Market Commentary

Good Morning,

The NWRFC rolled out a new STP though they may as well skipped this week since the changes were immaterial.  However no news is news in and of itself and no change in STP is confirmation of the current forecast.  That forecast, which I believe is reasonable given what we know today, does not support where the market is trading Q2 Mid-C.  More on that a bit further down.

STP Daily

See what I mean about “no change”?

STP Monthly

This forecast was a bit of a surprise, for me, given the strong rally in the RFC’s 10 Day, and given a very wet 10 day forecast for the Mid-C.  Before leaving the STP, let’s look at this forecast relative to prior years:

STP Year on Year

Sometimes you just need to put things into perspective and comparing this year to those prior year’s does just that.  March is below 2015 and 2014 while higher than 2012 and 2013.  April is projected to have the lowest energy in the last 5 years while May the second lowest. June is higher than 2015 and 2013, but lower than 12 and 14.  So what, you ask?  Let’s look at where those periods cleared in spot:

Now look at where the close was yesterday:

Granted these are broker quotes and subject to much derision but let’s assume they are close, they don’t even need to be close to prove the point I am about to make.  Given low gas prices, the lowest in 30 years perhaps, it is not surprising that the March-June strip has been crushed.  Assuming $1.50 delivered gas at a 7000 heat rate and you get a fuel component of $10.50, but no respectable generator is going to run to just cover fuel; no they will need to recoup some O&M and a profit, let’s call that $2.00, putting us at a marginal gas price of $12.50.  Only June shows a price above that, and then only $0.30 above.

This suggests that from April through the first half of June no gas is running; for that matter only Bridger and Colstrip are online, and barely (and only in the on peak).  Only one fundamental, hydro energy, drives Mid-C to single digits, and that rarely happens for more than two weeks.  These market prices imply the biggest water year in the history of the Mid-C, like a 130% anomaly.  Sorry folks, it is not that big of a water year:

Water Supply Forecast

The forecast as of yesterday was 97% normal at Coulee, and that number is somewhat suspect given the anomalies upstream from that dam.  Granted Arrow (Canadian Columbia) is also 97% but that source barely accounts for 35% of total inflows to Coulee, the other 65% (Pend Oreille and Kootenai) are mired in the mid 80s.   Adding to the confusion is the drum gate work that was appropriately viewed as bearish in the Feb-Mar 15 time span, but beyond that date it can only be construed as bullish for April, last half of May and all of June.

No doubt the market will see some single digits, maybe already has, but those low prices will be short-lived and either the utilities elect to not serve load or they pay a fully loaded price to have the gas generation run – and that is $12-14.

One of the challenges in trading runoff is timing, but this year, after the market has pummeled a 120 day strip so dramatically, you can forget about timing and just go long all of Q2 and come back on July 1 and collect your bonus.

Mike

Good Morning,

The outlook for across the WECC is cooler and wetter today than last Friday, though it is wetter than it is cooler.

Composite Weather Summary by Power Hub:

Though much of that Mid-C precip is west side (Portland forecasted for 3 cumulative inches in the next ten days), enough makes it across the Cascades to put upward pressure on water supply:

The California heat wave is fading quickly with SP max temps heading back to the mid 60s (from the 80s!).  That is a bearish turn for the ISO and the additional precip will fall mostly as rain adding to the bearishness.  The ISO is long and has been backing off imports from Palo and Mead:

Palo Verde to SP15

Mid-C is longer and is selling to anyone who will take its energy and the temperature outlook for MidC remains warmer than normal.  What isn’t normal is the amount of wind energy the hub has been generating over the last couple days:

Wind Energy – BPA

The River Forecast Center is looking at these new storms and has jacked its 10 day forecasts relative to last week’s STP:

NWRFC 10 Day vs STP

The 10 Day bodes bearish for today’s STP and you should expect the first couple weeks of March to be up, perhaps in the 2000-3000 MW range.  The back of the STP is anyone’s guess; given more precip coming we would expect the declines in the water supply to be reversed and the forecasts raised.  But the snow year is winding to an end and the water supply is becoming ever increasingly locked in, so don’t expect drastic moves either way.

Coulee is now at 1265, just 10 feet from its target elevation of 1255, but that means more drafting during a very wet period which bodes poorly for March, now BOM.

As one trader put it, the only right position is short; which I replied “agree, until its not”.  There will come a time, before June expires, that this bear market turns, and my guess is it comes sooner than any of us expect, but it is not turning in the next few weeks.

Mike

Good Morning,

The news today is not new … wetter and warmer … is it getting old to hear the same thing over and over?

Composite Hub Weather

Mid-C is the wettest it’s been in two weeks as is NP.  Most hubs are also the warmest they’ve been since October but, unlike last Fall, warm in February is mostly bearish.  March looks to be starting out wet in northwest:

That is pretty much one continuous shower on an already wet hub.  A hint of bullishness is generously provided the NWRFC …

Water Supply

A 3% cut at The Dalles is nothing to sneer at, if you believe our fed friends in Portland.  I don’t and I don’t believe their 7% cut at Lower Granite (Snake River) either (which is mostly driving the 3% TDA cut).  The snow levels don’t begin to support anything close to that:

Snow Basins (NRCS):

Both the Salmon and Upper Snake are well above 100% and the Clearwater is at a robust 95%; granted they are off an average of 5% but nothing indicates 88% normal.  Perhaps more relevant are the basins above Coulee (ClarkFork, Flathead, Kootenai, and Pend Oreille) which are either equal or below the GCL water supply forecast of 96%.

Stream Flows 

At this time of the year I like to look at some of the unregulated rivers to get a sense of what snow melt is doing.  Look at the Spokane – highest it’s been in the last 5 years.  There are no high elevation mountains serving that basin which suggests that everything below 5000 feet is melting.  The Cowlitz is raging making Tacoma Power long at the wrong time.

California rivers are also realizing robust flows:

The mostly unregulated rivers (Cosumnes, Merced, Yuba, Tuolumne) are all at five year highs.  That suggests the runoff has begun in California and the declining snow levels support that conclusion:

Weekly changes are off from from 7-10%, drops too large to be explained by anything other than the onset of California’s first freshet.  With more warm weather on the horizon that melt will continue and more drops will follow.  Call it bearish near term but come May-June there won’t be much left in the rivers and the reservoirs will be but half full.  I guess brown’s down, yellow’s mellow will remain the golden state’s rallying cry for another year.

As for the market it is hard to find anything to buy;  I liked the March Mid C when the weather out look was cool and dry but wet and warm is not going to help any length there, not to mention there is still 12′ of water to pull out of Roosevelt over the next 18 days.  No, length in March anywhere isn’t going to pay the bills.   What might pay those bills is to start thinking about summer.

Warm weather means early runoff, we are already seeing that happening everywhere.  Water passed today is water not flowing in summer, perhaps it is time to look at some rolls?  One in particular, the Q3/Q2 Mid-C looks interesting:

Trade Rank – MidC Q3/Q2 On Peak

The market has barely acknowledged the early melts while the forecast is starting to take a shining towards the roll.

Enjoy your weekend,

Mike

Good Morning,

My lucky day; a client inquired earlier this morning about our thoughts on May Mid-C.  After completing my reply I realized I had just wrote today’s blog … so here it is.

Trade Rank Summary

This report compares the forecast to the market for 320 traded products.  Those products are broken down into four derivative categories:  Outrights, Rolls, Spreads, and On/Off.  Each of those four derivatives (except for On/Off) have both On Peak and Off Peak hour types.  Each Derivative and Hour Type has monthly and quarterly values and multiple periods which is how we arrive at 320 traded products.

March Mid-C On Peak

Though April’s delta (Forecast – Market) is slightly bigger I prefer length in March.   Market at 13.90 assumes coal or very cheap gas on the margin the entire month, and assumes that energy served from the stack will be lower than Feb.  There are a couple of differences between this year’s Feb and Mar:

a) The draft ends on Mar 15, at the latest.  Assuming normal temps and no accelerated runoff, the hydro outlook in the latter half of the month could be tight.

Given less water and same demand I struggle reconciling how the month will settle at $13.90.  It could, it may very well settle there, but the risk reward, in my opinion, is skewed towards owning the March versus shorting it.  The Price Sensitivity report supports that conclusion:

​

That chart suggests $4.00 of upside versus $2.00 of down … i’ll take those odds and be biased long for March.

Good Afternoon

The NWRFC released this week’s STP forecast at 2:24 pm pst.  As expected the energy component associated with this week’s forecast was lower than last week.

STP – Monthly Energy Component

BOM dropped about 1000 aMW, March unchanged, April up 300 aMW, May down 400 and June off 600.  Most of June’s cuts can be explained by the addition of another week of June; a week of falling stream flows:

STP – Daily

Though June drops hard, and will drop even more once the last few weeks of that month are incorporated into the forecast, yet it still remains above the five year average, suggesting further cuts are likely given a water supply forecast in the low 90s.

STP – Year on Year

This water year is quickly becoming locked in as we are now down to less than 60 days of snow build left.  Given a relatively dry 15 day outlook it probably is becoming safe to say that the final anomaly, say on April 15, will be below normal at TDA and GCL.  Should that come to pass then the values in May and June are probably over-stated.

Mike

Good Morning,

I spent part of my weekend looking at the Ansergy forecast as compared to the market and was struck by how hard everything has sold off.  Blame some of that selloff on gas but the rest is on the market and may be over done.  Everything everywhere is not all bearish, though mostly it is.  One indisuptuable bullish trend is the near-record high temperatures being realized in Southern California, and that heat wave lingers on.

Weather Forecast – Burbank

The recent trend has been to walk temperatures back to normal in days 6-15 while the front hovers in the low 80s.  That means the delta between the current forecast and 3-7 days back is typically positive, as it is today.  In fact Burbank is forecasted to be nearly 10 degrees warmer on Feb 26 than it was in last Friday’s forecast.  The northwest is “enjoying” a mini cold snap, emphasis on “snap” since it is quite short-lived:

Composite Minimum Temperature Forecast – Mid-C

32 Degrees today and last week was in the mid 40s (weighted average low for Mid-C cities).  That shall render a brief spike in demand but it won’t last; by Wednesday temperatures are back to those mid 40s.  Bigger news for Mid-C is the relative dearth of precipitation in today’s forecasts:

Mid-C Composite Precipitation Forecast

It’s not bone dry but it is the driest 15 day forecast since early January.   Perhaps we are beginning a new trend, the River Forecast Center seems to think so as they have lowered their Apr-Sep runoff forecasts.

Water Supply  Forecasts – Apr-Sep

All three major stations are off with TDA leading the pack with a 3% haircut from last week.  That steep of a cut is not easy to achieve this deep into the water year and we think it’s over done.  Check out a few critical snow basins:

Snow Anomalies – Selected Stations

Wait, those aren’t week-on-week cuts, those are increases.  How do you get a 3% drop in the TDA water supply when snow back is mostly up everywhere?  Sure the Middle Snake is off 3% but the Salmon and Clearwater are unchanged.  The stations above Coulee (Flathead, Kootenai, Pend Oreille, Clark Fork) are either up or unchanged.

Not that it matters, at least for Flood Control purposes, as the draft is mostly locked in, and accelerated to make room for some work on Coulee’s drum gates.  The current plan is to draft Coulee’s reservoir down to 1255′ by March 15 and it looks like that target won’t be a problem given that the reservoir is now at 1269:

Coulee Reservoir Elevation

Just 14 feet to go in 22 days, shouldn’t be a problem, though it shall keep a lot of water in the lower Columbia.  The last dam, Bonneville, is starting to see spring-like flows:

Actual Flows – Bonneville

Average discharge is now north of 200 kCFS, up nearly 50 kcfs from last week.  That could change downwards if the northwest goes dry as the current weather forecast suggests.  Meanwhile BC Hydro has been soaking up much of that surplus northwest energy with imports into the Canadian province averaging close to 1000 MWs.

Transmission Actuals – Northern Intertie

Just imagine where cash Mid-C would be if they were selling, and at some point they will be selling as the Canadians are sitting on a robust snow pack.  California is buying too but they aren’t paying much for their imports:

LMP Prices

Those SP dips into the nether single digits are all happening on hours 12-14, coinciding with the peak solar output.

SP15 Renewables – Actuals

Today is Monday and that means the NWRFC may release its 120 day stream flow forecast (STP) today.  A useful leading indicator of direction for that forecast is their 10 day forecast:

NWRFC 10 Day vs STP

Note the cuts in the last few forecasts; these suggest a lower BOM and March.  We will also see another week of June which will pull down the June monthly averages.  I would not be surprised if the entire 120 day is off some, not a lot, but some, given the RFC’s lower water supply forecast.

My trading outlook, assuming I’m gas neutral, is to start looking for cheap things because every bear finds its bottom and when prices turn they will turn fast.  I’d stay out of spring Mid-C as there are too many unknowns (timing of runoff, future storms or lack thereof) but June, maybe even May, are looking cheap at SP, NP, and Palo.  More on that later this week.

Tonight Ansergy will be releasing a new version of its historical forecasts which will incorporate several recent changes (California hydro remapping, removal of STP from Mid-C forecast, and a few algorithm tweaks).

Enjoy the remainder of your day,

Mike

Good Afternoon,

Ansergy is pleased to announce that several new forecast reports were added to the service.  We call the new reports “Forecast Views” and can be accessed from the Forecast menu:

Forecast by Hub compares one item against all hubs and comes in hourly, daily, and monthly.  The default on the menu is daily but the hourly and monthly can be accessed from the daily chart.  Forecast by Item charts multiple items for one hub across time.

Forecast by Hub -Daily

In this example I plotted the daily on peak demand forecast for Mid-C and SP15.  The report is useful for identifying “when” the fundamentals are changing for two or more hubs.  Note the demand crosses sometime in the first week of May.  TIP: click the legend icon to turn on/off a hub; double click one to turn off all others.

Forecast by Hub – Hourly

Forecast by Hub – Monthly

A comparison of monthly on peak power prices for NP15 and SP15 which highlights the changing nature of the spread across time.

Forecast by Item – Hourly

The chart compares Mid-C hourly Hydro versus Served by Stack.

Forecast by Item – Daily

Same two metrics but plotted by day (on peak).

Forecast by Item – Monthly

Monthly SP15 on peak Wind and Solar for the next 24 months.

Feel free to contact either Bill or I if you would like to schedule a web demo of these new reports.  Thanks and enjoy your weekend.

Mike

Good Morning,

It is with great pleasure that today I announce NOT wetter and warmer in the weather outlook; no it is cooler and dryer.  Before delving into the fundies let’s take a look at some price forecasts:

Next Day Price Forecast

We haven’t seen a plus sign on a Mid-C day on day change for a while – we do today, up $0.40 driven by  increased exports, slightly higher demand, and a higher gas price at Sumas.  SP, on the other hand, realized a drop in Socal border prices which accounts for the drop there and at PV.  We are also seeing some price separation between NP and SP during the solar peak hours:

LMP Prices

SP finds itself long while NP realizes its intra-day peak.  Note that every day’s peak price has occurred on HE 19

Next Week Price Forecast

This week is over, at least the traded week is by the time you read this, rendering next week more relevant.  Not that those modest price changes are important, what is important is the bleeding has stopped.   Is this the bottom of the great 2016 Bear Market?  Maybe, maybe not, but at least the near-term fundamentals have turned ever so slightly bullish, let’s look.

Mid-C Composite Weather Forecast

Temperatures in days 1-5 are lower versus Tuesday’s forecast but they remain a long ways from being cold.  In fact the chance of real cold weather in the northwest is approaching an impossibiilty:

Once in the last 17 years was there material cold, in 2011, at Portland OR.  Since February is mostly locked in (it’s Feb 18 already) then we should look to March to see if history holds any hope, and it does, kind of.  There were several instances of low 30s, even high 20s, in March, but nothing in the teens.  Low 30s works for March length, though, and at today’s prices we still like  carrying that Mid-C length.

Wind Energy – MidC

What impresses one with respect to recent wind is the consistency of the energy across all hours for four days running.   But that event is old news and next week’s wind energy forecast is off about 1000 aMW.

The Canadians have been taking advantage of weak prices, who can blame them, though our friends in the north are sitting on a pretty big water year themselves.

Transmission Flows – MidC to BC:

For the record, yesterday might be the record, or at least close to the record exports to BC on that day.  Even last year, when flows at Bonneville were twice this year’s, BC did not import as much.  It’s not just BC that is the beneficiary of Mid-C’s largesse, our friends to the south are also seeing lots of cheap northwest energy flowing into their golden state.

Transmission – Aggregate MidC Exports 

I can’t close a commentary in February without mentioning something “hydro”; that just wouldn’t be right.  Drafting for Drum Gates has begun and Coulee is sitting comfortably at 1271 with 16′ to go by March 15.  The hardest foot is the first foot and each subsequent foot requires less volume so getting to 1255′ in 29 days is not that big of a deal; at least it is not as big a deal as the market has priced in, in our opinion.  At least that draft is not having that big of an impact on discharge at Bonnevile.

Recent Generation Flows – Selected Projects:

Look at 1D (yesterday) flows as compared to a year ago:  160kcfs vs 240k; and contrast that with two years ago.  Yeah, this year is up from two years ago but it is 80k lower than last year – and we are amidst the epic early draft.   Let’s look at a few more years:

Like that old commercial said “Where’s the beef?”  2016 is only the 3rd highest flows for week 10 in the last five years.   Where’s the water?

The Water Supply forecasts are falling, so are the snow anomalies:

Water Supply Forecast – NWRFC

Only the Snake system has seen increases, the important basins above Coulee (Flathead, Kootenai, and Pend Oreille) are all down.  So is snow.

Hub Level Snow Pack Anomalies:

Everywhere is off, especially in California, as their precious snow levels withered in the 80+ heat wave.  It’s still a big water year but not as big as it was.

So how about that March?  We like it, like it everywhere,  and would cover our shorts and go cautiously long, mainly because it is cheap; cheap because recent fundies have been unkind to length.

Trade Rank Summary – March 2016

For that matter we would probably be long anywhere in the spring, at least versus short, given a declining snow pack and abnormally warm recent weather.  Of the 12 of the 16 on peak out rights over the next four months have been tagged with a long bias (see Trade Rank Summary for over 300 trade recommendations).

Mike

Good Afternoon,

The River Forecast Center completed its weekly update of the 120 day flow forecast for the northwest.  Changes were modest and mostly lower across the forecast.

Daily STP

The week on week change, though diminutive, does provide confirmation  the big changes from last week are here to stay, at least until they aren’t.

Monthly STP Energy

The biggest week on week change was realized in June which has been downgraded by 600 aMW.  No surprise there, we predicted as much yesterday.  April has now realized 5 straight drops and is now nearly 2000 aMW lower than February.  To think that just four weeks ago April was 7000 aMW higher than Feb; all because of some silly maintenance on a dam dam.

Year on Year

June is still setup as the premier runoff month with the RFC projecting 4000 aMW more energy than May.  The market seems to be ignoring that spot of news as June is trading at a $3.00 premium to May, most likely in sympathy with last year’s 4 standard deviation heat wave realized at the end of June.

Trade Rank – June vs May Roll

Both the forecast and the market have rallied the roll but the fundamentals don’t support the market’s $3.00 premium unless the Jun 10-30 forecast (not in STP yet) is materially lower than days 1-10.  That is the case, at least in our forecast, as we have the runoff (second surge) cresting exactly on June 10, then coming off hard.  Still, I believe the roll is over-priced and would be selling down to a one handle.

Another trade that has moved sharply in the last week, because of drum gate, is the April-March roll:

Where March was premium last week it is now at parity or a small discount to April.  I’d be more inclined to be a buyer of March and seller of April at these fire sale prices; especially given how fast Coulee was pulled this last week.

Mike

Good Afternoon,

General tone of today’s fundamentals are slightly bearish in the north and perhaps a slight touch bullish in the south.  First, let’s discuss Ansergy’s price forecasts, then we will move on to the fundamentals.

Balance of Month

Note the change in outlook at Mid-C on peak from a week ago – down $6.19, all attributed to more hydro energy which is arising from warm and wet weather, and a premature drafting of Lake Roosevelt in anticipation of work on the drum gates.  The only hub to show a gain was SP15, but that gain can be attributed to the remapping of the California hydro.

Prompt Month

The slight gains from yesterday at Mid-C, NP15, and SP15 reflect a slightly lower water supply forecast.  I am becoming a bit bullish March Mid-C given that seven feet were pulled out of Coulee in four days, and the month is but half over.  Continue that trend and by month’s end the Bureau could begin its work which means drafts in BOM are drafts not happening in March, rendering prompt a tone more bullish.  March Mid-C might be a sleeper given a price in the low $14s and a system that may just pass flows the entire month.

Grand Coulee Dam

Fundamental Outlook

Mid-C Composite Weather Forecast

Same story as every day in the last few weeks:  warmer and wetter.   The only thing new is another storm system setup in days 10-15.

Lake Tahoe – Precip

A one day event  strikes the Sierra’s dumping nearly an inch of SWE in its wake, then the outlook turns dry.  Further south the outlook cools then gets hot:

Burbank Max

The 6-10 outlook is up over 10 degrees which puts temperatures back to the high 80s making February one of the hottest on record for the LA basin.

Today is Monday, that means the NWRFC may release an STP update.  I’d be inclined to forsee the front cut a touch since seven feet were drafted in the last four days and there is only seventeen more to go.  I’d also be inclined to suggest that June is do for a restatement downwards given that the refill has been compressed from sixty to forty five days.

NWRFC 10 Day vs STP

Not many hints here; the 10 day looks a lot like last Tuesday’s STP for days 3-9.  On the transmission side of things we note that BC Hydro has become a net buyer; I guess if the price is cheap enough why not?

Actual Transmission Flows – BC to Mid-C

Those buys today only give the Canadians more bullets to sell down the road given their robust water year.  We also noted the flows into SP from Mead and Palo have fallen off:

Actual Transmission Flows – Mead

For the record those peaks are corresponding to the post-solar hours 17-20.

Actual Transmission Flows – Palo

This dearth of exports is leaving the southwest flush in energy.  The saving grace will come with warm weather but the really hot stuff is still weeks away.   Phoenix, at the moment, is struggling to match Burbank’s temperatures.

Should the RFC update its 120 day we will try to get a post out later today.  Enjoy the remainder of your day.

Mike