Weekly Energy Market Updates by Region - Archive

Issue week: May 7th, 2020  (Wk 19)

POWER MARKETS

WEST During this first full week of May, the substantial increase in snow-melt has increased hydro production significantly in the Pacific Northwest and suppressed index prices. The average Day Ahead prices for the week in SP15 and Mid-C are $17.09/MWh and $11.93/MWh, respectively. In the term market, prices continue to move higher for all calendar-year strips amid reduced natural gas production.

ERCOT  The combination of mild weather and slightly reduced de-mand has kept a lid on real-time prices this week. Even West Load Zone basis is down from its recent highs of the last few months, dropping to a mere $0.60/MWh for the month to date. The ORDC adder for May is also minimal. Because of both falling heat rates and some profit-taking in the term gas strips as of late, term prices have softened this month as well.

EAST Index prices in NYISO have continued to clear in the mid-to-upper $10s/MWh but appear to have found their floor as some of the restrictions due to COVID-19 have been eased across the state. Amid high auction demand, low energy prices, and the retirement of the Indian Point nuclear plant, NYISO’s spot capacity auction for May fetched unusually high prices, particularly in Zone J (NYC).

LEVERAGED-LOAN DEFAULTS AT HIGHEST LEVELS IN A DECADE

As is certainly apparent by now, no part of the U.S. economy is safe from the ravages of the coronavirus. The latest evidence of this unfortunate truth is last month’s spike in defaults on leveraged loans.

On Wednesday, Rachelle Kakouris of S&P Global Market Intelligence reported 11 such defaults in April, which surpassed the previous monthly record of 10 in October 2009. Noted Kakouris, “By number of defaults, the current 2.71% default rate is the highest since December 2010.” Seemingly no sector is spared in the composition of leveraged-loan defaults for the year to date, but none is so imperiled as Oil and Gas, which accounts for almost a third of all default activity as persistent rock-bottom oil prices from the demand shock due to COVID-19 have effectively dried up oil companies’ cash flows and rendered them increasingly unable to cover their debts.

In March, Fitch Ratings upped its default forecast for all of 2020 from 3% to 5%-6%. Fitch also predicts a default rate of 8%-9% for 2021 and warns that it could reach double digits. Clearly, if no solution to the pandemic emerges in the near term, companies of all stripes will be unlikely to resume full operations to start clearing some of the red from their ledgers. Before long, leveraged-loan defaults could be just one of many notorious records broken.