NYISO presented the Installed Capacity Working Group with two proposals it plans to file with FERC to give itself the means to collect duties in case President Donald Trump’s tariff on Canadian energy imports applies to electricity.
Trump had announced a 10% tariff on “energy resources from Canada” but paused it on Feb. 3. While NYISO’s current position is that import the tariff does not appear to legally apply to electricity — and it is not necessarily its job to collect the duties if it does — it wants to be prepared on Day 1. (See NYISO Assessing Impact of Trump’s Canada Tariff on Electricity Market.)
“The goal is to have effective March 4 the tariff infrastructure in order to comply with whatever the government may impose,” NYISO General Counsel Robert Fernandez said.
“It seems to me that what we think about whether or not they apply is not relevant because ultimately, it will the wannabe king and his minions who tell us whether it applies or not, and I don’t get the impression they’re going to consult with you,” said Mark Younger of Hudson Energy Economics.
NYISO’s primary proposal would allow it to collect duties from real-time scheduled imports originating from “Duty Eligible Proxy” buses that represent interties between New York and Canada. It would create a new Rate Schedule 21 for duty recovery that would be paid to a relevant federal authority and charged to the “financially responsible party” for each subject transaction.
Under this proposal, NYISO would use day-ahead location-based marginal prices to calculate duties. NYISO said that using this method will allow both day-ahead and real-time transactions to reflect the cost of duties in their offers. Using real-time prices would make it impossible for duties to be calculated on day-ahead transactions.
“The day-ahead LBMP represents a financially binding price for electricity sales at the relevant tie and location,” said Nathaniel Gilbraith, manager of energy market design for NYISO. “Using real-time prices alone to calculate duties would create a duty cost risk that the day-ahead transactions could not reflect in their offers.”
Until NYISO develops software to automate calculating, collecting and paying duties, the process would be manual. The ISO would not collect duties on Canadian energy wheeling in from other control areas.
NYISO’s alternate proposal defines subject transactions the same way but would collect the required duties from withdrawals on a ratio-share basis. This is being done to create a duty mechanism that would apply to load in order to maximize the likelihood that NYISO has the legal authority to collect.
“My understanding is that the importer of record pays the collection that pays the tariff and ultimately passes it on to the consumer,” Fernandez said. “And that’s analogous to what we’re saying could happen under the load-ratio-share approach.”
Fernandez said this was not the favored approach because it was not as economically efficient. The alternative, which the ISO calls a “backstop,” was being filed out of an abundance of caution, he explained.
Younger said he appreciated the steps NYISO was taking to protect the market and added that it should ensure that capacity was also covered by any language filed with FERC.
Ted Murphy, a lawyer for NYISO from law firm Hunton Andrews Kurth, explained that there was historical precedent against import duties being levied against electricity. He said federal customs and tariff enforcement agents did not know how applicable tariffs were to electricity.
“One thing that gives me comfort is that one line in the trade tariffs suggest that intangible things are not subject to tax,” Murphy said. “There are cases saying electricity is intangible. In my mind, capacity as one level of abstraction out from actual electrons crossing the border makes me think that the focus is going to be on energy, not capacity or other products. But nobody knows.”
Chris Casey, with the Natural Resources Defense Council, said that filing a request with FERC to enable compliance with potential import duties made him nervous because no formal ruling on electricity had been made by any relevant authority. Fernandez replied that the ISO had considered going through a more formal process of getting a declared ruling, but the problem was lack of time.
“In a perfect world, these rules would have been developed through the normal shared governance process,” Fernandez said. “But March 4 is next week, and we’ve been looking at this for a couple weeks now, and we simply do not have time to get that ruling.”
Fernandez said that if Customs and Border Protection or the Treasury Department did not give NYISO a definitive ruling by March 4, the import duties would not be collected or remitted to the government. They would set up the accounting necessary to do so only when ordered.
“Dollars will not flow, will not be collected or remitted until we know that we actually have a legal obligation to do that,” Fernandez said. NYISO staff and counsel would consider whether to add capacity to the proposals in a pre-filing conference, he said.
Fernandez went on to say that he expected ISO-NE to file a similar request by the end of the week with FERC but that he did not know where the other ISOs or RTOs stood on this issue. A stakeholder said that he was worried that NYISO’s filing would “raise awareness” and cause reinterpretation of existing law.
“Are we making this a self-fulfilling prophecy?” Fernandez reflected. “I don’t know, but I read the newspapers. It’s not like we can stick our heads in the sand and act like ostriches on this and hope it doesn’t happen. On March 4, NYISO needs rules in place so we can comply with the law if it eventually comes to pass.”
When NYISO staff were asked by other stakeholders how much money was at stake for the federal government, they said that forecasting that figure was complicated and that they didn’t want to go on record with a dollar figure.