Good Morning,
Summer is over everywhere but Phoenix which means the start of the outage season and we are seeing lots of new units coming offline in the ISO.
The ISO is up 1400 MW from a week ago and 3900 from two weeks ago. Some of those are hydro, and they don’t count when those plants are running at less than a 20% plant factor, so let’s look at the gas plants that have recently come off line (in the last three days):
Most of these are big plants with low heat rates and affect clearing prices; like we said, Summer is over, temperatures are plummetting, but remarkably loads are not universally coming off, maybe not remarkably, Winter is coming.
Palo Verde
Palo realized a 600 MW week on week gain off just cooler temperatures a week ago, not from really hot yesterday. Enjoy that gain, it will be one of the last until heating load drives the next rally:
The hub is in the long slide out of cooling load but has resiliently hung on for a lot longer than it has in the past, but that party is winding down, it’s last call for cooling loads.
Palo Verde On Peak Load Forecast – Next 270 days:
That bottom on Nov 19 should be around the same time that PV3 returns to service rendering what one would think would be a weak outlook for the latter half of Nov but the PV stack is deep at 7500 and the market has it priced right in the middle of that stack, though Ansergy has it barely clinging to those units:
All of which makes us relatively bearish at Palo for Nov. Note the steep drop where the forecast sits, the model supports current prices where things stand but should fundamentals grow bearish there is a steep drop. Our Risk/Reward matrix shows this as well:
November has the most downside for the next year, we’d be cautious about length there and would prefer the Dec over the Nov.
TradeRank: PV Nov On Peak Heat Rate
Normally we would be saying “buy” when the forecast and market find parity but not here, instead we would play Palo from the roll by buying the Dec, selling the Nov:
TradeRank: PV Dec On Peak Heat Rate
Note both the Nov and Dec have been pounded in Oct but the Dec is now below the forecast and looks to have stabilized, plus PV will realize some heating loads in the latter month.
TradeRank: PV Dec-Nov On Peak Heat Rate
Too wide of a spread not to buy it, both from a fundamental perspective as well as voodoo technicals.
SP15
Loads are off at SP, down 800 MW.
But those haircuts are just getting started, our models have the hub shedding a lot more load over the next several weeks:
But unlike Palo there really isn’t much of a winter rally; about all SP has going for it, for the near-term, are those outages. There is a lot it doesn’t have going for it, like those angry DC megawatts heading its way on Sunday.
Gas Noms are relatively strong when compared to the last few weeks but are off from the previous years:
Which probably has more to do with growing renewables than loads, though those are off from last year, at least in the last couple of days. Like Palo, the Nov SP has more fundamental downside than up:
But none of that fundamental downside matters if the market is cheap enough, is it?
TradeRank: SP Nov On Peak Heat Rate
It is,the market is now trading under the forecast where two months ago 700 btus higher, and wrong, now it is right. But what about Dec?
TradeRank: SP Nov On Peak Heat Rate
Off, but not as hard as Nov, rendering the Dec-Nov rich and a short candidate:
Some of that premium is from the collapse of the PG&E – Socal spread:
We think the Dec-Nov roll/spread is over-priced; Oct is going to realize a $0.30, why would Nov be 30% higher? It won’t, and either Dec gas is going to tank (socal) or nov socal is going to rally; either way, we want to short the Dec-Nov.
Mid-C
Then there is Mid-C, the crack cocaine of power hubs, though its been rather tame of late, beaten down by a plethora of precip and more on the way:
Three inches in Seattle, not a huge deal, but an inch in Spokane, after already receiving a bucket-load; the Lilac City has now realized 25% of its normal in the first 5% of the water year. That scares us, if this wet trend continues, WY17 bodes for a bearish turn of the screw and that Q2 length we were sporting a few days ago, we are dumping, don’t care how cheap things are now, we can’t stay long in face of increasing precip, and not all of it is rain, snow pack is packing some big anomalies in the basins that matter the most:
Both the Flathead and Kootenai have large positive anomalies and both have a lot of downstream capacity. NOTE: the “CUM MW” is cumulative downstrean generating capacity, including the plants mapped to the basin. In other words, snow on the Flathead will eventually melt and flow through more capacity than any other basin in the Mid-C (maybe more than Mica, but need to check that math before making that claim).
Loads rallied, week on week:
Up 1800, though that peak yesterday looks suspect, too sharp relative to the previous days, and perhaps reflects bad data … blame that on the EIA who, in turn, will blame it on one of the BAs, who in turn will blame it on one of its dinosaur analysts working on the report. Don’t know how many of you have ever been in a utility but it’s like walking into a Charles Dickens novel; everyone is wearing jeans and crawling along at a snail’s pace doing the darndest to avoid any real work. I recall once being asked to help a group of engineers, when I arrived I found them huddled over a computer with Word opened, five of them were telling one of them what numbers to type while a sixth had his HP12C running the totals. Apparently, xls hadn’t made it to the engineering floor.
I digress, what about the temperature outlook?
Told you it was wet, but towards the back of this outlook it also cools down, and that means loads in the northwest, but it is that wet that has us worried. Not only will that wet prematurely end the golf year it also has a cumulative bearish effect that at some point will tank cash, not just yet, but if it continues it will. Reservoirs are already robust and are at the highest levels in five years:
Hard to see BPA drafting given the precip outlook so they will fill, unless it gets really cold, but that isn’t baked into the cake just yet.
These rains don’t just fall on Seattle, they are making their way across the Cascades as evidenced by the Kalispell outlook. Also note the lows on those rainy days …like in the 20s. Snow, more snow where it matters, more reason to be cautious about big length anywhere at MId-C.
At least the DC comes back this weekend and we noted another haircut on the AC yesterday:
But we don’t care about BOM, we do care about Novy Dec because that is the assujettir de jour.
Unlike its southern cousins the risk/reward is skewed bullish at Mid-C, mostly off of increasing loads which will be dampened somewhat by dampness.
TradeRank: MC Nov On Peak Heat Rate 
The forecast took a beating from Monday’s STP and it will probably get beaten again next Monday; the market kind of shrugged off that STP, maybe because it was bullish because it was long?
Maybe the RFC is bearish because it is short? Or maybe it is bearish beacuse it is going to rain almost every day for the foreseable future? Whatever the reason, they are jacking their forecasts atop an already jacked foreacst boding poorly for Monday’s STP, poorly if you are long.
TradeRank: MC Dec On Peak Heat Rate
Like Nov, the market blew off Monday’s STP for Dec, but the forecast didn’t, it took a beating, and most likely will get beaten again next week.
TradeRank: MC Dec-Nov On Peak Heat Rate
In this plot the foreacst took the pounding and where it really liked Dec a few weeks back now it likes it less, and so do we…. We’re shorting the Dec-Nov
Conclusions
- BOM – see above
- Nov – see above
- Dec – see above