Market Commentary

Good Morning,

There is an ever so slight hint of cooler weather in the northwest, though given it happens in days 11-15 there is an every high probability of cold weather NOT happening:

That Jan 26-Jan 30 period will definitely will stay on our radar screen  but given the forecast also includes a fair amount of precip we doubt the event, as it currently is modeled, holds much hope for a big load event.  Yet the fact that the forecast has dropped seven degrees, the first time we’ve seen a drop in a few weeks, is an event in and of itself.

Today we shall receive the STP update, probably later this afternoon; normally the forecast would have been released yesterday but given that day was MLK day the feds took a much needed break.  Perhaps that extra day gave them time to reconsider their ultra-bullish Feb-March forecasts?  Seems the 10 Day is suggesting another BOM bump which probably will spill into Feb:

That is a 1500 aMW increase in projected outflows but it is the same thing every week …. tight STP beyond day 14 with a subsequent revision upwards a week later.  Given the big wet in the northwest that trend will/should continue.  The latest Water Supply numbers don’t reflect much change in the April-Sep:

These are quite modest changes, perhaps because yesterday was a holiday; so modest they seem under-stated, at least from a snow perspective:

The snake basins are up 6% week on week yet the LWG water supply forecast is unchanged – huh?  Above Coulee is up as well though just 2-3% higher.  Note the BC stations are enjoying a healthy water year (except for the Peace which is a train wreck waiting to happen).  By the way, those BC stations were just added yesterday and are a compilation of several snow stations mapped to the downstream dam and computed using our own internal 20 year averages.

Back to the water outlook … it seems to me that the official outlook will continue to push up for the remainder of this week and with normal precip, perhaps slightly higher than normal, it will continue that trend into next week.   This is important to note as the Feb Flood Control guidelines will be set off of the Feb 1 water supply forecast which currently looks to be just under what was used in January:

So our best guess is Feb Flood Control will either be unchanged or slightly deeper drafts.  Assuming those drafts are now priced in then our outlook for the Mid-C remains bearish Q2 but that hint of cold at the end of the month tempers our bearishness for Bom/Feb.  The return of the DC this week further tempers that sentiment as does the recent renewables:

Most of that wind haircut from last week is coming out of Mid-C.  Granted there is nothing to make us rabid bulls but there is plenty to make us less rabid bears (DC line, cooler weather, low prices).  I’d be taking gains on those shorts we virtually laid on and be approaching flat bom/feb and wait out the weather.  Of course if the front (cash) rallies so shall all the other periods however the certainty of a rally is low and not worth paying the bid/ask/brokerage to reverse the q2 shorts ….yet.  Our price forecast for Mid-C reflects that sentiment:

There is not enough water to push the Mid-C out of gas until you get towards the end of May -then we could see single digits, probably will.  Big drafts in April could change that, so could really warm March-April, not that we, or anyone else, knows what that weather then shall look like.  For now I’d just take some front-end profits and keep the back short and watch the weather.

Mike

Good Morning,

I had a dream where an EL Nino Mid-C was Cold and Dry but alas, it was only a dream, and Mid-C is Warm and Wet:

In fact it is warmer and wetter than last week’s outlook and it is especially wet in the east where wet matters most:

Boise

Spokane

That dream of back to back dry Mid-C years is morphing into a nightmarish (for longs) normal, and if these storms keep coming, a very wet year.   If today’s forecast is just half right than the official Feb 1 water supply numbers should be equal to, perhaps exceed, the Jan 1 and the Flood Control drafts enhanced.  Lots of ifs but worthy of yours, and our, due diligence.

Worth noting too is the “early” return of the DC, which is now scheduled to be back to 2990 as early as tomorrow.

That will help Mid-C and “hurt” SP especially given the fact that the Northern Intertie has essentially been south-bound full for weeks:

With cash spreads the way they are, wide, there is but one direction for them to go – less wide.   The DC return has been priced in for Feb but not BOM, let’s see what the market thinks of the news today.  For the record NP is also wet, this storm system is spraying water from Seattle to Santa Clara but seems to be sputtering the further north we go.  The Peace is dry, in the 70th percentile, the stations above Mica are dry too, though southern BC is realizing similar anomalies  as the northern US basins.

Our outlook remains bearish in light of the additional east-side precip and the very warm weather.  My net book would be short, and would get shorter this week, but I’d probably cover all my BOM Mid-C shorts and move them into SP15.  I would also start looking at Q3 Mid-C as a possible short candidate:

The bigger the water year the more likely the runoff spills into July making the Q3 very sensitive to that big water.  We don’t have big water today but we don’t have dry either.  Our forecast is already seeing some new runoff water in July and driving the price down – the market sees something else, not sure what that is.

Mike

New Summary Reports

See the current values and the change from recent periods quickly with navigation to charts readily available. This has also led to less complex menus and few clicks to find the data you want.

Forecast Summary briefly summarizes changes in the forecast over the last month with links to charts.

Fundamentals Summary summarizes key fundamentals by comparing the current values with last week’s and assigning a bearish, neutral, or bullish sentiment to each. The chart nets all sentiments to derive a hub-level sentiment.

STP Slice and Historical Avg

All of the STP forecast reports now include 5 year averages for better historical context.  Also, now you can choose to look at the STP for BPA Slice projects as a subset of the total STP number.

STP Daily Slice Only

Roadmap Ahead

We are working on a number of improvements including:

• better market prices with more consistent forward curves
• additional backcasts
• improved charting controls

Please send us any ideas you may have regarding the product at [email protected]

 

 

Good Morning,

Would love to report something new, something bullish, but can’t lie – the outlook remains wet and warm:

Ansergy’s Fundamental Sentiment Index at Mid-C (aggregation of 50+ week on week indicators) has turned decidedly bearish; bearishly akin to what we saw in Mid-Dec.  Most of this is driven by the changing outlook; the index would be even more bearish but includes Water Supply outlook and the NWRFC lags a bit on updating it’s forecast, though we are starting to see some basins rally:

The table comes from the Sentiment Report and is sorted descending on Delta (Current – Last Week).  The mighty Spokane River has rallied 7 percentage points and our friends at Avista must be mighty pleased that those 150 MWs will have that extra water in May and June.

These upgrades to the water supply outlook have just begun, I point them out today to show how volatile that water supply outlook can be, given a big storm system in mid-January.  Two months from now it will be much harder to move the numbers, today just takes a good storm.

California has a bearish outlook as well:

NP finds itself nearly an inch wetter than yesterday with an even bigger bump realized at Lake Tahoe.  The Mid-C is still wet just not as wet:

Renewables have soared with the arrival of the storms:

These are approaching the identical highs seen in the last storm system and will battering cash.  Compounding your long woes are the falling loads with the peak for reported control areas off nearly 4 gigs from last week:

Want more?  Check out the NWRFC’s Ten Day:

Contrast those changes with the big bump in Monday’s STP –  oops, guess it wasn’t big enough.  Bodes poorly for next week’s STP, at least from the long side.  Every one (as in Slice customers and northwest IOUs) are getting longer just when they wish there were some short hedges – oh to be a spec player, at least a good one.

Has the hydro pain crested?  Nah, more pain to come, me thinks, and a hint of that can be found in our STP reports:

The gray line/bar is a new addition to these popular reports and reflects the average of all STP forecasts for those periods since 2012.  We added this to provide perspective as to where this year is relative to the recent past (at the request of a client, I might add).  I look at those plots and see an increasingly liklihood that the NWRFC will continue to bump their streamflow forecasts over the course of this water year.

That’s it for now, need to get out the dinghy so I can row to the mailbox.

Cheers,

Mike

Good Morning,

Like Bill Murray in Groundhog Day, I keep waking up each morning to a warmer and wetter outlook:

Even NP15 gets soaked by this current system, though Socal will, for the time being, escape its wrath:

Storms arrive via wind and that energy source is beginning to rebound from nothing to something.

About three weeks ago, just before Christmas, the reported renewables (BPA + ISO) hit a seasonal high of 10,000 aMW and this system will also bring a strong rally which will render our BOM outlook ever more bearish.

The big news is not the wetter weather but that yesterday the Corps released their initial Flood Control guidelines:

Note the drafts for January: Mica 1.6 maf, Arrow 1.7 maf, Lib 2.0 maf, and Duncan .085 maf.  Those reservoirs are pulled even further in February but the majority of the water is taken out in January.  Coulee escapes a draft until April whence it must draft about 30′ which is over 4 maf.   All of this is based upon the Jan 1 water supply forecasts and we know those have fallen since that date:

Everywhere fell off but given the latest storm system all of these stations will rally off of the current forecast.  Where this ends up on the official Feb 1 number is anyone’s guess though I’d be inclined to suggest the next draft will be smaller but not dramatically different than what is now projected.

So what’s it all mean in terms of your book?  To answer that question we have to first see if the draft will actually happen, but if it does occur all of that drafted water is heading for Coulee.  I’d expect Powerex just found themselves longer and may explain some of their aggressive selling of late:

Coulee has room to capture inflows as it is  sitting at 1280 but that will fill quickly  should the Canadians start pulling down their reservoirs.  Once  full, the Canadian draft renders the USA Columbia river system a run-of-river system.

I was bearish BOM and Prompt yesterday and am more bearish today.  I was relatively bullish April light load a few days back and no longer have that sentiment and would immediately unwind that position given the four  maf draft at Coulee.  In fact, nothing looks bullish any longer and if I was a hedger. and had length. I’d unwind it; if I was a speculator I’d be short and getting shorter.

Enjoy the bal day,

Mike

Good Morning,

The Mid-C outlook, shorter term, is a touch more bearish this morning as it is a touch wetter in the outlook than it was yesterday.  Forget Seattle and Portland wet, think Boise and Spokane wet:

Mid-C temps (load-weighted) are a touch higher and precip is the same but what is bearish is that much of this storm system makes it across the Cascades.

Boise (aka Snake River)

That is a rather bold forecast on the 15th – nearly an inch – and I’d discount it, but still Boise most likely will get an inch total out of the storm.  Spokane also gets wet:

Spokane (aka Upper Columbia)

Likewise, nearly an inch in total precip out of the current storm system; an inch for a city that gets less than twenty on average.  Most interesting, at least to me, is that the dry spell is broken by a significant storm system.  The timing, right before the Corps sets its first Flood Control regs, is equally important.

Most of the Upper Columbia basin water supply forecasts are in the mid 80s, this system may push them into the 90s which should trigger a decent draft.  If there is a draft, say 30-40′ in Coulee, expect Feb-Mar to bear the brunt of the regulated flows and expect the NWRFC to massively reverse its overly-bullish STP forecast.

Granted those are a lot of ifs, buts, and maybes in these statements but anyone who says anything with absolute certainty  about the current water year IS making a mistake.  Yet we must do something or we look like we are doing nothing, though nothing may be exactly what we should be doing.  Yesterday I talked of Feb Mid-C heavy, let’s talk some more about that:

I was reluctant to put anything on there, but said if I must I’d buy it off of the return of the DC.  Today I have more conviction – but from the short side, driven by the re-confirmed northwest precip.  What we know is that the northwest will increase its hydro production over the next ten days, that is a fact.  And we know that snow pack will build, again, another fact.  What we don’t know is if the Mid-C will get cold, like real cold, which is the only thing that can save Feb.   I’m not going to bet on something that isn’t yet in the cards; bet on what you know.  Put me down as short Feb Mid-C until you hear otherwise.

I like to stay balanced so where to find some length?  How about Feb Palo?

Outage season has begun and yesterday it sold down to the mid 22s and reached parity with the forecast;  today I’d be a buyer, more to hedge against the Mid-C short.  Alternatively you can do this against SP or NP for the same affect.

Another way to get a similar position is to do the Mid-C Mar-Feb roll:

The roll has settled Mar over ($3.70) in the recent past and it’s now trading at the 60 day low (Feb over).  If Jan cash gets mushy, and it will, Feb is going to get spanked, and it will, but Prompt+1 is always less elastic to cash.  Do I love the trade – NO!  But I think its worth a buck or two and, for the sake of looking busy, I’d put it on.

Enjoy the rest of your day,

Mike

 

Good Afternoon,

The NWRFC updated its 120 day forecast at 1:43 pm today and as expected the BOM got a 1gw boost and the Feb-Apr got boned:

I still shake my head every time I look at the year on year plot; I guess they might be right if the Mid-C doesn’t receive another drop of  rain this year.

Ciao,

Mike

Good Morning,

The Mid-C looks to be moving into a wetter spell, not the epic rains of December, yet above normal.  That wetness, coupled with temperatures which are warmish plus those blustery winds which accompany such storm systems, bodes a touch bearish for the northern hub:

How bearish depends on what British Columbia does as much as anything else.  If they continue selling 1500 aMW into Mid-C it will be bearish but if they exercise their virtual pumped storage options some of the short term slop will be sponged up by our Canadian friends.

While on the subject of transmission there is no new news to report.  The DC partially returns on the 20th with a south-bound TTC rating of 595 and fully returns in early February.  Whenever it does finally start flowing electrons it probably won’t make much of a difference as BCH will just increase their southbound flows or maintain them in softer markets.

One indisputable fact is the impending precip will dampen the Q2 and early Q3 outlooks.  Those storms may also indirectly affect Feb-Mar as well via flood control.   Our current guess on flood control-driven drafts is that it will be moderate to very moderate … maybe Coulee at 1260?  That is based upon a relatively dry system today (per the NWRFC):

Take note of the four lowest stations – all major production basins and three of the four feed into Coulee.  Also take special note of the week on week and month on month cuts everywhere.  The Corps of Engineers, going into this week’s initial decision on Flood Control, should be biased dry and consequently advocate minor drafts.  That could change if the precip outlook remains as is, or grows.  Watch the COE site for a flood control update late this week or next week.

That is one school of thought, another is that the water year really isn’t as bad as the NWRFC proposes.  This other school deploys snow pack anomalies as the basis for their positions:

Their outlook is less dry, most of the basins feeding into Coulee are in the mid 80s, and with a new storm system potentially building we could see 90s by next week.  If the Corps ignores their federal brother’s forecasts and looks just at snow they may be inclined to lean towards a more aggressive draft; perhaps Coulee at 1240?  Now that would be bearish Feb-Mar and possibly quite bullish May-June.  Worth watching, meanwhile you have to keep on trading/hedging, and be right more than you’re wrong, or your boss is going to wonder why you are sitting in that desk, right?

Prompt Mid-C has seen a widening delta between the market and the forecast of late as the latter has been pushed up by a tightening hydro outlook.  Given possible flood control drafts in February, or no drafts, we wouldn’t trade this today as there may be information in the market later this week, and surely by next week, which could adversely affect that position.

Something I would trade today would be the on/off; take a look at the Mid-C Feb on/off:

The market has kept this spread beneath the forecast for several weeks, then parity, now it is trading at a substantial premium, maybe too much of a premium.  Here I’d be inclined to short the on/off assuming I could bag an eight handle.

More interesting than the Feb on/off is how the April and Q2 are developing.  I’ve said it more than once, it is too early to bet your boss’s farm on the runoff, but it’s not too early to pick off anomalous mistakes as that water year develops.  One of those mistakes may be occurring in the Mid-C light load markets.  Check out the April off-peak:

The forecast is pushing up on the declining snow pack while the market is just puking – ignoring the gas rally and that same snow.  $11.00 light load assumes no gas on the margin, no Centralia, no Boardman …. no way!  Now look at the Q2, because this is where the mistake is occurring:

The Q2 is flat to the April, at least in these questionable broker-quotes we are using.   Assuming it is in the real world then that is a mistake for a couple of reasons.  First, April will trade off of March and May and June will be relatively inelastic to that cold-driven cash.  Next, the runoff will most likely not begin until May and won’t crest until early June.  April can be notoriously cold, May rarely, June never.    In short, buy the April off-peak in the eleven handle and sell the Q2 at the same price, or, if you like rolling dice (and winning), just buy up all the $11.00 April light load you can find.

Today we will ponder the latest STP head fake and are predicting it to be of a bearish hue:

You recall that sermon I laid upon you last week – the one about the RFC under-forecasting the front and later repenting of their sins.  The chart above is re-preaching that same message in a big way.  Given some new precip in the outlook, and the RFC perhaps feeling sheepish about continuously understating flows, we think today’s numbers might be big and bearish, like about 2 gigs in the bom.  I don’t see them that contrite in the Feb-Apr so maybe a slight bump there.

Cheers,

Mike

Good Morning,

The outlook for the northwest is, as the subject says, dryer and warmer than what we’ve seen earlier this week:

The warm will shed a gig or two of load, the dry will shed a few percentage points off of the water supply forecast.  California is recovering from its storms and looks like there may be more on the way:

As the saying goes, “when it rains it pours” and Socal is awash in wet weather.  Doubt there can be many El Nino doubters left, it’s here and real and real big and will drive prices up in the northwest and down in the ISO.  Check out the Ansergy recap of the Q2 spreads for different water years sorted by Nino type:

Just compare the Y axis – nearly double in a La Nina.  This is driven by an increase in hydro production in California and tight water in the northwest.   The RFC is suggesting an ever-increasing bullish year for WY16 with most basins off 3-6% from a week ago:

Maybe too bullish, the snow pack doesn’t support those numbers unless they are using a very low balance of water year forecast:

Not sure what the RFC is using for it’s Snake River forecast because the snow pack doesn’t reflect a 74% water year.   The NRCS summary supports that observation:

The market doesn’t agree either and thinks the Mid-C is in a big water year:

Given another dry forecast I’d be inclined to take on a some Mid-C length in Feb or March, perhaps hedging that by selling some SP.  At some point the California reservoirs will fill and the entire state, all 10,000 MWs of hydro capacity, will become one big run of river plant.

On another note we have updated our STP reports by breaking out the Slice component from the total.  You can query either total STP energy or just the Slice plants:

Whether you look at total or just slice the fact remains that the RFC is aggressively bullish in it’s current forecast when compared to previous years.  Much too bullish, in my opinion, which is why Ansergy no longer uses the STP in it’s hydro energy forecast.   That point is emphasized when you look at the 10 day forecast:

This pattern of bigger water in the front then tailing off has repeated itself for the last several weeks.   Do they really believe that BPA will cut 2 gigs of flows next week?  I don’t.  More on the RFC in a later post.

Enjoy your weekend,

Mike

Good Morning,

On the surface the northwest current weather forecast is relatively unchanged:

I say on the surface because Portland took a slightly bullish turn:

Not a big deal, unless that cold lingers and/or grows.  Those PDX temps are slightly below normal temperatures and should bump NW loads by a gig or more offsetting the recent declines:

 

The renewable picture remains quite bullish with near zero wind in the northwest and seasonally low solar in California:

We know a good storm will add 3,000 aMW of wind energy to the Mid-C but that same “good storm” in Cally does just the opposite; solar falls 2-3 gigs which is partially offset by an increase wind energy.  That good storm in the golden state is dumping a lot of rain turning El Nino into El Nino and the state into a muddy quagmire.

BC Hydro, after a few weeks of squatting on the sidelines, is selling hard into the Mid-C.  After a year of hard selling in 2015 we are thinking regime change and pondering a change in our NI export algorithms.

This sustained level of exporting has never happened before and most likely will continue given a better water in 2016 than 2015.   It’s a concern for us as we are finding our short-term is missing  beyond 7 days; it is also a concern for anyone who is trying to forecast trade or hedge in the Mid-C.

Note the delta between the current forecast (black line) and the forecast from one or two weeks back – that is the issue that concerns me regarding our forecast for BOM through March.  More on this later, but let’s talk about the DC.  BPA updated its long-term yesterday and now has the line partially returning on the 20th to 595 aMW and fully returning on the 1st of Feb:

Someone asked about Q2 earlier in the week and my reply was that now is not the time to lay on the heavy wood (or flatten out your hedges).  From past experience there will be plenty of time to put on  the runoff trade, the problem today is you can’t know what that trade is.  Will this be a dry year or wet year?  When will the runoff start?  How will the feds regulate the system?  None of those questions can be answered today and until we move deeper into the water year they won’t be answered.  For now the best you can do is play the weather forecast – when it’s dry buy a bit, when it’s wet sell a chunk; when it’s really cold buy a block or two and when it’s warm sell a few pieces.

Mike