This paper provides some evidence on electricity--natural gas price interactions along with trade effects on electricity prices. The analysis helps to better understand integrated electricity markets, notably to test if expected market outcomes are actually obtained. Our contribution is therefore to provide an applied econometric modeling approach, and a real illustration, to establish to what extent natural gas prices influence electricity prices and if imports reduce electricity prices. To study such issues, we consider the case of the Ontario electricity market where natural gas plants are the marginal plants only during periods of extremely high demand. Our analysis of this market suggests that natural gas prices do have an impact on electricity prices. In addition, if imports are expected to reduce electricity prices, our results suggest the opposite when we use daily data, as already found in the literature. However, when hourly data are used, electricity imports are found to have a negative effect on price.
Published November 2010 , 21 pages