Good Morning,
Today we’ll take a look at a few of the derivatives versus the outrights; before that exercise, let’s examine the state of the state. Should be brief, not a lot has changed.
Demand
Loads in the northwest are off, week on week; the rest of the hubs are sideways (meaning just low).
Phoenix is projected to hit a high of 89 next week but that’s not even close to the ten year high (98) for that day, more telling is the southwest is quickly moving into CDDs.
Burbank has a high of 83, which is warm, but San Diego hits 81 which is above its 10 year high. The WECC is warming, even at the Mid-C:
The northwest gets two forecasts, not just because it is special. We are more interested in comparing the lows to the highs for the purposes of ascertaining snow melt. Spokane and Boise post several days above freezing and above normal for lows, but both barely approach normal in the highs. Each has a string of days where temperatures are above freezing, both at night and day, which suggests the runoff will resume its build.
Hydro
Today we lead with the RFC 10 Day:
Their forecast has been a broken record, skipping back to the same “BUILD” verse over and over and over. Not today, the fine folks in Portland have dramatically cut their outlook in the back of the ten day, to the tune of 4000 MW. They are now projecting total energy less than Monday’s STP. We suspect this is a reflection of Coulee reaching its drum gate draft target of 1255′ a bit early. Seems bullish, right? We don’t deny that cutting 4000 MWs is bullish, if you believe it. Ending the Coulee draft is bullish, if you believe it. We don’t. We think there is more drafting to come once we get the March targets next week. It’s a big water year, 1252′ doesn’t address how much water is upon those hills.
Those same federales, “bad hombres” in Trumpseak, posted a 107 water supply for TDA in the Apr-Aug strip; that is what will be used next week when the Corps cooks up its next set of draft targets. We won’t bore you with where past drafts occurred with similar water outlooks – they are all in the 1220-1230 range. We think a draft of around 1234′ is in order, all of which will come out of April. March may be spared further drafting (once this drum gate business is dealt with) but the real question to ask, and answer, is how much water is going to come into Coulee in March?
If you’re hoping the RFC will back down its water supply outlook next week – forget about it. The northwest is poised to get slammed with a big precip event – Kalispell will receive 1.5″, Spokane a numbing 1.8″ over the next ten days. Both are well above normal so the more likely scenario is the Apr-Aug gets bumped up, not pulled down.
Coulee is blowing out the charts today, approaching hdyraulic capacity as BPA scrambles to get the pond down before the deluge of melt hits the reservoir. They got a reprieve with last week’s cold weather, the Spokane is off about 25% but the Pend Oreille is up and with this warming trend both are going to move back up. Even our MidC SideFlow Index is moving up, but that one is going to go off the charts soon.
See what I mean about Coulee – massive discharge which resulted in the big drafts, now they have but 9′ to go in 12 days, quickly becomning a yawner —- unless inflows replace the draft, whcih we think may, if it warms further from today. Much of that precip will come down as rain in the lower elevations which has the compounding effect of accelerating the melt.
TransGen
The ISO outages didn’t do much over the last couple of days, a few new units off, a few more back:
Returns:
New:
MidC gas noms barely register, but you only need 1 MW of gas on line to keep gas on the margin. Interesting, with gas so cheap what is the difference between gas and coal in today’s market? Not much, and it won’t take much to push both off the margin:
Our forecast has gas precariously close to falling out of the stack, and its a steep drop into the no-man’s land of Bridget/Colstrip prices. Of course, the draft will be ending in a week, the question remains whether incremental inflows will make up for that draft.
Flows on the AC and DC are near capacity, the northwest has too much energy and is desperately trying to find a home for it in California. Our half-empty perspective merely says that you can’t fill a line fuller than full, any new northwest surplus stays in the northwest.
Conclusions
Title is derivs, we’re going to look at a couple.
On|Off
SP’s spreads (on-off) are off the charts cheap and we’d buy the Mar, Apr, June and July, for size. 
Mid-C’s, on the other hand, have gotten rich of late and we’d sell the April, June, and July
Palo’s were rich, now they have converged to the forecast, suggesting, if anything, they are now buys, at least the Mar-Mays.
Spreads
The SP-PV spreads have fallen off a cliff, PV is now premium from April through July. Do you really think energy will flow west to east? Long all five.
The forecast has soared off of big water (meaning it’s pounding the MidC) and we’d be long all of them, for size.
Rolls
The May-April at SP is a contract high, we’d short it; the rest seem reasonable or just not compelling.
Palo’s rolls seem reasonable, maybe the recent surge in the May-Apr is overdone, but nothing jumps out, no big deviations from the forecast – no trades here.
Our forecast hates the MidC and really hates June – we concur. Short the May-June (long May, short June) and long the July-June.