ELECTRICITY MARKET INTEGRATION IN THE PACIFIC-NORTHWEST

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 e lectricity submarkets in the Pacific Northwest region of the WSCC are integrated, and price competition exists within these integrated subma rkets. To this end, we apply a bivariate cointegration test, a price-d ifference test and a causality test to the 1996 on-peak daily electric ity prices of four submarkets in the Pacific Northwest of North Americ a: Mid-Columbia and California-Oregon Border (COB) in the Western US, and BC/US Border and Alberta Power Pool in Western Canada. The price-d ifference 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 tari ff indicates that price competition prevails in these market pairs, an d the causality test results provide supporting evidence that price le adership does not exist in these three market pairs. Finally, a market -share analysis indicates that B.C. Hydro does not have market power i n the aggregate market comprising BC/US Border, Mid-Columbia and COB.