A Further Inquiry into FTR Properties

27 Pages Posted: 5 Feb 2009 Last revised: 7 Aug 2009

Date Written: February 4, 2009

Abstract

William Hogan introduced financial transmission rights as a tool to hedge the locational risk inherent in locational marginal prices. FTRs are claimed to serve four main purposes: (1) provide a hedge for nodal price differences, (2) provide revenue sufficiency for contracts for differences, (3) distribute the merchandizing surplus an ISO accrues in market operations, and (4) provide a price signal for transmission and generation developers. This paper examines the hedging and redistributional properties of FTRs, arguing that ISO practices have important implications for both of these characteristics. The paper concludes in a series of recommendations for FTR allocation and the functions that FTRs should serve.

Keywords: FTR, ISO

Suggested Citation

Benjamin, Richard M., A Further Inquiry into FTR Properties (February 4, 2009). USAEE Working Paper No. 09-017. Available at SSRN: https://ssrn.com/abstract=1337768 or http://dx.doi.org/10.2139/ssrn.1337768

Richard M. Benjamin (Contact Author)

Round Table Group ( email )

United States
410-672-5319 (Phone)

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