RMR is Just a Shorthand for Market Failure

Among the alphabet soup of acronyms known by RTO-watchers is one that is cropping up with increased frequency: the RMR (or for the uninitiated, the “reliability-must-run” contract). These cost-of-service based contracts are last-ditch measures that throw lifelines to plants needed for reliability, but that would otherwise close based on the revenues they derive from the market. Practically, the result of RMRs is that generation units are insulated from the outcomes of markets and paid instead based on their cost to operate.

Last week’s FERC procedural order related to an RMR for longtime deregulation booster, NRG, is a reminder these RMRs won’t be going away any time soon (Docket No. ER22-1539-001). To be fair, no player in this industry, not even market purist NRG, is likely to renounce an RMR if it is available. Nor should RTOs hold to “markets” at the expense of reliability and keeping the grid operational.

But the proliferation of RMR contracts in the nation’s RTOs could prompt a reexamination of those markets, which apparently cannot operate without the crutch of cost-of-service contracts for vital units that support reliability. For instance, a threshold question might be: shouldn’t a functioning market maintain an operational grid without cost-of-service interventions? If a ‘market’ cannot be sustained except by central planners intervening and rewarding crucial units with out-of-market contracts, then how much of a market is it in the first place? Finally, if central planners (RTOs/ISOs) have to intervene again and again with cost-of-service based contracts to keep the construct viable, perhaps the market itself is the failure?