NOTE: We now believe that the drum gate maintenance will happen this winter and as a consequence we no longer support a long March Mid-C position.
Good Morning,
Before delving into the forecast changes let’s take a look at the most recent COE Flood Control guidelines:
Yesterday’s update deployed a 96% water year at GCL and 95% at TDA; contrast that with the 93|94 used in the Jan. With a bigger water year comes a bigger draft but the changes are just modest: 1 foot at Coulee, a couple of feet on a few of the other projects. More important is the potential drum gate maintenance at Grand Coulee. This rumor reached our ears late yesterday and the story goes that the April draft has been shifted to March and Feb which would explain yesterday’s big bumps in the STP. We do not have an independent confirmation and just passing along what we heard.
Next Day
Mid-C continues to free fall on declining demand and more water, though imports on the Northern Intertie (into BC) are offsetting some of that bearishness. The rest of the hubs were relatively stable in the day on day forecast changes for Next Day. SP demand is gapping up on the 90 degree weather in the LA basin but that is mostly offset by an increase in imports into the hub. I suspect the Ansergy demand model is understating the cooling load as the region sets new highs.
Balance of Month
The weak north, less weak, or even slightly stronger, south is illustrated in the BOM forecasts. An aside on this warm weather – it will melt snow in California, river levels will increase, though much of those snow-melt flows will be captured in the reservoirs. Those reservoirs are starting to fill up and at some point, in this big water year, some of that water is going to be passed through the turbines:
Shasta is now fuller than it has been in 2 years and quickly approaching the 5 year average (one MAF was added in one month!) while Trinity and New Melones are still lagging. This early heat wave will have ramifications on May and June – water passed today is water not passing then. Our bias is swinging towards bullish to quite bullish for June SP, especially if the heat continues or we see a few more events like this over the next couple of months.
Prompt Month
Call Prompt unchanged, there is nothing new to report. You might be asking why Mid-C wasn’t lowered given the very bearish STP. The answer is that Ansergy does not use the STP any longer; 100% of our term forecast is from our internal model. That big change we saw last night has been in our forecast for weeks. What is not in our forecast is the affect of the drum gate maintenance. If the draft is shifted to Feb and March our flow forecast is understated and our price is overstated.
NOTE: We now believe that the drum gate maintennce will happen this winter and as a consequence we no longer support a long March Mid-C position.
Another trade that seems cheap from the long side is the May PV on peak:
May Palo On Peak: Market vs Forecast
If you are a “trend is your friend” kind of trader you have no choice but liking this trade – from the buy side. The trend I am talking about is warm weather. Maybe this El Nino didn’t bring dry weather to the northwest but it seems like it is bringing lots of warm weather. Phoenix is in the high 70s in mid Feb, no doubt 100s in May are likely. Demand will average 3400 MWs higher in May than BOM and BOM will clear at around $20 yet May is trading in the 17s. Put me down for some of that.
Granted the Ansergy forecast may be high but the delta between market and forecast has been widening. What draws me to this trade is the 90 degrees in February and what that will do to the May-June runoff. Another thought to kick around along these lines is what that warm weather might do to the Mid-C runoff. If things get warmer there is a chance that the runoff peak comes in April-May leaving June holding the bag and struggling to refill the reservoirs …. hey that is 2000 all over again. That scenario is still a long shot but buying cheap length in Summer has never cost any one their job.
Peace Out,
Mike