October 31, 2014

BY ELECTRONIC FILING

The Honorable Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, NE Washington, DC 20426 RE: ISO New England Inc. and New England Power Pool, Docket No. ER15-___-

000, Market Rule 1 Changes to Integrate Price-Responsive Demand into Reserve Markets

Dear Secretary Bose:

Pursuant to Section 205 of the Federal Power Act (Section 205),1 ISO New England Inc. (the ISO), joined by the New England Power Pool (NEPOOL) Participants Committee2 (together, the Filing Parties),3 hereby electronically submits this transmittal letter and revised Tariff sections to address a series of revisions to the full integration market rules for price-responsive demand. These revisions will (1) permit price-responsive demand to provide Operating Reserves and participate in the Forward Reserve Market on an equal footing with generators and other supply-side resources, (2) simplify the way in which price-responsive demand resources that can push back energy onto the grid from behind-the-meter generators participate in the wholesale electricity markets, and (3) make a number of ancillary and conforming changes that will facilitate the full integration of price-responsive demand into the wholesale electricity markets. These revisions are collectively referred to as the PRD Reserves Changes. The ISO

1 16 U.S.C. 824d (2006 and Supp. II 2009). 2 Capitalized terms used but not defined in this filing are intended to have the meaning given to such terms in the ISO New England Inc. Transmission, Markets and Services Tariff (the Tariff), the Second Restated New England Power Pool Agreement, and the Participants Agreement. Market Rule 1 is Section III of the Tariff. 3 Under New England's RTO arrangements, the rights to make this filing of changes to Market Rule 1 under Section 205 of the Federal Power Act are the ISO's. NEPOOL, which pursuant to the Participants Agreement provides the sole Market Participant stakeholder process for advisory voting on ISO matters, supported the changes reflected in this filing and accordingly, joins in this Section 205 filing.

The Honorable Kimberly D. Bose October 31, 2014 Page 2 of 21 also submits herewith the supporting testimony of Henry Y. Yoshimura, which is sponsored solely by the ISO (the Yoshimura Testimony).4

As discussed in more detail in Section II, the Filing Parties request the Commission accept the PRD Reserves Changes to be effective on January 12, 2015, which is more than 60 days from the date of this filing.5

I. INTRODUCTION

A. History of PRD in New England

The PRD Reserves Changes are another in a series of market rule modifications that are intended to move New England toward the full integration of price-responsive demand into the wholesale electricity markets, and is the fulfillment of a commitment the ISO made in 2012 to integrate price-responsive demand into the reserve markets. This series of rule changes began with the August 2011 filing of two sets of Tariff revisions in compliance with Order No. 745,6 Demand Response Compensation in Organized Wholesale Energy Markets.7 The ISOs compliance filing for Order No. 745 proposed implementing PRD in two stages: rules defining how a demand response resource participates in the New England energy market during an initial transition period, (referred to herein as the PRD TP rules) and integrated rules, which are designed to fully integrate demand response resources into the energy market and will replace the transition period rules starting in June 2017 (referred to herein as the PRD FI rules).

4 Mr. Yoshimura is the Director of Demand Resource Strategy for the ISO. 5 The ISO recognizes the uncertainty created by the United States Court of Appeals for the District of Columbia Circuit decision in Electric Power Supply Assn v. Federal Energy Regulatory Commission, 753 F.3d 216 (D.C. Cir. 2014), and the court's October 20 order staying issuance of the mandate. See Elec. Power Supply Assn v. FERC, No. 11-1486 (D.C. Cir. Oct. 20, 2014) (per curiam). In light of the stay, the ISO believes that the appropriate course to take at this time is to continue to develop market rules that fully integrate demand response into the wholesale electricity markets on the supply side, an objective which, as discussed in more detail below, the region has been working toward for several years. This effort is necessary to provide Market Participants who have or will be taking on obligations to provide capacity in future commitment periods with certainty as to the markets in which they will participate should the Commissions current jurisdiction over demand response be upheld. Furthermore, seeking to provide certainty at this time does not preclude the ISO from engaging in contingency planning should that be necessary, a task that can and should proceed through the normal ISO development process with input from stakeholders as that process is carried out. 6 ISO New England Inc., Order No. 745 Compliance Filing, Docket Nos. ER11- 4336-000 and ER11-4336-001 (filed August 19, 2011) (the August 19, 2011 Filing). 7 Demand Response Compensation in Organized Wholesale Energy Markets, Order No. 745, 76 Fed. Reg. 16,658 (Mar. 15, 2011), FERC Stats. & Regs. 31,322, order on rehg and clarification, Order No. 745-A, 137 FERC 61,215 (2011).

The Honorable Kimberly D. Bose October 31, 2014 Page 3 of 21

The PRD TP program was implemented in June of 2012, following the development of rules to explain how price-responsive demand would function in the Forward Capacity Market during the transition period.8 Subsequent to the August 19, 2011 filing of the PRD TP and PRD FI rules, the ISO developed additional market rule enhancements to more fully integrate price-responsive demand for PRD FI. In April 2012, the ISO filed a series of revisions to explain how price-responsive demand would participate in the Forward Capacity Market under PRD FI.9 The Commission accepted the large majority of this proposal, subject to the ISO making a compliance filing to provide additional explanation on some of the revisions.10 In June 2013, the ISO filed proposed rule changes to address the treatment of an important class of price-responsive demand resourcesthose that can push back electricity onto the grid from behind-the-meter generatorsand proposed further clarifications to the rules for PRD FI rules.11 The Commission accepted these proposed revisions.12

8 ISO New England Inc. and New England Power Pool, Price Responsive Demand FCM Conforming Changes, Docket No. ER12-947-000 (filed January 31, 2012) (the January 31, 2012 Filing). On April 13, 2012, a series of clarifying changes to the PRD TP rules and the Forward Capacity Market rules were also filed. ISO New England Inc. and New England Power Pool, Market Rule 1 Clarifications to the Transition Period Rules for Price-Responsive Demand, Docket No. ER12-1550-000 (filed April 13, 2012) (the April 13, 2012 Filing). All three sets of PRD TP rules (i.e., the transition period rules filed in the August 19, 2011 Filing, the conforming Forward Capacity Market rule modifications filed in the January 31, 2012 Filing, and the clarifications filed in the April 13, 2012 Filing), were accepted by the Commission and became effective June 1, 2012. See 138 FERC 61,042 (2012) (January 19, 2012 Order); Letter order Accepting Price-Responsive Demand FCM Conforming Changes, Docket No. ER12-947-000 (issued April 17, 2012); Letter Order Accepting Clarifications to the Transition Period Rules for Price Responsive Demand, Docket No. ER12-1550-000 (issued May 29, 2012). 9 ISO New England Inc., Market Rule 1 Price Responsive Demand FCM Conforming Changes for Full Integration, Docket No. ER12-1627-000, (April 26, 2012) (April 26, 2012 Filing). 10 ISO New England Inc., Order on Proposed Tariff Revisions, 142 FERC 61,027 (2013) (January 14, 2013 Order). On January 15, 2013, the Commission issued an Errata Notice that deleted Paragraph 32 in its entirety and corrected Paragraph 33. All references to the January 14 Order are to the corrected version. In addition, the Commission rejected the ISOs proposed treatment of net supply in the Forward Capacity Market, without prejudice to ISO-NE filing revised Tariff language to clarify its rules regarding demand response resources that provide capacity through both demand reductions and behind-the-meter generation. See January 14, 2013 Order at P 43. 11 ISO New England Inc. and New England Power Pool, Market Rule 1 Clarifications to the Full Integration Rules for Price-Responsive Demand and Revisions to Address the Treatment of Net Supply, Docket No. ER13-1742-000 (filed June 21, 2013) (the June 21, 2013 Filing). 12 ISO New England Inc. and New England Power Pool, Order on Proposed Tariff Revisions, 144 FERC 61,140 (2013).

The Honorable Kimberly D. Bose October 31, 2014 Page 4 of 21

B. Revisions to Integrate Price-Responsive Demand into Reserve Markets for PRD FI

In its April 2012 filing of Forward Capacity Market changes for PRD FI, the ISO stated its commitment to work to develop market rules to allow demand response resources that participate in the energy market to participate in the reserve market coincident with the implementation of the fully integrated PRD rules in June 2017, and [to] obtain stakeholder input on the proposed rules through the stakeholder process.13 Consistent with this commitment, the ISO has developed the PRD Reserves Changes, which will enable Demand Response Resources to provide Operating Reserves and to participate in the Forward Reserve Market with the full integration of Demand Response Resources into the energy markets in June 2017.

The PRD Reserves Changes also contain a series of conforming changes to the market rules to support the integra