Basin Electric representative testifies in Washington D.C. to oppose proposed banking regulation

people testifying in Washington D.C.
Daniel Gallagher (center at table), Basin Electric director of Commodity Sales and Trading, testifies during U.S. House Agriculture Committee roundtable discussion on Basel III Endgame on Feb. 15.

A proposed banking regulation would adversely affect Basin Electric and its members financially by making both loans and transactions for managing commodity and interest rate risk more expensive and difficult to execute.

Daniel Gallagher, Basin Electric director of Commodity Sales and Trading, testified at the U.S. House Committee on Agriculture on Feb. 15 and the Commodity Futures Trading Commission on Mar. 6 on behalf of Basin Electric and the National Rural Electric Cooperative Association.

The proposed Basel III Endgame would increase capital requirements for the largest U.S. banks that provide the bulk of derivatives-related products and services (like loans, interest rate swaps, and power and commodity hedges) to corporations of all sizes and across the economy. Large banks will be less willing to participate in these transactions, or will increase the charges for participating in such transactions to cover their costs, for example, and these increased costs will be passed on to consumers.

In short, it will increase costs for goods, services, and everyday necessities, and lead to further price volatility.

Jean Schafer, Basin Electric senior legislative representative, said both Republican and Democratic lawmakers are united in opposition to Basel III Endgame, which is a good indication of the detrimental impacts of the proposed regulation.

Gallagher said, at the minimum, the regulation should remove the “Public Listing Requirement,” which applies to non-publicly traded entities like electric cooperatives. He said Basin Electric uses commodity markets and relies on physical and financial power and gas contracts to serve its electric cooperative members and manage risk.

“We do this not for speculation, but to secure prices, protecting our members from price spikes that may occur in the spot market when demand for energy goes up,” he said. “The proposed requirement that large banks hold more capital requirements for transacting with non-publicly traded entities, like electric cooperatives, will make it more difficult and expensive for electric cooperatives without improving risk management for the banking sector.”

Electric cooperatives serve 92% of the nation’s persistent poverty counties, a population unable to afford undue electric rate increases, Gallagher said.

If Basel III Endgame becomes regulation, there will be less participation in commodities markets, reducing liquidity and resulting in electric cooperatives being unable to adequately protect against price spikes that occur during extreme cold winter and hot summer weather, which would lead to electric rate increases.

“Because cooperatives are consumer-owned and operate at cost, it is in the best interest of the cooperative to fulfill its financial obligations in the most cost-efficient, risk-averse manner possible,” Gallagher said. “We believe the regulations will have a negative impact on our, and the electricity sector’s ability, to hedge commodity and interest rate risk, thus increasing price risk for consumer-owners.”

The proposed regulation comment period has closed and regulators are reviewing comments.