Good Morning,
April is now one for the history books and what an interesting history lesson it was, what with drum gate maintenance, early drafts, massive CDD anomalies (north and south) followed by record melt and river flows. We were caught flat-footed early in the month with virtual length expecting the dearth of draft coupled with spill to put upward pressure on cash. The only risk to that position was heat in the northwest, heat that would melt snow, increase natural river flows, and thereby create a virtual draft of the May-June runoff. That is what happened and those with nimble fingers dumped that length as soon as the warm weather was confirmed while those who subscribe to the philosophy that they are bullish because they are long got wiped out. April is gone, May is BOM, and though we lack strong convictions that doesn’t keep us from making a stand and putting our foot in our mouths once again …. read on too see how deep that foot goes.
Weather is cool in the south and warm in the north – deja vu all over again Take Spokane, WA for example:
10 to 17 degree positive anomalies for nearly a week plus a lot warmer than the Tuesday forecast; contrast that inland northwest city with Burbank, CA:
Mostly cool anomalies and Spokane’s 10 day high is about the same as Burbank’s – now there is some strange May weather. Phoenix is not as cool, nor should it be, but most days, like Burbank, are below normal.
Warm weather in the northwest suggests another wave of melting snow and a new surge in river flows, right? Well, maybe not so much as we saw a few weeks back because most of the snow is gone, at least all of the low level snow is gone, rendering the total surface area with snow a fraction of what it was two weeks ago. Case in point is the Spokane River which has been above normal for the last month, now it is approaching normal and will soon be substantially below normal:
Don’t expect that line to move much up with next week’s heat, the runoff is over on the Spokane, as it is on most central Oregon basins. Not that the Spokane contributes much to Coulee inflows, just about 5% on average, but its relevant because it is representative of what is happening across the northern Rockies. Ansergy’s Sideflow Index remains robust, and it will rally next week, but that will be its final hurrah:
Meanwhile Coulee is seeing inflows drop and is slowly gearing up to start its refill which we think will begin in earnest next week as they utilize the next surge to achieve that end, but keep in mind they can’t get about 1254 until the maintenance project is finished.
Over the last week just a foot and half has been added to the reservoir but we believe the project will be over 1250 by end of next week and on its way to 1280 by first of June. Also note that Coulee is at least 50k cfs below hydraulic capacity leaving BPA with all of the project’s immense shaping capacity in its capable hands which implies that the days of negative off peak, or even extremely low off peak, prices are over. BC Hydro concurs as they are both massive buyers of cheap energy and massive sellers of anything closely resembling a strong price:
Between BPA and Powerex’s long swing option positions there is a reduced chance of seeing May prices get destroyed, or rally for that matter, unless it starts blowing hard, which we aren’t seeing, at least through early next week:
If it sounds like we are wavering on our May outlooks it is because we are. There are some bearish factors in play, like cooler temperatures in the south which will suppress loads and warmer weather in the north which will melt what snow is left. On the bullish side there is another nuke schedule to drop out for a refuel, Diablo 2, which should come off next week and loads have nowhere to go but up, and they will go up early next week, then fall back with cooling temperatures. Perhaps the only compelling signal to buy or sell will come from fading irrational market moves, so on to that occasionally irrational market.
The market has been on a 50 day rally but not the forecast, which has drifted up much slower over the last 30 days, suggesting that PV on peak might be a touch on the rich side and we’d put on a short piece or two.
How nice to see the market confirm the forecast but now, with parity realized, we see no point in being long or short, but, with the proverbial gun to our head and forced to take a stand we’d sell a piece here, too, as this is the first time in 60 days that the forecast is under the market, plus with cooler PV temps and a mild ISO the near-term cash outlook doesn’t look or smell rosy.
The chart suggest a short position in March and it was right and, as the delta shrunk due to the correct market action, there is not a clear signal and flat would probably be apropos but we aren’t going to cop out by saying flat, or neutral, or hold – we are going to say short a piece for the same reasons as Palo, plus we are going into the weekend and weekends have been brutal on SP15.
Again the forecast nailed the off peak in March by calling a rally, the rally begin on April 1 and lasted three weeks, now the market is selling off a bit. We’d buy a piece here, essentially selling the on/off.
A very similar to chart as the SP on peak but here we have a different action – we’d buy a piece off of declining NP hydro, a tightening northwest, and Diablo 2 coming off line – not to mention this is the first time in two months the market is now under the forecast.
Same as the on, we’re long for a few pieces, for the same reasons.
Now for the hard hub. The forecast correctly called the rally but surprisingly it has sold off while that rally continued onward and upward rendering a large delta suggesting a short, and we concur. Given our substantial June and July virtual length we’d sell a couple May pieces off of that wide forecast delta and in front of the next surge of water but by no means would we be net short May + June + July. Call it a short-term hedge, one that we’d be quick to come out of probably by the end of next week.
The model loved May long time and still loves it but the model hates the on/off and maybe too much:
I don’t like to see a negative spread as it won’t happen but don’t agree that May will clear at $6.00, either, and would buy the off and effectively short the on/off based upon tightening water, the SP solar affect, and Powerex and BPA’s long swing option positions.
