CRR/FTR risks have their rewards Panel Session 2008 IEEE PES General Meeting, Pittsburg, Pennsylvania

This paper presents the financial transmission rights (FTRs) or congestion revenue rights (CRRs) allow participants to bid in an auction to acquire rights to future day-ahead congestion revenues, defined as the difference in day-ahead congestion components between two pricing points on the system. FTRs/CRRs (FTRs, for short) are intended to provide market participants with a financial instrument to hedge congestion costs associated with physical participation in the energy markets. The analysis of FTR pricing reveals a relationship between return and risk that is expected from efficient markets. This relationship exhibited the correct pricing trend relative to the risks for recurrent cleared paths in the FTR auction. The market overall was able to learn quickly the kind of return they should require from holding FTRs for the level of risk these instruments entail. The stable linear relationship between the return and risk of FTRs on the cleared paths suggests the evidence of efficient pricing.