Two Northeast Grid Operators Prepare for Tariffs on Canadian Energy

By Linda Walsh, Sylvia Bartell, Corban Coffman & Cortney Morgan on March 7, 2025

On February 1, 2025, President Trump issued an executive order titled Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border (Canadian Tariff Order),[1] which, inter alia, imposed a 10 percent import tariff on “energy or energy resources” that “are products of Canada.”[2] Additional detail on this order can be found here. Although delayed during negotiations between the US and Canada,[3] the Canadian Tariff Order, including its 10% energy import tariff, ultimately went into effect on March 4, 2025. On March 6, 2025, President Trump issued an executive order exempting goods qualifying under the United States-Mexico-Canada Free Trade Agreement (USMCA) from the Canadia Tariff Order effective 12:01 a.m. on March 7, 2025. However, the President has indicated that the 10% tariff on such goods will resume on April 2, 2025.

In response to the Canadian Tariff Order, ISO New England Inc. (ISO-NE) and the New York Independent System Operator (NYISO) (collectively, Independent System Operators or ISOs) filed the proposed tariff revisions discussed below with the Federal Energy Regulatory Commission (FERC) to create mechanisms to collect any imposed Import Duties from the Canadian Tariff Order, should they be directed to do so. Both ISOs indicate that it is unclear whether imports of electrical energy from Canada are subject to the Canadian Tariff Order, and, if so, whether Import Duties (from the Order, or elsewhere) would be collected by the ISOs. Both proposals were designed to address any future energy import tariffs that may be imposed that could obligate NYISO or ISO-NE to collect any Import Duties.

Market participants in both ISO regions import a significant amount of electric energy from Canada. ISO-NE reports that Canadian electricity imports served approximately 11 percent of New England’s load over the past five years. The 10 percent tariff imposed by the Canadian Tariff Order could amount to Import Duties on Canadian electricity of over $66 million annually. In 2024, market participants in New York imported 7.7 TWh of Canadian energy from Ontario and Quebec, valued at hundreds of millions of dollars.

ISO-NE Tariff Filing

On February 28, 2025, in Docket No. ER25-1445, ISO-NE filed tariff revisions under Section 205 of the FPA to revise its Transmission, Markets and Services Tariff (ISO-NE Tariff) to permit ISO-NE to “recover any duties, tariffs of taxes . . . that a federal governmental agency directs the ISO to pay . . . for Canadian imports of electricity into markets that are administered by the ISO.” ISO-NE states that it is likely not the appropriate entity to impose an Import Duty, but that it could be directed by a federal agency to pay them for imports of electricity into ISO-NE. Without the proposed tariff provisions, ISO-NE lacks a mechanism to collect and allocate the cost of any Import Duty imposed on Canadian electricity imports. ISO-NE’s proposed tariff revisions provide:

A temporary mechanism that gives it the authority to collect the costs of any Import Duties.
In the event that the mechanism is used, Market Participants selling Canadian electricity into the ISO-NE market will be assessed the cost of such Import Duties, which ISO-NE will collect based on the entity’s external transaction sales into New England that are subject to any Import Duty.
In the event that the mechanism is used, for non-market-based import transactions, such as emergency energy imports, Import Duties assessed to ISO-NE will be collected under the existing cost allocation provisions for such imports.
The cost allocation proposal would only remain effective for up to 120 days from the first invoice issued by ISO-NE to collect the Import Duties. During that 120-day period, ISO-NE will work with stakeholders and file a replacement cost-collection mechanism with FERC.

ISO-NE requests that its proposed tariff revisions become effective on March 1, 2025 (seeking waiver of the 60-day notice requirement), that the comment period be shortened to 10 days, and for FERC to issue an order by March 31, 2025.

NYISO Filing

Also on February 28, 2025, in Docket Nos. ER25-1462 and EL25-62, NYISO filed tariff revisions to its Open Access Transmission Tariff (NYISO OATT) and its Market Administration and Control Ares Services Tariff (NYISO Services Tariff) (collectively, NYISO Tariffs), to establish that if relevant federal authorities determine that NYISO is required to pay any Import Duties on imports of Canadian electricity, then it will have clear rules in place to govern NYISO’s recovery and allocation of its costs and allow NYISO to make necessary adjustments to customer credit requirements to address costs related to Import Duties.

Specifically, under NYISO’s proposal:

NYISO would be authorized to assign import duties to the individual “Scheduled Transaction Financially Responsible Party” that scheduled the imports of electrical energy from Canada” via NYISO.
NYISO states that this approach is just and reasonable because it assigns these costs to the entities that cause these imports to occur.
Alternatively, if FERC rejects assigning costs to the Scheduled Transaction Financially Responsible Party, NYISO proposes to assign Import Duty costs to Transmission Customers on a pro rata withdrawal basis. NYISO justifies this pro rata allocation, noting the difficulties in determining whether individual customers are receiving more or less energy from Canada, and thus that this secondary proposal would satisfy the principle that cost allocation be at least “roughly commensurate” with benefits received.
Under either approach, NYISO would use the “Real-Time Scheduled Imports” to determine the amount of Canadian electricity energy subject to Import Duties. NYISO further proposes to calculate the price of such energy using Day-Ahead Locational Based Marginal Pricing (LBMP) as a reasonable proxy for real-time prices.
Separately, NYISO proposes to amend its Service Tariff to establish that it can adjust its credits requirements to account for Import Duties.
NYISO proposes the tariff revisions to be effective as of the date of filing, but NYISO would not begin collecting any Import Duties unless it determines in good faith that it is legally obligated to do so.

NYISO requests that its proposed tariff revisions have an effective date of February 28, 2025 (if evaluated under FPA Section 206) or March 1, 2025 (if evaluated under FPA Section 205, seeking waiver of the 60-day notice requirement), that the comment period be shortened to 10 days, and that FERC issue an order by April 9, 2025.

Implications

Under both ISO proposals, any Import Duties assessed on the ISOs would first be allocated to the entities that cause the imports from Canada to occur. Thus, the default allocation would be to collect these costs directly from energy importers, even if the ISOs are assessed the Import Duties initially. It will be up to the importing market participant to determine whether and how it can recover the cost of the Import Duties in its power sales. Additionally, both ISO filings are proposing mechanisms that would allow a wider cost allocation of Import Duties under certain circumstances, such as for ISO-NE’s emergency energy imports and for NYISO in the event its initial proposal to assign the costs to the importing market participant is rejected.

Comments in both proceedings are due by Monday, March 10, 2025.

NYISO’s filing is available here: New York Independent System Operator, Docket Nos. ER25-1462 and EL25-62, Proposed Tariff Revisions Under Section 206 of the Federal Power Act Regarding the Recovery and Allocation of Costs that Might Be Imposed Under the President’s February 1 Executive Order (filed Feb. 28, 2025).

ISO-NE’s Filing is available here: ISO New England Inc., Docket No. ER25-1445 Exigent Circumstances Filing of Revisions to Transmission, Markets and Services Tariff to Permit Recovery of Import Duties (filed Feb. 28, 2025).

For more information about these proceedings, including how they affect your company and project development strategy, please contact Linda Walsh, Sylvia Bartell, Corban Coffman or a member of Husch Blackwell’s Energy Regulation team.

See also Husch Blackwell’s “First 100 Days of Trade” series with additional information on the administration’s orders and implementation, available at: https://www.internationaltradeinsights.com/category/first-100-days-of-trade/

[1] Exec. Order No. 14193, 90 Fed. Reg. 9113 (Feb. 1, 2025).

[2] Note that the Canadian Tariff Order uses the term “ad valorem rate of duty” to describe tariffs imposed on Canadian imports. This article uses the term “Import Duty” to encompass that term or any other similar duties that may be imposed under subsequent directives.

[3] See Exec. Order No. 14197, Progress on the Situation at Our Northern Border, § 3 (Feb. 3, 2025)