A Further Inquiry into FTR Properties
27 Pages Posted: 5 Feb 2009 Last revised: 7 Aug 2009
Date Written: February 4, 2009
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
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