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Featured Commentary

 

(Originally posted on the morning of Jan, 9th 2017)

 

Good Morning,

It’s wet out there, especially so in California, they got, and are getting, like five years of rain in a week. Their rivers are bursting at the seams; riverfront property is as cheap as a Detroit slum.

001-usgs

We love this map, in a single picture, it tells the country’s water story. California is black, but the Northwest is not, in fact, the Westside is brown in place. But back to California, that picture doesn’t do the current situation justice; we think  this table does:

001-flows-cal

Whenever you see the Yuba flowing 10X the Colorado you have a problem; California has a problem. Every river is busting at the seams; they’ve backed the Pit way down but not sure how much more it can hold; they are now spilling at Shasta. Many in the state are letting out a sigh of relief; finally, they can flush #1 without feeling guilty. Enough about the state getting what it prayed for, they have it, enjoy the water.

001-iso-markets-db

Yesterday, we saw NP and SP get spikey in the HA markets, now we are seeing some very weak prices in everywhere but Pac West, that BA has been on steroids. Check out the Virtuals there:

001-iso-markets-virtual-pacw

This is a four-day average, had their RT folks not sold DA on hours 16-20, and instead sold length on the HA market, they would have gotten a big “atta boy” from Warren …had they been long, and had they done it. Hour 18 has cleared $700  over DA, 17 $422. Talk about a broken market, who’d ever volunteer to suffer through that fake volatility?


Demand

Before looking ahead, let’s look back:

001-hourlyloads

The northwest is backing off from its crazy highs last week while the rest of the WECC is mired in normal loads. Now that we’ve disposed of that obvious fact, let’s look ahead:

001-wxfc-int

The WECC Interior is fairly bullish, just as many days below normal as above. The cold has not left the station, it lingers, at least in the red Trump west.

001-6-10-day

The Interior is cold, but it is the only place in the country that is cold, all of the nation’s load centers are bearish; the east coast is a train wreck – expect Nymex to punish length (at least off of DD).

001-wxfc-cal

The fair state of California has hints of mildly cool weather, but those head-fakes are short-lived, and mostly the outlook is just normal to slightly above normal. Nothing in these plots to get one hot and bothered.

001-wxfc-nw

How about cold and worried? The Northwest returns to cold this week, almost as cold as last week. This is a big change from the forecast going out on Friday:

001-wx-pdx

Portland, OR dropped 10-12 degrees versus the outlook three days ago, that is material, but will it make a difference? Probably not, the Northwest has another issue it is facing – a mountain of regulated water that is working its way through the Columbia … more on that in the Hydro Section.

001-temps-mins

Was very cold over the weekend, in the interior, and even the load centers of Seattle and Portland weren’t warm. We’ll watch this forecast and see if the cold stays, or better, builds and extends. Clearly, this cold northwest trend just won’t give up.


Hydro

This is a big week for Flood Control fans; the first drafts are published later this week.

001-wat-supply

The RFC has walked down its forecasts; TDA is now at 95%; we have it slightly above that:

001-watsup-tda

Our numbers rallied a bit today off of heavy Sunday snow, but the outlook (10 day) is slightly below normal and perhaps we’ll come down a bit too. Let’s say, for argument’s sake, that the number the Bureau uses is 94%:

001-flood-control

Using historical drafts, given a TDA outlook of 94%, we can expect 1239′ to 1254, though we think that 1254 (2016) is an outlier. For the record, this data is a new report we added over the weekend. While the rest of you watched football, we scraped 15 years of COE .pdf files; now the entire Corps flood control is at your fingertips – who da man? The report is still beta, still fixing a few data issues, but it is live in the  Hydro / Water Supply group.

Point being, this is not a dry year, and the outlook is pointing towards solid snow, and Coulee is going to draft, and Coulee will be able to do drum gate work, should the BOR so decide, all of which means more volatility is coming to a market near you …soon.

Let’s look at streamflows, we already showed you the sick flows in Cal:

001-flows-mc

All of that cold last week meant big drafts and now the water is wending itself towards the Pacific, which means it has to pass through BON, and BON is rocking and rolling – posted nearly 190 KCFS average for yesterday; that is like June runoff numbers – huge. Coulee is also sporting solid flows:

001-gcl

I can’t recall when I saw a flatter Coulee discharge curve; there is no shaping and they can’t draw down the reservoir. BPA is not going to like any draft at Coulee, not any Jan draft, there is just too much water coming into the plant. All of which suggets Light Load must be coming under attack. Typically we’d see Coulee cut flows below 100kcfs, not seeing that; now they have new cold coming which means re-charging the river again.

001-precip-fc-nw

The Northwest will enjoy a brief respite from rain while it basks in another Siberian Express, then it is poised to get pounded with another major storm system next week. All of this makes us nervous about BOM length (we don’t have any if you recall, we are/were/will be short).


TransGen

001-gen

I love dashboards, makes blogging much easier. Our gen takeaway is:

  • The ISO has a lot more gas units off line today than last week

001-iso-outage-gas

Perhaps that explains why NP and SP were so bullish yesterday?

001-iso-price-np

Lots of ticks well above the DA price, even into the 80s; these are higher prices than what was realized when the Northwest was an icebox.

Back to the other Gen Points:

  • Lots of big gas units came off line over the weekend, and nothing returned
  • The nukes are all running, which leaves only one alternative state for them – not run
  • The weekend prices were supported by a dearth of wind energy in both the northwest and CA, but both are poised to rally this week
  • Look at the massive solar haircut in SP  – caused by the rains.

001-trans-flows

The Northwest is back to its exporting ways, so is BC Hydro , everybody has energy that no one wants. That should change later this week as the northwest picks up another 4000 MW of load, BC’s will rally too.


Conclusions

We will be rolling out a new Trade Rank this week, it’s mostly finished, now just working on some new “summary” metrics. In doing so I noticed how cheap everything was; if there was a model consensus it was to buy just about anything, but after looking at these fundamentals its painfully obvious why things are cheap – fundamentals are net bearish. A very bullish Jan demand has literally been washed away by very bearish Jan hydro, and it’s not just the northwest this time, California is seeing biblical rains.

  • BOM
    • 001-tr-bom
      • Ugly package of charts if you were long and played “deer in the headlights” for the last week. We sold short and now we are going to go ………………..LONG the On/Off spread at Mid-C; just long at SP
        • Too cheap, not a lot of downside
        • Like the cold weather the MidC will get this week
        • Cold is lingering, maybe we get another blast before the month is over?
  • Feb
    • 001-tr-feb
    • Similar picture, a market that has terrorized itself and now is flirting with 90 day lows (heat rates/sparks). We have no choice but to own some of someone else’s pain
      • SP – Long
      • Mid-C – short off of our BOM length and flood control fears

We did a quick look on Friday at SP15 heat rates for a client, I’ll post that here :


Dear Trader,

To address your inquiry I made a dashboard of the next six months heat rates:

000-sp-heat-rates-mon

My comments on just the charts, forget fundamentals:

  1. The market has murdered these heat rates, obvious, but in a dramatic fashion
  2. In most cases the market has come back some off of the low (except for April)
  3. April and May have the greatest deltas to the forecast

Compelling buys because they are so cheap; the question isn’t “how low will they go”, but how long will they stay at these levels before returning to normal? Sadly, I”ve been so wrapped up in the Mid-C cold events that I haven’t paid them much attention, but just looking at the charts I’d be comfortable being long any or all, especially the Q2.

Before diving in, what do we know about fundamentals?

  1. Growing distributed generation base; that is bearish, but the rate of growth is no different than what it was last summer, so this alone cannot explain the sell-off.
  2. Big water year for California; the state is poised to receive nearly ten inches of rain over the next week. Am guessing the water supply anomalies up and down the Sierras will sport 110% or higher. Much of that precip will come as rain beneath 4000’; the state’s rivers are already full:
    1. Wait until the 10” lands; the state will hit a five year high in hydro energy product; the Pit’s hydraulic capacity is maybe 3k; its running at 8k now, before the storm has fully landed. Point being, there is nearly 10k MW of capacity in California (hdyro), we might see an 80-90% plant factor over the next few weeks. Perhaps the BOM heatrate/sparks are fairly priced. That said, today’s event should not affect much beyond Feb, aside from big snow which will spill into May-July, but don’t think snow explains the big spark drops.
  3. Volatile Gas – We’ve seen more volatility in the last 30 days than in the last year combined; I think the tendency here is for power and gas to disconnect because of the challenges in keeping the power hedged with a commodity that moves all over the map. This might suggest that the market quit trying, now power is hanging out there unhedged and causing the sparks to collapse. No science here, but it would suggest a very short-term aberration that will soon correct itself.
  4. Disappointment in No Cold Weather Affect. All of the WECC was supposed to approach record cold; only the northwest participated. The market bid up the SP in sympathy with Mid-C and even expected the hub’s loads to rally; when it didn’t happen the illiquid market pounded the hub beyond value and now is left with a mistake, at least that is what it looks like to me

My takeaway, just from this 20-minute gander, is I’d be quite long this, but only from March and out, as I fear the water hitting CA. This may even qualify as one of the “Three Trades a Year” which I believe present themselves every year.