In the new environment of restructured power markets, ancillary services (AS) play an important role, as they are required to maintain system reliability and to effect commercial transactions. Contingency reserve, as one of the important AS, is such a backup capability of a power system to prevent any unanticipated imbalances caused by generation or transmission shortages. This paper proposes a flexible joint reserve and energy dispatch approach, which can support the development of an effective reserve allocation and pricing methodology. In the proposed model, the contingency reserve capacity is procured in advance, and incremental energy is dispatched in response to real time imbalances. The effects of generation flexibility are investigated by implementing a flexible joint dispatch method. The effect of reserve utilization factor on capacity reservation payments is analysed. The results, which are obtained from application of the proposed approach on two test systems, are reported.