IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO.

1, FEBRUARY 2008 47
Introduction to Multidimensional
Financial Transmission Rights
V. Sarkar and S. A. Khaparde, Senior Member, IEEE
AbstractThis paper introduces the concept of multidi-
mensional nancial transmission right (MDFTR) which is a
generalized group nancial 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 exi-
bility 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 benet.
Index TermsAuction, nancial transmission right, locational
marginal price, multidimensional nancial transmission right,
obligation, option, secondary trading.
NOMENCLATURE:
Set of MW-path distribution vectors for the th mul-
tidimensional FTR.
Price of the th multidimensional FTR.
Total number of simultaneous feasibility constraints.
Path-branch sensitivity factor (or power transfer dis-
tribution factor), relating a certain line to the path of
the th requested nongenerated obligation FTR, for
a particular network topology.
Path-branch sensitivity factor, relating a certain line
to the path of the th requested generated obligation
FTR, for a particular network topology.
Path-branch sensitivity factor, relating a certain line
to the path of the th base generated obligation FTR,
for a particular network topology.
Path-branch sensitivity factor, relating a certain line
to the path of the th nongenerated option FTR, for
a particular network topology.
Path-branch sensitivity factor, relating a certain line
to the path of the th generated option FTR, for a
particular network topology.
Flowcaused by the physical equivalents of base non-
generated obligation FTRs on a certain line under a
particular network topology.
Manuscript received August 18, 2006; revised May 29, 2007. Paper no.
TPWRS-00539-2006.
The authors are with Department of Electrical Engineering, Indian Institute
of Technology Bombay, Mumbai 400076, India (email: vaskar@ee.iitb.ac.
in;sak@ee.iitb.ac.in).
Digital Object Identier 10.1109/TPWRS.2007.913199
th element of .
Number of all possible active-inactive combinations
of option FTRs.
Dual variable (i.e., Lagrangian multiplier) cor-
responding to the th simultaneous feasibility
constraint.
Coefcient of the th multidimensional FTR term in
the th simultaneous feasibility constraint.
Column vector containing the MW amounts of the
base nongenerated option FTRs.
Column vector, containing the MW amounts of the
base generated option FTRs, corresponding to the
th combination of MW-path distribution vectors
among the base and requested MDFTRs.
Column vector containing the MW amounts of the
base option MDFTRs.
Column vector, containing the MW amounts of the
base generated obligation FTRs, corresponding to
the th combination of MW-path distribution vec-
tors among the base and requested MDFTRs.
Column vector containing the MW amounts of the
base obligation MDFTRs.
Number of elements in .
Number of elements in .
MW amount of the th multidimensional FTR.
Path-branch sensitivity factor, relating a certain line
to the th path of the th multidimensional FTR, for
a particular network topology.
Set of paths over which the th multidimensional
FTR is dened.
Total number of MW-path distribution vector com-
binations among the MDFTRs.
Column vector containing the variable terms that
signify the awarded amounts towards the nongener-
ated obligation FTR requests.
Column vector, containing the variable terms that
signify the awarded amounts towards the gener-
ated obligation FTR requests, corresponding to the
th combination of MW-path distribution vectors
among the base and requested MDFTRs.
Column vector containing the variable terms that
signify the awarded amounts towards the obligation
MDFTR requests.
Column vector containing the variable terms that
signify the awarded amounts towards the nongener-
ated option FTR requests.
0885-8950/$25.00 2008 IEEE
48 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008
Column vector, containing the variable terms that
signify the awarded amounts towards the generated
option FTR requests, corresponding to the th com-
bination of MW-path distribution vectors among the
base and requested MDFTRs.
Column vector containing the variable terms that
signify the awarded amounts towards the option
MDFTR requests.
Flow limit of a certain line.
Total number of requested and base multidimen-
sional FTRs.
th element of .
Zero vector of dimension 1.
Number of rows in the column vector (.)
Sum of all elements of the column vector (.).
I. INTRODUCTION
F
INANCIAL transmission rights (FTRs) are effective risk-
hedging tools, designed with an aim to minimize conges-
tion price risk for the forward contracts under locational mar-
ginal pricing environment. This concept was rst introduced by
Hogan in 1992 [1], [2]. FTRs are nowsuccessfully implemented
in many power markets like PJM, New England, New York, and
others [3][7].
A point-to-point FTR has multiple specications. The basic
parameters dening an FTR are:
1) a source and a sink;
2) a validity period;
3) a MW amount.
Each FTRis assigned a monetary value for each hour depending
upon the day-ahead locational marginal price (LMP) outcomes
for that hour. The FTR owners are paid according to the hourly
values of their FTRs. However, the settlement can be over mul-
tiple hours at a time.
With regard to hedging adjustability, all the currently exer-
cised FTRs can be classied into two categories: options and
obligations. They differ in the sense that an obligation FTR may
incur a negative value at certain hours, whereas the value of an
option FTR is always nonnegative. When awarded simultane-
ously, the price of an option FTR will always be greater than or
equal to that of an obligation FTR on the same path. Note that,
in FTR context, a path is dened simply by a source-sink pair
(for example, from Node 1 to Node 2) [5] rather than an alter-
nating series of nodes and lines. A generalized formulation for
the auction of obligation FTRs can be found in [8], whereas [9]
and [10] explain how to modify this formulation when option
FTRs are also included in the auction.
An alternative to the nancial transmission right mechanism
is the owgate right (FGR) mechanism. Each FGR is dened on
a commercially signicant owgate in a specic direction. By
denition, each FGRis an option. The hourly value of an FGRis
determined by the shadow price of the relevant owgate and the
direction of congestion. A point-to-point physical transaction
can be fully hedged by a certain portfolio of FGRs.
The concept of FGRs was developed basically to enhance the
decentralized trading of transmission rights [11]. However, as
discussed in [12], the FGR approach may encounter difculty
due to the following:
1) the presence of a signicant number of contingent
owgates;
2) the varying values of power transfer distribution factors.
As a result, the applicability of FGRs is limited to those systems
where the above two problems are not too severe. By compar-
ison, the FTR mechanism is much less affected by these prob-
lems. Finally, it should be mentioned again that many of the
successfully running LMP-based power markets have found the
FTR mechanism to be more suitable for their systems as com-
pared to the FGR mechanism.
In this paper, we introduce the concept of a multidimensional
nancial transmission right (MDFTR). With the addition of
MDFTRs, forward-market participants get a useful support
for overcoming the congestion price risk that is caused by the
uncertainty in their transaction paths. However, in a true sense,
a multidimensional FTR is not in itself a transmission right;
rather, it is a generator of transmission rights. An MDFTR
owner basically holds a group FTR over a set of paths, along
with multiple choices to distribute this grouped amount among
the individual grouping paths. Therefore, he can choose from
among multiple hedge alternatives after watching the actual
delivery pattern of his transaction.
An elementary discussion on such group FTR concept was
already presented in [13] in the form of a contingent transmis-
sion right. Moreover, in [14], a contingent transmission right
was recognized as a future FTR product. However, in this work,
we have generalized the idea of a contingent transmission right
into the complete form of a multidimensional nancial trans-
mission right. The purpose behind this generalization is to build
a complete framework for the implementation of group FTRs so
as to enhance the current FTR mechanism. We have elaborately
discussed several issues that have not been addressed in depth
in the previous literature. The main contributions of this paper
are:
1) general parameterization of group FTRs;
2) compact formulation for the clearing and pricing of group
FTRs;
3) secondary trading rules for group FTRs;
4) permissible adjustments in the patterns of group FTRs;
5) assessment of the practical utility of group FTRs (by cost
analysis).
The rest of this paper is organized as follows: Section II de-
scribes the principle of multidimensional FTRs. Formulations
regarding the auction clearing and pricing of MDFTRs are dis-
cussed in Section III. Section IVpresents an illustrative example
to help understand the auction formulation. The cost-effective-
ness of MDFTRs is illustrated in Section V. In Section VI, rules
for the secondary trading of MDFTRs are elaborately discussed.
Facilities available for the contraction and expansion of the dis-
tribution vector set of an MDFTR are explained in Section VII.
Finally, this paper is concluded in Section VIII.
SARKAR AND KHAPARDE: INTRODUCTION TO MULTIDIMENSIONAL FINANCIAL TRANSMISSION RIGHTS 49
II. PRINCIPLE OF MULTIDIMENSIONAL FTRS
A. Structure and Rule
Structurally, a multidimensional FTR is dened by three
parameters:
1) a MW amount ;
2) a set of paths ;
3) a set of MW-path distribution vectors (DVs)
where
for to
for to
for to
The owner of the MDFTR can choose any distribution vector
from the DV set at any hour. Upon the selection of distribu-
tion vector , the MDFTR is divided into individual FTRs
over its constituent paths with MW on path . A multi-
dimensional FTR can be an obligation or an option. If it is an
obligation, each of the individual FTRs generated from it would
be considered as an obligation FTR. Similarly, if it is an option,
each of the individual FTRs generated from it would be consid-
ered as an option FTR.
B. How it Works
The basic functionality of MDFTRs is simple. For example,
a market participant has two generating plants at two different
locations, say, at Locations A and B. Each plant consists of only
one unit, and the capacity of each unit is 50 MW. This market
player has signed a one-year bilateral contract for 40 MW with
a load-serving entity at Location C. Now, for maintenance, Unit
A will be out of service for a certain time period; similarly, Unit
B will be out of service for another time period. Under such
a situation, this market player can purchase an MDFTR of 40
MW on Paths A-C and B-C with distribution vectors
and . In case power is supplied from Unit B, the player
can choose the rst distribution vector to hedge this transac-
tion. Similarly, if power is supplied from Unit A, the player can
choose the second distribution vector to hedge the transaction.
However, if the player is a speculator of locational marginal
prices, he will always go for that distribution vector which is
the most valuable one for the estimated LMP values.
Now, as our proposal suggests, the DV of an MDFTR must
be frozen by the owner himself (for each hour of a day) before
the day-ahead market begins. In an alternative approach, it may
be the ISO who would decide the DV according to which one
is most valuable for the calculated LMP values. Both the ap-
proaches are fundamentally similar in the sense that the MDFTR
can take any distribution vector at any hour. Only, the entity that
makes the decision for the selection of distribution vector and
the specic time (before or after LMP calculation) when this
decision is made are different in these two approaches. Which
of these two policies is a better one may be a matter for further
research.
III. AUCTION MODEL WITH MULTIDIMENSIONAL FTRS
Multidimensional nancial transmission rights can be is-
sued through FTR auctions. The objective of an auction
problem is to minimize the negated value of the quote-based
sum of the cleared amounts towards the FTR and MDFTR
bids. The cleared amount towards each bid must lie within
its lower (which is zero) and upper (which is the requested
amount) limits. To ensure revenue adequacy, simultaneous
feasibility condition must be satised while issuing the FTRs
and MDFTRs. The statement of simultaneous feasibility con-
dition, when only individual FTRs are involved, can be found
in [10]. However, this statement has to be slightly modied
to take multidimensional FTRs into account. This is because
a multidimensional FTR is essentially an FTR generator that
can be broken down into multiple combinations of individual
FTRs depending upon its DV set. Therefore, the modied
simultaneous feasibility condition can be stated as: For each
distribution vector combination among the MDFTRs, the phys-
ical equivalent of each possible active-inactive combination of
individual FTRs must result in a feasible power ow condition
under each possible topological scenario of the network. Here,
for the sake of simplicity, we are assuming that all the FTRs
and MDFTRs are being issued for a same set of hours. Note
that we have to consider different active-inactive combinations
of individual FTRs. This is because an option FTR becomes
inactive in case congestion occurs in the reverse direction.
Similarly, different topological conditions of the network have
to be considered in order to take contingencies into
account.
A. Formulation of Simultaneous Feasibility Constraints
As mentioned earlier, a multidimensional FTR has to be
broken down into individual FTRs (by selecting a suitable
distribution vector) before cashing it. Therefore, all the FTRs
that the market participants hold for a certain hour can be
categorized into two groups.
Generated: An individual FTR is said to be generated if it
is originated from a multidimensional FTR.
Nongenerated: An individual FTR is said to be nongener-
ated if it is not originated from a multidimensional FTR.
However, any combination of distribution vectors is possible
among the MDFTRs. Now, for the th combination of distribu-
tion vectors, the ow limit constraints for a particular line under
a certain network topology can be written as follows:
for to
(1)
50 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008
where
for to
For the th active-inactive combination of option FTRs
if nongenerated option FTR is active
if nongenerated option FTR is inactive
if generated option FTR is active
if generated option FTR is inactive
Note that, here, we are using the dc power ow model, which is
rather the more commonly employed power ow model. Now,
after directional breaking [10] (directional breaking theorem 1
is also described in Appendix I), the constraint set (1) can be
reduced to the following two constraints:
(2)
where
After expressing each generated FTR in terms of its originator
MDFTR, the constraint set (2) can be written as follows:
(3)
where
Now, if the th MDFTR has its th distribution vector in the th
DV combination
if MDFTR is an option
if MDFTR is an obligation
if MDFTR is an option
if MDFTR is an obligation
Similarly, for each of the remaining DV combinations, a sep-
arate constraint pair has to be formed. Therefore, at this stage,
there are in total constraints for this line/topology pair. Now,
as any combination of distribution vectors is possible among the
multidimensional FTRs, both and exist. Hence, by
applying directional breaking theorem 1, these constraints
can nally be reduced to the following couple of constraints:
(4)
or
(5)
where
The above formulation suggests that there is no difculty in
dealing with MDFTRs in an auction. The auction is still a linear
programming problem. Furthermore, MDFTRs do not create
any overburden of an excessive number of constraints. Even
with the inclusion of MDFTRs, the auction problem has only
two constraints per line per network topology. Finally, it should
SARKAR AND KHAPARDE: INTRODUCTION TO MULTIDIMENSIONAL FINANCIAL TRANSMISSION RIGHTS 51
Fig. 1. Sample four-bus network.
TABLE I
PATHS AND TYPES OF INDIVIDUAL FTR REQUESTS
TABLE II
PATHS AND TYPES OF MDFTR REQUESTS
be mentioned that the above formulation of simultaneous fea-
sibility constraints is irrespective of any particular settlement
policy (the different settlement policies have been discussed in
Section II-B) as both the policies are fundamentally similar.
B. Auction Pricing
Multidimensional FTRs are to be priced according to the
same marginal pricing rule [5], [9], [13] as followed for the
pricing of individual FTRs. Therefore, the quantities to be
considered for pricing an MDFTR are:
1) shadow prices of the simultaneous feasibility constraints;
2) impacts of the MDFTR on simultaneous feasibility con-
straints, i.e., sensitivity factors.
The price of the th MDFTR can be compactly written as
The necessary form of the Lagrangian can be found in [15] and
[16].
IV. NUMERICAL EXAMPLE
In this section, we will illustrate the auction formulation
process with the help of a simple example. Fig. 1 shows the
sample power system where the line impedances are shown
in per unit. The paths and types of individual FTR requests
are listed in Table I. Table II lists the types and paths of the
MDFTR requests. The fourth columns of Tables I and II con-
tain the names of the variables that correspond to the awarded
amounts towards the FTR and MDFTR requests, respectively.
The bracketed numbers in the second column of Table II are
path index numbers within the MDFTRs. We will demonstrate
TABLE III
SENSITIVITIES OF THE FLOW ON LINE 12 TO THE RELEVANT PATHS
the step-by-step procedure for formulating the simultaneous
feasibility constraints for Line 12 under the base network
topology. Line 12 has a power carrying capacity of 500 MW.
For the sake of simplicity, it is assumed that there is no base
MDFTR or nongenerated FTR. The path-branch sensitivity
factors between Line 12 and the relevant paths are shown in
Table III.
Here, we assume that both the MDFTR bidders are
requesting for the same set of distribution vectors,
. Therefore, four combinations of
distribution vectors are possible. These combinations are
Combination
Combination
Combination
Combination
Now, for the rst combination of distribution vectors, the actual
set of simultaneous feasibility constraints can be written as
for to
(6)
where
; ; ;
; ; ;
; ;
; ; ;
.
Here, the variable term corresponds to the MW amount
of the th generated FTR from the th MDFTR for the th
combination of distribution vectors. After directional breaking,
the constraint set (6) can be reduced to the following two
constraints:
(7)
where
; ; ;
.
After replacing the generated FTR terms by the respective
MDFTR terms (i.e., , ,
52 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008
, ), the constraint set (7) can be reformed
as
(8)
where
; ; ;
.
Similarly, for the remaining DV combinations, there are six
constraints with the following coefcient vectors:
; ;
; ;
; .
Therefore, at this stage, the number of constraints is eight.
After directional breaking, these eight constraints can be re-
duced to a single pair of constraints as shown in the following:
(9)
where
& .
In the above example, we have numerically illustrated all
the actual steps that are involved in the formulation of simul-
taneous feasibility constraints for a certain line under a partic-
ular network topology. Finally, there are only two constraints
per line per network topology. However, for the practical im-
plementation of such an auction, all the intermediate steps de-
scribed in the above example are redundant. The values of the
coefcients in the nal set of constraints can be directly cal-
culated by means of the generalized formulation presented in
Section III. In addition, no major modication in formulation
is required for including the base FTR or MDFTR terms. Base
FTRs and MDFTRs are those entities whose quantity values are
considered as constants during the auction calculation. As an
example, the FTR awarded to a market participant in an annual
auction is to be considered as a base FTR in the subsequent
monthly auctions. Similarly, a self-scheduled (self-scheduling
means showing insensitivity to price) FTR or MDFTR is a base
entity in an auction. FTR and MDFTR surrenders are also to
be considered through base case modeling. However, base case
entities can be accounted for simply by representing them as
constant MW values rather than as variables.
V. COST-EFFECTIVENESS OF MDFTRS
The job of MDFTRs is to alleviate the congestion price risk
associated with the uncertainty in the delivery patterns of phys-
ical transactions. However, MDFTRs are not the only option
to fulll this requirement. The same risk-hedging benet can
alternatively be obtained from a portfolio of individual FTRs.
For example, consider an MDFTR of 100 MW, grouped on two
TABLE IV
TEST MDFTRS
TABLE V
REFERENCE FTR BIDS
TABLE VI
REFERENCE MDFTR BIDS
different paths, say, Path-1 and Path-2, with distribution vec-
tors and . If this MDFTR is an obliga-
tion, its cheapest alternative is a portfolio of 50 MW obligation
and 50 MW option FTRs on Path-1 and 50 MW option FTR on
Path-2. Similarly, if this MDFTR is an option, its cheapest al-
ternative is a portfolio of a 100 MW option FTR on Path-1 and
a 50 MW option FTR on Path-2. However, procurement of an
MDFTR may be a less costly affair than the procurement of its
alternative. In this section, this particular fact will be illustrated
numerically.
In this study, the IEEE standard 30-bus system is adopted
as the sample power system. The line capacities are those as
given in File case30.m in the MATPOWER software package
[17]. Only base network constraints are considered for testing
simultaneous feasibility (i.e., no contingency case is consid-
ered). Table IV presents a list of ten test MDFTRs. The option
version cost as well as the obligation version cost of each of
these test MDFTRs is to be calculated with reference to the FTR
and MDFTR bids shown in Tables V and VI, respectively. The
acronyms Ob and Op in tables stand for obligation and op-
tion, respectively. To calculate the cost of a test MDFTR (in any
version), this MDFTR is considered as self-scheduled and an
auction is conducted with the reference FTR and MDFTR bids.
The costs of the alternatives of these MDFTRs are calculated
in a similar way. The DV set of each (test as well as reference)
MDFTR is taken as .
SARKAR AND KHAPARDE: INTRODUCTION TO MULTIDIMENSIONAL FINANCIAL TRANSMISSION RIGHTS 53
TABLE VII
COSTS OF THE TEST MDFTRS
TABLE VIII
COSTS OF THE ALTERNATIVE BUNDLES OF INDIVIDUAL FTRS
Table VII presents the auction outcomes for the costs of the
test MDFTRs. The auction outcomes for the costs of the alter-
natives of these test MDFTRs are presented in Table VIII. A
comparison between Column 2 of Table VII and Column 2 of
Table VIII reveals that the obligation version cost of each of the
test MDFTRs is less than the cost of the corresponding alterna-
tive. Similarly, the comparison between Column 3 of Table VII
and Column 3 of Table VIII reveals that the option version cost
of each of these MDFTRs is also either less than or equal to that
of the corresponding alternative.
It is clear from these results that an MDFTR may be more
cost effective than its alternative. In fact, we studied many other
test auctions. In each case, the relevant MDFTR appeared to
be cheaper or at most equally costly. It can be proven that (see
Appendix B) the loading effect of an MDFTR on any simulta-
neous feasibility constraint can never be higher than that of its
alternative. We can correlate the above results with this physical
reality. This is similar to a very common phenomenon that an
obligation FTR can be no less cost effective than an option FTR
of the same MW on the same path. Finally, it should be men-
tioned that the viability of the alternative of an MDFTR relies
upon the availability of option rights in the market.
VI. SECONDARY TRADING OF MDFTRS
Multidimensional FTRs are tradable in the secondary market.
An MDFTR can be traded in any of the two modes.
1) Mode 1: In this mode, a portfolio of individual FTRs is
derived from the original MDFTR.
2) Mode 2: In this mode, a portfolio of MDFTRs is derived
from the original MDFTR.
Whatever mode is adopted for its secondary trading, the
MDFTR cannot be converted into any such collection of
MDFTRs or individual FTRs that will load some simultaneous
feasibility constraints more than the original MDFTR does.
This is the same requirement as for the secondary trading of
individual FTRs. In case an MDFTR is to be traded in Mode
1, its distribution vector must be frozen at the very beginning
in order to permanently x the FTR amount on each of its
constituent paths. Next, each of these individual FTRs is to be
traded separately while obeying the following set of rules.
1) Rule 1: Option and obligation FTRs must be traded as op-
tions and obligations, respectively.
2) Rule 2: Each of the derived FTRs must be dened on the
same path as that of the original FTR.
3) Rule 3: The validity periods of any two derived FTRs must
not overlap partially.
4) Rule 4: The sum of the MW amounts of all the derived
FTRs with same validity period must be equal to the MW
amount of the original FTR.
5) Rule 5: The validity period of any derived FTR must not
exceed the validity period of the original FTR.
However, the rules for the secondary trading of individual
FTRs are not sufcient for a valid Mode 2 secondary trading
of an MDFTR. The complete set of rules that must be obeyed
while trading an MDFTR in Mode 2 is described below.
1) Rule 1: Option and obligation MDFTRs must be traded as
options and obligations, respectively.
2) Rule 2: Each of the derived MDFTRs must be dened on
the same path group as that of the original MDFTR.
3) Rule 3: The DV set of each derived MDFTR must be a
subset of the DV set of original MDFTR.
4) Rule 4: The validity periods of any two derived MDFTRs
must not overlap partially.
5) Rule 5: The sum of the MW amounts of all the derived
MDFTRs with same validity period must be equal to the
MW amount of the original MDFTR.
6) Rule 6: The validity period of any derived MDFTR must
not exceed the validity period of the original MDFTR.
It can be observed that the secondary trading of an MDFTR
following the above set of rules may give birth to some resul-
tant distribution vectors (with reference to the original MDFTR)
that are not members of the DV set of the original MDFTR. For
example, suppose an MDFTR with the structure dened by the
triplet is broken into two MDFTRs, and
. Now, if two different distribution vectors, and
, are chosen for the above two derived MDFTRs, the resul-
tant distribution vector (i.e., ) may not be a
member of . However, it can be easily veried fromthe discus-
sion in Section VII-B that this kind of phenomena never creates
an extra load on any simultaneous feasibility constraint.
VII. ADJUSTMENT OF THE DV SET
In this section, we will discuss two different facilities that are
available for adjusting the DV set of an MDFTR.
A. Surrendering a Portion of the Current DV Set
At a certain point of time, the owner of an MDFTR may nd
the DVset of his MDFTRto be excessive. In such a situation, he
can surrender the unnecessary portion of the DV set in the sub-
sequent auction(s) (within the validity period of the MDFTR).
54 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008
Simultaneous feasibility does not get threatened due to this kind
of activity. By surrendering a portion of the DV set, a player in
effect sells his original MDFTR and, at the same time, buys a
new MDFTR of same MW amount as that of the original one,
on the same path group, but with a reduced set of distribution
vectors. The player always receives a net nonnegative payment
which is the difference between the amount of money that he
earns by selling the original MDFTR and the amount that he
has to spend for buying the new MDFTR.
B. Expanding the Current DV Set
Let the current DV set of an MDFTR be expanded
to a new DV set , where
i.e., each of the new distribution vectors is a convex combina-
tion of the original distribution vectors. It can be shown (see
Appendix C for proof) that the loading effects of this new DV
set are the same as those of the original DV set. This particular
characteristic of MDFTRs provides an owner with some oppor-
tunity to expand the DV set of his MDFTR without making any
additional payment. He is allowed to request ISO at any point
of time for such an expansion.
The concept of DV set expansion has physical signicance in
two ways. In case an MDFTR owner has to conduct his trans-
action with such a pattern that is not pre-decided, he may re-
quire a new distribution vector to hedge this transaction. If the
MDFTR owner is not a speculator of LMP values, the DV set
expansion facility mentioned above may be useful in fullling
his additional DV requirement. Second, an MDFTR owner may
need a new DV for trading his MDFTR in Mode 1. The DV
set expansion facility may also be useful under such a situation.
Moreover, Mode 2 secondary trading of MDFTRs is implicitly
based on this particular concept of DV set expansion.
VIII. CONCLUSION
MDFTRs are FTR generators that provide forward-market
participants with a useful support to overcome the congestion
price risk that arises due to the uncertainty in the delivery pat-
terns of their physical transactions. An MDFTR owner has the
exibility to distribute a grouped FTR amount in multiple ways
over the individual grouping paths. An MDFTR may be either
an option or an obligation. An obligation MDFTR generates
obligation rights. Similarly, an option MDFTR generates op-
tion rights. In this paper, we have presented all the fundamental
details regarding the structure, working, issuance, and pricing
of MDFTRs. The practical utility of MDFTRs has been eval-
uated by cost analysis. Other issues like secondary trading of
MDFTRs and adjustment of the DV set of an MDFTR have also
been elaborately discussed.
APPENDIX A
DIRECTIONAL BREAKING THEOREM 1
Theorem1: Let an optimization problemwith variable vec-
tors and be subjected to number of
constraints of the following form:
for to
(10)
The solution space provided by constraint set (10) is the same
as that provided by the following constraint set:
(11)
where
and
Constant column vectors
Constant value
Scalar functions of and
Proof: We will rst prove that any point in the solution
space provided by constraint set (10) also lies in the solution
space provided by constraint set (11). Next, we will prove that
any point in the solution space provided by constraint set (11)
also lies in the solution space provided by constraint set (10).
Part 1: Let be a point in the solution space pro-
vided by constraint set (10)
as
The proof of the rst part is complete.
SARKAR AND KHAPARDE: INTRODUCTION TO MULTIDIMENSIONAL FINANCIAL TRANSMISSION RIGHTS 55
Part 2: Let be a point in the solution space pro-
vided by constraint set (11)
However, as , ,
The proof of the second part is complete.
However, the applicability of directional breaking theorem
1 depends on the existence of and . Both of these
vectors can exist simultaneously only for a particular type of
constraint sets [like constraint set (1)]. Directional breaking the-
orem 1 is applicable only to those cases.
APPENDIX B
LOADING EFFECTS OF AN MDFTR ARE NOT HIGHER
THAN THOSE OF ITS ALTERNATIVE
There are two simultaneous feasibility constraints of the form
(5) per line per network topology. The rst one in this constraint
set is the forward ow limit constraint, and the second one is the
reverse ow limit constraint.
Now, consider an MDFTR of MW, dened over
the path set ( ) with DV set
( ). The sensitivity between the th
path of this MDFTR and a certain line is . For its obligation
version, the cheapest alternative of this MDFTR is a portfolio
of option and obligation FTRs with MW obligation
and MW option on path . Similarly, for
its option version, the cheapest alternative of this MDFTR is a
portfolio of option FTRs with MW on path . Here
For its obligation version, the loading effects of the MDFTR
on a forward ow limit and on the corresponding reverse ow
limit constraints ( and , respectively) can be written as
and
where
The loading effects of the alternative of this obligation MDFTR
on those forward and reverse ow limit constraints ( and
, respectively) can be written as
and
where
From the above expressions of , , , and ,
it can be easily veried that and ,
for any
and
Now, let the alternative of this obligation MDFTR be simulta-
neously feasible with another set of FTRs and MDFTRs whose
loading effects on forward and reverse simultaneous feasibility
constraints are and , respectively. Therefore
and
and
Clearly, the MDFTR also maintains simultaneous feasibility.
However, as and , simultaneous
feasibility of this MDFTR does not ensure simultaneous feasi-
bility of its alternative.
Similarly, the loading effects of the above MDFTR, in option
version, on a forward ow limit and on the corresponding re-
verse ow limit constraints ( and , respectively) can be
written as
and
where
56 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008
The loading effects of the alternative of this option MDFTR on
those forward and reverse ow limit constraints ( and
, respectively) can be written as
and
where
Fromthe above expressions of , , , and ,
it can be easily veried that and ,
for any
and
As before, it can be further proven that the simultaneous fea-
sibility of the above bundle of option rights also indicates the
simultaneous feasibility of the relevant MDFTR, although the
reverse may not hold true.
APPENDIX C
CONVEX EXPANSION OF THE DV SET DOES NOT ALTER
THE LOADING EFFECTS OF AN MDFTR
Consider the same MDFTR again as in Appendix B. Let the
DV set of this MDFTR be expanded with a new distribution
vector which is a convex combination of original distri-
bution vectors, i.e.,
Let
and
where and are the new loading effects of the
MDFTR on forward and reverse ow limit constraints, respec-
tively, in obligation version.
It can be easily veried that
Note that
and
On the same line, it can be proven that
where and are the new loading effects of the
MDFTR on forward and reverse ow limit constraints, respec-
tively, in option version.
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V. Sarkar received the B.E. degree in electrical engineering fromBurdwan Uni-
versity, Bardhaman, India, in 2002 and the M.E. degree in electrical engineering
fromthe former Bengal Engineering College (currently Bengal Engineering and
Science University), Kolkata, India, in 2004. He is currently pursuing the Ph.D.
degree in the Department of Electrical Engineering at the Indian Institute of
Technology, Bombay, India.
His current research involves power system restructuring issues.
S. A. Khaparde (M87SM91) received the Ph.D. degree in 1981 from the
Indian Institute of Technology, Kharagpur, India.
He is a Professor of electrical engineering with the Indian Institute of Tech-
nology, Bombay, India. He has authored several research papers and has coau-
thored two books. He is a member of the advisory committee of Maharastra
Electricity Regulatory Commission, India. His current research activities are in
the areas of power system restructuring.
Dr. Khaparde is on the editorial board of International Journal of Emerging
Electric Power Systems.