On December 16, 2024, the Federal Energy Regulatory Commission (“FERC”) directed American Efficient, LLC, its subsidiaries, and corporate parents (collectively, “American Efficient”) to show cause why American Efficient should not be found to have violated anti-manipulation rules. The order alleges that American Efficient engaged in a manipulative scheme to extract millions of dollars in capacity payments from Midcontinent Independent System Operator, Inc. (“MISO”) and PJM Interconnection, L.L.C. (“PJM”) for energy efficiency projects that did not actually reduce energy use. FERC also requested American Efficient to show cause why they should not disgorge over $253 million in unjust profits and pay a civil penalty of $722 million.

FERC explained in its December 16 order that the resulting claims stem from a non-public investigation by FERC’s Office of Enforcement, which concluded that American Efficient improperly received substantial capacity payments from PJM and MISO for purported Energy Efficiency Resources (“EERs”) that did not meet the requirements of the regional transmission organizations’ (“RTOs”) respective tariffs. EERs are programs or projects designed to permanently reduce energy consumption during peak demand periods, which qualify as capacity resources eligible for higher payments in the capacity markets operated by RTOs like PJM and MISO. Being designated as an EER allows entities to monetize energy savings by reducing the need for additional generating capacity, creating opportunities to earn significant capacity payments.

The Enforcement Staff Report and Recommendation (“Staff Report”) determined that “American Efficient has amassed a fortune in capacity payments by paying retailers a few cents per product for sales data and environmental attributes and then claiming that this gives [American Efficient] the right to benefit from end-use customers’ efforts.  But American Efficient’s collection of sales data and environmental attributes does not qualify the Program as an EER under the MISO or PJM tariff requirements.”

The Staff Report further found that “American Efficient has not caused any of the reductions in energy use it has taken credit for and whatever value these sales data and environmental attributes may have, they don’t qualify as EERs under the PJM and MISO Tariffs.”

In light of these findings, the December 16 order directs American Efficient to show cause why it should not be found to have violated section 222 of the Federal Power Act (“FPA”) and section 1c.2 of FERC’s regulations. FPA section 222 prohibits the use of any manipulative or deceptive device or contrivance in connection with the purchase or sale of electric energy or the transmission of electric energy subject to FERC’s jurisdiction. Similarly, section 1c.2 of FERC’s regulations, also known as the Anti-Manipulation Rule, prohibits any entity from engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any entity in connection with the purchase or sale of electric energy or the transmission of electric energy subject to FERC’s jurisdiction. FERC’s order also requires American Efficient to show cause why they should not be found to have violated MISO and PJM’s respective tariff provisions regarding EER participation requirements. Lastly, FERC directed American Efficient to show cause why they should not disgorge over $253 million in unjust profits and pay a civil penalty of $722 million. American Efficient will have 30 days from the date of the December 16 order to respond.

A copy of the order, filed in Docket No. IN24-2-000, can be found here.