The New York Independent System Operator and the ISO New England on Feb. 28 submitted filings at the Federal Energy Regulatory Commission to implement potential import duties for Canadian imports of electricity.
President Trump on March 3 affirmed that tariffs would go into effect against Mexico and Canada effective Tuesday, March 4.
“It is not yet clear whether imports of electrical energy from Canada are subject to the Canadian Tariff Order or, if they are, whether the NYISO will be required to play any role in collecting or remitting duties,” NYISO noted in a Feb. 28 post on its website. “The NYISO believes that there are strong legal and policy arguments that the answer to both of these questions is ‘no.’”
The United States and Canada “share one of the most integrated international electric grids in the world, allowing system operators in both countries to pool resources for reliable and economic electric supply,” NYISO said.
The NYISO is interconnected with two Canadian system operators, Ontario’s Independent Electricity System Operator (IESO) and Hydro-Québec (HQ).
The NYISO’s interties with IESO allow for up to 2.500 MW of imports from Ontario to New York and the interties with HQ allow for an additional 2100 MW.
“The reliable, uninterrupted, flow of economic power across the Canadian interties is critical to protect the health, safety and welfare of New York citizens, residents across the Northeast U.S., and the citizens of Canada - especially during stressed system conditions. The NYISO and neighboring system operators have serious concerns that applying export tariffs to electricity may have serious adverse effects on reliability and wholesale electric markets,” it said.
Nevertheless, the NYISO is asking FERC to approve rules that would address the possibility that the Canadian Tariff Order could on short notice result in the NYISO having a legal obligation to collect and remit duties on Canadian electricity imports.
“It is essential for the NYISO, and its stakeholders, to have clarity on this issue because duties on Canadian electricity would likely amount to tens of millions of dollars per year,” it said.
The FERC filing “is being made out of an abundance of caution to ensure that if NYISO is determined to have an obligation under federal law to collect and remit tariffs on electricity imported from Canada it has the cost recovery and allocation mechanism in place to comply with that obligation.”
The NYISO’s principal and preferred proposal “would require any entity that causes Canadian electricity to be imported to New York to bear the cost of the tariffs. The NYISO briefed its market participants on the details and rationale for today’s FERC filing and generally received supportive feedback for its cautious approach to this complex issue.”
In its filing, ISO-NE said that imposition of an import duty requires formal publication of applicable tariff terms and rates within the harmonized tariff schedule and often are accompanied by regulatory guidance as to how the import duty for such tariffs will be calculated and collected.
“As each of these steps has not yet occurred, there are significant open questions as to whether, and if so, how, a tariff would be imposed upon imports of electricity into the ISO-administered markets and the basis of any applicable Import Duty. Furthermore, the ISO is solely a market administrator, and not the purchaser or seller for market transactions in electricity; thus, it is not the appropriate entity for imposition of an Import Duty,” the grid operator said.
Nevertheless, if tariffs are imposed upon importation of Canadian electricity and the ISO is directed to pay Import Duties for Canadian imports of electricity in the ISO-administered markets, the ISO tariff must include a process to accommodate the ISO’s payment of any imposed Import Duty, ISO-NE said.
The ISO tariff “does not currently provide clear direction on how to allocate and collect the costs of any Import Duty imposed upon the ISO -- which could be substantial given the total transfer capability of the New England/Canada interface and the volume of energy interchange between Canada and the New England market and tariff rates under consideration.”
An ISO-NE estimate using import data from the last five years indicates a 10 percent to 25 percent tariff on Canadian electricity imports could amount to Import Duties of between $66 million and $165 million annually.
“The ISO must have adequate funds on hand to pay Import Duties within the applicable deadline. Failure to have a cost-recovery mechanism in place prior to the effective date of a Canadian import tariff would place the ISO at risk of noncompliance with a federal obligation and, in a worst case scenario, could force the ISO to seek bankruptcy protection.”
Further, non-payment of an Import Duty “could cause the federal government to take punitive actions that can extend to restrictions on Canadian electricity imports into New England until such duties are paid.”
To prevent such outcomes and “reduce the risks to the competitiveness of the markets and the New England system’s reliability, the ISO is submitting, on an expedited basis, proposed ISO Tariff changes to put in place a mechanism by which it can collect the costs of any Import Duties that the ISO has been directed to pay for electricity that is imported into the ISO-administered markets from Canada,” the grid operator said.
“Given the existing uncertainties in the administration of any tariff on Canadian imports detailed in this transmittal letter, the ISO proposes a temporary mechanism that provides it the authority to collect the costs of any Import Duty that a federal agency directs the ISO to pay for Canadian-origin electricity that is sold in the ISO-administered markets.”
The ISO proposes that Market Participants selling Canadian electricity into the ISO-administered market “will be assessed the cost of such Import Duties, which the ISO will collect based on the entity’s external transaction sales into New England of the electricity that is subject to the Import Duty.”
The grid operator said this cost allocation is sound under applicable principles of cost causation.
“Of utmost importance, the proposed cost-collection method is subject to three conditions specified in the proposed ISO Tariff revisions,” it said.
First, a federal governmental agency must impose upon the ISO the obligation to pay an Import Duty on Canadian origin electricity imports administered through the ISO Tariff, through the issuance of an invoice to the ISO specifying the amount of such Import Duty the ISO is to remit to that agency.
“To underscore this point, cost collection under the Import Duty Cost Recovery Change is only triggered if a federal governmental agency requires the ISO to pay an Import Duty on Canadian imports of electricity administered through the ISO Tariff.”
Second, unless otherwise directed by the relevant federal agency to seek payment of the Import Duty from a specified entity or class of entities, the ISO will allocate the costs of such imposed Import Duties to the entities selling the assessed electricity into the ISO-administered market.
“Third, under the express provisions of the ISO Tariff proposal, the ISO-proposed cost-collection method applies only on a temporary basis; once the ISO issues the first invoice for the collection of Import Duties, it has 120 days to work with stakeholders and file with the Federal Energy Regulatory Commission a replacement cost-collection mechanism that is specific to the terms and conditions of the import tariff and resulting imposed Import Duties.”
ISO-NE said the Import Duty Cost Recovery Change is intended to apply not just to the February 1, 2025 Canadian Import Tariff executive order, “but is intended to apply to any future Import Duty on Canadian-origin electricity imported into New England that the ISO is directed to pay.”
Given the short timing and uncertainty associated with tariffs on Canadian imports, both NYISO and ISO-NE exercised expedited procedures -- which largely excluded regular stakeholder input -- to develop and submit their rule changes.
Both requested that FERC shorten the comment period on their proposals and waive the usual 60-day notice period to make the rule changes effective on March 4, 2025.
ERCOT, MISO and CAISO
Public Power Current reached out to other grid operators for comment on the potential impacts of the Trump tariffs.
“This is a fluid situation, and it is unclear whether the U.S. import tariffs apply to imports of electricity from Canada, and it is uncertain whether or when this will be resolved,” said Brandon Morris, Advisor – Strategic Communications, for the Midcontinent ISO.
“MISO has received no confirmation from federal agencies regarding the duties’ applicability to electricity or who will be responsible for paying or collecting them,” he said.
“In 2024, less than one percent of MISO’s total energy was supplied via Canadian imports and less than half of that came from Ontario. For context, that amount is equivalent to approximately one power plant. MISO manages the loss of power plants like this every day to ensure reliability across our footprint,” he noted.
A spokesperson for the Electric Reliability Council of Texas said that “ERCOT does approve import electricity transactions across the Mexico ties. However, ERCOT is not the purchaser of those transactions and would not be responsible for collecting or remitting any potential tariffs.”
If electricity imports from Mexico are subject to tariffs, “ERCOT looks forward to any clarification provided through regulations by the U.S. Department of Treasury and managed by the U.S. Customs and Border Protection,” the spokesperson added.
The California ISO "is assessing the announcement of import tariffs and how, if at all, they may apply to the CAISO market participants or affect CAISO markets. Market participants, under existing rules, already have the means to incorporate costs that impact the production of electricity into their market bids," said Jayme Ackemann, Head of Communications, California ISO.
