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FTR Market Modeling

Research Abstract

Transmission congestion in electric power networks results in revenues collected from the customers (retailers) that are often higher than the payments made to the generators/suppliers. This excess revenue is referred to as congestion revenue or congestion charge. The financial transmission right (FTR) is an instrument that allows the ISO to redistribute the congestion revenue among the market participants including generators, loads, and other third parties. Generators and loads, in particular, hold FTRs to hedge against congestion charges in the energy market. That is, by holding FTRs, they attempt to get a share of the congestion revenue to make up for their congestion losses in the energy market. Now, since the revenues from the FTR and energy markets are interdependent, each generator and load must have a joint bidding strategy for FTR and energy markets to maximize its total payoff. This paper presents a two-tier matrix game model that allows the competing generators and loads to obtain their joint bidding strategies. The model also allows the ISOs and the market designers to assess the impacts of various network configurations and rules on market performance (e.g., market power). The two-tier model considers multiple participants, multi-dimensional bid vectors (for both FTR and energy markets), network contingencies, and varying demands. We conducted a numerical validation of our model by analyzing the 3 node network studied by Joskow and Tirole (2000). We were able to obtain similar conclusions about FTR acquisition and its impact on the joint payoff. Additional numerical studies were conducted on a relatively larger network with 5 nodes, 5 generators and 3 loads. Impacts of FTR acquisition on the participants’ energy bidding strategies and joint payoffs were examined.


Conference Presentations

  • Babayigit, C. and Das, T. K. Impact of FTR Settlement on Energy Market Performance in restructured Power Market. INFORMS Annual Meeting 2007, Seattle, WA.