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Featured Commentary

Falling Into Fall

Good Morning,

Check out these temps ….

001_mintemp

Can anyone say HDD?  OK, it is just Kalispel but still, 29 degree lows in mid Sep …winter truly is coming and summer is leaving.   Precip is coming too, to the northwest:

001_wxprechub

MidC is shaded which means a positive anomaly; the hub composite (weighted on hydro production for 7 stations) is projecting 0.66 inches of precip over the next seven days.  Not a deluge in any sense but over 3X more than normal and perhaps the beginning of a new weather trend?

Portland, OR

001_wxtemppdx

The forecast cools off into next week but at best weather will remain relatively mild though with the cooling weather (and precip) comes some new wind:

001_renewmc

Ugghh is right, that block of energy will knock the wind out of any MidC rally that anyone of you bulls (bullish because you’re long?) were praying for.  Now if more wind doesn’t blow away those hopes maybe the RFC’s latest forecast will rain on your parade?

001_rfc10day

The Northwest River Whipsaw Center has reversed itself from Monday’s STP and is now bumping output through its 10 day (this is Tuesday’s, check back later this morning and see if these bumps hold, with the whipsaw center one never knows).

Loads at MidC are flat week on week  but still worthy of a gander:

001_loadsmc

A couple things caught our eye:

  • Huge cuts earlier in the week from last year, like 3000 MW
  • Flat loads across the onpeak hours; this will change as the northwest’s morning peak will be rallying and putting some upward pressure on the off peak.

San Jose, CA

001_wxtempsjc

Very cool in the front with a gratuitous head fake heat wave tossed in for next week.   Well maybe it happens and if it does, coupled with high 90s in Burbank, could portend for a decent ISO rally.  Rally it needs, NP’s loads are in the toilette waiting for someone to hit “FLUSH”:

001_loadsnp

Coupled with lousy weather has been a fairly robust renewable market … in NP15:

001_renewnp

We found it interesting that very little dispatch of wind on the solar hours, typically we’ve seen the ISO cycle these plants to follow solar but over the last week not so much and next week looks to be calmish.

Burbank, CA


001_wxtempbur

The first hot day falls on Sunday but today’s forecast extends out this mini-heatwave into Monday ….this is a 14-15 degree day rally from where things sit today.   Unfortunately the weather gods can’t get their stories straight as they make Burbank hot when San Jose is not and then make San Jose hot when Burbank’s not … oh well, that’s just the way summer 16 has played out.

Socal’s Loads

001_loadssp

Ouch, off 4k week on week and check out the deltas from last year …it’s a brave new cold world out there.  At least we have the outage season to look forward to and a few new ISO units are off line today:

001_isooutcur

But before lifting those offers on the ICE screen realize that a few units have also returned:

001_isooutret

Such is life, they giveth and taketh, though lately seems like more taketh than giveth.  At least imports are down:

001_transisoimp

Most of the cuts can be explained by the TTC derates on the AC:

001_transac

Flows out of MidC, into NP, are off about 1000 MW which explains most of the ISO import haircuts.  Some of those cuts are driven by TTC but the rest can only be viewed in context with weak ISO fundamentals and tight northwest water.


Phoenix, AZ

001_wxtempphx

The teaser heat waves have been replaced with 3-4 degree day haircuts for the next week.  Hard to be comfortable with a BOM long position when the hub is posting 5-10 degrees below normal, but at least you got a nuke off line ….

001_nukes

Or do you?  It’s coming back, PV1 that is, though PV3 will be going into its refuel soon.  Needs to, loads blow at PV:

001_loadspv


Markets

001_dalmp

The solar hours continue to plague the DA LMP for SP and Palo.  The EIM isn’t much better:

001_eim0

Not much excitment in the EIM xcept for a 5 minute $1k anomaly yesterday; that solar pain shows up clearly when plotting EIM by hub:

001_eim0a

SP clears many ticks sub-$10 while the outside hubs are mired with $20 handles.  At least gas is showing signs of life:

001_spotgas

Socal Citygate led the charge with a $0.20 rally week on week and narrowed its spread to PG&E citygate by $0.03, though this change isn’t reflected in the term market:

001_termgasspread

The near term market sees the spread widening and now Oct is at a five year high, so is Nov.  Forget power, this is the market we want to be trade.  Sure we get the loss of Aliso injection load is bearish on Socal and that is reflected in today’s cash market spread of $0.50 but cash today has zero core gas demand and the forward market is assuming even less in Oct.   Maybe Oct is not too far off but we think Nov is dumb and would sell the Nov spread and either buy the Dec or Oct to hedge, if we were forced to hedge, but would prefer just owning it.  Bear in mind Nov will have core demand, latter Oct probably will have core demand, and the DC will not flow and outage season approaches.


Risk/Reward Matrix

Monthly

001_riskrewmon

This is our new report which averages the deltas between the base case forecast and all ten test cases (5 bearish, 5 bullish).  If the number is positive the model is bias towards the long side, negative it would tend to favor a short.

  • Despite all our bearish bluster above the model likes BOM length everywhere but prefers both MidC and Palo over SP
  • October is a different story and the model likes the SP at the expense of MidC and Palo, but prefers the short at PV
  • Nov – really likes the MidC and is neutral SP and PV
  • Dec – loves MidC and doesn’t like the other two, but be careful with MidC as the forecast is currently using STP which we think is understated.

Quarters

001_riskrewqtr

Aggregating all monthly averages into quarters provides a macro perspective on bias:

  • Q1 – lots of downside at SP because the forecast sits on an inflection point in the stack
    • 001_stacksp
  • Q2 – the model would short the MidC, or buy the SP-MidC spread, or better, virtually spread PV to MidC.

Conclusions

  • BOM
    • SP – Despite the market over the forecast we are long just because it is cheap and the recent uptick makes a friend of the trend
      • 001_trsepsp
    • PV – same as SP and are expecting PV3 to go down for a refuel and temperatures to approach the century mark …maybe
      • 001_trseppv
    • MidC – we’d love to tell you the market is cheap but its not and we are short despite the model bias bluster
      • 001_trsepmc
  • Oct
    • SP – market has sold off and is continuing to sell of and continues to be below the forecast though that delta is collapsing.  We’ll texas hedge the long bom with some oct length, but this will virtually be a long sp/pv and sp/mc
      • 001_troctsp
    • PV – not real comfortable with shorting this chart but need the offset to the bom and sp oct length
      • 001_troctpv
    • MidC – short and would be tempted to double the Oct MidC short and not do anything at Palo.
      • 001_troctmc