The Good, Bad, & Ugly

Posted on by William Griswold

Good Morning,

A 90 handle in Palo, high 80s in LA, and Spokane Mins in the 40s – has the brutal winter pattern broken or is this latest forecast just an anomaly and we’ll be back to cold? Don’t know the answer because we don’t forecast weather; we just report what someone else forecasts and they are forecasting the WECC warming. Warming brings interesting changes to the cash outlook, some are good, some are bad, but bad is good if you were good at calling bad. Recall the gang speak definition of bad is good, trading can be like that, just depends on what you are wearing.

Enough of that babbling, how about some data?

OK, Y axis posts a $109 and a slew of HAs > DAs, that’s good, right? Who knows in that market. Let’s move to demand to see what’s good there.

Demand

Several hubs are up, week on week, that’s good. And note the relentless positive anomalies at the MidC, that’s good, right? Well, good if you live in the past, though those positive load anomalies didn’t help much with price, really all they did was kept cash from trading single digits. But what is good now usually means bad in the future because those positive anomalies will eventually return to normal, or even negative.  Just going to normal means a load loss of about 2500 aMW. So here is a classic case of where good is bad, perhaps even ugly.

There is nothing ugly about a slew of 90+ days in Phoenix, load-wise that is. Check out those anomalies there, and everywhere in the WECC Interior. Good in Palo, ugly in our new Utah and Nevada hubs, well maybe neutral in NV given that Vegas should turn on its ACs for the first time this year, but Pac East will get smoked in SLC on the loss of heating load. Good Bad and Ugly, all in one chart.

The mid 80s for almost a week in LA, that should add to on peak demand but will come out of the off peak as the hub sheds some night-time heating load. Glad we loaded up on those “free” on/offs the other day.

Moving north to the PNW we see a set of just plain Ugly charts. In these latitudes, during March, warm is ugly if you’re long and quite attractive if you’re short. We see Mins above freezing everywhere, though barely at Kalispell. Let’s see what max looks like:

71 in Pendleton, OR? The Blue Mountains, which are white at this time, may start to change color. Kalispell boasts a day or two in the 50s, and Spokane touches the 60s, albeit both are just for a day or two and are still too far out in the forecast to bank on; but you can bank on days 1-7, and they are warming up, which is just plain Ugly. Loads will tumble, and streamflows will rumble, but all of this happens just as BPA quits its current version of the Coulee draft.

Hydro

Three feet to go in seven days …. yawwwwwwwnnnn… but we don’t think the end of the draft tells the whole story. Sure, pulling Coulee down probably put an additional 20kcfs into the mainstem Columbia, water that normally wouldn’t be there. March would have been a nice long had they not opted to work on the drum gates, but they did. We think that 20kcfs will easily be displaced by the rally in natural river flows driven off of an accelerating snow melt. Of especial concern, in our opinion, is the vast quantities of snow below 3000′:

March 7, 2017

February 6, 2017

January 16, 2017

There is not a lot of brown east of the Cascades which is an anomaly for this late in the year. We would guess that there will be lots of brown two weeks from now and the rivers will be full from that change of color.

Perhaps that is what is driving the RFC 10 day to post big bumps off of Monday’s STP?

California rivers are backing off while the Northwest rivers are starting to rally back. The Clearwater has doubled in a week, and we suspect the Salmon won’t be too far behind. The Northwest remains cold, and the Columbia rivers are still just a trickle which is soon to change. So the million dollar question is “Will natural river flow increases compensate for the loss of the draft?” We think yes, apparently the RFC agrees, or they just see this impending storm and decided to toss in a couple of thousand MWs of energy:

This is a big one, Kalispell is now set to bag a buck eighty, and Spokane snags a buck and four bits. That’s not a trivial amount of fresh precip, all of which comes down as rain below 3000′, rain on existing snow – three months of cumulative precip sitting on the ground soon to be returned to the Mother Pacific. Oh my, that is ugly.

Even California gets a washing, but not much, this storm is centered on the MidC.

TransGen

All the nukes are running, NP looks to be getting incremental wind energy, and SP has a bevy of new gas outages. We project three nukes off for this spring but lack confidence in our forecast of when those refuels will take place. We have a Palo off later this month, CGS to come off in April (they’ve done that before and if it stays warm they may take it off in April), and a Diablo unit set for a May outage.

Most of the incremental SP outages (Gas) are forced; there are now more units involuntarily off than any of the last four years. Good, right?

See, lots of gas, mostly at SP, and just a few returns:

Gas noms are mostly ugly, though both SP and NP posted mini-rallies; we suspect SP will post big rallies shortly.

Fairly robust exports out fo the Mid-C to California which is good from the historical perspective but the forward interpretation of that fact is bad; if the lines are full, there is nowhere for any net new energy to go, except up north to Canada. Over the last two weeks they have been net buyers, so there is potentially about 2000 MW of export demand from that direction, whether or not they do buy, given the odds of even cheaper buys this spring, remains to be seen.

Conclusions

  • March
      • Palo has had a nice rally, and it probably isn’t over. SP on peak hasn’t budged, the off-peak rallied, but we think that is a mistake
        • SP – long the ON|OFF
        • Palo – long the on
        • MidC – this one is tricky, the market rallied a bit, the draft is winding down, but we see things warming up. We’ve been short this and will stay short off of the spread but don’t expect to make much, if anything, off of the MidC short leg; in other words, we are indifferent on March
          • Short
  • April
      • SP’s on/off has gotten cheaper
        • Long the ON|OFF
      • Palo never rallied, we like the heat and the outages
        • Long the on
      • MidC remains in a freefall; we fear April MidC even at these low prices. We fear a revised Coulee draft to the 1220s, though we doubt BPA will willingly agree to that. We think that eventually the forebay will be pulled down to close to 1230, but they won’t pre-release that fact until the April Flood Control numbers are published. Today they publish the March, and we think it will be a more modest 1240’ish target, all of which will happen in the second half of the month, which is when Fish Spill commences. This year that material event is less material given that there already is so much spill occurring that incrementally, spilling for fish, won’t matter as much as it usually does.
        • SHORT
  • May
    • Rallies everywhere, but where else could it go?
      • SP – long
      • Palo – long
      • MidC, we’d be long the May|June roll but hate any MidC length. There is still much uncertainty when the real runoff hits; no one knows what the forward temperatures will bring. Return to cold (a continuation, actually) may make May a buy, but don’t know that weather.
        • On – short
        • Off – long
  • June
    • Long the spreads