Dive Brief:
- American Efficient and its related companies face a $722 million penalty and the return of $253 million in unjust profits for allegedly providing capacity from energy efficiency resources that didn’t reduce energy use through the companies’ efforts, the Federal Energy Regulatory Commission said Monday.
- Besides engaging in a “manipulative scheme,” the company also violated Midcontinent Independent System Operator and PJM Interconnection rules over the last decade, enforcement office staff said in a report that was released with the agency’s “show cause” order.
- American Efficient’s program receives more capacity payments than any single generator in PJM, and offers nothing in return, according to the report. FERC gave American Efficient 30 days to respond.
Dive Insight:
FERC enforcement staff contend that American Efficient’s program fails to meet provisions in the PJM and MISO tariffs because it doesn’t reduce electricity use, lacks the nexus to end-use customer projects required by those tariffs and does not include the required ownership or contractual rights in end-use customer projects.
American Efficient buys sales data of energy efficient products from retailers like The Home Depot, Lowes and Costco and then figures out how much electricity would be saved if end-use customers installed the products, enforcement office staff said. It then bids the energy savings into the capacity markets as if it caused them, staff said.
“But American Efficient does not cause the energy savings. In fact, it has nothing to do with the end-use customers or the home improvement and other projects that actually cause the savings associated with the use of those energy efficient products,” staff said. “It does not even tell those customers that it is bidding those savings into the capacity markets and getting rich on those customers’ work.”
Staff said American Efficient claims it obtained the rights to payments for the energy savings by buying from manufacturers, distributors and retailers “environmental attributes” associated with the energy efficient products used by end-use customers.
However, American Efficient’s collection of sales data and environmental attributes does not qualify its program as an energy efficiency resource under the MISO or PJM tariff requirements, staff said.
MISO and ISO New England have disqualified American Efficient from their capacity markets, according to enforcement office staff. MISO and PJM’s market monitors referred the issue for enforcement office staff, according to the report.
After American Efficient was barred from operating in the ISO-NE and MISO markets, it expanded in PJM, according to the report.
“The company brought on new investment bank partners to help fuel its conversion of sales data into PJM capacity payments, and it even sold part of its capacity revenue stream to one of those partners,” staff said.
In PJM’s last three delivery years, American Efficient offered and cleared on average about 4,610 MW per PJM delivery year with average delivery year revenues of $86.7 million, according to the report. American Efficient has cleared 20,751 MW and $473.7 million in capacity payments since entering PJM’s capacity market in 2014, staff said.
American Efficient told its unnamed investment bank partners that it expected to clear up to $1.34 billion in capacity over PJM’s next five base capacity auctions, according to the report.
Affirmed Energy, an American Efficient affiliate, in June disclosed it faced a possible FERC enforcement action.
The allegations against Affirmed Energy were “substantially similar” to those made in May in a complaint by Monitoring Analytics, PJM’s market monitor, American Efficient said in its letter to the enforcement office.
The market monitor contends that Affirmed Energy and nine other companies, including Exelon’s Baltimore Gas & Electric, should be ineligible for capacity payments because they failed to provide adequate measurement and verification reports for their efficiency resources.
American Efficient denies the allegations, which it said are based on “deeply flawed” theories.
American Efficient, based in Durham, North Carolina, operates in 23 states, according to the company’s website.
FERC in early November approved PJM’s proposal to remove energy efficiency from its capacity market. Affirmed Energy on Dec. 5 asked FERC to stay and reconsider its decision.
