APT – Back

Good Morning,

Our fundy takeaway was bearish, let’s see how the market is pricing the back of the curve.

The Q4 to Q3 MidC 2019 LL roll can be had at near contract lows, from a heat rate perspective. There is some cyclical volatility here and is probably an excellent entry point form the buy side.

The Q3 19 NP-MidC HL is also cheap and can be had at near contract lows. The last time it hit these levels it enjoyed a 2kbtu rally.

Sometimes it is useful to view both the heat rate and power price at the same time – the new APT TradeRank charts provide precisely that. These plots speak to the Socal Citygate premiums which have the effect of exporting generation and driving heat rates lower. If you don’t believe those gas prices at SCG will hold, buy this heat rate.

The effect of wild Citygate prices is to wreak havoc on the derivative heat rates. The SP-Palo Q3’s heat rate has collapsed 3000 btus in a few weeks. What seems to be missing from these price moves is the impact of exporting all of that SP generation – shouldn’t the power price be dropping in sync with diminished Net Demand? We think so, but in all of these plunging SP, heat rate plots it’s not.


The Palo LL roll from Q2 to Q3 (2019) is now pricing the Q2 heat rate over the Q3; doubt you could ever find a historical clear where that was true.

The market sets, on the same date, contract high Power Price and contract low heat rate. If SP does not need to run a single MW of gas in Q3 off-peak; all of its demand can be met through renewables and imports, then why would the price change when gas changed?

Finally, a set of plots that are parallel. The Q1: Q4 roll at MidC HL set contract highs in December, for no reason at all, and has been on a downward slide ever since. From a price perspective, the roll is more reasonably priced than not, but the heat rate is quite cheap, plus we see a slight bounce off this bottom. An inexpensive entry point, buy-side, on a trade that won’t lose much. If Mid-C summer is a dud, this roll will get paid as the front will take a more significant hit than the back.

Also, parallel yet both are at opposite extremes. Heat rate wise this is a screaming buy, except when you look at the power price – $15.00. If the BOM and Prompt stay warm, this spread may still be over-priced.

Oh good, another one moving in opposite directions. As the heat rate hits a contract high, the power price crashes into a low. The market now assumes that every HL hour of Q3 will settle $4.00 higher at SP. Granted, there may be some blow-out tops, but we doubt the average comes close to $4.00. Bear in mind, this isn’t WY17, and NP isn’t looking at record hydro energy. More likely, NP15 will realize 2000 aMW less hydro energy this Q3 than last year. We’d gladly buy the spread and not hedge it with gas as most likely we’ll make money from power rallying and SP gas tanking.

Probing deep into the future where all crystal balls grow opaque, this plot is 2021, a space oddysey.  Paradigm shift, SP grows ever more valuable as the rest of the WECC looks on in envy. Or not.  Did you catch the news where every home in California will be required, by law, to sport solar panels? How about this scenario – the ISO grows ever more bearish while the rest of the wecc gets tighter. Sell the spread.


We saw cash rally today while BPA aggressively filled Coulee, resulting in about 25kcfs cut in outflows. That was all it took to get double-digit prices for the weekend package. OK, so what happens when inflows rally 50kcfs by Sunday? One of two things, either GCL spills 100kcfs on Monday or cash drops back to single digits. We’ll stay short May.

June rallied, too much in our opinion. We still have more snow than average and it is May 10; June shouldn’t rally much, the melt will be raging through most of the month. Another risk now that BPA has started filling Coulee is over-fill too early. We’d fade extremes, and we’d short June at these prices.

July is looking safer with May heat, but ultimately the question of July will be about WECC prices, not Mid-C hydro. In a dry year, a 16k MidC Q3 heat rate would have seemed rich, but this is anything but a dry year. We wouldn’t sell this, we already shorted BOM and June, but wouldn’t buy it here, either.

Contract highs for both price and HR; value will be determined by how hot the ISO is. Dangerous levels to get long.

Rich heat rates, seems the market has got a power price in mind and, regardless of what gas does, is holding that price. Sounds like a utility.