IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

A further inquiry into FTR properties

  • Benjamin, Richard
Registered author(s):

    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 RTO 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. It argues that FTR allocation has important distributional impacts and related implications for retail rates. This observation adds an additional explanation for rate increases in light of decreased production costs due to restructuring. This paper also shows that RTO practices have important implications for the hedging characteristics of FTRs. It further shows, via counterexample, that, even in theory, FTRs may not serve as a perfect hedge against congestion charges. The paper concludes with a series of recommendations for FTR allocation and the functions that FTRs should serve.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 7 (July)
    Pages: 3547-3556

    in new window

    Handle: RePEc:eee:enepol:v:38:y:2010:i:7:p:3547-3556
    Contact details of provider: Web page:

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Benjamin, Richard, 2008. "Load-Pocket Management in Restructured Electricity Markets: A Hybrid Model," The Electricity Journal, Elsevier, vol. 21(6), pages 51-59, July.
    2. Bogorad, Cynthia & Huang, William, 2005. "Long-Term Rights for New Resources: A Crucial Missing Ingredient in RTO Markets," The Electricity Journal, Elsevier, vol. 18(7), pages 11-24.
    3. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
    4. Morrison, Jay A., 2005. "The Clash of Industry Visions," The Electricity Journal, Elsevier, vol. 18(1), pages 14-30.
    5. Keller, Katja & Wild, Jorg, 2004. "Long-term investment in electricity: a trade-off between co-ordination and competition?," Utilities Policy, Elsevier, vol. 12(4), pages 243-251, December.
    6. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
    7. Blumsack, Seth A. & Apt, Jay & Lave, Lester B., 2006. "Lessons from the Failure of U.S. Electricity Restructuring," The Electricity Journal, Elsevier, vol. 19(2), pages 15-32, March.
    8. Rothkopf, Michael H., 2007. "Dealing with Failed Deregulation: What Would Price C. Watts Do?," The Electricity Journal, Elsevier, vol. 20(7), pages 10-16.
    9. Christopher R. Knittel, 2002. "Alternative Regulatory Methods And Firm Efficiency: Stochastic Frontier Evidence From The U.S. Electricity Industry," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 530-540, August.
    10. Barmack, Matthew & Griffes, Peter & Kahn, Edward & Oren, Shmuel, 2003. "Performance Incentives for Transmission," The Electricity Journal, Elsevier, vol. 16(3), pages 9-22, April.
    11. Apt, Jay, 2005. "Competition Has Not Lowered U.S. Industrial Electricity Prices," The Electricity Journal, Elsevier, vol. 18(2), pages 52-61, March.
    12. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
    13. Bushnell, James & Stoft, Steven, 1997. "Improving Private Incentives for Electric Grid Investment," Staff General Research Papers 31549, Iowa State University, Department of Economics.
    14. Deng, Shi-Jie & Oren, Shmuel & Meliopoulos, A.P., 2010. "The inherent inefficiency of simultaneously feasible financial transmission rights auctions," Energy Economics, Elsevier, vol. 32(4), pages 779-785, July.
    15. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
    16. Paul L. Joskow, 2006. "Markets for Power in the United States: An Interim Assessment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-36.
    17. Wu, Felix, et al, 1996. "Folk Theorems on Transmission Access: Proofs and Counterexamples," Journal of Regulatory Economics, Springer, vol. 10(1), pages 5-23, July.
    18. Lave, Lester & Apt, Jay & Blumsack, Seth, 2007. "Deregulation/Restructuring Part II: Where Do We Go From Here?," The Electricity Journal, Elsevier, vol. 20(9), pages 10-23, November.
    19. Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April.
    20. Lave, Lester & Apt, Jay & Blumsack, Seth, 2007. "Deregulation/Restructuring Part I: Reregulation Will Not Fix the Problems," The Electricity Journal, Elsevier, vol. 20(8), pages 9-22, October.
    21. Brunekreeft, Gert, 2004. "Market-based investment in electricity transmission networks: controllable flow," Utilities Policy, Elsevier, vol. 12(4), pages 269-281, December.
    22. Lave, Lester B. & Apt, Jay & Blumsack, Seth, 2004. "Rethinking Electricity Deregulation," The Electricity Journal, Elsevier, vol. 17(8), pages 11-26, October.
    23. Bushnell, James & Stoft, Steven, 1996. "Grid investment: can a market do the job?," The Electricity Journal, Elsevier, vol. 9(1), pages 74-79.
    24. Chao, Hung-po & Peck, Stephen & Oren, Shmuel & Wilson, Robert, 2000. "Flow-Based Transmission Rights and Congestion Management," The Electricity Journal, Elsevier, vol. 13(8), pages 38-58, October.
    25. Benjamin, Richard, 2007. "Principles for Interregional Transmission Expansion," The Electricity Journal, Elsevier, vol. 20(8), pages 36-47, October.
    26. Morey, Mathew J. & Eakin, B. Kelly & Kirsch, Laurence D., 2005. "RTOs and Electricity Restructuring: The Chasm Between Promise and Practice," The Electricity Journal, Elsevier, vol. 18(1), pages 31-51.
    27. Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
    28. Leautier, Thomas-Olivier, 2001. "Transmission Constraints and Imperfect Markets for Power," Journal of Regulatory Economics, Springer, vol. 19(1), pages 27-54, January.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:38:y:2010:i:7:p:3547-3556. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.