By Kennedy Maize
The Federal Energy Regulatory Commission on Wednesday (April 15) dropped a billion dollar hammer on a North Carolina firm for what the commission said was “energy efficiency fraud” in the PJM and MISO regional transmission organizations. The commission ordered American Efficient LLC to pay a $722 million fine and disgorge $410 million “in unjust profits, plus interest.”
FERC said the company “committed fraud for over ten years, violating PJM and MISO market rules, the Federal Power Act, and anti-manipulation regulations. American Efficient operated a sweeping money-for-nothing scheme to extract capacity payments from PJM and MISO by falsely claiming ownership and control of energy efficiency resources.”
FERC added, “Instead of providing the market with actual energy reductions, the company paid retailers and manufacturers micropayments of pennies or fractions of pennies for basic sales data, then used those records to claim credit for energy reductions it played no role in producing. The flagrantly illegal, paper-shoveling scheme allowed American Efficient to clear more than 20 gigawatts of fraudulent capacity in PJM’s market alone.”
FERC Chairman Laura Swett said, “This case represents an extraordinary and deeply troubling breach of public trust—a meticulously orchestrated scheme that siphoned hundreds of millions of dollars away from hardworking American families and businesses. Such blatant disregard for the rules not only threatens the integrity of our energy markets but also undermines the confidence consumers place in these systems. FERC must remain unwaveringly vigilant and proactive, ensuring that we hold every market participant accountable and that we safeguard consumer interests.”
In a concurrence, Commissioner David LaCerte urged the commission to refer the case to the U.S. Justice Department for criminal prosecution. He also said PJM should “take appropriate actions to protect ratepayers and immediately stop any additional capacity payments to American Efficient or its affiliates pending the final resolution of this proceeding.”
LaCerte said, “American Efficient’s conduct is not only market manipulation, but a fundamental betrayal of the environmental and reliability principles that have been used to justify energy efficiency resources (EERs) in the first place.
“EERs exist because in concept reducing electricity demand is generally cleaner and cheaper than building new generation, and can offer reliability benefits. Every dollar of capacity payment to an EER reflects an assumption that real customers are consuming less electricity due to real programs that actually reduce load.
“American Efficient delivered none of that benefit. Here, it simply purchased retail sales data from retailers like Home Depot and Walmart, modeled hypothetical savings assuming customers used those products as intended, and then sold those modeled reductions into PJM and MISO as if it had caused or controlled a single watt of reduced demand.”
In December of 2024, FERC issued a “show cause order and notice of penalty” to American Efficient, charging that “over the past ten years, the Company has cleared half a billion dollars in capacity without offering any real energy efficiency, providing any demand reductions, or making the grid any more reliable.” That order called for a $722 million fine and $252 million disgorgement.
According to a FERC summary, “American Efficient’s affiliates began participating in PJM’s capacity market in 2014 and in MISO’s capacity market in 2017. American Efficient characterizes itself as a so-called ‘upstream’ or ‘midstream’ participant in the EER industry, by which it means that American Efficient does not itself install any energy efficiency (EE) products at end-use sites and does not contract with any end-use customers who do so.
“Instead, American Efficient entered into agreements with retailers, distributors, and manufacturers of EE products (which it calls its ‘Program Partners’). Pursuant to those agreements (which it calls ‘Program Agreements’), American Efficient paid its Program Partners for data concerning the partners’ sales of EE products to end-use customers.
“Those payments—which American Efficient candidly (and aptly) dubbed ‘micropayments’—were for mere pennies (or fractions of pennies) per product, even when the product itself cost thousands of dollars. American Efficient then used its data purchases to claim credit for the energy reductions associated with the installation of these products and collected the resulting capacity payments.”
FERC illustrates how American Efficient’s deals worked, involving a hypothetical $10,619 refrigerator sold by Home Depot. If a consumer bought the refrigerator, Home Depot notified American Efficient, which then sent Home Depot 15 cents for the “environmental attributes” of the refrigerator.
American Efficient would then monetize the lifetime potential energy savings of the refrigerator and bid that figure into the RTO capacity auction.
FERC adds, “To top it off, American Efficient claims the right to force the person who purchased the refrigerator to pay American Efficient, through their electric bills, for the energy savings resulting from the purchaser’s own $10,619 outlay. This is a scam for the history books. Yet American Efficient made this same claim for more than one billion items sold by its Program Partners.”
FERC’s Wednesday order implements the 2024 notice, including increasing the disgorgement to reflect the passage of time.