New York, New England ISOs File Tariff Amendments at FERC to Allow Them to Collect Import Duties on Canadian Electricity — But Only If the Feds Say So

On February 28, 2025, the New York Independent System Operator, Inc. (“NYISO”) and ISO New England (“ISONE”) separately submitted requests to the Federal Energy Regulatory Commission (“FERC”) for expedited action on amendments to their FERC-approved tariffs that would allow them to recover the costs of any duties, tariffs, or taxes imposed on them by a federal agency on the import of electricity from Canada into their respective service territories.

President Trump’s February 1, 2025 Executive Order No. 14193, “Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border,” raises the possibility that at least a 10% duty, and perhaps as much as a 25% duty, could be levied on Canadian electricity imports. While that executive order was paused February 3 pending the outcome of discussions with the Government of Canada — per Executive Order No. 14197, “Progress on the Situation at Our Northern Border” — the pause will end March 4, 2025, unless it is further delayed.

The financial implications of import duties on the cross-border electricity trade could be significant, given the tight integration of the U.S. and Canadian electric grids. In 2024, New York State imported 7.7 TWh of Canadian electricity, valued in the hundreds of millions of dollars. ISONE estimates that a 10%–25% tariff could, for its customers, amount to import duties of $66 million to $165 million annually. These figures raise the specter that, should ISOs be held responsible for paying import duties without having a mechanism to collect those costs from their member utilities, the ISOs “could be exposed to tens of millions of dollars in charges that [they] would have no ability to pay,” “possible bankruptcy,” and potential future restrictions on electricity imports needed for grid reliability.

Both ISOs note ambiguities in the executive orders and official U.S. tariff schedules that leave open questions as to whether electricity imports are even subject to tariffs; which duty rate would apply if they are; and whether the ISOs would be deemed “importers of record” responsible for duty payments, given that they are merely market administrators responsible for clearing and settling transactions and are not themselves purchasers or sellers of energy.

Notwithstanding these ambiguities, and preparing for the possibility they will be deemed responsible for paying import duties either imminently or in the future, the NYISO and ISONE propose collection mechanisms that allow them to recover import duty costs from market participants.

The NYISO’s preferred approach would assign duty costs to the individual “Scheduled Transaction Financially Responsible Party” that schedules imports of electrical energy from Canada through the NYISO’s market scheduling systems. As a “second-best” alternative, the NYISO could assign duty-related costs to transmission customers on a pro rata withdrawal basis. Under either approach, the NYISO would determine the amount of Canadian electrical energy subject to tariffs based on real-time scheduled imports, import bilateral transactions for energy, and wheels through injecting energy at a duty eligible proxy generator bus. The amount of duties would be based on day-ahead locational-based marginal prices.

ISONE envisions a two-step process whereby, initially, the importing market participant will be responsible for paying the amount of the imposed duty that is attributable to that entity’s sales of the imported product or service into the ISO-administered markets, except for certain non-market-based imports subject to existing cost-allocation provisions in the ISONE tariff. Subsequently, within 120 days, ISONE will initiate a Section 205 filing with FERC to propose a permanent replacement cost collection method.

Both ISOs request immediate effective dates for their proposed tariff revisions, of February 28 or March 1; waiver of the 60-day notice requirement; shortened comment periods of 10 days; and the issuance of FERC approval orders on an expedited basis, by March 31 for ISONE and April 9 for NYISO.

Stakeholder comments for each proposal are due to FERC by March 10, 2025. The filings can be found in FERC Docket Nos. ER25-1462-000 and EL25-60-000 for the NYISO and Docket No. ER25-1445-000 for ISONE.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.