Lauren Rister, Energy Analyst, Environ
Tariffs are a topic of major importance for any country, and energy tariffs have made headlines recently. As the demand for power increases and energy production becomes more complicated, electricity tariffs can affect regional prices and ripple through the energy market. Recently, both the U.S. and Ontario have announced tariffs on energy imports/exports. These tariffs could impact prices in states bordering Ontario, given the interconnection of the North American energy grid. But how exactly could these electricity tariffs affect U.S. electricity prices? Let’s break it down.
The Connection Between Ontario and U.S. Electricity Markets
While Ontario and many U.S. states are distinct in their energy policies and regulatory frameworks, they are connected through shared energy infrastructure. The two regions share a significant number of transmission lines that allow electricity to flow back and forth across the border. Ontario is part of the broader North American grid, and through connections to the U.S. it can both export and import electricity to and from the U.S. grid. The impact of electricity tariffs could alter these flows, potentially affecting the pricing dynamics of electricity across the border.
Background on Energy Tariffs Announced
In February, President Trump announced hefty tariffs on Canada, including a 10% tariff on Canadian energy products. The tariffs were set to take effect last week. NYISO and ISONE have made tariff-related filings with the Federal Energy Regulatory Commission (FERC) stating they don’t believe they have a role in collecting or remitting these duties. However, due to the uncertainty surrounding the tariffs, the ISO’s deemed the filings necessary.
This week, Ontario announced a $10/MWh (est. 25%) tariff on electricity to the U.S. as a retaliation against the tariffs from President Trump. They later announced a pause on these tariffs. If they were to take effect, they would equal about $150 million per year in increased costs to U.S. consumers.
Impacts of Ontario’s Electricity Tariff
- Increased Export Costs from Ontario
If Ontario enacts the 25% electricity tariff, U.S. states that receive imports from Ontario could see higher electricity prices. This particularly affects states like New York, Michigan, and Minnesota, where power flow from Ontario supplements local power generation. We estimate the cost increase to be less than $1/MWh for all of these states, with New York having the largest price impact.
- Impact on Shared Energy Markets
Ontario shares its energy resources with neighboring states via electricity markets that span the U.S.-Canada border. If Ontario’s tariffs take affect or they decide to enact more in the future, it could result in a shift in trade flows, with U.S. utilities looking to source cheaper electricity from other areas in the U.S. rather than from Ontario. These shifts could impact the pricing dynamics within shared energy markets, leading to price fluctuations in U.S. states as they adjust to new sources of power. It could also raise concerns about grid reliability in some states as they shift where they are getting supplemental energy from.
In Conclusion: Changing Dynamics Are Creating Risk And Uncertainty
The Ontario electricity tariffs have the potential to impact the North American power grid, particularly impacting U.S. electricity prices in New York, Michigan, and Minnesota. From altered export costs to shifting energy markets, the interconnectedness of the U.S. and Canadian grids means that electricity tariffs from Ontario can affect the supply-demand dynamics and pricing in U.S. states.
New York will likely see the biggest rate increase should these tariffs take effect, but price impacts to consumers are expected to be less than $1/MWh. The biggest concern is the development of the trade war. Currently, it is uncertain how many more tariffs the U.S. and Canada will place on each other. Therefore, further price increases are possible.
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