Auctions Mechanism of Finacial Transmission Rights

In PJM Maket

JIANG Xiao, ZENG Dan
State Grid Electric Power Reaearch Institute, Nan Jing, China, 210000
1. jiangxiao@sgepri.sgcc.com.cn, 2. zengdan@sgepri.sgcc.com.cn


AbstractTransmission Congestion is a critical phenomenon of system operation under the electricity market. As a risk
mitigation instrument, without changing the realtime dispatch and operation of the system, Financial Transmission Right
(FTR), already been applied in electricity market of certain countries and regions, provides a solution to the transmission
congestion problem in a novel term. At the same time, FTR also provide the risk management instruments for the
participant of the market. This paper describes the profile of the American PJM FTR in detail, state the patterns of the
American PTM FTR market based on the basic theories of FTR, and analyze the annual and monthly auction process of
Auction Revenue Rights ARRs, the auction process of FTRs and settlement mechanism of the FTR in the FTR market.
These analysis provide important references for the future development of the Chinese FTR market.

Keywords-PJM; FTR; ARR; Auctions Mechanism


1 Introduction
In electricity market, the gradual increase of bilateral
trade, especially the increase in inter-regional power
exchange, inter-regional tie-line transmission congestion
become more frequent and severe. Grid system can not only
affect the normal operation of the safety and reliability, but
also affect competition in the market. In the bilateral trading
market mode of transmission congestion management,
adopted and effective way to avoid market risks, is an
important part of the management of transmission congestion.
One important trend is the use of market mechanisms, the
introduction of tradable transmission rights.
The current study generally considered transmission
rights can be divided into financial transmission rights,
physical transmission rights and transmission based on the
trend of the financial rights of the three categories. Harvard
University professor William.W.Hogan first proposed in
1992, Financial Transmission Rights, as the theory of
financial transmission rights of one of the main founders,
their research also in the forefront of the field. The main
point is the use of transmission capacity rights to allocate
congestion costs, this is the first in the form of financial
transmission rights, the definition point of his direct power
transmission, regardless of trading electricity transmission
system in the actual flow path, thus avoiding cumbersome
physical transmission path tracking. 1996, Chao and Perk in
[5]

is proposed based on Flowgate transmission rights that are
not based on the trend of the network topology design can
impact the value of transmission capacity rights in the long
remain stable, and easy to compute.
Domestic financial transmission rights of a late start, at
present, issues related to research for more and more. FTR to
avoid blocking the application problem, Paper[12] proposed
a fund to pool financial transmission rights and the
combination of risk aversion blocking method is right with
the power transmission lines along the forward market
transactions. FTR reverse the trend for solving the problem,
Paper[13] will be introduced to the theory of options in the
transmission system, through the establishment of
transmission options, TO (Transmission Option) to avoid the
trend reverse to the FTR as the economic benefits of the
owner of the loss.
PJM financial transmission rights in the U.S. market has
been fully applied, that the FTR is a financial tool, which
allows the holder of the FTR has the energy market, when
blocking the transmission network congestion caused by
rising costs and adjusted in order to reduce network
congestion bias generator makes electricity when the node
can be compensated for financial transmission rights. This
paper describes the U.S. PJM financial transmission rights
market overview, and in accordance with the basic theory
described FTR PTM U.S. financial transmission rights
market model, a detailed analysis of annual and monthly
financial transmission rights market in the ARRs auction,
FTRs and the FTR auction clearing process mechanism. For
our future development of financial transmission rights
market provides an important reference value.
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978-1-4244-9690-7/11/$26.00 2011 IEEE


2 FTRs and ARRs
2.1 Concept and Action of FTRs
Financial transmission rights (FTR) is a financial tool in
the market place a few days ago when the transmission line
congestion, to reduce congestion outside the unit carried out
by the scheduling order before the market will inevitably
lead to price differences between nodes, that congestion cost,
FTR holders to ensure their recover the cost of a block. Each
FTR is defined as the power from the power flow into the
node to node. In the monthly FTR auction, FTRs can be
designed into or out of any single node, lumped bus, regional,
and used to calculate the price after the block has a set of
nodes and cross-interface. In the annual FTR auction, the
power injected into or out of the bus is limited to lumped,
regional, generator sets and cross-node and node interface.
FTRs give their holders access to transmission service
nodes and service nodes into the corresponding price
difference between the LMP congestion component of the
right to financial gain is a risk of financial instruments to
avoid blocking, its most notable feature is to spread the LMP
congestion component corresponding to the right instead of
financial gain the right to use physical transmission capacity.
Shown in Figure 2.1, assuming a FTR is defined between
node j to node i Q (MW) of power transmission, two-node
LMP, respectively pi and pj (pi> pj). If a dealer's bilateral
trade contract from the node j transmission Q (MW) to node i,
then it needs to pay for Q (pi-pj) the cost to the trading center.
If it has a corresponding transmission power, it will be a
certain percentage of compensation that is received Q (pi-pj)
compensation (0 1). FTR, when not purchased the
appropriate compensation factor = 0, and the purchase of
the corresponding FTR full compensation when
compensation factor = 1. Therefore, traders transmission
congestion in the settlement of expenditure and income have
offset compensation, so that you can pre-purchase through
FTR, block traders get the price (converted to transmission
power prices) and price certainty.


Fig.1 Financial transmission right
Market participants should be in accordance with the
obligations and enjoy rights, FTR obligations can be divided
into two categories based model and options.
FTRs's role is to avoid when the power transmission and
pre-fixed transmission services consistent with, the fixed
transmission grid congestion service users as a result of
increased costs. In essence, FTRs is a financial tool, it gives
its holder access to a service user to pay a fixed transmission
congestion costs. Option market participants can obtain type
or types of financial transmission rights obligations, this does
not mean a physical delivery of electricity on the right.
FTR holders need not be required to transfer real power
to obtain the actual congestion cost. If the blocking
phenomenon has occurred in the market, FTRs holders of the
gains depends on FTR's definition of power injection
capacity and blocking out the cost difference between two
points. Whether the path defined in the FTR actual
transmission power, and regardless of the size of the actual
transmission of electrical energy, FTR holders would receive
income this block.
Market participants can access the market through three
FTRs, that the annual FTR auction market, auction market,
and monthly FTR FTR secondary market.
2.2 Concept and Action of ARRs
ARRs is an annual FTR auction revenue distribution
mechanism, ARRs will be assigned to each user of fixed
network services, they will participate in the annual FTR
auction income distribution in the past.

ARRs was primarily allocated to the user and peer to
peer network integrated services network users. Market
participants to apply ARRs, and PJM will test at the same
time on the basis of feasibility can be fully, partially or reject
applications for ARR. In each year of the plan period
beginning, ARRs will be based on the duration of the plan
period, the annual allocation to network users and integrated
services fixed-point transmission service customers.
The annual FTR auction by a certain percentage of
proceeds allocated to ARR holders, the amount of the
distribution of economic value is the ARRs, but not lose out.
ARR holders in each round of FTR auction revenues should
be given for the ARR capacity (divided by the number of
auction rounds) by the ARR flow into the node and the price
difference.
3 Auctions of ARRs in PJM
PJM acts include, confirm that all TSRs receive
comprehensive services and network applications for ARR;
simultaneous feasibility test of the ARRs. Application and
processing network of integrated services ARRs in the
following process: Web services clients integrated services
network through eFTR ARR submitted applications. PJM
PJM will accept ARRs into the FTR database.
3.1 Application Process of ARRs
In order to participate in the distribution of the annual
ARRs, a fixed point ARR application should be the same
across the entire next planning period of the fixed point
corresponding to transmission services, but also in the annual
ARR allocation window to confirm.
In the annual ARR allocation of a fixed point outside
the window ARRs process is as follows:
Fixed point to point transmission service requests the
user manual transmission according to PJM and PJM OASIS
Operation Manual of the relevant provisions of the
submission by the OASIS transmission service requests,
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including the choice of whether to apply the corresponding
ARR.
PJM filing of ARR for the simultaneous feasibility test,
and through OASIS TSR and ARR of the transmission of
user publish the results.
Fixed point to point customers to inform the PJM
OASIS and accept or reject TSRs corresponding ARRs.

Table 1. Schedule Of ARRs Application and Approval

Annual Month Week Day
Service time
before the start
of the earliest
applications
== 18months 2 weeks 3 days
Service before
the start of the
latest
applications
2 months 14days 7days 2days
OI respond to
acceptance by
TSR
1monte Per tariff 2days 4hours
OI after the user
determine the
appropriate
PJM through OR after 15 days, until the service start
date before 12:00 am
Longest time == 1 month 2 weeks 2days

3.2 Allocation of Annual ARR
ARRs provide a distribution mechanism for the annual
FTR auction revenue. ARRs year planning period is
generally assigned to each network user, or integrated
services fixed-point transmission service customers. Market
participants to submit applications during the period of the
distribution plan, and then increase in long-term certainty
and flexibility, based on the experience of a two-stage
allocation process, the first distribution phase consists of two
parts, namely, phase 1A and phase 1B. In the first phase, the
network service user in the history of the unit for the
transmission of each district to submit the case load supply
ARR application, the fixed point to point transmission
service users must be recognized qualification only after the
reference year based on the power of history transmission of
applications submitted ARR. 2 is a three stage process of
distribution, which allows market participants to adjust the
ARR paths each year. PJM will test the feasibility by the
premise of both the priority for the allocation of fixed
transmission service users.
PJM's allocation of ARRs is an iterative process,
including a total of four. Each round will be minutes away
ARR capacity of the remaining one-third of the system.
Transmission network service users and fixed users can
submit an application before the next round of the ARR to
view the results of the current round of allocation. In the
three allocation process in each round, the network user to
apply a maximum of the ARR allocation in Phase 1 after the
peak load is not assigned one-third of Internet users.
For Example, a peak load of a network user to 100MW,
he got in the Phase 1 sub-70MW of ARRs, each round in
phase 2 of the ARR application, the capacity to apply a
maximum of (100-70) / 3 = 10MW.
If the user is qualified fixed transmission network users
in the second phase of the maximum capacity of each round
of applications for ARRs into the outflow for the two power
transmission between the fixed service capacity and to enjoy
the first round of one-third of the difference in the
distribution of ARR. However, if the user is not qualified
fixed transmission network users, it can only pay the base
transmission costs or special approval by the FERC
transmission cost while exempted under the premise of the
benchmark, before they can apply ARR allocation. ARRs for
a fixed point to another precondition is that ARRs must span
the entire plan period of the corresponding fixed point to
point transmission service. Fixed point ARR application is
divided into four parts, each point in a Phase 2.
In each round, PJM application of these ARRs
simultaneous feasibility test. If all of the ARR application is
not feasible at the same time, capacity constraints will be
based on the size of the inverse boundary to reduce the role.
For Example, the line A-B of the capacity of 50MW,
two ARR application capacity in excess of the capacity of the
A-B:

Table 2. Situation Of ARRs Application
ARR Application
capacity
Path Per MW for
the role of
the line AB
Influence
of the
trend of
the line AB
#1 200MW A-B 0.5 100MW
#2 200MW C-D 0.25 50MW

Because the trend of the more limited, it will be
adjusted, is calculated as follows:
ARR prorated capacity:


1


Line A B
Requested
Line Capacity
Total Request ARR ARR effect per


ARR#1 The final allocation of capacity
200 1
50 50
400 0.5
MW
MW MW
MW
=

ARR#2 The final allocation of capacity
200 1
50 100
400 0.25
MW
MW MW
MW
=

When a zone transfer loading occurs, the planning
period to re-rata basis of ARRs allocated to specific
implementation details of the grounds of PJM daily ARRs
redistributed. ARR redistribution will only occur when a
district LSEs load reduction, because this time point to the
position of the region, the economic value of the ARR as a
net positive increase in the proportion of the load LSE load
of the ARR will increase accordingly.

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4 Auctions of FTRs in PJM
4.1 Application Process of ARRs
PJM FTR auction is responsible for overseeing the
process of market participants through the annual and
monthly FTR auction FTR auction.
Annual FTR Auction: The annual FTR auction includes
all PJM transmission system resources, with a total of four
auction process. In each round of the auction process, PJM
system resources for 25% of capacity auction, participants
have been purchased in the last round of FTR auction can be
sold the next round.
Monthly FTR auction: each month, monthly FTR
auction provides PJM system transmission resources for the
remainder of the auction, the monthly FTR auction is a
single-round process, market participants can also have a sale
auction held by the FTR. In the monthly auction, you can sell
or buy these types of FTRs: a period of one month, but after
three months still to ensure that the planning period. Period
of three months, but to ensure that this month a quarter are in
the planning period. PJM planning period in which a quarter
of 6,7,8 months, 10, 11 months for the second quarter, third
quarter 12,1,2 month in the fourth quarter of 3,4,5 months.
FTR auction clearing rule is in every auction, the total
value of the FTRs offer when considering the maximum
transmission constraints, and ARRs are allocated FTR
auction revenue mechanism. The annual FTR auction
proceeds will be allocated to ARR holders. First of all
monthly auction proceeds pro rata to the annual FTR auction
is not fully compensate for the ARR holder, the rest were
classified as over-congestion cost.

4.2 FTR Secondary Market in PJM
PJM's FTR secondary market as a bilateral trading
platform to facilitate the PJM members through the bulletin
board system eFTR transaction has been created by FTRs. It
is noteworthy that, FTR secondary market transactions only
existing FTRs, but not for the creation of FTRs.
FTR when eFTR a transaction occurs, PJM will
automatically adjust its owners, and members of the monthly
bill be amended accordingly.
FTRs can not eFTR in trading, but then PJM can not
grasp the transaction information, it can not automatically
members of the monthly bill be amended accordingly. In
general, this approach is usually applied to non-members of
PJM FTRs transactions.
Through PJM's eFTR, market participants are free to
buy or sell FTRs, and is basically determined by transmission
along the path. On the same path, a different capacity, or the
FTR can be divided into start and end dates of different
copies of FTRs.
In eFTR system, market participants can make the
following behavior:
Access to FTRs list: in the secondary market trading
center on the page, all FTRs are listed.
Sale of FTRs issued a notice: after the initial
distribution when the FTRs, PJM FTRs will be posted on the
website list, followed by the initial holders of FTRs can be
released for sale notice.
Trading FTRs: eFTR secondary market trading center to
provide such a web page that allows traders to publish notice
and to sell the right to accept or reject bidder's offer.
5 Clearing of FTR Market in PJM
5.1 The Distribution of Annual FTR Auction
Revenue
In the economic value of ARRs and FTRs obligations of
the weighted annual rounds of the auction clearing price
comparisons, annual and monthly FTR auction revenue
based on the economic value of ARRs allocated in
proportion to the annual auction revenue rights holders.
The rest will be deposited into an account for future
FTRs to be a shortage of cash, the funds in this account is
called "congestion cost to be over-allocated."

5.2 Settlement of ARR
Auctions the right to settlement proceeds is based on
each round of the annual FTR auction clearing price and
carried out.
ARR holders in each round of FTR auction revenues
should be given for the ARR capacity (divided by the
number of auction rounds) by the ARR flow into the node
and the price difference

( )


Target Allocation delievery source
ARR
ARR LMP LMP
of rounds
=

ARR allocation targets can be both positive, it can be
negative, with the annual auction in the direction of the
transmission line congestion.
From the annual and monthly FTR auction gains
allocated to meet the goal of all of the ARR, ARR holders at
this time for all concerned, ARR ARR distribution of income
is equal to the target.
From the annual and monthly FTR auction to benefit all
of the ARR is not able to meet the target allocation, it will
meet all the ARR holder under the premise of the proceeds
pro-rata allocation.
In the latter case, ARR ARR target income and the
value of the difference between the known distribution of
ARR shortages, this shortage can be blocked by the annual
fee to cover the excess.
Annual FTR and ARR is in accordance with the
corresponding months of settlement.

5.3 Settlement of FTR
?+0

Allocation of transmission congestion revenue target for
the FTR holders of each blocking period should be based on
or derived values of FTR revenues.
PJM's allocation of transmission congestion, type the
following objectives:

( )

delivery receipt
Target Allocation= FTR DA LMP DA LMP

Target Allocation is load nodes and generator nodes in
the capacity of financial transmission rights;

delivery
DA LMP
is sharing out of power before the node
LMP;

receipt
DA LMP
is into the node for the power-sharing
before LMP;
All allocation of transmission congestion, market
participants objectives

( )
i delievery-i receipt
Target = FTR Load Percentage LMP LMP

i
Load Percentage

is maximum load in a node in the
user loads the region accounted for the proportion of the total
load.
PJM OI analysis of each market and a period of time
before the results of real-time market, income distribution
and the overall goal of network congestion and network
congestion compared to the total charge.
If at some time in, PJM congestion charges received
greater than or equal to the goal of blocking the distribution
of income, then the block is equal to the value of each FTR
income distribution goals. Extra charges will be blocked in
accordance with the situation back in late assignments.
If at some time in, PJM congestion charging less than
the blocking receive benefits, then FTR holders will block
the distribution of proceeds in accordance with the
proportion of the target block size to get the fee, the
remaining part of the block will be other times to generate
excess costs account at the end of a unified compensation.

5.4 Excess congestion cost allocation
Over-congestion cost allocation is needed to
compensate for the actual payment of monthly FTR FTR
allocation of income and the difference between the
objectives of the shortage.
Phase 1: First, in proportion with the cost of
compensation over block FTR this month to pay the
difference.
Phase 2: If there are remaining on the stage, then
continue to compensation in proportion to the previous
month FTR pay the difference.
Stage 3: If there is a surplus in the previous stage, then
the balance will be credited to be over-month congestion cost
allocation.
Phase 4: the end of each plan period of time, the balance
of the cost of any excess blocking the payment of the
difference between the ARR will be compensated if
compensation is insufficient, needed in proportion to
compensation.
Stage 5: If the experience of the first four stages, then
the excess cost over the remaining blocks, then, PJM
network services will be allocated in proportion to the fixed
point to point transmission customers and users, as demand
for its network of integrated services and the fixed point
charges transmission capacity of scheduled service to recoup
costs, this stage does not consider whether the user has
allocated FTR.
6 Conclusion
Financial transmission rights in electricity markets is an
effective risk hedging instruments, the goal is to minimize
the long-term contract market participants pricing system in
the node under congestion pricing as unpredictable risks.
FTRs in the PJM market in the U.S. have successfully used.
It makes the FTR holders in the energy market in a few days
ago, when blocking the transmission network congestion
caused by rising costs and to reduce network congestion and
adjust the generator, making the node price bias can be
compensated. FTR will be each associated with a few days
ago according to the market clearing results in a
corresponding distribution of the economic value of the time,
and FTR holders will be held FTRs their corresponding value.
PJM FTR auction market and the establishment of a
secondary market for market participants to obtain FTRs,
allows FTRs to OTC, the annual and monthly auctions at the
same time to form. In addition, FTRs will continue until the
settlement of the FTRs corresponding to the entire time. PJM
financial transmission rights auction mechanism for the
development of our country's future electricity market
provides an important reference value.

Thanks
State Grid Electric Power Research Institute in the
country to work and live nearly two years, I have to be a
leader, colleagues, loved ones all aspects of selfless help and
care, so I can have a good environment to complete research
projects. Thank the project leader in the professional skills
gave me a careful guide, repeatedly put forward constructive
solutions to solve the technical difficulties encountered in
scientific research, so my expertise has been greatly
improved. Special thanks to my wife, in the paper to
complete the process, she got a lot of guidance and help her
selfless caring, understanding and support I have been a
source of motivation, willing to give her a trace of the paper
pleased.

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