with a “politically controversial” program, fearing it would upset member banks’ lending with some of their biggest customers.
“Based on that lack of interest, the Long-Range Study Committee decided to move on,” Slatt recalled. “Then, at a committee meeting in St. Louis, Jerome Katzin [of the investment banking firm Kuhn, Loeb & Company] proposed a unique type of structure similar to a mortgage or finance company, but with loans made only to member systems. The organization—established as a nonprofit, self-help cooperative through electric cooperatives’ own efforts and under their own control—would use capital markets to finance long- and short-term loans as well as issue commercial paper.
“After months of work refining the concept, we sent out the Long-Range Study Committee Report, emphasizing the institution that would became CFC could care take of cooperatives based on their need and ability to pay,” Slatt reflected.
On January 8, 1969, the NRECA Board of Directors approved the committee’s recommendations and directed that it be presented to the NRECA membership for action during the upcoming 27th NRECA Annual Meeting, set for mid-March in Atlantic City, N.J. Long-Range Study Committee members then crisscrossed the country to discuss CFC with member systems and “close the deal.”
“We never became discouraged; we had great faith in electric cooperatives,” Slatt emphasized. “At one of our presentations a cooperative representative stood up in opposition to CFC and encouraged other attendees to join him in a walkout. Except for his local attorney, no one else did.”
In his post-retirement career with NRECA, Slatt sent a letter to Director of Management Services Bob Kabat stressing that renown consultant Peter F. Drucker—who NRECA had been using—“didn’t know much about cooperatives.” Drucker was forwarded the message and soon called Slatt to find out what he meant and how to better target his presentations. After that initial conversation, the two struck up a friendship that lasted until Drucker’s death in 2005.
“Pioneers like Vince Slatt not only built CFC from scratch but also helped fashion the financial literacy programs that have enabled electric cooperatives to succeed in the face of numerous challenges over the decades and emerge as strong, vibrant champions for enhancing the rural quality of life,” says CFC CEO Sheldon C. Petersen. “The electric cooperative network will be forever grateful for his inspired service and vision.”