Opaque

Posted on by William Griswold

Good Morning,

Opaque as in “not able to be seen through; not transparent”; our sentiment, after crawling a few reports is opaque. We see the Mid-C drying while the NWRFC is hiking its water supply, Phoenix approaches record heat for Feb but its loads and gas noms are at seasonal lows, and the ISO posts some $90 handle HAs. No clear direction and the market doesn’t help as term volatility has dried up of late. Opaque, campfire quiet, SP30, Whimper, …

Markets

The PACs see lots of congestion related issues, probably more between themselves than anything else. Both NP and SP posted a 95 HA tick, both on HE18, just after the lights go out on solar. PSEI had surprisingly weak HAs yesterday given that it was cold Seattle day and water us tightening up.

Gas is opening weaker in Nymex, and we note the Socal Citygate|Border spread has blown out, perhaps in response the Aliso issues. Even when it comes back, it will be a shell of itself as the number of wells that can inject/withdrawal is way lower. Maybe a new pipe? At that spread, it might work, economically. Stanfield has been pounded, too, which is surprising given that gas loads in the Northwest are probably the highest we’ll see til next winter.

Demand

A big warming trend in the WECC interior with both Denver and SLC well above normals (for lows) and Phoenix will flirt with record highs:

Just two degrees from setting a ten-year high, but it’s short-lived and won’t do much for loads.

California will mostly be above normal which will do something for loads -reduce them; mother nature will provide the HVAC needs for the golden state for the foreseeable future.

The Northwest will be the warmest it’s been since December, perhaps November, but the warming trend is short-lived in the interior as there are new hints of a cooling.  Will this ten-day warm up be enough to trigger the season’s first freshet? We think natural river flows will rally, as much off of the warm rain, but some snow will melt, but it won’t be the epic “meltdown” we’d like to see; the one where Eastern Washington makes the national news because of flooding. Doubt BPA has any problems managing through this surge in flows given that the mainstem has been tightening for the last week and BC is backing off Arrow drafts. More on that in hydro.

MidC loads are up, week-on-week, off of the mini-cold snap it just realized, but now that is over, and there wasn’t much impact on price. Palo loads remain just miserably low, especially when compared to last year. The silver lining in that statement is there can only be one direction for Palo loads – up. Perhaps we see a nice spike when Phoenix hits 85?

Hydro

What caught our eye, this morning, was the dearth of black in the back of the Mid-C 21 day precip outlook; this has been pretty good at calling events and now its calling for dry. Makes one a shade nervous about short positions, if one is short one would like to see another 1-2″ of precip in that period; the clock is ticking on the water year, just 6-7 weeks left in it.

The government wouldn’t think that; they have rallied their water supply outlooks and now are over the Ansergy forecast at all three; that too shall pass once this latest storm system passes and they factor in the impending dry. However, the fact remains that it is Feb 3 and the number used in the Feb Flood Control will be based on Monday’s forecast, which we doubt will be backed down much. All of which suggests the Coulee draft may cut deeper, perhaps to a 1240′ handle. That would make things interesting for April, and the rest of Q2, as we don’t think snow levels support that deep of a draft:

With about 60% of the water year locked in, anomalies just don’t do that much any longer. Call it an 80% snow year above Coulee that is bullish, but we just don’t know when it will be bullish: April, May, or June? Don’t know, but know that the runoff won’t be big and won’t extend for a significant period, at least with what snow is now on the ground.

Speaking of Flood Control, our Apr-Aug TDA is 97.7, and the RFC’s is 96; let’s assume that is what is used in the draft calc

The average of similar water years is in the 1240s but note the last two years were nearly identical to where the RFC sees things today. Both of those years averaged about 1251′, and that will be our internal guess as of today, which would be put a few more feet on the draft and would also open the gates for gates maintenance. We still have no indication they will, or won’t, do the work this year, but the water numbers give them that option.

Arrow is off 16kcfs, at a time it should be drafting for flood control. Coulee posted its first day under 100kcfs in months and look at the tight water on the Clark Fork. These hydro cuts are more than offsetting the drops in loads, now it is just a question of how much snow will melt next week.

Generation

ISO outages are off a 1000 MW; the strong ISO wind is abating as a high-pressure warm-up takes place. We also are forecasting a PV nuke to come offline soon, like by the end of the month.

Gas noms remain robust at Mid-C and dismal at Palo, though we’d expect Palo’s noms to start rallying hard while the Mid-C’s craters which should put pressure on the Sumas|Socal Border spreads.

Transmission flows backed off everywhere yesterday reflecting the cool weather in the north, but those should resume to near full next week with the Northwest getting rain and realizing lower loads.

Conclusions

  • Feb
      • MidC staged a mini-rally, of sorts, and the hub remains well below the  forecast; we were long and will be
        • LONG again
      • Not sure if those marks are right for Palo, but it seems the BOM on/off is cheap
          • Too cheap, in our humble opinion, esp off of CDDs coming soon and a nuke falling off and planned maint
            • LONG the on: off for size
      • SP – yawn, priced fair, no position
  • Mar
      • A reasonably priced market, one that seems to offer just opaqueness. Of the curves above, we’d be inclined to own the SP, but we’re long the Feb PV we’d probably want to own the March too
        • SP Long
        • PV Long
        • MidC Short
  • Apr
      • The SP remains cheap, the Palo has rallied past cheapness, and now the spread (SP|PV) appears flat. Mid-C has been traumatized by the market’s distaste for April, but we don’t have any strong convictions there, yet
          • No, it’s not flat, it’s trading at a robust $0.17/mwh. We’ll take some of that
            • Long SP|PV for size
        • MidC – would be long over short at current market prices, but there is too much Regulation uncertainty for April; we’ll know a lot more next week and for now just watching.