Pause

Good Morning,

Perhaps it is time to take a pause, a break between the first great trade of 2017 and the next good trade. The first great trade was shorting MidC, starting around February. Pick your poison, any of the prompt months were fair game:

But perhaps the market found a bottom; it seems our forecast has and so has the NWRFC. We first blogged the low-level snow issue at Mid-C in early February and harped/hyped on that theme for the next two months. Well, most of that low-level snow is now gone, it is either in the rivers or the ocean, it is not on the ground.

Feb 4:

April 2

That fundamental, low-level snow, is now gone and all that remains of it is a very big realized PNL (or great hedges). Time to relinquish that trade, it’s over; time to look into the curve for the next great one, perhaps Long? That is a typical Mid-C winter trade; short in front of the first freshet, allow the herd to pound the term into senselessly stupid lows, then buy it. We caution that this year is different, the real runoff hasn’t started, all of this March Madness was caused by the cumulation of three months precip that sat on the ground.

Perhaps it is time for a pause. The market (cash) may realize some periods of relative bullishness If the real runoff hasn’t started yet. Let’s try to find some silver linings in today’s fundies.

Demand

Loads are a fair place to start, a sobering place to begin:

Ugly, except for the Mid-C, every hub is down, week on week. That will change given today’s forecasts:

A month ago we got excited to see Phoenix hit the 80s, now we see an entire 21-day forecast at that level, and many of the days are in the 90s, and nearly every day is above normal. This is a bullish forecast for the deserts and arrives while the hub is still doing its Spring maintenance, and the nuke has not entered its refuel yet.

A different tale in the land of milk and honey; a cooler story as most cities just post normals for the next 21 days, though we like seeing Sacramento post its first +80 day this week. Those levels will fire up some AC load and will also melt some high-level snow. Loads at SP will rally, they have nowhere else to go but up.

The Northwest is most remarkable for its lack of remarkableness; the standard deviation across the 21 days, and across the cities themselves, is quite low. Mid-C is neither hot or cold, though note that red line’s upward slope; every day it grows warmer and loads decay more and upper-level snow melts faster, but none of that is happening today, or this week.

Before leaving Demand, let’s take a peek at actual temperatures. They are quite uninteresting except for the fact that they are so uninteresting they’re interesting. We speak of Mid-C and the non-existent standard deviation across the cities. From Billings to Seattle the highs were within a few degrees of each other, a singular event not to be seen too often. We also flagged Burbank and Phoenix because of their low max temps; explains those abysmal loads.

Hydro

The ten-day outlook grows wet, wetter than normal and wetter than last week:

Nearly two inches of rain is expected to attack NP15; even SP gets a dusting. Warm and wet, a sure-fired recipe for accelerating the snow melt. Just as the state started seeing some respite from its robust hydro energy, it seems all plants are going to revert to hydraulic capacity, if they weren’t already. Bearish.

The Northwest is wet too, not to be outdone by its southern rival.   Spokane not only brought us the Gonzaga Bulldogs (got my MBA there!) but they are also bringing us another inch and a half of rain, double its ten-year average. Expect builds across the Upper Columbia and think about even more water in June and July because every April and May snowflake is now a June and July water molecule.

California’s rivers are declining, week on week, off of cooler and dryer weather. Those two states of nature are expected to reverse this and next week as temperatures creep up, and rain falls. The net effect on your long position – bearish, but just slightly, since so many of the plants are already at full production rendering most new inflows as just spill flows.

BC Hydro is walking its discharge down, too. The Peace is backed down, so are flows at the US border all of which suggests to us just weak prices and perhaps the cool weather. All of this is going to change as normals get warmer but just won’t happen right away.

Perhaps the most telling set of plots is on the regulated plants in the northwest:

BPA is a drafting fool as she scrambles (post-March Manipulation Madness) to pull her ponds in front of the real runoff. Coulee normally gets an early April draft reprieve; not this year, she’s drafting all month long, every day, until the pond sports a 20′ handle. The effect of that draft is the discharge is stuck at 180 kcfs through the turbines:

Coulee is just one big run of river plant for the time being; probably for all of April, and with more water coming (rain) and warmer weather, it will run its river harder than we see today.

We’re a bit surprised to see the Clark Fork building but not surprised to see the Spokane, Salmon, and the Pend Oreille decaying. Those latter rivers have mostly exhausted their low-level snow, but the rain and warm will reverse this bullish trend.

How big is this water year? Forget California, we already know it is off the charts there, how about the Mid_C?

It is big, though our forecasts are now much lower than the RFC’s. Our models just don’t see 120% of normal, we see just above normal, all driven by snow pack:

This is a huge water year – everywhere but where it counts, which is above Coulee. There, above Coulee, it is just slightly above normal which is what our Water Supply (Apr-Sep) suggests while the RFC says it’s huge. Either way, there is still a lot of snow yet to melt and when it does prices will be low.

Generation

 

Net gas outages in the ISO rallied over the weekend:

Lots of big units came down, but a few returned, as well:

Conclusions

I’m going to use the Beta Trade Ranks today, later this week we’ll be rolling over to these new forecasts.

  • April
      • MidC – hard to find anything to like about BOM; the hub gets big rain and is warming up, and BPA is drafting all its projects
        • SHORT
      • Palo – hard to find anything to NOT like about BOM; the hub is getting hot, and a nuke is going to refuel …
        • LONG
      • SP or NP – hard to find any feelings whatsoever about the hubs; loads will trickle up, rain will trickle down, and snow will melt
        • FLAT
  • May
      • Only NP’s forecast is over the market. Prompt will trade off of cash if you like BOM you have to be long Prompt.
        • NP – long off of the spread to Mid-C
        • MidC  – short because we hate BOM and we expect the draft to extend into the first week of May and May is the new Prompt and will follow the new Bom as it bombs
        • SP – need some heat, don’t have much
          • SHORT
        • Palo – got some heat, it will probably only keep building, plus the nuke goes down
          • LONG
  • June
      • MidC – our June forecast is strong because the RFC’s cut flows from the month, something we didn’t agree with last week and doesn’t agree with going forward, not with building snow pack, so we’ll fade our forecast and …
        • SHORT
      •  NP – long off of market under forecast
      • SP – long off of the roll to May
      • Palo – short off of the May length and the market is over the forecast
  • July
      • Same sentiment for July MidC as June
        • SHORT
      • SP – long the SP: PV roll
        • SP Long
        • PV – short