Market Commentary

STP Update – Jan 11, 2016

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:

000_STPday 000_STPmon 000_STPyoy

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

Trending Wetter at Mid-C

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:

001_WXmc

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.

001_TransNW

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):

001_WatSup

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:

001_Snow

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.

001_TRfebMC1

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

001_TRfebMC12

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:

001_TRaprMC2

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:

001_TRQ2MC2

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:

001_NWRFC10day

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

Dry and Warm

Good Morning,

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

001_WXmc

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:

001_WXsp

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:

001_Scenarios_Spreads

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:

001_WaterSupply

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

001_Snow

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:

001_SnowNRCS

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

001_TRfebmc1

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:

001_STPyoy 001_STPyoyslice

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:

001_RFC10day

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

Mid-Week Update

Good Morning,

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

001_WXmc

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

001_WXpdx

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:

 

001_LoadDelta

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

001_Renew

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.

001_CurFlows

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.

001_FCni1 001_FCni2

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:

001_TTCdc

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

STP Update – Minor

Good Morning,

As expected the NWRFC made but minor adjustments to its 120 day forecast, released yesterday:

001_STPmonth

The daily plot emphasizes the stability of the week on week forecasts:

001_STPdaily

Weather outlook is relatively unchanged, mild northwest temperatures on the west side and near normal precipitation across the hub:

001_WXmc

California, on the other hand, is enjoying torrential rains and possible flooding across the golden state.  Check out the Donneresque-like precip at Lake Tahoe:

001_WXtahoepre

That should be good for a 2-3 feet of snow at Heavenly, though much will come down cement-like.  If you are looking for the good stuff go a few hundred miles east, to SLC, where you will find epic ski days:

001_WXslcpre

The Cal reservoirs remain much below normal, forget about full, despite the plethora of wet days in Cally.  The CVP is barely generating as most of the inflows are held back for other purposes.  The run of the river plants, and there are many there, will be running at capacity, something not seen for awhile.  The renewables reside clearly in the bull camp:

001_Renew

Not that the WECC needs the renewables as the overall outlook is modestly bearish.  With normal precip in the northwest, floods in California, and moderate temperatures, there is not much to get excited about.  Maybe thinking about taking off some Q2 length:

001_TRq2mc1

Both the forecast and the market have rallied from lows but with climo precip on the horizon coupled with reasonably healthy snow pack the trade starts to look less bullish, so does the Q3:

001_TRq3mc1

It’s early, for sure, but if you have length and snow pack builds you’ll regret holding – watch the weather forecast and watch for the Corps January flood control updates.   Big drafts will be bearish for the balance of Q1 and bullish for Q2 while minimal drafts will have the opposite effect.  Given current snow pack levels I’d suggest an April 15 draft to 1245 at GCL is in order but if the Corps buys into the El Nino story you might see 1260 and that would be Q2 bearish.

Mike

New Year, New Outlook

Good Morning,

Hope everyone had a nice holiday and are ready to get back to work as there is some work to be done to figure out what all the updates are and what they mean.  Let’s start with weather, it has warmed and turned a bit wetter:

001_WXminmc

Two weeks ago the outlook was quite bullish, today it is not; it is, at best, neutral, but I’d call it bearish, especially when compared to temperatures from last week.   Loads did spike a bit last week but, with the cold falling over the holiday, the event was mostly a non-event:

001_LoadsN 001_LoadsS

The north realized a decent spike but the south not so much.  The precip outlook has gotten bearish as well:

001_WXpremc

Where last week there was no precip we now see some, not a lot, but not bone dry.  Call it neutral as the forecast reflects climatology but just the hint of precip suggests a breakdown in the blocking high which could lead to another system.  Even California is starting to look wet:

001_WXprenp 001_WXpresp

Reminds me of … El Nino!  The latest dearth of snow has taken its toll on the current snow pack anomalies:

001_Snow

Take note of the six basins at the bottom of the list – five of those are above Coulee and all are below normal.  Mind you these are not drought-like numbers but they are below normal.   The River Forecast Center concurs, perhaps a shade too bullish:

001_WatSupply

Where does that Snake River – Hells number come from?  Upper Snake, Middle Snake, and Salmon all have 120% or greater snow pack anomalies.  Let’s not get too picky, the salient point here are the declines over last week – Coulee from 99% to 90%.   If the dry had persisted that station would be in the lower 80s by mid-month, but moot point, there is some precip heading towards the NW.

On another front we see that BPA has extended the work on the DC into early Feb.  The latest post is for a derate to 595 on the south-bound (see BPA outage ID 257864).

001_TTCspmc

The above plot comes from the Ansergy Daily Forecast and we picked up the change hours after it was posted.  Today is STP Monday and our tea leaves suggest a bump in the front and cuts in the back:

001_RFC10day

Yep, it’s a mixed bag of news which should make for some choppy trading but my take is that overall the new year is a touch more bearish in the front and a bit more bullish in the back.

MIke

Happy New Years

Good Morning

Last post of this year and want to thank each of our clients for their support during Ansergy’s inaugural year.  We eagerly look forward to 2016 and the many energy surprises which lay in store for all  of us.  One surprise has come early – the northwest cold front has grown a bit more:

000_WXmcmin

Sadly, for you bulls or long utes, the cold reaches its zenith on New Years; had it been a few days later several northwest utes would possibly have set new highs – they might anyways.   The real cold is east of the Cascades, as it typically occurs, but even Portland gets down to the frosty low 20s:

000_WXminpdx

and Spokane approaches the nether world of negative temperatures:

000_WXmingeg

The first cousin of cold weather is typically calm and windless days and this event is just such:

000_Renew

That chart is saying there is about 5k MW less reported renewables in the ISO and the northwest than last week.  Ironically the renewable haircut may be having a larger impact on net demand than the incremental loads.   The ISO LMP market is feeling it:

000_LMP

Especially SP and note the effect cold in the northwest has on the Palo ISO markets.  The forward markets are responding in kind and leaving tire tracks on the backs of the persistent, and wrong, bears:

000_TRjanmc1

Who sold those 19s anyways?  Who bought ’em besides me and my virtual length?  Well if you did congrats and you might consider taking your well deserved profits as the old saying goes “buy the rumor, sell the fact” and the fact is today might be the last day to trade that cold.  The weather forecast turns appreciably warmer a few days after the new year arrives, but let’s examine all the fundamentals.

The northwest water year remains robust despite being the largest El Nino on record though the current outlook is for at least ten days of dry:

000_WXmcpre

Feel free to ignore those silly numbers in days 18-22, you might as well mortgage your house and buy lottery tickets.  Don’t ignore the zero’s posted for ten straight days as those are real and really will come to fruition.  So call today the high water mark for WY16:

000_Snow

and it’s a pretty high high but today is as high as it most likely will get for the year.  Ten dry days is about 10% of the water year, that table above will be displaying much lower numbers on Jan 10.  Call that bullish.  Another bullish reality is the return of the DC on Jan 12, call that bullish too.  Powerex has already filled the line south-bound so don’t count on their capacity to absorb the incremental exports to SP:

000_TransMC

In sum the Mid-C outlook can only be considered bullish but that can change with another storm system, for now there is nothing in the horizon to slow the train down, except a change in thinking on flood control.  That first hint of how the feds will manage this water year will be perhaps the single most important piece of news in all of January and expect that update during the second week of Jan and expect some level of drafting given the substantial snow pack.  Call that bearish Q1 should it happen.

Enjoy the holiday, be safe, and see y’all in the new year.

Mike

STP Update – Bizarrely Bullish

Good Morning,

Still pondering last night’s STP and it still doesn’t make a lot of sense.  Let’s start with the year on year:

001_STPyoy

One glance tells us 2016 will be the driest year in the last four, or is it?  Check out snow pack to refute that conclusion:

001_SnowCur

Salmon at 154% of normal, Middle Snake the same, Flathead 106%, and the Kootenai a mere 90% of normal.  Dry?  Not really.  How about the official forecast, maybe that can explain the dearth of STP water:

001_WScur

The Dalles at 97%, doesn’t sound that dry, but the clue may be in the week on week as that end of the river station dropped 7%, but why?  Nearly every material and relevant station had snow pack builds, some massive builds like the Clark Fork which jumped 15% from 88 to 103.   Back to the year on year, let’s examine TDA’s historical water supply:

001_WStda

It’s at parity with WY15 so shouldn’t  the projected STP flows reflect a similar value?  The answer may be that the NWRFC believes in El Nino and there will be no more builds in the hills, time will tell, but for now we have no choice but to say that this STP is modestly bullish as evidenced by the daily and  monthly plots:

001_STPday

001_STPmon

The Dec bump can be explained by drafting to meet cold-driven loads but the cuts in Jan-Mar befuddle any attempt at a logical explanation.  That cold hasn’t gone away, either:

001_WXmc

If anything it has gotten colder and extended its stay a few days adding another bullish hue to Jan.  The market seems to agree having rallied up a few dollars yesterday.  Even with that rally we think there is more juice left to squeeze and would stay long and take it into BOM.

Mike

Cold Growing

Good Morning,

The news today is the cold snap we saw before Christmas has grown, in both intensity and duration, into the real deal:

001_WXmc

And it is dry, so chalk up today’s forecast as both bullish short-term and long-term, though that long-term affect merely makes the term outlook less bearish at this point.  Too much snow to get excited about a dry Mid-C and it will take many dry outlooks to push this water year down.  Back to WX, check out Portland:

001_WXpdx

Most interesting is the change from last week; this cold front has settled in and doesn’t want to leave reminiscent of last June’s heat wave – could we see similar prices?  Nah, it’s not that cold (Seattle barely busts 30) but a rally is in the making and will spill over into the rest of the power curve and into gas .  You Mid-C haters beware.

Loads are rallying up a bit, nothing to get too excited about except that the rally happened in the off peak which exceeded the last few week’s peak:

001_LoadDelta

One bearish turn can be found in the NWRFC’s 10 day forecast:

001_RFC10day

That is about a gig of new energy (versus either STP or last week’s 10 day for the same days).  No surprise here, BPA has no choice but to let the water flow to meet its demand and in doing so makes the Mid-C less bullish, at least in the short-term.  Longer term more water now is bullish as it means less water later and you better expect a major upward revision in the STP today – which will be perceived bearish.

The Ansergy forecast says it best:

001_FCmcHourly

And is up $2-3 across the 14 day horizon and up nearly the same in the term, though that is a gas-driven phenomenon but you should expect continued upward pressure as long as the Mid-C stays dry.  Another bullish change is renewables:

001_RenewRec

Take note of the total on the 23rd, that may have sent the CY15 high, if not it was close.  So what’s bearish in today’s fundamentals, you surely ask?  Nukes – they are all running, and BC is back to selling:

001_TransMC

Between imports from BC Hydro and drafting Mid-C hydro the incremental demand from the cold front has more than been offset so from a net energy perspective not much has changed, at least on the surface.  But keep in mind that Powerex will not be selling if the price is not right and BPA won’t draft if the price is not right, which means that any relaxation in demand will be offset by corresponding cuts in both NI imports and QG discharge.  In other words don’t expect cash prices to plunge this or next week.  Even the ISO is showing some LMP love, hitting a high of $43 yesterday (sunday):

001_LMP

STP Monday today and, as mentioned above, we are forecasting a big bump in January but don’t be surprised if you see the bump across the curve.  I still think they are short a gig across their 120 day.

Mike

WX Update

Good Morning,

Weather forecast is a mixed bag with one constant – dry.  Mid-C struggles to retain cold weather (at least on the west side), California enjoys a  lingering chill, and the Great Basin and Rockies are just plain cold.

001_WXmc

The 500 mb says it best:

500mb_4panel_20151203

The cold front gets cut off by onshore flows leaving it trapped in the south.  Burbank is projected to have a few days colder than Seattle:

001_WXburb 001_WXsea

That doesn’t happen very often, either, but it’s a waste of cold air as the golden state’s demand is not that elastic to HDD.  Oh well, it’s dry as a bone, in fact the driest 10 day forecast since mid-Nov.   The cold hasn’t shown up in actual loads, yet, but is showing up in the demand forecasts:

000_FChMCdem

This is a bullish turn of the screw for all of WECC, maybe that is why gas has rallied?  Bullish near-term but looking further out the snow pack is building everywhere:

001_snow

You have to look hard to find any basin below normal, some are massive (Salmon is at 154%); in fact the entire Snake is as robust as it has been in years.  Even California is looking at a solid water year.

Another short-term bullish factor is the projected loss of about 2000 MWs of Mid-C wind energy over the next ten days:

001_MCwindFC

We already said we were bullish prompt, even Feb, but never commented on the Qs, until now.  Let’s look at Q2 Mid-C on peak:

001_TRQ2mc1

The market has loved this Q more than we did, then changed it’s mind and decided it wasn’t such a good thing to own.  I attribute this to the delayed reaction to building snowpack  – our model reacts, and quantifies in terms of price, the impact of snow  hours after the NRCS releases its updates.  The market tends to take a bit longer, probably because it relies on the NWRFC’s water supply reports which currently lag by a few days.  I suspect they are lagging more than usual because of an embedded El-Nino dry bias, not sure on that, just a guess.

Just because the market has tumbled so far doesn’t necessarily make it a buy, what makes it a potential buy is the 10 days of dry, but if I had to take a position I’d sell it based on current snow pack anomalies – these are levels that will drive single digit prices.  The light load has a different story to tell, and a different plot:

001_TRQ2mc2

Here we see our forecast over the market as the market has now dispatched Colstrip and Bridger at night for all of Q2 … be careful of that.  Big snow typically means delayed runoff and the Mid-C can be notoriously cold in Q2 (definitely colder at night).  I’d be a buyer at these new found bottoms so what I’m really saying is I’d short the Q2 Mid-C on/off at $6.75 but be prepared to leg out of the long Q2 sometime in April.

Another Mid-C trade that has flipped is the Q3|Q2 roll:

001TRQ3Q2mc1

The market hated the roll in Oct and Nov, now is starting to take a shining towards it while the forecast has only shown disdain.  Most of this is driven by the ever increasing hydro projected for July, especially the first half, which keeps Mid-C mired in the 7k heat rates:

000_FChMChyd

With low gas prices the 7k units look like coal plants which is why the Q2 forecast is relatively indifferent about another 2000 MWs of hydro, whereas July enjoys much more elasticity to price with a change in hydro.

Unless something changes this will be the last post before Christmas.  Enjoy a safe and happy holiday.  Though  the Ansergy team will be taking a holiday the models won’t, they will be running 24/7.  Be sure to check the site (or more accurately, tell your real-time folks to check the site) for those of you that have subscribed to the data product.  For those without the product I suggest you contact Bill or I and upgrade your subscription by taking advantage of our end of year discounts.

Cheers,

Mike