Market Commentary

Mike’s Take – Oct 7

Good Morning,

I have a few things to cover this morning, beginning with the fundamentals then a few thoughts on Mid-C Nov and the spreads.  The LA Basin is due for another heat wave, it’s been relentlessly hot and the max temps are nearly equal to what is being seen in Phoenix:

001_BurbTemp 001_Phoenix

The LA heat wave is short lived in the latest forecast lasting but a few days and followed by another cooling while Phoenix remains in the mid to high 90s.  The northwest has really nothing of interest to report on the temperature front, just nice weather:

001_Portland

While the northwest temperatures are mild and pleasant there is some precip forecasted for Kalispell, MT which should be snow north of 5k:

001_Kalispell

The River Forecast center 10 day forecast remains relatively in line with the STP until you get to days 7 and out where it now is putting a bit more water into the system:

001_NWRFC10day

We are now fully into the DC derate, let’s take a look at how the dispatchers are managing the loss of that line.   The following chart plots net flows out of the Mid-C for the last three weeks:

001_Trans_MidCall

Surprisingly there is relatively little change in those net flows.  Why, you surely are asking, or perhaps you already know.  Most of the loss in the DC exports was absorbed by cuts in BC Hydro exports rendering the event (the DC derate) a non-event, at least for the Mid-C net energy position.

001_Trans_MidCdc+ni

The ISO has seen a slight cut in imports, much less than the total the DC was exporting, as it has increased the loading from Mead and Palo:

001_Trans_ISOall

001_Trans_ISOsouth

The net affect of all of this on the net energy at Mid-C and SP is relatively marginal though overall heat rates are up in the Ansergy forecast at all hubs (NP15, SP15, Palo and even Mid-C):

001_HeatRate_MC 001_HeatRate_NP 001_HeatRate_PV 001_HeatRate_SP

Some of that is driven by the changes in transmission, some by the bullish near-term change in loads, the loss of a Diablo unit, and weak renewables.  WECC demand is projected to be over 5000 MW higher on peak:

001_WECCdemand

and Diablo #1 is off-line for its refuel, expected to be back in early November.  Renewables began the month with a bang and have recently withered to near seasonal lows:

001_WECCrenew

Thoughts on the Market

Now that we have dispensed with the fundies let’s examine the market, beginning with November Mid-C on peak:

000_TradeRank_MCnovon

Both the market and the forecast have plunged in lock step with each other, though at first glance it appears the recent market prices have tumbled faster and perhaps too much.   Post-derate cash prices should now be reflected in the forward market and I think they are overdone, though one might sit tight until there is some glimmer of Mid-C bullishness…which there isn’t at the moment.

The Nov spread looks interesting, though I think the Dec might be the better trade:

000_TradeRank_SPMCdec 000_TradeRank_SPMCnov

The Dec (top chart) has gone bid in sympathy with early October fundamentals which will not be around in Dec.   The Nov too has gone bid for the same reason but cash won’t help that position for a few weeks – so wait, do nothing.  The Dec, on the other hand, is worth laying wood on (on the short side) and accumulating on rallies (another may happen  with the next mini-heat wave.  I have a few reasons why I think this is approaching the realms of a good short.

First, it is El Nino.  The most recent NOAA index is up to 2.4, tied with the greatest El Nino on record for the same week.  The rains will come, possibly before this month is over.  A hydro system running at a 10% plant factor could see 50% in the course of a week.  Storms means wind, wind means more generation, though along with rain comes  clouds and perhaps the wind rally will be offset by the solar cuts..

From the Mid-C’s point of view there will be cold weather, Winter is Coming, demand will go up, by nearly 6000 MW before the first of December while SP15’s demand will drop by 4000 MW, before the first week of December.  That is a 10,000 MW swing in demand between the two hubs and the only thing that can mitigate the price between the two hubs is water – but I only see big water in the south, not the north; the reservoirs are below normal.

000_MidCdemand 000_SPdemand

Another trade idea I like is shorting the SP Palo spreads, which have enjoyed a recent run-up in price (in sympathy with cash):

000_TradeRank_SPPVdec 000_TradeRank_SPPVnov

Both have gone bid while the forecast for each has slipped a bit.   I’d start shorting both, slowly, and watch cash and the weather.

Mike

STP Update – Oct 5

Good Afternoon,

Our friends at the NWRFC have updated their 120 day flow forecast (STP) for the northwest hydro projects.  I’d like to say it is a shocking forecast but that would be a lie, it is just a forecast.  Let’s begin by looking at the daily shapes:

000_STPdaily

Not a lot here to evoke irrational exuberance but there are nuggets of information if you look close enough.  The start of the forecast suggests a nearly 2000 mw increase on the first day or two versus last week – not sure where that is coming from.  At the end of October the RFC shaves additional water out of the last week and parks it in November:

000_STPmonthly

As the Mid-C gets drier November gets more water … go figure.  Looking at their forecast from a different perspective – comparing to previous year’s, same week, sheds new light on the veracity of these numbers:

000_STPmonthlybyyear

What leaps from the page, at least to me, is the relative bearishness of 2015 versus 2012 or 2013 or 2014, all years which had higher reservoir levels.  Unless the RFC is forecasting massive precip – in an El Nino nonetheless – I cannot see how you can predict November 2015 will have more water than November 2014.  Throw on the DC derate and stir it all up and you have the makings for bear stew but we’ll pass on that dish as we think the water is over-stated.

Cheers,

 

Mike

Mike’s Take – Oct 5

Good Morning,

Burbank temperatures rally hard – back to the high 90s:

001_BurbTemp

While the northwest remains pleasantly bearish:

001_MidCTemps

Actual loads have tumbled far and fast in the south and just modestly in the northwest:

001_ISOloads

001_NWloads

Yes, you read the chart right, that is a 8000 MW drop in peak (Saturday to Saturday) in the south and a much more modest 400 MW drop in the north.  Yet all of that will change with more Santa Ana’s roasting the golden state (at least the southern part of the golden state).  The Ansergy load forecast shows SP spiking 3-4000 MW while NP and Mid-C remain relatively unchanged:

001_LoadFC_MC 001_LoadFC_NP 001_LoadFC_SP

But that is not the “big” news in today’s outlook; the big news is the recent changes in flows on the northern intertie :

001_Trans_NI

Clearly we are seeing a new pattern of flows, at least for the last three days.  The days of selling 1000 aMW into the Mid-C appear to be in the past, but suggest we watch this closely.

Mike’s Take – Oct 2

Good Morning,

It’s a new day and a new water year.  Well, actually yesterday was the start of the new water year and it began auspiciously for the NWRFC.  One of their water supply reports was down, but not that it matters much since it’s only the second day of the water year.

I find it interesting the RFC is already forecasting dry anomalies in the northwest as both Coulee and Bonneville are posted at 97% on the first day of the water year.   Ansergy is doing something similar though our “out of the box” forecast for both is 93% and 94%, respectively.  I suspect we will be consistently lower than the govt as we use a higher El Nino weighting for our balance of water year snow/precip forecast.  Speaking of that forecast we will be re-running our history over the weekend and publish a new current and historical forecast on Monday.

Scanning through the fundies this morning rendered a few observations worth sharing.  First, Burbank temperatures will be in the low 70s on Sunday and Monday and loads in the ISO have tanked, though more so at NP than SP.

001_BurbTemps

From the high 80s to the low 70s is what Burbank will see starting on Sunday.  Check out the precip – that is a big storm and makes you think of “EL NINO!”, or at least it makes me think of it.  NOAA updated its weekly index yesterday to 2.3, contrast that with the 97-98 which registered 2.4 for the same week.  By the way, that is the first time the 97-98 has surpassed 2015 since July, but the current year is still the second biggest as of 10/1 in the last 30 years.

Loads in the ISO tell a bearish story:

001_ISOloads

001_NPloads

The first plot is total ISO and the second is just PG&E.  Most of the haircuts as of yesterday have been at NP15 but I’d expect a massive SP15 drop on Monday.   Some of that lost load will be offset by cuts in solar but those should be offset somewhat by increases in wind:

001_SPrenew

We are already seeing a big uptick in wind but expect more as the storm blows through the LA basin and hits the turbines in Palm Springs.   Looking up north I note the NWRFC has cut its flow forecasts (a half a nuke) in yesterday’s 10 day:

001_RFC10day

Not that anyone will need the energy, the weather in the northwest is returning to balmy:

001_MidCtemps

Balmy then another precip event as it seems we are entering a period where weather is becoming more volatile.  Gazing just north of Mid-C I see the folks running BC Hydro’s system actually bought some energy yesterday:

001_NIflows

Noteworthy because the purchases happen to fall on Oct 1 (start of the water year, start of October, start of Q4, and precedes the start of the tranny derates) and it was the only set of hours Powerex imported in the last two weeks – definitely worthy of monitoring closely, though every time I’ve gotten excited about a possible change in flows on the northern intertie they have returned to selling.    Flows into California from Palo and Mead also have changed in the last week:

ISO_flows

Not as dramatic as the Northern Intertie but clearly imports are off a bit, almost the equivalent of the DC derate next week.  That would suggest that the ISO could pull from the east whatever incremental energy is lost from the DC derate rendering the derate mooter than it was.

Happy trading and enjoy your weekend,

Mike

Mike’s Take – Sep 30

Good Morning,

End of Q3 today, one for the record books, and one which will shape trading for years to come.  Most remarkable, to me at least, was how well BPA and Powerex managed their systems through an extremely dry year.  Back in the day, back when someone was so foolish as to give me VaR, a 2015 type year would have had more than one cash rally, but it didn’t because Powerex relentlessly sold all summer long and BPA returned a virtuoso performance in managing its system.  I suspect June will never get sold down like it has in the past …at least for a year or two…after this last year’s runup at the end of the month.  That is probably an opportunity because the June dailies will settle in the single digits again, many times, though probably not much in 2016 if El is dry, which we are modeling it will be.  Enough of my ramble/babble … on to today’s market.  Starting with weather, beginning with the MidC, I see a forecast that is quite placid, perhaps even flacid:

001_MidCtemps

If anything it is touch more bearish than yesterday’s and pretty much dry through the period of forecast reliability (0 to 10 days?).  Down south it gets more interesting – SP15 shows a material drop in max temps and a decent sized rain event:

001_SPtemps

From the high 90s to the 70s, and add in a storm – hard to find the bullish lining in that forecast.  Speaking of precip, check out the forecast for Lake Tahoe:

001_LkTahoe

Yes, that is almost two inches of precip in the Sierra Nevada’s over the next couple of days.  El Nino, anyone?  Our friends in the Golden State would have given their left grape and a couple first born for that kind of precip last year … now they getting it before they should and we think there is a lot more where that is coming from (the wet and warm Pacific).  Yeah, we know, it is too early to start thinking El Nino is going to change the fundamentals but its worth watching and planning for.  Also worth watching are loads … NW loads are actually up a touch:

001_NWloads

While the south has taken a tumble as it stumbles back to climo – dropping 3-4kmw from last week’s peak:

001_CAloads

At least the renewables are down a scoch rendering a slight, very slight, bullish tone to this outlook:

001_renew

Another interesting twist to the current plot is imports into California – these are off nearly 3000 MW on the peak:

001_TransFlows

About 2000 of this is coming from cuts in the AC and DC, the rest from Palo and Mead.  It’s almost as if CA doesn’t need the energy, and with cooler temps coming, they will need even less …. DC is down …so what you must be asking.

On the product front we will be rolling out a few new reports next week:

  1. Control Area Forecasts by Day – this report will return load, hydro, and wind energy forecasts by day (on and off) for 38 WECC control areas.  We currently are publishing hourly data for the same control areas.  The report will be especially interesting as the water year plays out as you will be able to watch which utilities are getting long and short based upon the current snow pack.
  2. WECC “Actual” Loads – we currently publish actual loads for about 70kmw peak (60% or so); this new report will publish “actual” loads for 100% of the WECC using our internal algorithms that regress all the “dark” utilities (those that don’t publish actuals) to the ones that do.  I’ve seen the data, it’s quite interesting.

In closing I want to thank the nine companies that joined Ansergy this month – we appreciate your business .

Mike

Kiss Oct Goodbye

Good Morning,

Just one or two more days of trading Oct before it slides into BOM – before that happens I wanted to take a quick tour of the Oct products and offer up my thoughts, beginning with Mid-C Oct onpeak:

000_OctMidCon

Two thoughts here: note the convergence of the market to the forecast, it has been wrong for the last month – and now it’s right and I don’t see a lot of upside in shorting at $24.75, in fact I’d probably be long given that the two value measurement metrics (the forecast and the market) are now in sync.  But I also don’t see a lot of upside in owning it given Oct’s current position in the stack:

000_Octinflect

Note there is about the same amount of upside as downside ($4.77 and $3.50, respectively).  Probably the best strategy for Oct Mid-C on peak is to close it out and focus on better opportunities.     Moving south, the SP heavy appears a bit heavy:

000_OctSPon

Unlike the Mid-C, the SP has diverged from the forecast, probably in sympathy with cash; cash which was driven by 100+ degrees in the LA valleys, something that most likely won’t happen.  Out of 59,000 hourly observations at Burbank during October  (since 1989) only 60 posted temperatures north of 100 degrees, and only two of those occurred after Oct 10.  Given that the current forecast covers covers the first 10 days of October, and its normal, the chances of a big heat event is very low.  Add on the renewables and distributed solar and we think, as does the model, that its not worth more than the low 30s.  So that means we are bearish on the spread (we as in me, I’ll let Scott share his own thoughts on that)?  Yes, it does.

000_OctSPMC

It’s just the SP chart since the forecast and market are identical at Mid-C, though I’d rather put on an Oct position through the spread as I see upside on both legs – and have the option of flipping it into an outright at any time.   Now let’s look at Nov, soon to be prompt month, beginning with Mid-C outright:

000_NovMC

I look at that and say “over sold”, especially with a slight uptick in the forecast over the last few weeks and the market entrenched around $26.  Sure, the DC is down, the AC derated, but we still have the northern intertie that can absorb most of those cuts plus a very high probability of a cold snap sometime between late Oct and Nov …and besides, the reservoirs are still below normal.  Our Price Inflection report supports this sentiment:

000_Novinflect

A 5000 MW bearish event at Mid-C drops price almost $3.00 while the same MW bullish event raises price $26.00 … that is a non-linear relationship and one that makes me a Novy bull, at least at Mid-C.  SP is the mirror image … an over-priced strip driven by recent heat anomalies that have 0, ZERO, chance of replicating themselves in November:

000_NovSP

The market rallies, the forecast withers, though stable for last few weeks as the RFC seems to be locking in its Nov forecast.   A glance at the inflections (see above) shows SP with a -6.00/+4.00 risk reward ratio – clearly biased on the downside (contrasted that wih Mid-C’s -3/+26 ratio).  Put me down as bearish SP Nov.  How about the spread?

000_NovSPMC

Uuuhhhh, sold!  Not necessarily saying it will settle $2.41, though it settled lower in the last six years, and this is the lowest the reservoirs have been in the last six years, AND the lowest gas prices …but the DC is down, though I say so what.  SP added another 1gw of solar, it’s El Nino.  I’m @ Nov SP-MidC.

I know most of these positions are contrary to the recent trend and after all, the trend is your friend, right?  Isn’t it?  LOL … the trend is your worst enemy when it isn’t your friend and the key is to decide when the trend is stupid.  Me thinks we are getting close to stupid prices.

Kind Regards,

Mike

 

 

STP Update – Sep 28

STP Update – Sept 28, 2015

Greetings,

The NWRFC completed its update of the 120 day forecast (STP) just now.  The Ansergy take on this important forecast is summarized best in the following monthly energy chart:002_STPmonthly

002_STPmonthlydata

Modest changes across the five forecast months (Sep-Jan) with BOM unchanged, Oct off by 200 aMW, Nov-Dec unchanged, and a sizeable (900 aMW) haircut in Jan, though that far distant forecast has as much credibility as a barker at the county fair.

The daily plot also warrants our attention:

002_STPdaily

Slightly notable are the small hair cuts across October but more profound is the constancy of the forecast week-on-week.  I think they really like these #s and are going to stick with them, until they don’t.  

Mike

Mike’s Take – Sep 28

Good Morning,

I left off last week looking at the NWRFC 10 day forecast, focusing on what appeared to be a material cut in their forecast (versus previous 10 day forecasts AND last Monday’s STP).  That trend continues:

001_NWRFC10day

I’d prognosticate that the recent cuts, 500-800aMW, will be extended into today’s STP, at least for the early part of BOM and perhaps putting some much needed upward pressure on Oct (HL and LL).  I know those of you long the SP-MidC don’t want to hear that, sorry, we aren’t cheerleaders (that would be the crowd gathered around your trading desk that you call analysts), we are prognosticators.  Though there is a some signs that the cool down in kalistan was a head fake:

001_SP15temps

The most recent temperature forecasts are a few degrees higher, but that hasn’t really helped loads in the golden state:

001_CAloads

Sunday versus Sunday is off over 5,000 MW peak.  Winter is coming!  So is El Nino; the weekly index for 9/23 posted a 2.3 – contrast that with the same week in 1997 (Mother of All El Ninos) with a 2.2 and we are clearly heading into a big one that will bring plenty of surprises with the biggest being the fact that California has 10,000 MW of hydro capacity, capacity that has not run much of late.  When it rains in Southern California  it pours in an El Nino year – expect plant factors north of 50% or an additional 3-4kmw.   Add in the fact that the state is awash in renewables:

001_HistRenewables

and you have a recipe for a bear’s smorgasbord.    Just how much extra water should we expect in the south and what should the haircuts look like in the north – you surely are asking?

BasinNameElLa
Cal North110%81%
Cal South116%74%
Clark Fork82%106%
Colorado94%105%
Cowlitz Lewis80%104%
Desert SW164%66%
Clearwater82%109%
Grand Coulee88%102%
Flathead82%102%
Lower Columbia89%101%
Kootenai88%99%
Lower Snake91%102%
Middle Columbia88%102%
MIssouri99%94%
Middle Snake91%99%
Oregon Central91%103%
Oregon West85%101%
Pend Oreille82%106%
Rockies111%95%
Salmon88%104%
Spokane75%113%
Upper Snake93%102%
Wash Central83%101%
Wash West81%107%

 

The above table is compiled from the Ansergy 40 year stream flow data base.  Last week we formally switched 2016 from a normal water year to an El Nino.

Today is the STP update which we will post minutes after it is released.  Scott and I will also be taking a gander at the term markets and offer up our thoughts on what we like, we hate, and that which puts us to sleep.

Cheers,

 

Mike

Mike’s Take – Sep 25

Good Morning,

One thing jumps out this morning – a cut in the NWRFC 10 day forecast:

000_NWRFC10day

This cut showed up yesterday and I will be watching today’s (noonish eastern time) for confirmation.  The change, 500 aMW to 1000 aMW, is material and extends across the 10 day horizon – and also departs from Monday’s STP forecast.   Apparently BPA does not need the water and perhaps this change simply reflects their plans for next week.  GCL has been passing inflows and doing a small draft this week:

000_GCL

No change in weather outlooks, mild in the northwest and significant cooling the south.  I’ll update this post after today’s 10 day is posted.

Mike’s Take – SP15

Good Morning,

Not much to report on Mid-C … the weather in Seattle is stunningly beautiful.  Not too hot, not too cold, perfect for golf and awful for loads.  Down south its a bit more interesting.  Temperatures have clocked in at the high 90s, low 100s in the LA basin.  What did loads do?

Cal_Loads

A decent rally, up about 5k MW versus one week ago, but off nearly 10k from the peak on Sep 8.  Looking forward we are not seeing any more big heat, and from above, it don’t really help that much:

Burbank

But the big news is the DC derate (and the AC to a lesser extent), so what does that do to our forecast?  First let’s look at the transmission flows:

SPMCflows_Hourly

Then the heat rate forecast:

SPHeatRate_Hourly

The current heat wave certainly rallied the market … but the cuts in the DC have little impact on SP, mostly because demand falls harder than the lost northwest energy:

SP_Demand

Peak demand will fall 5000 MWs, absent another heat wave – a heat wave not currently in the cards.   With actual flows into SP (from the DC) of about 1500 aMW a case can easily be made that the DC cut, at least in SP, is a non-event.

SP_DCflows

So what is my point you might ask.  Simple, don’t expect to get any SP-based love (bullish) on your long SP-MidC Oct, you’ll need it all from Mid-C (bearish), which I don’t see happening.  First let’s look at the spread:

SP-MIDC_TradeRank

All I see is a widening delta between the forecast and market.  Given we don’t see SP getting more bullish it must be that the bears see more Mid-C pain.  Are they right?  It’s a tale of two curves:

Oct_MidC Oct_SP

One curve (Mid-C) has the market pushing price beneath our forecast (a no no) and the other curve (SP) has kept the deltas consistently wide.  Either Ansergy is really good at forecasting Mid-C, and really bad at SP, or something’s gotta give.  I think SP is over-priced and Mid-C slightly under-priced, especially when we look at the price inflections:

Inflections

I see a lot of upside for Mid-C and a lot more downside for SP.  I’ve said my piece, it’s your money, but put me down for being short biased for the Oct SP-MidC on peak … the off peak I’m even more bearish, so is our Opp Matrix (this is a machine-based ranking of all traded products using internal weightings – if you want to learn more contact me):

OppMtx_SPMidC_offpeak

The top plot displays the model’s execution bias, or its sentiment.  Note that it began by being very bearish in late June and as the market crushed itself the sentiment morphed to “Hold”.  Now the market has re-rallied and the sentiment has returned to very bearish.   The Onpeak spread is similar, though less convicted:OppMtx_OctonThe sentiment was a strong buy a week or so before the market soared $4.00; post that rally the forecast has slipped and the delta has widened …teeing itself up for a possible correction.