Financial Transmission Rights, Revenue Adequacy and Multi‐Settlement Electricity Markets

Introduction Financial transmission rights are essential ingredients of efficient markets in wholesale electricity systems operating under the principles of open access and non‐discrimination. A central feature is the revenue adequacy of financial transmission rights to provide full funding and the associated transmission hedges that link transactions between different locations. As summarized in the submission of FirstEnergy Solutions Corp. and others, in their filings under FERC Docket EL13‐47‐000, a recent pattern in PJM of persistent underfunding of financial transmission rights has raised questions about the nature of the rights, the causes of underfunding, and proposed solutions to restore the viability of financial transmission rights. The purpose of the present comments is to reinforce the other analyses with attention to the basic elements of revenue adequacy in a multi‐settlement system. Although perfect revenue adequacy can never be guaranteed, full funding of financial transmission rights is both a good and attainable policy as demonstrated by the implementation under the New York Independent System Operator.