Wenatchee Update

Posted on by William Griswold

Good Morning,

A shout out to all of you attending the Mid-C Conference in Wenatchee, WA. Who’d a thunk that a small town in the middle of literally nowhere would host one of the most important gatherings of WECC power traders? Kudos to Chelan PUD for making this happen. Unfortunately, I couldn’t attend, Sunday was opening day of the state’s salmon fishery. However, my two trusty lieutenants, Garrett and Bill, are both there with debit cards – hit them up for a beer.

Everyone probably let out a sigh of relief now that WY17 is one for the history books, but don’t sigh too loud or too long, there are still some exciting developments taking place. For starters, let’s examine last night’s STP:

Monthly Energy Recap

Easiest to discern this data via a delta perspective:

  • July – Down 700 aMW; we’ve always believed the forward looking water was lower than what STP was using, seems those suspicions are confirmed with this report.
  • August – Down 200 aMW
  • Sept – Down 250 aMW
  • October – Down 300 aMW
  • Nov – Ignore, not enough forecasts to be worthy of a comment

None of these changes from last week are overly significant, but the fact that every month took a haircut is newsworthy. The trend has been three straight weeks of cuts in BOM; really in all the forward months. Any reduction becomes material, and bullish, whenever the MidC finds itself deep in its gas stack because it lacks water for its penstocks. That is the case now.

STP Energy – Year on Year

This report compares the block of energy associated with the most recent STP (yesterday’s) against the same week in the prior four years. Note that WY17 is lower than WY13 and 14 for Jul-Aug, but higher than all years in Oct-Nov. We’d suggest both Oct and Nov will also be walked down. Doubt we see any major cuts in Sep, probably not Aug either.

Now, back to the Daily Update …

Demand

it’s summer and loads matter, but forward looking loads don’t look to mighty, at least that is what our free weather services tell us.

The Northwest is poised to get “not-hot” over the next couple of days. Is that a huge sigh of relief I’m hearing from the golfers at the Conference? Typically, it’s 100+ on the golf course and the beer flows like a BPA spill gate, but this year the fancy lads from Houston might need to put on their Cardigans, at least for the first few holes.

After working through these cold anomalies, the Northwest reverts to slightly above normal. Overall, we’d call this a modestly bullish forecast for the region.

Our brethren in the Golden State has an even more bullish forecast. Check out those consistent positive anomalies in Sacramento – 21 days of above average. Burbank has a one day cool down then it too is above, or at, normal. We’d call this a bullish outlook, though more so for NP than SP.

The AZ deserts are finally cooling down thanks to the Monsoons. We are also issuing a camping advisory – do not make camp in a dry river gulch during Monsoon season; there is a reason there is a gulch, once a year water flows through it.

After bogarting all the June degree days, now Phoenix is struggling just to realize normals, most days it doesn’t, and towards the end of the 21-day forecast, the temperatures plunge well below. Just a bit further north, apparently out of the Monsoon range, Las Vegas gets very hot again.

Realized  Loads

NP has seen the last couple of days above last year’s demand (same day of the week, same week), but overall the hubs have seen sharp declines from two weeks back.

Loads vs. Forecasted Loads

This report compares the Balancing Authority’s internal load forecast to its actual demand. We’ve aggregated all the BAs up into hub-level since you don’t trade BA, you trade Hub. Where the plot is positive, the actuals came in higher than their own forecasts. NP has seen two straight days of consistently higher actuals than forecasts, while SP is just the opposite. The trend at MidC has been slightly higher realized loads than forecast, and Palo just the opposite.

Realized Temperatures

The California interior is sporting triple digits while just 60 miles toward the coast the temperatures are 10-15 degrees cooler. Not a good recipe for runaway prices. Check out the delta at Vegas versus Phoenix; Sin City has been 5-10 degrees below Sun City, but not now, thanks to those killer Monsoons. And then there is the flaccid Northwest which seems to be shrugging off global warming warnings. 77 to 80 degrees for highs, hard to drive loads with those temps.

Hydro

The water year is essentially over, but that supply source will continue to toss curve balls at you and is worthy of a closer dive. Let’s start with California since that state realized its biggest water year since 82; is the state reverting to normal hydro energy?:

Not on the HL hours, actual hydro energy is still averaging over 1000 MW more than last year and 2000-3000 more than the prior two years. What about LL?

Same, except note that over the last two weeks the LL is falling, finally. Still a nuke and a half more than last year and three nukes more than any of the prior three years. Add that pain to the other renewables, and you’d be surprised the ISO wasn’t weaker than it is.

WECC Reservoirs

Both BC Hydro and California are either at or near five-year highs; the PNW is above normal but nowhere close to its high. In other words, don’t expect much respite from the reservoirs. These are healthy and will remain so going into WY18, now just three months out.

The Pit and Cherry Creek systems are running at record levels, the rest of the state’s basins are nowhere close, but we suspect all of the state is now operating at hydraulic capacity and with full reservoirs, will remain at that level for most of the summer.

We know BC has full reservoirs, the above plots suggest its melt is winding down. Most notable are the cuts at the regulated Arrow project; in a single day discharge dropped 40kcfs, which means a cut in Coulee’s inflows by the same:

Which translates into a corresponding cut in BPA’s energy production. Check out the QG lows in the off-peak; water is no longer a liability, it is a scarce, and dear, resource that the feds are husbanding like a Sultan his harem.

This collection of plots is from mostly unregulated Northwest rivers, and all of these are at, or below, normal. Some are even flirting with five-year lows. It seems water went from a very bearish fundy to now a neutral, perhaps even bullish Mid-C variable.

Generation

On the surface, the noms look quite bullish, until you contrast current levels with last year, and only Palo is setting new highs, which is surprising given the cooler temperatures. We’d expect that hub’s gas nominations to plummet soon. SP15 looks like the cool summer days that it’s experiencing, while NP and MidC noms are pretty typical of a summer day.

The “outage spread” between NP and SP has blown out; SP doesn’t have any and NP has nearly 2000 MW of gas off-line; ZP, like SP, has next to nothing offline.

Renewables are off in the ISO, slightly, while the Northwest has seen big wind and will see bigger wind over the next couple of days.

Transmission

BC remains a seller, and will stay that way for the rest of the summer (see hydro); the NOB is base loaded, but we note the recent idle capacity on the Malin500 and suggest this latter under-utilization belies the general tightening of the Northwest – driven by the declining flows. Bullish for both MidC and NP15.

Path 15 saw some derates yesterday, now that work is complete, but the line sees little action. Note the increasing exports on the Palo line, reflective of declining loads, yet the gas plants aren’t backing down. Call that bearish for SP15.

This report also includes real-time flows for South of Custer and North of Echo Lake for you MidC aficionados. All of this data comes from our real-time reports which update every 30 minutes.

Conclusions

I’ll be changing how I use APT going forward. As you may know, we deploy this model to identify trading opportunities by seeking out the biggest anomalies in the forward curve. The algorithm is setup to fade those anomalies, which is fine in the term but fading the front can be a perilous strategy. Instead, we are going to pull BOM and Prompt from APT and monitor those front-end opportunities differently. Today I’ll write up my thoughts on the front; tomorrow I’ll focus on the back.

Outrights – July

  • SP is near a contract high without the fundamentals to support those levels. The LL appears reasonably priced, but better to view that hour type as a derivative (see below).
    • SHORT HL
  • Palo has crashed back to earth and without new 110s is probably reasonably priced. That said, the hub was near breaking and now that it can be owned at fair value is a safe place for length. The line to SP is not full, and forecasts (temperature) do change. Throw in some outages, and it’s not a bad “own”:
    • HL – Long
    • LL – let’s look to the derivatives
  • MidC – The LL has rallied hard while the HL has come off; that’s what happens when BPA loses water but is that move over doing the relative values? We’d suggest looking to the derivs before staking out a trade here.

August Outrights

These plots are remarkable because they are not notable; almost all contracts are trading mid-range and at or near the Ansergy forecast. We’ll punt on the outrights and go straight to the Derivs …

OnOff

Check out that Palo volatility, makes one want to fade the crash. The SP also seems priced dearly, even after the spread has come off.

  • SP15 – Selling the spread; we pointed out the first signs of the ISO hydro energy abating in the off peak hours; that trend will only continue.
  • Palo – The spread has melted to value, perhaps beyond, and is now at a contract low.
    • Buy on/off spread
  • NP15 – spread stills seem dear but give the Pit and Cherry Creek at five-year highs we’d hold off on putting this trade on; we already did it at SP.
  • MIdC – both the forecast and the market are crushing the spread, pretty much in tandem Without significant heat to drive onpeak prices the spread could collapse even further, but we see temps improving and like buying something …
    • Long the Spread

August OnOff

  • SP is at fair value, at least regarding the forecast – no position.
  • NP is at a contract high. We are more confident water will back down in Aug than BOM, we see these levels supported by cash, but will cash in Aug be same as cash today? No!
    • Short the spread
  • MidC appears priced dearly, and we bought the spread in BOM, so we will …
    • SHORT the spread
  • Palo – Market blundered again, rallying a distant strip off of a cash anomaly. Oops. Now it’s priced fairly so why tie up VAR? No position.

Locational Spreads

  • SP-PV – the market hated the spread while Phoenix was hot, now it loves it – maybe it’s a case of “I love you long time?” We haven’t written off PV just yet; perhaps the Monsoons fade away? We know the PV-SP line isn’t full. Shorting, however, is fading the trend but hey, that’s what we do.
    • SHORT HL
    • No LL position
  • NP-SP – the forecast has rallied while the market tanked; we see hot NP and not SP, and we see tightening NW which drives NP harder than SP
    • Long the Spread both HL and LL
  • NP-MidC – perhaps reasonably priced today, and we have enough other crap on to make our Risk Manager balder than he already is
    •  No Position
  • SP-MidC – Contract high, ooh lah lah; Northwest is tightening up nicely, and the spread is blowing out
    • SHORT HL, no LL position

August Spreads

  • SP-PV: another example of the mistake of letting cash drive a distant market; now the blunder has been reversed, perhaps too much. However, we shorted the bom, we already have it on, and this may rally yet more. We’d rather short contract highs so that we will do nothing here.
  • NP-SP: the LL is a contract low, been that way for a few weeks. Water is too blame, but water is drying up, so …
    • Long the LL spread
  • NP-MC; SP-MC; nothing overly compelling, market is trading mid-range and near the forecasts
    • Pass

Rolls – Aug vs July

  • SP15 – massive over-sell, now a correction, very good time to jump on the “Trend is your Friend” train
    • Long the HL roll
  • MidC – that train already left the station; this was one of the better longs on the books a week ago, now the market quickly pulled its head out of the [FILL IN THE BLANK] and has priced both the HL and LL at value.
    •  No Trade
  • NP15 – the HL is at value, the LL still seems cheap
    • Long the LL roll
  • Palo – Whipsawed back to value, another great trade, in hindsight (buying the HL roll); the LL is still dirt cheap and as the rest of the WECC sheds water the LL everywhere will become dearer.
    • Long the LL roll