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The Federal Energy Regulatory Commission has fined Durham, N.C.-based American Efficient $722 million and ordered the company to repay more than $410 million in “unjust profits” for alleged fraud in its energy efficiency program.
In an April 15 ruling, FERC claims American Efficient withheld key information from electric grid operators, which allowed the company to manipulate energy markets.
An American Efficient spokesperson said the company “stands by its position that the commission’s allegations are meritless and that it did not commit any wrongdoing.”
FERC must now file a separate action in federal district court and prove its case from scratch in order to collect the funds. A trial would also give the company an opportunity to present evidence before a judge and jury.
FERC took issue with American Efficient’s business model. Durham entrepreneur Ben Abram and his company Wylan Capital purchased American Efficient in 2013. Unlike the original company, under Abram, American Efficient has acted as an energy efficiency aggregator that buys sales data from large retailers like Lowe’s and other businesses to track the purchase of energy-efficient lightbulbs and appliances.
It then calculates how much electricity those products are expected to save and sells those projected savings to grid operators at capacity auctions, thus reducing the amount of electricity they actually have to buy.
At capacity auctions, grid operators pay for the ability of traditional power suppliers and utilities— as well as energy-efficiency aggregators like American Efficient—to produce power when needed. Ratepayers ultimately pay for the costs of fuel through their respective utilities.
The decision was unanimous among the five commissioners, three Republicans and two Democrats.
“I don’t vote lightly for disgorgement and civil penalties this high,” said FERC Commissioner Lindsay See, a Biden appointee, at a public meeting last week. “But we’ve not been faced with a scam that robbed ratepayers of hundreds of millions of dollars in this way before.
“American Efficient has fought with every legal tool they can muster, and it’s easy to understand why—because their entire business is at stake, their entire business is a scam.”
The other two Biden appointees, Judy Chang and David Rosen, criticized American Efficient for sullying legitimate energy efficiency programs that actually reduce demand.
FERC Commissioner David La Certe, a Trump appointee, said he will refer the case to the U.S. Department of Justice for a possible criminal investigation. La Certe said at the public meeting that he is concerned about how American Efficient spent its proceeds from the capacity auctions.
“While I do not take lightly the weight of a criminal referral, the interests of justice demand it,” LeCerte wrote in a concurring opinion. “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 in the first place.”
A Simple Guide to the Complex World of Energy SalesFERC: The Federal Energy Regulatory Commission, which oversees and regulates electric power, natural gas and other utility-related projects, including pipelines and markets. Congress created FERC in 1977. Its five commissioners are appointed by the president, with the consent of the U.S. Senate. No political party can hold more than three seats; its current political makeup is three Democrats and two Republicans.
Regional Transmission Organizations/Independent System Operators: RTOs and ISOs administer the transmission grid and wholesale electricity markets regionally throughout the U.S. and parts of Canada. The grid operators are like orchestra conductors, with utilities, power producers and energy efficiency aggregators as the instruments. RTOs and ISOs operate the capacity auctions, which are regulated by independent market monitors.
Capacity markets, also known as capacity auctions: These markets are supposed to increase grid reliability, lower costs to ratepayers and balance the supply and demand of electricity.
In a capacity market, a grid operator pays an energy generator or an energy efficiency resource, such as American Efficient, for its ability to produce or save power to ensure the grid is reliable in the future, as far out as three years.
Power suppliers and energy efficiency aggregators bid their committed amount of energy—or savings—into the market. The RTO/ISO rejects bids for prices that are higher than necessary to meet a need. The highest-priced resource that is needed sets the price for everyone, even the lowest-cost resource. This is known as the clearing price.
Energy efficiency aggregator: An aggregator bundles multiple energy efficiency products and bids those savings into capacity markets. Some utilities, like Duke Energy, aggregate and sell products, like smart thermostats and LED light bulbs, to customers, with oversight from the state utilities commission. Non-utilities, like American Efficient, have varying methods of accounting for the savings.
The investigation into American Efficient began nearly five years ago after independent market monitors alerted FERC’s enforcement staff, as Inside Climate News previously reported.
Grid operators like PJM, which operates in many states including northeastern North Carolina, hire market monitors to ensure the wholesale energy markets are fair and to identify potential manipulation.
American Efficient pays a few cents to entities like Lowe’s per product sold, micropayments ostensibly meant to encourage retailers to promote efficient products. In turn, use of more efficient products would reduce energy demand, air pollution and greenhouse gas emissions.
American Efficient declined an on-the-record interview and instead provided statements by an unnamed company spokesperson.
“What made this approach different is that the end user wasn’t the only party that could move the needle on energy efficiency,” a company spokesperson said. Micropayments to businesses of 5 cents for every energy-efficient lightbulb sold “sent a powerful signal through the supply chain,” encouraging manufacturers, distributors and retailers to adopt energy efficient products.
While FERC argued that a 5-cent payback on a single light bulb cannot influence retailer behavior, the company disagreed.
A 5-cent micropayment “multiplied across every qualifying product sale in every qualifying store adds up,” the company spokesman said, “and the academic literature on upstream market transformation confirms what common sense suggests: when you offer incentives at scale, supply chains respond.”
Over the past 12 years, federal records show that several grid operators, including PJM, have paid American Efficient a total of more than a half billion dollars at these auctions.
The payments were based on the theory that encouraging energy efficiency reduces the amount of power grid operators must procure, lowers the cost of energy and saves ratepayers money on their monthly bills.
Those reductions are validated “through well-established measurement and verification protocols used by utilities and energy companies across the country,” the American Efficient spokesperson said.
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FERC strongly disagreed. Commissioners gave the example of an agreement between American Efficient and Home Depot over a $10,619 refrigerator. If a customer bought that refrigerator from the store, Home Depot would note it on a “sales data sheet” that it sent to American Efficient, federal documents show. American Efficient would then send Home Depot a “micropayment” of 15 cents in return for the energy savings of the refrigerator.
American Efficient contends that it obtained the right to bid energy savings associated with that refrigerator into the PJM capacity auction through this arrangement—and that PJM knew how it worked.
FERC found the connection tenuous, because American Efficient’s contract with Home Depot did not require the retailer to use the micropayment for any specific purpose, such as discounting or promoting the sale of the refrigerator.
American Efficient argues that its contract with PJM, in turn, did not require the company to prove that the program caused demand reductions that would not have occurred otherwise. “If there had been such a requirement, the company would obviously have designed the program and the measurement of its impact to comply with these requirements,” the American Efficiency spokesman said.
Selling environmental attributes is not new, said Ari Peskoe, the director of the Electricity Law Initiative at Harvard Law School. Peskoe was traveling and not available for an interview, but pointed to his comments about the case on Twitter for context.
“American Efficient conjured up these attributes, which is clever, fraudulent, or a little of both,” he wrote. Initially, the company seemed to be upfront with the grid operators about what it was doing, Peskoe wrote, then later, claimed that its payments to the retailers increased sales of efficient appliances. “Its plan appeared to unravel from there.”
However, Peskoe questioned whether FERC’s case is that straightforward. The contract between PJM and American Efficient doesn’t require the company to prove a connection to the retail customer, as the commission maintains in its ruling.
“Conduct that looks bad” can still be legal, Peskoe wrote.
American Efficient still has legal options to fight the civil penalties. First, the U.S. Supreme Court is currently considering two cases that consider whether the procedures federal commissions use for assessing penalties comply with the constitutional right to a jury trial. Those cases deal with the Federal Communications Commission, though the ruling could affect FERC as well.
Even if the high court rules in favor of federal commissions, FERC would still have to file the separate action in federal district court and prove its case to collect the funds. A trial would also give the company an opportunity to present evidence before a judge and jury.
As for the criminal referral, the U.S. Department of Justice can choose whether to investigate FERC’s claims.
“We are focused on defending the business,” the American Efficient spokesperson said.
“This was an American energy company—built with private capital, advancing an all-of-the-above energy strategy that treated efficiency as a resource just like any power plant. “It has been brought to the brink of financial ruin by a single federal agency acting as its own prosecutor, judge, and jury.”
American Efficient has few options to participate in capacity auctions. Of the grid operators in the Eastern U.S., only one, ISO-New England, still buys energy-efficiency resources.
Yet ISO-NE became concerned about one of American Efficient’s subsidiaries when it participated in the auctions in 2018 and partially disqualified the company from a subsequent auction, FERC documents show.
The reason: The company couldn’t provide enough information to prove its business model worked.
Correction: A previous version of this article said incorrectly that the FERC board was made up of three Democrats and two Republicans. The board is made up of three Republicans and two Democrats.
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Thank you,
Lisa Sorg
Reporter, North Carolina
Lisa Sorg is the North Carolina reporter for Inside Climate News. A journalist for 30 years, Sorg covers energy, climate environment and agriculture, as well as the social justice impacts of pollution and corporate malfeasance.
She has won dozens of awards for her news, public service and investigative reporting. In 2022, she received the Stokes Award from the National Press Foundation for her two-part story about the environmental damage from a former missile plant on a Black and Latinx neighborhood in Burlington. Sorg was previously an environmental investigative reporter at NC Newsline, a nonprofit media outlet based in Raleigh. She has also worked at alt-weeklies, dailies and magazines. Originally from rural Indiana, she lives in Durham, N.C.
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