Resilient

Posted on by William Griswold

Good Morning,

I awoke to four inches of snow in Bellevue, WA; something I haven’t seen in the seven years I’ve lived here. Winter 2017 is resilient if it’s nothing else. The cold just doesn’t want to leave the northwest, but after Friday’s collapse at Mid-C, it seems the market thinks it’s gone. Perhaps a mistake, more on that later.

Demand

By no means is it bitter cold, but it remains chilly and aside from a warm up this week, the latest longer-term outlook is now suggesting the remainder of February will be below normal, or normal.

Montana is cold, but it’s cold there in June and is bereft of people, which they prefer. Seattle|Portland boasts a plethora of souls, which they increasingly don’t prefer, and it’s not too cold, but cool enough to keep the heaters working most hours of the day. No other locale is cold, and overall it was a weak weekend in the WECC:

Loads were off 1200 MW, week on week, for the peak hour in the USA WECC but haven’t reached their seasonal lows; we can use 2016 loads as a proxy for those, and yesterday’s were 9000 MW higher than last year, all of which suggests there is more pain to come, but not until the Northwest gives up much of its heating load, which it doesn’t seem to abandon willingly.

Portland has some big positive anomalies over the next ten days, but Seattle and the Mid-C interior revert to negative for the balance of the month. This short-lived warming trend does not suggest the nuclear melt-down we had hinted at last week for a couple of reasons. First, loads aren’t going to tank, they will, at worst, drift down but won’t fall the proverbial cliff. Second, and more important, is the season’s first freshet has most likely been punted into March.

California will see its first very pleasant weather this week and may even flirt with an 80 handle for a high, but probably just reach a load-neutral high in the mid-70s; in other words, a very bearish outlook for the golden state. Those two upward sloping arrows at Sacramento and San Jose simply emphasize the rapid change in climatology that NP typically realizes and underscores that hub’s quickly dissipating heating load.

Phoenix not only flirts with an 80 handle, it realizes it over a string of days. Perhaps the hub will see a spike driven by those CDDs, but whatever rally will be offset by the rest of the interior’s loss of HDDs.

Palo’s loads are most likely at their CY17 bottom; contrast current levels with last year where they were 3000 MW higher driven off of temperatures in the mid-80s. But today, it’s hot nowhere:

At 73 the city’s air conditioner is called a screen door; very pleasant for the natives and tourists but disconcerting for long power traders. Note the low 80s in 2015; we should see something similar later this week.

Hydro

Today is a big day, or maybe tomorrow is a big day; one of those days will be a big day because the COE releases its Feb Flood Control targets. Things have changed from last week; the NWRFC has grown increasingly bullish on snow which means they should be leaning towards a bigger draft.

Those rallies in their water supply outlook (Apr-Sep) are striking, especially when contrasted with the Ansergy forecasts which haven’t moved much. We’d suggest their weightings used in the QP10 are too high, or perhaps they should use their sister service’s 11-20 day too, as they seem to be sending bad signals to the market.

Today the outlook for TDA (Apr-Sep and Apr-Aug) is 99% of average. Recall an earlier observation of ours that normal isn’t normal anymore; the 20-year average is 94%, so this, per the feds, is a big water year. More important is that the 99% will (should be) used in the Corps draft targets which will be released this afternoon or tomorrow.

Last week we were leaning towards a 95% number which gave us a different set of proxy years; today we go with the RFC’s number and see that in each of those years the drafts were into the 1230s, a massive increase over the 1256 advocated last month. Most of that will come out of April suggesting a possible correction there is in order. Of course, the number today will be biased by today’s precip outlook:

But only for the next ten days and our forecasts show normal precip over the ten days, so we struggle how they will deviate much from their 99% of normal. We also want to point out what is not in the 11-20 day: no water. The MidC goes dry, almost as in bone dry, for 12 of the 21 days. This might set up a great head fake draft – huge draft target in Feb only to be reversed in March, all of which would whipsaw Q2. How fun.

Today is STP Monday, more fun and games are in store for later in the day. Using Friday’s ten day as our proxy for today’s 120 day we’d suggest nothing. They blew out their energy outlook for the weekend, but the remainder of the ten-day is about par with last Monday’s STP. The one wild card in today’s number would be regulation; as in drum gate work or big drafts, though not sure those would make it into today’s forecast before the Corps released their draft.

California rivers remain full, and the state’s hydro plants must be operating at a very high factor. The mainstem Columbia and Snake rallied over the weekend, which only confirmed what was in Friday’s ten day. Also rallying were the Willamette and Skagit as the Northwest got drenched over the weekend. One other point to make, note the red rectangle in the side flow table; these are remarkably bullish and worthy of a closer look:

Collectively, the side flows are 12kcfs lower than last year, same day, but 77kcfs lower than two years ago. This only emphasizes the effect a warmup will have on the northwest. That is 77,000 cfs of unregulated natural river flows waiting to be released, though we’d suggest it could be an even bigger number given the massive low-level snow sitting on the ground.

TransGen

All the nukes are running, and the ISO has just a smattering of new units offline, mostly offset by a similar smattering of returned units. The outlook for wind seems bullish as the high pressure abates wind speed in California later this week.

Sunrise and Griffith have outages, as does Marsh.

But those are nearly offset by the return of Alamitos 5 and Crockett, but that suggests there are just a lot more on the horizon.

Transmission flows were remarkable for how little flow there was, probably as much a reflection of miserable prices in the ISO:

It seems the northwest HA traded at $20 for every hour, almost. At that level, Powerex just shrugged its shoulders and kept its energy in Canada.

The AC has been derated for a while and will remain derated for almost all of Feb:

But it still can’t approach even the derated levels, just another symptom of a long system that doesn’t need anyone’s energy.

Conclusions

  • Feb
      • The market has puked Feb, and it is now trading about $7.00 beneath today’s spot price suggesting the end of the world is imminent:
        • We don’t see that; we see a drying trend that ushers in a few more weeks of below normal temperatures; we also see a bigger draft, but that won’t have much impact on Feb. We were long on Friday and wrong on Friday, and we’ll do what every trader does (with no Risk Manager or Var limits) and go …..
          • LONGER FOR SIZE
      • SP and PV – you spread traders hit it out of the park; had we done that we’d be liquidating those spreads
          • Short the BOM SP|MC
  • Mar
      • Almost the same graphs, at least at Mid-C, and we don’t disagree with pounding this one down, either, but, if cash doesn’t tank in the BOM why would the prompt? We’d be nervous that this back-end cold holds, perhaps builds, and BOM starts looking like the bomb and then your big short in Prompt starts feeling scary.
        • Mid-C: catch the falling knife?
          • Sure, why not ….LONG
        • SP15: it’s trading at 90-day lows, gas has imploded at Socal City Gate
          • But there are deferred outages and an increasing shot at CDDs
            • LONG
  • Apr
      • We think it’s worthy to fear a draft into the 1230s which would put a lot of water into the last half of April, but the market has pounded this down. Still, we can’t be long everywhere
        • SHORT MidC
        • LONG SP15