Silver Lining

Good Morning,

The glass is half full, bright side, silver linings in dark clouds …these are all euphemisms for a cheery outlook regardless of reality. Some call it “head in the sand,” naive, foolish, and even reckless. We tried to find some silver linings today and succeeded; anyone can find something to support their book if they look hard enough. Reminds me of a fellow trader who subscribed to five different weather services. Every morning he’d call all five until he found one that supported his position, then he’d jump up and cheer, even if his puny position was opposite the aggregate book. He always found his silver lining, but he rarely found silver at bonus time.

So here we go, Silver Linings … how about that demand?

The Northwest continues to post loads higher than last year, that’s good, right? Several hubs posted week on week gains, that’s also good, right?

Gas is up $0.02 as we post, yippie dippie doo, lift an offer. We give up, let’s switch to half-empty glass mode.


Demand

Whoa, Phoenix posts a high of 87 in today’s forecast, that is sterling silver for early March and should force some ACs to turn on. Even Vegas boasts an 80 handle for a day or two. Offsetting that euphoria is the warming across the Trump-belt which only destroys heating load. C’est la vie.

Our friends in California lose a few CDDs, if they were even CDDs, and slip-slide into a modest and temperate outlook. No silver in this lining, it’s just another bearish CA weather forecast.

The Northwest can be the most boring of the hubs, it usually is in Summer and Fall, but come Winter and Spring it’s the king of thrills, chills, and spills. This winter it’s borne the bullish burden mostly by itself off of the crazy cold. Now the region is changing tunes, instead of being the bearer of bullish news it’s the harbinger of bearishness and will cast a sickly pallor across all of the WECC for the next several months. But not just yet, the hub is hanging on to its coolish weather, though the climo trend is pointing up, and so are the forecasts. All of which means declining loads and increasing snow melt which equates to no silver linings, just pain for the foreseeable future.

Actual temperatures in early March rarely excite anyone, but we just wanted to point out the chilly northwest weather of the last few days. That turn to cold has put a brake on the snow melt; natural river flows are tightening – is that a silver lining? No, it is just a pause in the inevitable massive melt that is coming.


Hydro

We made a new dashboard yesterday called “Snow Melt”:

This is just a comparison of Min & Max temperature forecasts for three villages. Note all three have Mins below freezing, but all three have Max above. All three are warmer over the next two weeks than last week, too. So what, you ask? Check out these two snapshots:

Snow Cover Two Weeks Ago

Snow Cover Yesterday

You can view these, and about 30 other weather images at / Fundamentals / Images. Most have a year of history, a few we just added last month. Point in posting those pictures is the big builds in low elevation snowpack – they shouldn’t be building this time of year, they should be melting, but they’re not. There is no silver lining in last week’s cold and wet weather – it merely deferred the eventual “melt” down.

The Golden State will get a new set of storms per today’s outlook, though most of the wet is in days 11-20. Worth watching, not that another set of storms will make a bit of difference in energy output; that state will be at hydraulic capacity for the next couple of months; one more storm just means more spilled water. Too bad they can’t store it in BC Hydro’s system and use it next year when they enter a new ten-year drought.

The Northwest is poised to get wetter than last week, and most of this precip will come down as snow north of 3000′. Fuel to the bearish fire, more pain for June-July.

Speaking of pain, check out the RFC’s latest water supply outlooks:

Ice Harbor is now projected at a mind-boggling 129% of normal; most of this rally over the last ten days was from the storms that soaked California, and a lot of it is still sitting on the tundra waiting for those mid-50s at Boise that is coming.

Even Coulee’s water supply has rallied, now it’s 104% of normal per the feds; we are a more modest 99%. But let’s look at TDA since that will set flood control:

Silver Lining? No way, this is just a big black cloud hovering over the Mid-C’s term market. That kind of outlook should force a draft to the low 1230s, even 1220s; right now the target is a stupid 1252. I wouldn’t want to own riverfront property in Portland if they don’t evacuate more water in April because if all of this comes down fast, you might see BON posts 500 kcfs discharges. COE do your job, force BPA to draft Coulee to 1220 in April!

We already mentioned the drop in natural river flows; all of our Side Flow indexes have fallen, week on week. That suggests some silver, declining flows, right? Not really, just suggests a bigger deferral into March-April. Fortunately Spokane doesn’t hit the 60s or BPA would have a big problem on their hands.

With the declining inflows, the feds were able to back off discharge out of GCL a bit, and they now have the reservoir at 1269′. Fourteen feet to go in fourteen days. Doable, as long as inflows don’t appreciably pick up, but they will so expect more water out of Coulee.

Flows at ALF and HGH are ticking up; both of these are regulated. Worth watching the Spokane which dropped to 16kcfs from 19kcfs last week; we think it surges to the 20kcfs handle by next week and the Pend Oreille should sport a 30 handle. Flows out of Arrow have been turned off to help BPA, which may explain why BC Hydro was such a big buyer yesterday (that and cheap prices).

BPA’s second cousin, the NWRFC, jacked up its outlook for the back-end of their ten day. That isn’t news, they’ve done that every day for the last month.


TransGen

Enough of this hydro, it’s so depressing (on prices). Here are some bullish nuggets to take back to your risk manager:

These are plots of planned outages in the ISO for the last five years by hub. The solid black line represents current outages. Nearly every year had more than we see today all of which suggests there are more outages to come. Sliver of Silver Lining.

Returned Units – ISO

New Outages – ISO

More tripped than returned, but not by much. In this market, you take what you can grab, and this is about as bullish of news as we found.

More bullishness for the MidC: every major line out of the hub was exporting above the two-week average. Wait a second, full lines is bullish? Not from our incrememntal perspective; if they are full now can they get fuller than fulll? Nope, all they can do is remain the same so any new energy in the NW is stuck in the NW. Not sure what is going on inside ZP, flows are not flowing, no one wants any of that energy.


Conclusions

  • March
      • We fear the low-level snow melt and the draft to 1255′; the market rallied a touch, probably off of gas which won’t be on the margin, so we are
        • MidC – Short
        • SP – Long
  • April
      • An alert client pointed out that surely we couldn’t still be bearish on April Mid-C. After all, it’s down to the mid 13s, how much lower can it go? We think differently, it isn’t how low will it settle but how low will March cash get? All of the MidC has tanked through a relatively bullish week (last week) so maybe it is getting close to value. Apparently the fat that was in the product two weeks ago, even last week, has been trimmed. Even with that said, we won’t own it, we think cash could approach single digits in March which would pull down April; we also think the current April drafts are poorly designed and way too small.
        • MidC – Short
        • SP – Long; more as a hedge against our short MidC but also we hold out hope for some Burbank 80s, maybe 90s. Casting a pall on the hub is the hydro overhang, something which will take months to work out, but as a spread, we’re really betting on a very low MidC
          • LONG
  • May
      • SP – we like May over April as much because it’s further away from March but also because the odds of hot weather is triple.  The market has liked it too, but we’re long the May off of the hedge against the short MidC
        • SP – Long
        • MidC HL – Short
        • MidC LL – this is interesting, trading with a $3 handle; will the month settle at $3.50? Strongly doubt it, but if we’re right about March cash this could get sold down more, but not much more, and therefore is a safe place for some off-setting length
          • LONG – call it the short on|off
  • June
      • The South saw a bit of a rally, more than the north, which means mtm gain for the long spread. We still like the spread, despite the CA snow pack, because we fear an 110% water year at MidC. Much will depend on how warm the spring is; if it is cold June MidC will settle at $6.00, if its warm, it will settle at $7.00 … just a guess.
        • MidC – SHORT
        • SP or Palo – LONG
  • July
      • Big water years always spill into July in the northwest, the market recognizes this and has sold the bejeezus out of July MidC, perhaps too much. We never like to have the opposite side of BPA, they will be long and want big prices to pay for their Mar-June trainwreck of a budget. We’d be comfortable owning July at $22 but won’t bother, have too much other stuff on to care.
        • No Position anywhere