Good Morning,

To recap our fundamental outlook – we see a very weak week, this week, followed by hints of increased ISO demand next week, all the while water remains tight in the northwest and “not tight” in the ISO. BC is sitting on healthy reservoirs and will continue selling into the MidC, that isn’t going to change for a while. Last week wasn’t much different, so we don’t see cash deviating too much this week.

APT Recap

Best Ranks

We have sorted the APT on Rank (ascending) for the BOM and Prompt months. Rank only provides part of the equation; you also want to look at how the ranks have changed:

We call this view the “Biggest Moves” as it places the biggest upward moves at the top and the trades that fell the hardest (bottom table). WOW (week-on-week) is the sort field in Biggest Moves. We like Big positive WOWs and very low ranks. Low ranks without a good WOW factor are trades that are range-bound, and we have already talked about those. Big WOWs, low ranks, are trades that have just recently moved onto center stage.

Outrights

All hubs experienced a slight uptick from last week, but after the mighty fall, they are primarily range bound. NOTE – all TradeRank charts are expressed in heat rate (btu/MWh). As usual, we’d prefer looking at the derivatives for opportunities.

Off Peak BOM

There isn’t an off-peak rally like we saw in the on, prices are on the low end relative to history.

October

October heat rates are approaching contract highs across all southern hubs; the Northwest is mired in an average range. We don’t get this rally; nothing has changed aside from the market’s perception of Oct. That said if the ISO does return to hot next week this rally will persist.

Off Peak

No off-peak rally is rendering the On|Offs even wider than last week.

On|Off Markets

All of these are fairly priced …except the Mid-C, which remains cheap, even though it did bounce off of a contract low last week. With tight water in the Northwest and “some” heating load, we don’t disagree that the spread should be tight but would feel comfortable owning it as a call option against next week’s ISO heat. Not all HL hours are at TTC limits leaving the hub some room to export more to the ISO, plus any rally down there will have a hype impact on the prices “up there.”

October

Contract highs at Palo, approaching highs in the ISO, and just moderately priced at the MidC. We don’t get the Palo, sure there is a nuke coming offline, but percentage-wise that has a bigger impact on the Light Load markets. Plus, the adjacent hubs (Utah, New Mexico, and Nevada) will start experiencing heating load in Oct which rallies first in the off-peak. We’d sell that spread. The ISO, on the other hand, could blow out even more if they get that late summer heat which always seems to show up in LA the first few weeks of Oct.

Rolls

Prompt to BOM rolls are on a “roll,” all have soared, and most have reached contract highs and come off. We think it may be a good time to jump back in and short the roll (buy BOM, sell Prompt) at some point this week only because you can own it cheap and get a free call on next week’s heat.

Off Peak Oct-Sep

The Palo is at contract highs, so is the MidC, while the ISO is reasonably priced. We’d be safe shorting both the former and doing nothing in the latter.

Nov-Oct HL

Our first look at November is via the roll, and every hub is trading at contract lows, except the MidC, which has bounced off its low. Falling knife, right? So what, these are cheap and should be owned.

Off Peak

Both NP and SP have been steadily falling for three weeks off of a really stupid rally; now they are fairly priced and aren’t worthy of a second look. MidC is relatively cheap, but there is a better opportunity in the on peak.

Spreads

SP-PV has gotten dirt cheap, and we’d own that, for size, off of the ISO’s potential warming next week. The NP-SP has just been moving up, steadily, for weeks, and now it is rich. Recall, Santa Ana is a Socal Phenom, not Nocal. Spreads to the Northwest are at contract highs – why? There is no load in the ISO, water is flush there, and water is tight in the Northwest. We’d be comfortable shorting those, too.

Off Peak

SP- Palo is stuck at contract highs and if it can’t come off with cool ISO weather it may never come down – we’d avoid that trap. The NP-SP is on a roll and is now officially stupid, given the NP water situation.

October

Both the SP and NP spreads to MidC are back to contract highs and should be shorted, but you’d want to time that one. As long as there is an ISO heat teaser, you’d want to be cautious, but they are both over-priced.

Off Peak

Nothing here, better ops above.