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Financial Transmission Rights FAQs


  1. What is a Financial Transmission Right (FTR)?
  2. Why do I need FTRs?
  3. When and how do I acquire FTRs?
  4. How does PJM clear the FTR Auctions?
  5. Can an ARR holder self-schedule an FTR Option in the Annual FTR Auction?
  6. What are the requirements to bid into the FTR Auctions?
  7. If I sell an FTR, what happens with my transmission reservation and my congestion costs?
  8. Does an FTR to a hub or a zone hedge you against congestion for delivery to any bus in that aggregate?
  9. Even though we are auctioning off 25% of the capability for each round of the Annual FTR Auction, can a participant bid 100% of their requested MW?
  10. Will PJM allow partial FTR bids to be granted if the whole amount of the bid is not feasible?
  11. Can there be a negative strike (bid) price for an FTR bid?
  12. How are FTR Options cleared in the auction in conjunction with FTR Obligations?
  13. Is there a limit to the number of FTR Obligations and FTR Options in the FTR Auctions? What are the valid sources and sinks?
  14. Under what circumstances can the sink LMP (load) be less than the source LMP (generator)?
  15. Can FTR Options be traded on the FTR Secondary (Bilateral) Market?
  16. How do you end up with an FTR Obligation in the opposite direction of flow?
  17. What is the Simultaneous Feasibility Test?
  18. What is Revenue Adequacy?
  19. Are there situations when the PJM Market IS NOT Revenue Adequate?
  20. What will happen when there is an excess or deficiency in an hour of the Annual FTR Auction?
  21. How are congestion charges calculated during the SFT analysis?


Q1: What is a Financial Transmission Right (FTR)?
A1: A Financial Transmission Right (FTR) is a financial instrument, awarded to a bidder in the FTR Auctions that entitles the holder to a stream of revenues (or charges) based on the hourly day-ahead congestion price differences across the path. FTRs do not represent a right for physical delivery of power.
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Q2: Why do I need FTRs?
A2: One purpose of FTRs is to protect PJM Firm and Network Transmission Service Customers from increased cost due to Transmission Congestion when their energy deliveries are consistent with their firm reservations. Essentially, FTRs are financial instruments that entitle the holder to rebates of congestion charges paid by the PJM Firm and Network Transmission Service Customers.
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Q3: When and how do I acquire FTRs?
A3: You can acquire FTRs in four market mechanisms: the Long-Term FTR Auction, Annual FTR Auction, the Monthly FTR Auctions or the FTR Secondary market.
  1. Long-Term FTR Auction – PJM conducts an annual process of selling and buying FTRs through a multi-round auction for FTRs effective for periods beyond the current Annual Auction period. The Long-Term FTR Auction offers for sale the entire transmission capability that is available on the PJM system on a long-term basis after reserving capability from the assumption that all ARRs from the current planning period are selfscheduled.
  2. Annual FTR Auction – PJM conducts an annual process of selling and buying FTRs through a multi-round auction. The Annual FTR Auction offers for sale the entire transmission capability that is available on the PJM system reduced by the Long Term FTR Auction awarded capability.
  3. Monthly FTR Auction – PJM conducts a monthly process of selling and buying FTRs through an auction. The FTR auction offers for sale any residual transmission capability that is available after FTRs are awarded from the Long-Term and Annual FTR Auctions.
  4. Secondary Market - The FTR Secondary Market is a bilateral trading system that facilitates trading of existing FTRs between PJM Members.
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Q4: How does PJM clear the FTR Auctions?
A4: The clearing mechanism of the FTR Auctions will maximize the quote-based value of the set of simultaneous feasible FTRs awarded in the each auction. The FTR Auctions will calculate clearing prices for all FTR obligations at all buses, regardless of whether they are bought or sold in the auction. The FTR Auctions will calculate the clearing prices for FTR options for all valid FTR Option paths, regardless of whether they are bought or sold in the auction.
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Q5: Can an ARR holder self-schedule an FTR Option in the Annual FTR Auction?
A5: No. Since ARRs are only allocated in the form of Obligations, the FTR that is self scheduled in the Annual FTR Auction must be an FTR Obligation.
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Q6: What are the requirements to bid into the FTR Auctions?
A6: To submit a bid to purchase FTRs, you must be a PJM Member or a PJM Transmission Service Customer. To submit an offer to sell FTRs, you must own the FTR. You can sell any portion of the FTR.
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Q7: If I sell an FTR, what happens with my transmission reservation and my congestion costs?
A7: If you sell an FTR, you still have the right to deliver the energy, and your curtailment priority does not change.

If you sell an FTR, you will pay any congestion charges incurred in the delivery of energy to your sink. Actually everyone pays congestion, only FTR owners get it back in the form of congestion credits.
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Q8: Does an FTR to a hub or a zone hedge you against congestion for delivery to any bus in that aggregate?
A8: No. The FTR will only protect you against delivery to that aggregate.
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Q9: Even though we are auctioning off 25% of the capability for each round of the Annual FTR Auction, can a participant bid 100% of their requested MW?
A9: Yes. A participant can submit a bid for any positive MW amount.
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Q10: Will PJM allow partial FTR bids to be granted if the whole amount of the bid is not feasible?
A10: Yes.
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Q11: Can there be a negative strike (bid) price for an FTR bid?
A11: If the FTR bid is for an FTR Obligation bid, the strike (bid) price can be negative. If the FTR bid is for an FTR Option, then the strike (bid) price cannot be negative.
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Q12: How are FTR Options cleared in the auction in conjunction with FTR Obligations?
A12: The FTR Auctions maximize the quote-based bid value of a set of simultaneous feasible FTRs awarded in the auction. To ensure feasibility, counterflow created by an FTR Option bid must be ignored when FTRs bids are tested for feasibility. Since you can not pay for something that has no downside, the clearing prices of an FTR Option Buy Bid will never be less than zero. The clearing price of an FTR Option will always be greater than the clearing price of an FTR Obligation for the same path.
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Q13: Is there a limit to the number of FTR Obligations and FTR Options in the FTR Auctions? What are the valid sources and sinks?
A13: In the Long Term and Annual FTR Auctions valid sources and sinks for FTR Obligations are limited to Hubs, Zones, Aggregates, Interface Buses and Generator Buses. In the Monthly FTR Auctions, valid sources and sinks include any single bus or combination of buses for which a Day-ahead LMP is calculated and posted including Hubs, Zones, Aggregate Buses, Generator Buses, and Load Buses. In the Annual and Monthly FTR Auctions, the paths of FTR Options are limited to a subset of the entire PJM system. Option paths are not available in the Long Term FTR Auction. The number of FTR Obligations and FTR Options is only limited by the bids submitted by Participants.
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Q14: Under what circumstances can the sink LMP (load) be less than the source LMP (generator)?
A14: Depending on the binding constraints that result, the LMP at a sink can be less than the LMP at the source.
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Q15: Can FTR Options be traded on the FTR Secondary (Bilateral) Market?
A15: Yes. Both FTR Options and FTR Obligations can be traded bilaterally in the FTR Secondary Market.
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Q16: How do you end up with an FTR Obligation in the opposite direction of flow?
A16: A participant can submit a bid for an FTR Obligation in the opposite direction of the flow.
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Q17: What is the Simultaneous Feasibility Test?
A17: The Simultaneous Feasibility Test (SFT) is a market feasibility test run by PJM that provides revenue adequacy by ensuring that the Transmission System can support the subscribed set of FTRs or ARRs during normal system conditions. The purpose of the SFT is to preserve the economic value of FTRs or ARRs to the holders by ensuring that all FTRs or ARRs awarded can be honored. An SFT is run for each FTR or ARR requested.
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Q18: What is Revenue Adequacy?
A18: If the FTRs or ARRs can be supported under normal system conditions and congestion occurs, PJM will be collecting enough congestion charges to cover the FTRs or ARR credits, thus becoming revenue adequate.
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Q19: Are there situations when the PJM Market IS NOT Revenue Adequate?
A19: Yes. This can occur under two circumstances: 1. The PJM Market is no longer revenue adequate when the loop flow assumptions are different in the Day-Ahead Energy Market than was modeled in the FTR Auction. 2. The PJM Market is no longer revenue adequate when emergency outages occur in the Day-Ahead Energy Market that were not modeled in the FTR Auction.
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Q20: What will happen when there is an excess or deficiency in an hour of the Annual FTR Auction?
A20: If insufficient revenues are collected from the Annual and Long term FTR Auctions to satisfy ARR Target allocations, then the following will occur:

  1. ARR Credits are prorated proportionally,
  2. Revenues from the Monthly FTR Auction are first used to fund any ARR deficiencies in the month, then FTR Target Allocation deficiencies,
  3. ARR deficiencies may be funded from any annual excess congestion charges remaining at the end of the planning period.
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Q21: How are congestion charges calculated during the SFT analysis?
A21: Congestion charges are not calculated in the SFT analysis. The Simultaneous Feasibility Test (SFT) is used to allocate the system and ensure that the system has not been oversubscribed.
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