Provision of financial transmission rights

This paper studies the credit risks faced by the providers of financial transmission rights (FTR). The introduction of FTRs in different systems in the USA must be viewed in relationship to the organization of the market. Often, private players own the central grid, while an independent system operator (ISO) operates the grid. The revenues from transmission congestion collected in the day-ahead and balancing markets should give the ISO sufficient revenues to cover the costs associated with providing FTRs. This can be ensured if the issued FTRs fulfill the simultaneous feasibility test described by Hogan. We study this test on a three-node network under different assumptions and find the maximum volumes which can be sold, including contingency constraints. Next we analyze the feasibility test when taking into account the FTR prices, and demonstrate that a higher volume might be issued. We introduce uncertainty under different scenarios for locational prices and calculate the maximum provided volumes. As a tool for risk management the provider of the FTRs can use the value at risk approach. Finally we discuss provision of FTRs by private parties.