Chairman Swett's Concurrence on the Order Assessing Civil Penalties Regarding American Efficient, LLC

I write separately to address a series of recent filings in which American Efficient invited us to terminate this proceeding because it is supposedly a paradigmatic example of “bureaucratic overreach” by “rogue” civil servants.[1]  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.

I have made no secret of my belief that the energy sector—like many other theaters of modern American industry—is “drastically overregulated.”[2]  During my tenure as Chairman, I have repeatedly voted to reduce regulatory burdens, streamline and clarify our procedures, close zombie dockets, and take other steps to promote regulatory certainty that induces investment.[3]  I have also undertaken a careful review of our enforcement priorities with an eye towards identifying—and stopping—cases in which the Commission may be overstepping its bounds.

This is not such a case.  The PJM tariff provides, in clear and unmistakable language, that American Efficient was not permitted to submit a sell offer into the capacity market unless it “own[ed] or ha[d] the contractual authority to control the . . . load reduction capability” of the relevant capacity resource.[4]  Today’s order—which is unanimous and bipartisan—explains at length that American Efficient did not own or have the ability to control any energy efficiency resource’s “load reduction capability.”  The order also explains that, by American Efficient’s own admission, its program was not “designed to achieve” reductions in energy consumption.  American Efficient’s sell offers into the PJM capacity market therefore violated the tariff.  That determination is a straightforward application of straightforward tariff language, not some conspiracy that “rogue” bureaucrats cooked up on a basement corkboard with pins and a spool of string. 

Readers should not be misled by the length of today’s order.  The legal issues here are not particularly complex.  The basic story here is, in fact, quite simple:  American Efficient “stole half a billion dollars from hard-working Americans.”[5]  American Efficient siphoned that money out of the pockets of electric utility ratepayers and into its own coffers through regulatory mechanisms designed to provide compensation for “energy efficiency resources.”  But—as so often occurs when unscrupulous actors see an opportunity to make easy money from a program designed to encourage socially beneficial conduct—American Efficient’s “energy efficiency resources” were not real.  Instead, American Efficient merely claimed credit for energy efficiency gains produced by other people.

Trickery and nakedly abusive conduct of this sort is why we have enforcement powers in the first place.  In the wake of the Western Energy Crisis, Congress passed the Energy Policy Act of 2005, which dramatically expanded the scope of the Commission’s enforcement authority.[6]  Congress wrote that statute not so that it could gather dust, but rather because it trusted that the Commission would use its new powers to protect the American people and the integrity of electricity markets. 

True, we must always exercise care to wield our powers responsibly, which explains my steadfast commitment to policing overregulation.  But there is no conflict between that commitment and the robust use of enforcement powers when appropriate, such as this $500 million fraudulent green scam.  We would not be responsible stewards of our enabling statutes if we turned a blind eye when, as here, a new Enron bursts onto the scene with a fresh plan to defraud Americans via rent-seeking and regulatory arbitrage.  And parties whose entire business model consists of siphoning wealth from captive ratepayers through regulatory mechanisms—without providing any concrete value to those ratepayers—should not be heard to complain about “regulatory overreach” when called to the carpet.

One final point bears mention.  My north star as Chairman is keeping the cost of electricity reasonable for consumers.  We strive towards that goal every day in our bread-and-butter work. 

American Efficient’s years-long fraud profoundly disrupted the organized capacity markets and ultimately increased costs for ordinary Americans.  The capacity market revenues paid to American Efficient were funded entirely on the backs of Americans who could not afford the price hike.  I cannot improve on the explanation provided by American Efficient’s own former Policy Director, who described the company’s participation in the capacity markets as a simple “wealth transfer between rate payers and [American Efficient].”[7]

To make matters worse, American Efficient’s scheme also subverted critical market mechanisms designed to promote reliability during grid stress conditions.  To name just one example, American Efficient received approximately $26.9 million for “overperformance” during Winter Storm Elliott in late 2022.  PJM’s Capacity Performance construct incentivizes capacity resources to deliver energy and reserves during emergency conditions.  PJM assesses penalties and bonus payments during Performance Assessment Intervals, which are triggered when PJM declares an Emergency Action.  PJM in turn pays entities due bonus payments from the revenue collected from penalties.[8]  As explained in the order, American Efficient was not entitled to collect capacity payments from PJM.  American Efficient nonetheless collected $26.9 million in bonus payments that otherwise would have been rightfully paid to deserving generators that did in fact overperform during the storm.

Against that backdrop, American Efficient insists that the Commission’s efforts to call it to account for its misconduct are nothing more than the “weaponization of government resources.”[9]  This is an argument only a fraudster could love. 

For these reasons, I respectfully concur. 

Laura V. Swett

Chairman