Volte Face

Posted on by William Griswold

Good Morning,

We are turning around, performing the delicate Volte Face maneuver, in front of ever-increasingly bullish bom developments. Our thought last week was weak cash will drive down the BOM – it didn’t, the BOM shrugged off MidC clearing $4.00 in HL and the other hubs barely keeping gas on the margin over the weekend.

The spot markets were weak on Friday, especially so at MidC:

The last three days at that hub have cleared below $11.00, but the term market isn’t moving.

Your (and our) short positions still got paid via the settlements but received no MTM love, none. The other term markets didn’t come off either but were pummelled in cash, but that looks to be changing with some quite bullish weather heading towards the southern portion of the WECC.

Demand

Check out the string of days both Phoenix and Vegas are above average, each is deep into the triple digits, and the former will approach 115 degrees. Call that a design day for APS and SRP, each will struggle to meet loads especially given the number of scalding days. Each day becomes harder to cool given the heat retention of mother earth. One (at least one as in me) wouldn’t want to be short in front of this event. It is too hot and too close – not a lot of chance it will be blown away by a low-pressure system.

How’s Kally looking? The WECC needs all hubs in the battle to get blow-outs, it helps not to have one bullish and three bearish hubs, we want to see all of them strong – then we get the blowout prices. Do we?

I’d give this a qualified “yes”; the LA Basin will be hot, not scorching, and the NP interior is warm, but not Phoenix hot. Our load forecasts are soaring later in the week:

All upward sloping, peak loads in WECC South will be almost 10,000 MW higher than last Friday, we think. The only soldier not in this impending battle is MidC; she has gone awol.

For most of this week the load centers are 5-10 degrees below normal, then they struggle to return to climatology. That doesn’t help things. But with Rasputin at the controls, or was it, Hazelwood, anything can happen,  though apparently, loads won’t be helping him much.

Weekend temperatures were terribly low, but we already knew that from the low ISO markets:

Hydro

Water can save the MidC, as in a dearth thereof. Signs that is coming …

Every one of the eight charts is below the five-year highs, and a few are below normal. How can that be in such a big water year, you ask? You ask, we tell … there isn’t much snow left to melt and feed the rivers:

More Mexican flags – 2017 is at best normal as of this morning while last year (red) are near zeros and 2014, our design “big year” is nearly 25% higher than most stations in the Upper Columbia. The WY17 Snake remains greater than 2014.

Coulee now sits at 1278, just ten more feet to be functionally full and with eighteen days left the new issue for BPA is filling too soon. Water respite seems not to be happening, at least not until inflows into Coulee fall off, and there is no signs that is occurring.

Inflows (not counting the Spokane or Kettle) are around 250kcfs, both five-year highs. At those levels the reservoir will be full in a week leaving ten days of what? Snow is declining but takes a week to work itself through the system. Difficult for us to love MidC, but we’ve already learned not to not love BPA. Bottom line, the Northwest hub will not be helping out its southern cousins in this upcoming heat event. The lines will be full; bids will be hit; it just isn’t the perfect aligning of the four stars (hubs) which can send prices soaring.

Our Portland Partner, the NWRFC, is doing their part to make a case for owning BOM Mid-C:

They have slashed (and burned) their last Monday STP teeing up for what could be a modestly bullish release later today. We still think the July-Sep forecasts were high; we wouldn’t be surprised to see those backed down to a more “normal-like” level.

California water is also receding, four of the eight stations are aggressively cycling their projects. More telling, seven of the eight are now below their five-year highs – light at the end of the water tunnel.

TransGen

BC was a net weekend buyer, why wouldn’t they be? The AC and DC were full, why wouldn’t they be? Flows out of ZP went nowhere, what else could they be?

Hey, here is something bullish …

New gas outages in the ISO, right in front of the heat – yippee!

Those tripped, these returned:

Last plot – gas noms – they are ugly, so please sit down before viewing:

NP set a new low; SP almost reached did the same. All the above says was it was a weak weekend but then so did every other plot we showed.

Conclusions

  • BOM
    • MidC – we aren’t drinking the Kool-aid
      • SHORT HL – rapid reservoir refill without respite from inflows scares us not just a little
      • Long LL – why not, it’s trading for free, water is tightening
    • Palo & SP
      • We were short off the roll; we are buying back the short leg (BOM) and going naked long. We’d be longer Palo than SP, but we wouldn’t short SP.
  • July
    • MidC – signs that runoff crested a week or two ago; eventually inflows peter out and the market and forecast are at parity:
      • No choice but to own it, effectively owning the roll
    • Palo/SP – we’d stay long in the HL off of the “cash effect”; if there is a price surge in cash the prompt will get bid up.