Executive Summary | Order Assessing Civil Penalties Regarding American Efficient, LLC

Docket No. IN24-2-000 | News Release | Chairman Swett's Concurrence 

This order concerns one of the largest and most brazen frauds in the history of the Federal Energy Regulatory Commission. Today we find that American Efficient, LLC and its affiliates (together, American Efficient) stole half a billion dollars from hard-working Americans by collecting compensation for fake “energy efficiency resources.”  American Efficient’s money-for-nothing scheme blatantly violated the relevant market rulebooks, called tariffs.  American Efficient also manipulated multiple electric markets over the course of many years.  To remedy American Efficient’s scam and make ratepayers whole, today’s order requires American Efficient to disgorge approximately $410 million in unjust profits and imposes a civil penalty of $722 million.

Much of this case focuses on American Efficient’s activity in what are known in the energy industry as “capacity markets.”  Unlike energy markets, which compensate resources for providing power, capacity markets compensate resources for committing to provide power in the future.  The capacity markets at issue here are administered by PJM Interconnection, L.L.C. (PJM), a regional transmission organization (RTO) that provides electricity to over 67 million Americans in a territory stretching from the Mid-Atlantic seaboard to Illinois, and Midcontinent Independent System Operator (MISO), an independent system operator (ISO) whose service territory covers much of the Midwest and Gulf South.

In 2009, the Commission accepted PJM’s proposal to revise its tariff (PJM Tariff) to incorporate participation of energy efficiency resources (EERs) in its capacity markets.0F[1]  In its determination, the Commission recognized that “[u]nder PJM’s [then] current wholesale market structure, many retail customers who install energy efficiency measures do not capture the capacity benefit of the resources they install.”1F[2]  Under the PJM Tariff, an EER is defined as a “project, including installation of more efficient devices or equipment or implementation of more efficient processes or systems, . . . designed to achieve a continuous . . . reduction in electric energy consumption at the end-use customer’s retail site that is not reflected in the peak load forecast prepared for the Delivery Year[.]”2F[3]  Examples of “more efficient devices or equipment” include LED light bulbs and heat pump water heaters.  The PJM Tariff goes on to provide that, if an individual or entity “owns or has the contractual authority to control the . . . load reduction capability” of an EER, they may submit a “sell offer” into PJM’s capacity market.3F[4]  If that offer clears in the capacity market, the seller receives what is known as a “capacity payment” from PJM, which is intended to compensate the seller for the committed energy consumption reductions4F[5] associated with the EER.  In 2012, the Commission accepted MISO’s proposal to add a similar EER program to its tariff (MISO Tariff).5F[6]

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) products6F[7] 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.

To understand how this worked in practice, consider a real-world example.  One of the products covered by the Program Agreement between American Efficient and Home Depot was a $10,619 refrigerator.  If a consumer walked into Home Depot and bought that refrigerator, Home Depot would note that purchase on a “sales data sheet” that it sent to American Efficient.  American Efficient would then send Home Depot a “micropayment” of fifteen cents (i.e., 0.001% of the refrigerator’s retail price) and, under its contract with Home Depot, purportedly receive title to the so-called “Environmental Attributes” of the refrigerator.  American Efficient contends that, through this arrangement, it obtained the right to bid energy savings associated with that refrigerator into the PJM capacity market.  American Efficient claims this is so despite the fact that American Efficient did nothing to incentivize the sale; did not require Home Depot to use the “micropayment” it received from American Efficient for any specific purpose, such as discounting or promoting the refrigerator; had no relationship or contract with the refrigerator purchaser, whose effort and investment actually creates the load reduction for which American Efficient gets paid; and provided no notice to the purchaser that American Efficient was claiming the right to capture and monetize the capacity value that would otherwise have accrued to the purchaser.  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.7F[8]

Through this scheme, American Efficient bought sales data for EE products, papered those transactions as if it was acquiring rights to each product’s load reduction-related potential, and then monetized that sales data in the PJM and MISO capacity markets under the guise of offering actual capacity.  American Efficient offered and cleared more than twenty gigawatts over 11 years.  To put that into perspective, the capacity of a typical nuclear reactor is about one gigawatt per year.8F[9]  On average, over 11 years, American Efficient sold PJM an amount of fake capacity equivalent to almost two nuclear reactors every year, and in exchange received some $500 million in capacity payments from PJM, funded through American consumers’ electric bills.  Making matters worse, American Efficient cached another $15.5 million from MISO.   

American Efficient provided nothing of value in exchange for these payments.  It engaged in naked rent-seeking—hijacking a regulatory mechanism intended to promote energy efficiency and converting it into an ATM for American Efficient’s worthless paper-shuffling scheme.  Indeed, American Efficient’s own Policy Director characterized the firm’s business model as a “wealth transfer between ratepayers and [American Efficient]”9F[10] that was “at best unethical.”10F[11]  She later resigned.  

Tellingly, as the truth about American Efficient’s business model emerged over time, two independent system operators—MISO and ISO New England, Inc. (ISO-NE)—disqualified American Efficient from their capacity markets.  ISO-NE explained that it had allowed American Efficient to participate in its capacity markets only because it previously “relied on . . . statements” made by American Efficient that later proved false; upon investigation, ISO-NE determined that American Efficient’s program in fact “provid[ed] no discernable benefit” to anyone, and concluded that American Efficient plainly was not entitled to capacity payments “simply because a product was sold by a retailer to whom [American Efficient] pays a nominal fee.”11F[12]  American Efficient did not challenge the MISO or ISO-NE rulings.  American Efficient also made the conscious decision not to disclose those rulings to PJM.  American Efficient’s leadership was concerned that such disclosures would “poke the bear” in its “biggest and most important market”12F[13]—i.e., that informing PJM of the concerns raised by MISO and ISO-NE, which track the problems we identify in this order, might cause PJM to audit the company or otherwise reevaluate American Efficient’s participation in its capacity markets.

The watchdog units for both PJM and MISO (called “independent market monitors” or IMMs) later referred American Efficient to the Commission for potential enforcement action.  The Commission’s Enforcement staff began investigating American Efficient in 2021, and in 2024 the Commission issued the Order to Show Cause that started this proceeding.13F[14]

We now find that Respondents American Efficient, LLC, Modern Energy Group LLC (Modern), MIH LLC (MIH), Midcontinent Energy LLC (Midcontinent), Wylan Energy, L.L.C. (Wylan), and Affirmed Energy LLC (Affirmed) (together, American Efficient) engaged in three separate violations of the relevant tariffs and of our rules.  To be clear, these are multiple independent legal bases upon which we conclude American Efficient must pay the disgorgement and civil penalties stated above; each stands independent of the others.  For all these violations, the relevant period for assessment of disgorgement and a penalty is from January 1, 2014, to the date of this Order (Relevant Period).14F[15]

First, we find that American Efficient violated provisions in the PJM and MISO Tariffs that require American Efficient to own or have contractual authority to control the load reduction capability of the EERs that it bid into the capacity markets.  American Efficient never had these rights, despite repeatedly attesting in its submissions to PJM and MISO that it did.  Our finding today tracks a similar finding made by MISO in 2021, when MISO expelled American Efficient from its capacity markets because American Efficient did not “adequately document the ‘ownership or equivalent contractual rights’” required by the MISO Tariff.15F[16] 

Second, we find that American Efficient’s program was not “designed to achieve” a load reduction, as the PJM and MISO Tariffs require.  The plain meaning of this requirement is that the EER must be intended to create what the parties call “additionality”—i.e., energy reductions that would not otherwise occur.  The record is clear that American Efficient’s program was not “designed to achieve” additionality, but rather was designed to extract rents on sales of EE products over which American Efficient had no influence.  Indeed, American Efficient’s executives themselves said so.  The company’s then-Policy Director stated that “American Efficient did not believe it was causing energy efficiency to occur, but [instead] was calculating what was already occurring.”16F[17]  American Efficient’s Head of Origination stated in 2018 that “we do not need to provide additionality” and insisted that the company could instead secure capacity payments based on sales of EE products “that are already occurring but for which [the retailer or manufacturer] is capturing $0.”17F[18]  Most notably, in a written submission to MISO in 2021, American Efficient said that all that it did was “aggregate the attributes of energy efficient products,” which was “in contrast with utility rebate programs that are designed to encourage the sale of energy efficient products.”18F[19]

As scrutiny of the company grew, American Efficient changed its tune and confected a new story under which its “micropayments” were supposedly intended to incentivize Program Partners to make additional EE product sales.  But that new-for-litigation gloss on the business model is, to use the words of one American Efficient executive, a late-arriving “defensive track” that even the company’s leadership team “did not believe.”19F[20]  American Efficient repeatedly recognized the falsity of this story in statements to MISO, MISO’s IMM, and its Program Partners.  American Efficient’s own former Chief Executive Officer candidly told a colleague that “he did not believe those payments were causing additional energy efficiency.”20F[21]  For her part, the then-Policy Director acknowledged that “American Efficient’s programs did not seek to do” things such as getting “better placement” for EE products in retail stores, and that American Efficient instead “simply paid the partner for providing the [sales] data.”21F[22] 

In any case, the story that pennies paid to retailers will prompt them to promote EE products in American Efficient’s program withers under scrutiny.  That post hoc rationale, dreamed up by a fraudster in existential crisis, has all the hallmarks of “the dog that did not bark.”22F[23]  Were this “profit boost” story actually true, one would expect that American Efficient would have required its partners to use the micropayments to promote EE products, would have tethered the amount of its micropayments to the EE product retail price, would have collected data and performed regular analyses of whether its program incentivized sales of EE products, and would have described its “profit boost” theory in its early filings with PJM and MISO.  American Efficient did none of those things.  And when pressed, American Efficient’s executives admitted that the company was in fact “agnostic” about whether its Program Partners “provide[d] incentives to the customer to cause them to buy” EE products.23F[24]

American Efficient’s “profit boost” justification is particularly absurd in the context of so-called “historicals,” which are sales of EE products that occurred before a Program Agreement with American Efficient was even in place.  American Efficient collected a significant amount of revenue this way; in some years, about a third of all the megawatts American Efficient cleared in a particular capacity market were traceable to “historicals.”  But American Efficient’s micropayments could not possibly have been intended to induce sales of products that occurred before American Efficient had any contractual relationship with the Program Partner who sold those products to end users.  When asked to provide further explanation on how American Efficient’s micropayments supposedly induced sales that occurred before American Efficient came onto the scene, the company’s Head of Origination simply said “I don’t wish to make the case.”24F[25]  While these “historicals” are perhaps the most egregious example of American Efficient’s misconduct, they also lay bare the consistent purpose and design of its scheme:  to capture and monetize, for American Efficient’s benefit, the capacity value created by others’ actions, without their knowledge or consent.

Third, we find that American Efficient violated section 222 of the Federal Power Act (FPA)25F[26] and the Commission’s Anti-Manipulation Rule,26F[27] which prohibit energy market manipulation.  Here again, evidence abounds.  As discussed below, American Efficient’s leadership “was concerned that if they explained their existing business model extremely clearly to PJM, that would cause PJM to question the participation” of American Efficient in the PJM capacity market.27F[28]  Leadership therefore elected not to do so.  We explain below six ways in which American Efficient engaged in market manipulation: (1) fraudulently presenting itself as a legitimate capacity seller; (2) fraudulently collecting capacity payments for so-called “historicals”; (3) making misleading statements that its program lowered prices for customers; (4) failing to disclose to PJM the trivial size of its “micropayments”; (5) failing to disclose to PJM that it had been booted out of the MISO and ISO-NE capacity markets; and (6) making false statements concerning its contract rights in affirmations filed with PJM. 

Given the seriousness of these violations and the lack of effort by American Efficient to remedy them, we find it appropriate to assess civil penalties against all Respondents, jointly and severally, pursuant to section 316A of the FPA,28F[29] in the amount of $722,000,000.  The Commission further directs Respondents, jointly and severally, to disgorge unjust profits pursuant to section 309 of the FPA,29F[30] in the following amounts:  $407,732,930, plus interest, to PJM, and $2,084,828, plus interest, to MISO.  30F