Market Commentary

Good Afternoon,

Ansergy implemented two changes over the weekend:

1. Added more Hydro Stations to California – this change provides more resolution to the hydro energy forecast for California and has resulted in price changes to the forecast.
2. Smoothed the Demand Forecast – our model breaks a year into 24 temperature periods with each using a unique set of algorithms to solve for demand.  The transition from one period to another sometimes resulted in noticeable demand steps; this change removes those steps.  There was a very small change in price for all hubs in our term forecast.

We would like to believe our forecast is perfect, that our models could never be improved, but we know that not to be the case.  No model is perfect and every model can always be bettered.  Our commitment to our clients is to continually improve upon our forecasts, and sometimes that requires a change in algorithms, new data sources, or new models.

California Hydro Stations

The old model ran two stations, one in SP and the other in NP.  The new model is using six at NP and four at SP.

NP Hydro Forecast (On Peak):

The new forecast is more stable and, in most periods, higher.  The spikes in the old forecast were a result of using  a single station.

NP Price Impact (With Change vs Without Change):

Price impact is obviously bearish where there is more energy and bullish where less.  Less surprising is the relative minor impact of this change on prices, except for summer, which is materially higher.

SP Hydro Forecast (On Peak):

The new forecast is lower across the board which is due to using more hydro groups which use different stream flow proxies.  The wild card at SP is the Big Creek complex which has no real-time or historical sensors.  The one which was originally deployed was over-stating SP hydro energy.

SP Price Impact

Change in Demand Forecast – Mid-C

The front (days 0 to 15) was not affected by the model change, the volatility there is explained by changing weather forecasts.  The change in the back of the forecast is minor, almost imperceptible, though it does deliver a much smoother curve.

WECC Demand Change

The change in aggregate (WECC) is more apparent, especially in the transition from June to July.

Drop me a note if you have any questions or comments ([email protected]).

Mike

Good Afternoon,

Trade Rank is now easier to access via our recently added Summary Table:

From this table you can access all of the Trade Rank charts plus do a few other interesting things.  In order to make the report fit on a standard screen we have applied abbreviated field names; to view the legend click the “+” to the left of Legend (at the top):

All products are ranked with product groups by absolute value Delta (Forecast – Market = Delta).  A #1 ranking would mean that the product is currently the widest delta in that group.  Groups are defined by Derivative, Hour Type, and Aggregation.  For example, all Monthly On Peak Outrights for all hubs and periods would be a group; another group would be all Quarterly Off Peak Outrights.

Wide deltas don’t always signal buy/sell so we encourage the users to look for changes in delta.  The intent of the report is to summarize in one screen all traded products.  To help you identify aberrant market prices we have included the market and forecast highs and lows realized over the last 30 days.  The field labeled “Cross” represents the number of times the delta has changed times.  Products with high cross rates typically have low deltas since the forecast and market are crossing each other.

If you have any questions don’t hesitate to email ([email protected] or call (206-877-0991).

Happy Trading/Hedging,

Mike

Good Afternoon,

Been a crazy week for the Mid-C hydro outlook with both the Ansergy and the NWRFC’s flow forecasts swinging up and down off of the US Bureau of Reclamation’s drum gate maintenance work at Grand Coulee.   The current outlook, from the Ansergy WECC Forecasts, are a shade more bearish than yesterday.

Ansergy’s WECC Price Forecasts

Saturday, Feb 13

Bal Month (Feb 12-29)

Check out the one week change at Mid-C: -$4.88, all driven by the maintenance at Grand Coulee.  The rest of the hubs are off, mostly driven by declining natural gas prices.  Mid-C is now a lot longer BOM and March but expected ISO imports are relatively unchanged as the lines were loaded before the drum gate-based changes were implemented.

March 2016

April 2016

Q2  2016

Q3 2016

Before diving into today’s fundamentals I wanted to share a confirmation of the drum gate project via the TMT Minutes:

For the time being we are modeling the project commencing March 15.  Most likely the work will actually be done as the water year is growing, not diminishing (see Mary’s comments above).

Current Water Supply Forecast

I find it strange that we are not seeing more of a separation between the Jan-Jul and Apr-Sep.  After all the NWRFC has put an additional 2000 aMW in Feb-Mar due to drum gate.  I’d a thought that would jack Jan-Jul more than Apr-Sep, but that is not what the above table suggests.

Weather Forecast – Mid-C Composite

Expect Mid-C to be warm and wet for the next six days, then followed with dry and slightly cooler, though the calendar is working against bullish weather days at Mid-C as the evidenced by our 180 day demand forecast:

Daily Mid-C Demand Forecast

The slow grind of decaying demand has already begun and will continue for the next three months.  There is still hope for an arctic blast but it is more hope than anything else, at least the 11-15 hold no promise for such fantasy.  SoCal is starting to cool off after seeing temperatures in the high 80s:

Temperature Forecast – Burbank

Cooler outlook will lower demand and put downward pressure on SP but the fact the event occurred in mid-Feb should be acknowledged.  The next heat wave may be 5-10 degrees warmer as the calendar slides into summer rendering us cautious SP bulls.

The River Forecast Center has a slightly, ever so slightly, more bullish 10 day outlook:

NWRFC STP vs 10 Day

The backed of this plot is suggesting 500-1000 aMW less energy at the end of next week and provides the basis for a slightly less bearish STP next Monday.  One indisuputable bullish turn of the screw is wind:

Wind Energy -WECC Actuals (BPA + ISO)

Except I’d call it bearish because it is hard to get much lower than what we realized this week.  Looking further out I’d be inclined to cover June Mid-C shorts, either on or off peak, and would be taking outright length in the south (PV or SP) from May through Summer.  Prices are cheap, so much bearish news has already been priced in.  The recent heat wave in SoCal should be a wake up call to where things may go for later spring and summer.

Enjoy your weekend,

Mike

Good Morning,

Ansergy implemented changes to its hydro energy forecast last night to reflect the effects of the proposed drum gate maintenance on Grand Coulee dam.  The project requires Coulee to maintain a maximum forebay of 1255′ from March 15 to May 15 which will affect outflows from the project through the end of June.

Mid-C Hydro Energy Forecast – Daily

The black line reflects the forecast for this morning, the other lines from yesterday and a week ago.  Energy increases from today through March 15 as the project’s reservoir is pulled down to 1255′ (currently at 1278).  The next shift, a cut in energy, from April 10 to April 30 is due to the shifting of the draft to Feb-Mar.  The third change, from May 1 to May 15, is an increase in hydro energy arising from the project being forced to pass inflows in order to maintain the 1255′ elevation.  Typically Coulee would begin its refill of Lake Roosevelt in the first week of May but, because of the drum gate project, those inflows will now be passed through.  The final change, from May 15 to June 30, is a decrease in hydro energy caused by a compression of the refill season from 60 days to 45.

On Peak – Price Impact of Drum Gate Maintenance

The model is now projecting the first week of May and the first week of June as the season lows and with flat prices from now to the 4th week of June.  The early June cut in energy has pulled the dailies out of single digits and are now being dispatched off of Bridger/Colstrip.

Off Peak Price Impact

Similar to on peak except less volatile until first week of June, then a dramatic (bullish) impact.

We are still not 100% certain the drum gate work is going to happen and won’t be until we receive an independent confirmation which probably will come via the TMT minutes.  That said, the NWRFC has pretty much confirmed everything in Tuesday’s STP.  We no longer believe the one day delay in releasing the STP (from Monday to Tuesday)  was a result of the NWRFC honoring the Boy Scouts.  No, they needed the extra day to factor in perhaps the single biggest change in hydro regulation in years.

Mike

Good Afternoon,

We believe that the Bureau of Reclamation is committed to performing maintenance on Coulee this winter.  When they do it is optional but with extremely low prices we suspect this is probably the most economical time they could find.  What does it mean?

Grand Coulee’s reservoir, Lake Roosevelt, will need to be pulled down to 1255′ by March 15, then kept at that level until May 15, or until the maintenance is completed.  The consequences of this are interesting:

1. Coulee will draft 20 feet of water from now to Mar 15
2. Coulee won’t draft anything during the previously planned draft period:  Apr 10-30
3. Coulee will not be allowed to refill beginning on May 1 as it normally would
4. The refill of Coulee will compressed into a shorter time horizon, 45 days, versus the usual 60 days.

Net affect is that Bom/Mar are going to get longer; mid-April is now shorter; first half of May is longer, and last half of Q2 is shorter.  Good luck trying to trade that hodge podge.

Tonight we are updating our models to incorporate this change; tomorrow, after the model is published on the site I will go through the price impacts.

Cheerio

Mike

NOTE: We now believe that the drum gate maintenance will happen this winter and as a consequence we no longer support a long March Mid-C position.

 

Good Morning,

Before delving into the forecast changes let’s take a look at the most recent COE Flood Control guidelines:

February 2016

January 2016

Yesterday’s update deployed a 96% water year at GCL and 95% at TDA; contrast that with the 93|94 used in the Jan.  With a bigger water year comes a bigger draft but the changes are just modest: 1 foot at Coulee, a couple of feet on a few of the other projects.  More important is the potential drum gate maintenance at Grand Coulee.  This rumor reached our ears late yesterday and the story goes that the April draft has been shifted to March and Feb which would explain yesterday’s big bumps in the STP.  We do not have an independent confirmation and just passing along what we heard.

Forecast Update

Next Day

Mid-C continues to free fall on declining demand and more water, though imports on the Northern Intertie (into BC) are offsetting some of that bearishness.   The rest of the hubs were relatively stable in the day on day forecast changes for Next Day.  SP demand is gapping up on the 90 degree weather in the LA basin but that is mostly offset by an increase in imports into the hub.  I suspect the Ansergy demand model is understating the cooling load as the region sets new highs.

Actual Loads – ISO SP

Balance of Month

The weak north, less weak, or even slightly stronger, south is illustrated in the BOM forecasts.  An aside on this warm weather – it will melt snow in California, river levels will increase, though much of those snow-melt flows will be captured in the reservoirs.  Those reservoirs are starting to fill up and at some point, in this big water year, some of that water is going to be passed through the turbines:

California Reservoirs:

Shasta is now fuller than it has been in 2 years and quickly approaching the 5 year average (one MAF was added in one month!) while Trinity and New Melones are still lagging.  This early heat wave will have ramifications on May and June – water passed today is water not passing then.  Our bias is swinging towards bullish to quite bullish for June SP, especially if the heat continues or we see a few more events like this over the next couple of months.

Prompt Month

Call Prompt unchanged, there is nothing new to report.  You might be asking why Mid-C wasn’t lowered given the very bearish STP. The answer is that Ansergy does not use the STP any longer; 100% of our term forecast is from our internal model.  That big change we saw last night has been in our forecast for weeks.  What is not in our forecast is the affect of the drum gate maintenance.  If the draft is shifted to Feb and March our flow forecast is understated and our price is overstated.

NOTE: We now believe that the drum gate maintennce will happen this winter and as a consequence we no longer support a long March Mid-C position.

Another trade that seems cheap from the long side is the May PV on peak:

May Palo On Peak: Market vs Forecast

If you are a “trend is your friend” kind of trader you have no choice but liking this trade – from the buy side.  The trend I am talking about is warm weather.  Maybe this El Nino didn’t bring dry weather to the northwest but it seems like it is bringing lots of warm weather.  Phoenix is in the high 70s in mid Feb, no doubt 100s in May are likely.  Demand will average 3400 MWs higher in May than BOM and BOM will clear at around $20 yet May is trading in the 17s.  Put me down for some of that.

June SP On Peak

Granted the Ansergy forecast may be high but the delta between market and forecast has been widening.  What draws me to this trade is the 90 degrees in February and what that will do to the May-June runoff.  Another thought to kick around along these lines is what that warm weather might do to the Mid-C runoff.  If things get warmer there is a chance that the runoff peak comes in April-May leaving June holding the bag and struggling to refill the reservoirs …. hey that is 2000 all over again.  That scenario is still a long shot but buying cheap length in Summer has never cost any one their job.

Peace Out,

Mike

 

Good Afternoon,

Speaking of kicking a dog while its down, those feds did it again … the STP just came out this afternoon and its chock full of fun and surprises.

Monthly by Release Date

Feb (BOM) was jacked a jaw-dropping whopping 5000 MWs which is around a 40% correction over last week’s numbers.  Perhaps this warm weather was factored in and the expectation is for the season’s first freshet?   Equally interesting is the correction to March versus April:  2000 MW increase versus a 2000 MW decrease, respectively.  One explanation may be a new regulation directive which cuts the Coulee draft in April?  The June forecast is massive and too big in my opinion but its there and a whole lot of slice customers just got a whole lot longer this afternoon.

Daily STP Energy

This isn’t the typical “jack the front and leave the rest unchanged” change – they jacked the whole strip from Feb to March.  Note the cuts in April are coming during the GCL draft period, that has to be a regulation-driven change.  We’ll see tomorrow when the Feb flood control comes out.

Year on year

Most of 2016 is in line with averages which is in line with the current water year.

A new episode of the RFC Twilight Zone is the latest Apr-Sep Water Supply Forecasts are now 4% higher than this morning.

Water Supply Forecast – Apr-Sep

I’d love to give you a logical explanation for this erratic forecasting behavior but there isn’t one.  What it does suggest is that tomorrow’s flood control report may bring deeper drafts – but that doesn’t explain a 2000 MW cut in April.

Oh well, time to mow my lawn … its February in Seattle and my grass is growing like its May (dog kicked again).

Cheers,

Mike

 

 

Good Morning,

Price Forecasts – Selected Markets

Next Day

Mid-C bore the brunt of a bearish turn in the Ansergy forecasts, day on day, with a drop of $1.46 for on peak.  This crash was the result of a confluence of bearish variables:

Rarely will you see all the key drivers turn bearish but that is what we saw in the model today.  Demand (down 500 mw), Hydro (up 600), wind (up 300), and gas down $0.04; the only bullish element in today’s forecast was exports which were up 240.  All other hubs were also down but most of that drop is explained by the change in gas price.

Balance of Month

Day on day changes are universally down but, like the Next Day, the biggest drop in the model is at Mid-C.

Prompt Month

Same story as the BOM, everything off but the biggest hit is again at Mid-C.

Q2 2016

Here, in Q2, the trend is somewhat broken with NP15 leading the hubs down.  Mid-C’s decline is tempered by the fact that the model has pretty much put coal on the margin through the entire strip rendering that hub relatively immune to changes in gas price.

Today’s Fundamentals

The weather has turned warmer everywhere; and wetter at the Mid-C:

Composite Weather Forecast – MidC

The near-term outlook has gotten materially wetter at the Mid-C but with that warm weather the snow levels will be well above 5,000 feet meaning much of this next storm is going straight into the rivers.  Also worthy of mention was that head-fake cold front which yesterday’s forecast teased us with … it’s pretty much gone today.

Temperature Forecast – Burbank

Burbank is clocking a scorching 88 for a high today which will come close to setting a new record.  That heat wave is kicking on some air conditioners; yesterday’s ISO SP load is near a 21 day high:

ISO SP15 Actual Loads

The weather forecast has already driven Mid-C to its knees but the RFC decided to kick it one more time by raising its 10 day forecast:

NWRFC 10 Day vs STP Forecast

Rub that sleep out of your eyes and you’ll see that the RFC added about a 1000 MWs to its outlook for next week which bodes bearish for the STP that never was published yesterday, but should be today.  We checked our holiday calendar to see if the Feds had the day off – all we could come up with was that yesterday was National Boy Scout Day.  Hopefully today isn’t National Cub Scout Day.

I can’t close with out throwing you bulls a bone; a bone that the RFC Water Supply Forecast provided:

NWRFC Water Supply – Apr-Sep

This 1% derate arrives conveniently one day before the COE releases the Feb Flood Control which should drive a slightly smaller April GCL draft.  Probably just noise but it still is a bullish bone and bullish bones are hard to come by of late.

Mike

Good Morning,

Let’s start with the price forecast, then we will explore some of the more important fundamental developments.

Next Day

Our models are forecasting lower prices across all hubs for both on and off peak.  Blame it on lower demand, lower gas, partially offset by lower hydro.  The BOM and Prompt outlook is not much better, as in not any more bullish:

Balance of Month:

Prompt Month:

Today’s fundamentals are a mixed bag of bullish/bearish elements.  Starting with weather we see a very warm and slightly dryer Mid-C :

Mid-C Composite Weather Forecast:

It’s dry as a bone now but another storm will hit by week’s end. though it will return just normal precip.  More interesting is the cooling trend  beginning on Day 9 (Feb 17) which, if realized, will jack loads by 2000-3000 MW.  Maybe call it Winter 2016’s last hurrah because we are running out of calendar in a hurry:

Forecasted On Peak Loads – MidC

We Mid-C travelers are literally approaching a cliff of falling demnad as winter wanes; contrast Mid-C with SP15:

Definitely a tale of two demand curves and speaking of SP, how about that February heat wave our friends in the Golden State are enjoying:

Burbank

85 degrees in February, early February at that.  Sorry, this isn’t going to be much of a load event as the evenings are in the low 50s.  San Jose, as we know from watching the Super Bowl last night, is also experiencing something similar:

That forecast, San Jose, is bearish as its not hot enough to kick in the ACs and not cold enough to start up the heaters.  More important is what it will do to the snow pack in the Sierra’s, which is expected to reach the high 50s for several days (Lake Tahoe).   Lower elevation snow will melt and we should expect the first freshet of the season.  Though much of that water will be caught in the reservoirs some will go through the turbines.   Call it bearish.

Monday means STP update, oh boy, always fun to see what the Ouija board has in store for us.  The 10 day may hold some clues:

NWRFC 10 Day Foreacst vs STP:

The big surge in last week’s STP never came but the latest 10 day is adding more water at the back end.  Hard to really say what today’s forecast will do though I’d be leaning towards a restatement of May – downwards, maybe like 1000 MW lower based upon lower water supply forecasts – both GCL and TDA are off 1%:

NWRFC Water Supply Forecasts

That is an important change since Wednesday, or Thursday, the Corps of Engineers will update the Flood Control Draft.  Don’t count on any major changes given that Jan’s draft was based upon 93 GCL and 94 TDA, though I don’t really see how the RFC comes up with a reduction.  Snow pack doesn’t support a lower forecast:

Every major basin is up week on week yet the RFC is down … go figure.   Tomorrow I will take a look at some of the forwards and attempt to identify some opportunities.  Enjoy the rest of your day.

Mike

Good Morning,

BPA has down-rated the AC to 3800 mw for the near term and flows have dropped accordingly:

Mid-C to NP15 Transmission Flows (actuals):

On the surface it should not be a big deal, but any cut is bearish Mid-C and bullish the spread.  While we are on the subject of TTC, BPA is projecting more work on the DC next fall with the line ratting set to 0 (ZERO) for all of October.  It’s only a month, but a month can grow to two months so keep an eye on it, we wil.

BC Hydro has ramped up its exports into Mid-C over the last couple of days:

Northern Intertie (actuals):

No doubt the Canadians are feeling a bit long, and the wait for bulllish markets in the USA grew tedious, so they ramped up their exports, or they looked at the weather forecast and realized that current prices are as good as they will get.

Weather Forecast – Mid-C Composite:

These two plots (Min Temperature and Total Precip) are both today versus three days back.  Northwest temperatures are 3-5 degrees warmer than the start of the week (in days 1-10) and that storm we first took note of in the 11-15 has not gone away, and is now  8-13 days out, and has not diminished.

Here is a change for you, instead of posting Min Temperatures I am going to show you some Max Temps – for Burbank, CA:

Weather Forecast – Max Temps – Burbank, CA:

Yes, you are reading that correct – 81 degrees.  I’ve seen summer days in the 80s, a lot of them, at Burbank.  Hard to see many folks flipping on the air conditioners when the low is in the low 50s, but still, it’s 81 degrees in February.  A warm spring anyone?  Early runoff amidst the flood control draft … 2000 all over again.  Nah, unlikely, but anything can happen.

What will happen, next week, will be a new Flood Control guideline released by the Corps of Engineers.  That will be based upon the official water supply forecast as of Feb 5 adjusted for the near term precip on that day.

Water Supply Forecast

Those numbers are up from the Jan values used in Flood Control – not by much, just 1-2%.  Even though we are deep into this water year – about 70% deep – a lot can change between now and the end of the build season.

Historical Water Supply – GCL

This year is now above last year and look what happened in 2015.  Look also what happened in 2013 and 2014, both years were at about the 2016 levels and ended up well above normal.  Given an approaching storm, and current snow pack, I don’t think this year is high enough:

Northwest Snow Anomalies

Take the Flathead, as a case in point.  The Water Supply forecast is a modest 85% of normal yet the snow anomaly is 98%, and we are at least 70% through the water year.

I can’t close without throwing out a bullish bone, one that is provided by the River Forecast Center via its 10 day forecast.

Northwest River Forecast Center – 10 Day versus STP

Take note of the cuts in the last two days, cuts even from this week’s STP.  If those cuts hold by week’s end  it may portend a bullish STP next week.

Given all of the above I am bullish California BOM and bearish the Mid-C.  I still like the March-April Mid-C roll with the one handles and our Q2 outlook (Mid-C) is bearish but tempered by the already low prices.

Mike