The Federal Energy Regulatory Commission ordered an energy efficiency company Wednesday to pay a $1.1 billion penalty as it moves to close the books on an alleged decadelong fraud scheme across multiple regional power markets.
FERC concluded that Durham, North Carolina-based American Efficient had orchestrated a scheme to claim credit for fake energy efficiency resources in federally regulated capacity markets. The commission issued an order that seeks a $722 million civil penalty and requires American Efficient to disgorge $410 million in illegitimate profits.
American Efficient has denied wrongdoing.
In 2024, FERC brought enforcement actions against American Efficient for market manipulation after the agency and Eastern grid operators investigated the company’s operations. American Efficient had challenged FERC’s original enforcement action on constitutional grounds. A federal court in North Carolina rejected the arguments last December.
“American Efficient invited us to terminate this proceeding because it is supposedly a paradigmatic example of ‘bureaucratic overreach’ by ‘rogue’ civil servants,” FERC Chair Laura Swett wrote in a concurrence. “Given the staggering scope of American Efficient’s own energy efficiency scam, the suggestion that FERC’s actions in this case amount to bureaucratic overreach is absurd.”
The commission determined that American Efficient committed fraud by purchasing sales data from retailers and manufacturers for tiny payments, claiming ownership of the energy reductions and collecting payments from eastern grid operators PJM and MISO. Using this deceptive “paper-shuffling” scheme, the commission said, the company collected hundreds of millions for “fake capacity” associated with products they did not incentivize, while actively concealing their misconduct from regulators.
“The basic story here is, in fact, quite simple,” Swett said. “American Efficient ‘stole half a billion dollars from hard-working Americans.’ American Efficient siphoned that money out of the pockets of electric utility ratepayers and into its own coffers.”
American Efficient argues that FERC’s fraud case is based on a distorted reading of its business model and the auction rules, saying grid operators repeatedly approved its plans and that investigators relied on bad math, cherry-picked facts and ignored key evidence. It says FERC is improperly trying to punish conduct long allowed in organized power markets and to use an enforcement case to resolve a broader policy fight over energy-efficiency participation in capacity auctions.
“This is not a ‘money for nothing’ case,” the attorneys from the company told Inside Climate News last year. “[The grid operators] received what they paid for.”
The company is still able to appeal FERC’s fraud case in court.
Constitutional challenge
American Efficient had sought to upend the enforcement case by challenging FERC’s role as an independent agency. It argued that FERC commissioners are not independent from the U.S. president. Any actions as an independent agency, therefore, would be called into question. It also argued that FERC’s enforcement procedures denied the company its Seventh Amendment right to a trial by jury.
Typically, FERC enforcement actions go before an administrative law judge within the agency rather than to the judicial branch.
In 2024’s SEC v. Jarkesy, the Supreme Court held that rights with origins in the common law are the domain of the courts and the Seventh Amendment. That muddied FERC’s authority to take market manipulation cases, which are considered analogous to common law fraud, before its internal judges.
In the American Efficient case, Judge Thomas D. Schroeder didn’t bite. He ruled that the Federal Power Act’s provision for a new jury trial in federal court before imposing the penalty satisfies those constitutional requirements.
Although defeated for now, the pending Supreme Court decision in Trump v. Slaughter could renew the independence argument. The court is reassessing whether it is constitutional for members of independent agencies, like FERC, to have removal protections.
Per congressional law and prior Supreme Court precedent, such commissioners can only be fired by the president “for cause” — such as negligence or malfeasance in office. President Donald Trump argues that independent agencies are part of the executive branch, which the president controls entirely.
Although considered a long shot by legal experts, the argument goes that if commissioners were presumed to be protected from firing when they should have been removable at the president’s will, their actions would have violated the constitutional separation of powers. They would have been doing executive work without full presidential control.
“Until something is decided by the Court, or any law changed by Congress, there is no obligation on FERC’s behalf to change anything,” Swett told reporters in January.
Regardless of the outcome in Slaughter, American Efficient remains entitled to challenge the merits of FERC’s fraud finding in court.
