Introduction to Multidimensional Financial Transmission Rights

This paper introduces the concept of multidimensional financial transmission right (MDFTR) which is a generalized group financial transmission right (FTR) concept. An MDFTR allows its owner to hold a total FTR amount over a path group along with multiple choices to distribute this grouped amount among the individual grouping paths. This added flexibility provides forward-market participants with a useful support to overcome the congestion price risk that originates from the uncertainty in their transaction paths. All the fundamental issues regarding the implementation of MDFTRs are addressed in detail in this paper. The practical utility of MDFTRs is judged by analyzing their costs. It is shown with illustration that an MDFTR may be more cost-effective than any given portfolio of individual FTRs that has the ability to give the same risk-hedging benefit.