Electricity Market Integration in the Pacific Northwest

Abstract

Evidence of market integration and price competition support a policy of price deregulation and open access in the electric power industry. The objective of this paper is to test the hypotheses that wholesale electricity submarkets in the Pacific Northwest region of the WSCC are integrated, and price competition exists within these integrated submarkets. To this end, we apply a bivariate cointegration test, a price-difference test and a causality test to the 1996 on-peak daily electricity prices off our submarkets in the Pacific Northwest of North America: Mid-Columbia and California-Oregon Border (COB) in the Western US, and BC/US Border and Alberta Power Pool in Western Canada. The price-difference test results support the hypothesis that the following pairs of markets are integrated: (a) BC/US Border and Mid-Columbia; (b) BC/US Border and COB; and (c) Mid-Columbia and COB. A comparison between the gross profit from price arbitrage and the posted transmission tariff indicates that price competition prevails in these market pairs, and the causality test results provide supporting evidence that price leadership does not exist in these three market pairs. Finally, a market-share analysis indicates that B. C. Hydro does not have market power in the aggregate market comprising BC/US Border, Mid-Columbia and COB.