Transcript PJMs Annual FTR Auction Presentation

PJM’s Annual FTR Auction
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Introduction
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FTR Market Enhancements
In order to create a more robust FTR Market,
PJM is enhancing the FTR Market to include:
Annual FTR Auction
Current FTR allocation procedure will be converted into a
long-term auction
New FTR Product
FTR Options are a financial instrument that provides a
new hedging mechanism
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Annual FTR Auction
Annual FTR
Auction
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Annual FTR Auction
TODAY
FUTURE
FTRs are allocated to
Firm Transmission
Service Customers
annually
All FTR capability is
auctioned off to the
highest bidders
Monthly FTR Auctions
allocate residual FTR
capability to highest
bidder
Auction revenues will
be allocated to Firm
Transmission Service
Customers
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Annual FTR Auction
BENEFITS
Provides more flexible transmission congestion hedging
alternatives
Makes benefits of congestion hedges generally more
available to customers who switch suppliers under
Retail programs
Continues to allocate property rights to Firm Transmission
Customers through Auction Revenue Rights
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What Are FTRs?
Financial Transmission Rights are …
financial instruments awarded
to bidders in the FTR
Auctions that entitle the
holder to a stream of
revenues (or charges) based
on the hourly Day Ahead
energy price differences
across the path
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What are ARRs?
Auction Revenue Rights …
are entitlements allocated
annually to Firm
Transmission Service
Customers that entitle the
holder to receive an
allocation of the revenues
from the Annual FTR Auction
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Entire PJM
System Capability
Annual
ARR Allocation
Auction
Revenue
Rights
ARRs
Allocated
(MWs)
Annual
FTR Auction
FTRs Awarded
To Bidders
(MWs & Price)
Auction
Revenue
Auction
Revenue
Rights
Holders
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New FTR Product
FTR Options
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New FTR Product
TODAY
FUTURE
FTR Obligations only
FTR Obligations and FTR
Options
FTR Obligations can be a
benefit or a liability
FTR Obligations can be a
benefit or a liability
FTR Options can be benefit,
but never a liability
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New FTR Product
BENEFITS
Provides additional Transmission congestion hedging
alternatives to PJM customers
Will make analysis of hedging alternatives less complex
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FTR Market Timeline
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Overview of
Financial Transmission Rights
(FTRs)
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What Are FTRs?
Financial Transmission Rights are …
financial instruments awarded
to bidders in the FTR
Auctions that entitle the
holder to a stream of
revenues (or charges) based
on the hourly Day Ahead
energy price differences
across the path
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Why Do We Need FTRs?
?
• Challenge:
– LMP exposes PJM Market Participants to price
uncertainty for congestion cost charges
– During constrained conditions, PJM Market collects
more from loads than it pays generators
• Solution:
– Provides ability to have price certainty
– FTRs provide hedging mechanism that can be
traded separately from transmission service
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Characteristics of FTRs
Economic value based on Day Ahead LMPs
 Defined from source to sink
 can be in form of obligation or option

 obligation
can be benefit or liability
 option can be benefit but never liability
Financial entitlement, not physical right
 Independent of energy delivery
 Must be simultaneously feasible

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Economic Value of FTR
FTR Target
= (FTR MW )
Allocation
* (LMP FTR Sink - LMP FTR Source)
• FTR Target Allocation is equal to the FTR MW amount times the
price difference from the FTR sink point to the FTR source point
• LMPs based on the clearing prices from DayAhead Market
• If LMP FTR Sink < LMP FTR Source ,
– the FTR is a liability if FTR defined as Obligation
– the FTR has zero value if defined as Option
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How are FTRs Acquired?
FTRs are acquired in three market mechanisms …
1. Annual FTR Auction
–
–
–
–
multi - round
multi - period
multi - product
entire system capability
2. Monthly FTR Auction
–
–
single - round
purchase “left over” capability
3. FTR Secondary Market
–
bilateral trading
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Types of FTR Products
FTRs can be acquired in two forms …
FTR
Obligations
FTR
Options
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What are FTR Obligations Worth?
Benefit
– the hourly economic value is positive
– FTR same direction as congested
flow
Liability
– the hourly economic value is
negative
– FTR opposite direction as
congested flow
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What are FTR Options Worth?
A Benefit
– the hourly economic value is
positive
– FTR same direction as the
congested flow.
Neither a Benefit or a Liability
– the hourly economic value is
zero
– FTR opposite direction to the
congested flow.
FTR Option cannot
have negative value
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FTR Consistent withCongested Flow
Thermal Limit
FTR Obligation = 100 MW
Bus
A
Energy Delivery = 100 MWh
Bus
B
Sink
(Receiving End)
Source
(Sending End)
LMP =
$15
LMP =
$30
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Obligation Credit = 100 MW * ($30-$15) = $1500
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FTR Obligation is a Liability
Thermal Limit
FTR Obligation = 100 MW
Bus
A
Energy Delivery = 100 MWh
Source
(Sending End)
Bus
B
Sink
(Receiving End)
LMP =
$30
LMP =
$15
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Obligation Credit = 100 MW * ($15-$30) = $-1500
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FTR Option is a Benefit
Thermal Limit
FTR Option= 100 MW
Bus
A
Energy Delivery = 100 MWh
Source
(Sending End)
Bus
B
Sink
(Receiving End)
LMP =
LMP =
$15
$30
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Option Credit = 100 MW * ($30-$15) = $1500
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FTR Option is Neither a Benefit/Liability
Thermal Limit
FTR Option= 100 MW
Bus
A
Energy Delivery = 100 MWh
Source
(Sending End)
Bus
B
Sink
(Receiving End)
LMP =
$30
LMP =
$15
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Option Credit = 100 MW * ($15-$30) = $-1500 = $0
***When calculated, the FTR Option Credit is negative,
therefore the economic value will equal zero.******
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Summary
• FTRs are financial instruments used to hedge
congestion costs
• FTRs can be acquired in the Annual FTR
Auction, Monthly FTR Auction or Secondary
Market
• FTRs can be Obligations or Options
 obligation
can be benefit or liability
 option can be benefit but never liability
• FTRs must be simultaneously feasible
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Overview of
Auction Revenue Rights
(ARRs)
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What are ARRs?
Auction Revenue Rights …
are entitlements allocated
annually to Firm
Transmission Service
Customers that entitle the
holder to receive an
allocation of the revenues
from the Annual FTR Auction
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Characteristics of ARRs
 Economic value based
on LMPs from the Annual
FTR Auction
 Defined from source to sink
 Only available as an obligation

obligation can be benefit or liability
 Financial entitlement, not
physical right
 Must be simultaneously feasible
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Economic Value of ARR
ARR Target
=
Allocation
(ARR MW )
* (LMP ARR Sink - LMP ARR Source)
(# of rounds)
• ARR Target Allocation is equal to the ARR MW amount
(divided by the number of rounds) times the price difference
from the ARR sink point to the ARR source point
• LMPs based on the nodal clearing prices for each round of
the Annual FTR Auction
• ARRs can be a benefit or a liability
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How are ARRs Acquired?
ARRs are acquired in the following mechanisms …
1. Annual ARR Allocation
Auction Revenue Rights (ARRs) requested by Firm
Transmission Customers are allocated on an annual
basis
2. Daily ARR Reassignment
ARRs allocated for the planning period will be
reassigned on a proportional basis within a zone as
load switches between LSEs within the planning
period
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What can the holder do with the ARR?
• Convert ARR into FTR by “self-scheduling” FTR into
Annual Auction on exact same path as ARR
• Reconfigure ARR by bidding into Annual Auction to
acquire FTR on alternative path or for alternative
product
• May retain allocated ARR and receive associated
allocation of revenues from the auction
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Summary
• ARRs entitle the holder to receive allocation of
Annual FTR Auction revenues
• ARRs are allocated to firm Transmission Service
Customers
• ARRs are reassigned on a proportional basis within
a zone as load switches between LSEs within the
planning period
• ARRs are only available as an obligation
– obligation can be benefit or liability
• ARRs must be simultaneously feasible
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