Reliability is an essential feature of wholesale power markets. Unfortunately, the experience that independent system operators and regional transmission organizations have had with reliability-must-run (RMR) agreements is that they often work to undermine market efficiency. In a new policy paper, R Street Institute Associate Fellow Michael Giberson proposes changes in ISO rules to reduce the use of RMR agreements and limit their adverse consequences.

“The first thing to get straight is that the effect of RMR agreements is often to bias investment toward the cost-of-service regulated transmission grid and away from the market-driven generator and competitive retail sectors,” noted Giberson. “The result is a less innovative and less dynamic power system than would otherwise emerge over time. But we can change this.”

As Giberson explains, experience with RMR services has yielded a few principles for where they can support, rather than undermine markets:

Giberson adds that the time is right to consolidate and implement these best practices, before the next potential wave of retirements.

“Market conditions are never static, so as generation resources continue to enter and exit the market, the transmission system will continue to need to adapt,” notes Giberson. “In view of this, poorly designed RMR policies could adversely shape generation investment and dispatch for years into the future unless we do something now.”

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