Is FERC’s Future at Stake in its Titanic Clash with American Efficient?

DURHAM, N.C.—At Duke University, an elite school teeming with stars, Ben Abram shone among the brightest. Media reports from his undergraduate years, 2003 to 2007, portray a young man whose vigor was rivaled only by his ambition: Senior class president of the engineering school. Winner of two prestigious service awards. And after graduation, a member of the university board of trustees.

The grandson of a civil rights advocate and former Brandeis University president, Abram grew up in Chapel Hill. As a college student, he volunteered in Uganda as part of Engineers Without Borders, which improved drinking water wells in rural villages. In Durham, he mentored an underprivileged child.

Abram also spent time in the rarefied air of privilege. He hobnobbed with distinguished guests at a weekly speaker series, held in his apartment and paid for by Duke University. Among them were David Folkenflik, a correspondent for National Public Radio, and Sonal Shah, vice president of Goldman Sachs.

After graduation, Abram began working in the field of clean energy and formed several companies headquartered in Durham.

“It’s a great feeling to work in partnership with my team and other professionals to wrestle with this complex, important issue,” Abram told Duke Today in 2023, “and come up with unique and effective business models that can contribute to the energy transition.”

Those business models were indeed unique, according to federal investigators, but not effective. After a three-and-half-year probe by the agency, FERC investigators in December filed an Order to Show Cause and Notice of Proposed Penalty against Abram’s companies, American Efficient, Modern Energy and several affiliates. 

In a 178-page document, FERC alleged the companies fraudulently operated a vast and lucrative energy efficiency scheme that cost ratepayers hundreds of millions of dollars and saved no energy at all.

The companies face up to $722 million in civil penalties, the largest fine in the history of the Federal Energy Regulatory Commission (FERC). That amount equals 80 percent of all FERC civil penalties since the commission began assessing them 18 years ago.

The companies could also be required to return $252 million in what investigators call “unjust profits” to the energy grid operators. That includes a $26 million performance bonus for purportedly saving energy during Winter Storm Elliott in 2022.

“What American Efficient passes off as energy efficiency is really just market research,” according to the FERC investigation.

“For a decade, American Efficient has helped to deliver energy savings for wholesale energy markets by working with manufacturers, distributors, and retailers to adopt energy efficient products,” a company spokesperson told Inside Climate News. FERC’s Office of Enforcement “unfairly targeted our company for operating a business in a manner similar to many other market participants, and consistent with the rules as understood and interpreted” by operators of the electric grid.

“For years, our company has complied beyond required standards to operate with transparency within these markets,” the spokesperson said. FERC’s Office of Enforcement “should not be allowed to change the rules after the fact and then try to penalize us years later.”

American Efficient, in its official rebuttals before the agency, vigorously denied the allegations, calling them “baseless,” “misguided” and “incomplete.” And it didn’t stop there.

The company’s attorneys, including Suedeen Kelly, a former FERC commissioner, are pursuing an even more aggressive defense beyond the investigators’ allegations. They are challenging the constitutionality and independence of FERC in a federal lawsuit filed in January.

“They’re trying to blow up FERC. It’s just unbelievable that a former FERC commissioner is putting her name on this.”

— Ari Peskoe, Harvard Law School Environmental and Energy Law Program

If American Efficient’s argument is successful, it could strip FERC of critical investigatory and enforcement powers conferred upon it by Congress. It would also halt FERC’s investigation of American Efficient and erase the penalties.

Under the most extreme scenario, legal experts say, a ruling favorable to the company could gut FERC of the political independence it has had since Congress created the body in 1977. Instead, FERC could operate at the whims of the president.

“They’re trying to blow up FERC,” said Ari Peskoe, director of the Electricity Law Initiative at the Harvard Law School Environmental and Energy Law Program. “It’s just unbelievable that a former FERC commissioner is putting her name on this.”

In response, Kelly told Inside Climate News, “American Efficient is going to let our filings speak for themselves.”

A Markedly Different Business Model

Abram met the founders of American Efficient in California. Another Abram company, Wylan Capital, purchased it in 2013 for an undisclosed amount. Press reports at the time describe American Efficient’s business model as markedly different from what it became under Abram.

Under prior leadership, American Efficient partnered with utilities, green-power suppliers and retail businesses, like coffee shops and grocery stores, to provide customers with online information about energy efficient products and the ability to sign up for green power plans.

It did not participate in capacity auctions, FERC records show. 

The new American Efficient and other Abram ventures were headquartered in a small office on South Duke Street in Durham’s Brightleaf Square; they later moved to a 5,800-square-foot former theater on the north side of downtown.

Abram’s business model positions American Efficient as an energy efficiency aggregator. It buys sales data and “environmental attributes”—the inherent characteristics of lightbulbs, appliances, caulk and other products that make them energy efficient—from large retailers, like Lowe’s, The Home Depot and Walmart, as well as lighting manufacturers and distributors. 

The payments are designed to encourage the sale and use of energy efficient products, thereby saving electricity and, theoretically, reducing air pollution and greenhouse gas emissions. 

The company calculates the energy savings from the anticipated use of those products and bids the savings at capacity auctions. These auctions are hosted by electric grid operators, such as ISO New England, the Midcontinent Independent System Operator (MISO) and PJM Interconnection, where they buy future supplies of electricity on the wholesale market from power producers and energy efficiency aggregators. 

Grid operators like PJM have paid American Efficient millions of dollars on the theory that encouraging energy efficiency reduces the amount of power they must procure, lowers the cost of energy and saves ratepayers money on their monthly electric bills. 

American Efficient first bid in an auction conducted by PJM in 2014. Initially its bids were modest, federal documents show. The company offered 9.2 megawatts of energy savings worth $400,000 associated with lightbulb sales.

Over the next three years, the company expanded. It received approval from two other grid operators, ISO-NE and MISO, to bid into their energy markets. 

All of the auctions are regulated by independent monitors who audit the participants’ performance to ensure no one is manipulating the market.

However, FERC investigators allege American Efficient misled grid operators about the true nature of its program. The company did not actually cause reductions in energy consumption, according to investigators. And after paying the big box stores and appliance manufacturers to sell more energy efficient products, American Efficient never made sure that they actually did. 

Nor did the company work with retail customers to track their usage of the products and ensure they were, in fact, using less power, according to investigators. 

The investigation quotes testimony by a former Modern Energy policy director, unnamed in the document, who said that “American Efficient did not believe it was causing energy efficiency to occur, or that it did.” 

The policy director, who left the company, is quoted by FERC investigators as saying American Efficient “had become nothing more than a ‘wealth transfer’ and ‘was being run in a manner that was at best unethical.’” 

American Efficient disputed her accounts, and in court documents called her a “disgruntled employee.”

Investigators described the entire business model as one “propped up on a foundation of false statements and misrepresentations, that defrauded the capacity markets and impaired their proper operation.”

In so doing, over the past decade, the company reaped more than $490 million in revenue, including money cleared for future auctions that isn’t yet due. 

By 2018, American Efficient had “become one of America’s largest aggregators of energy efficiency resources,” the Triangle Business Journal reported at the time. 

American Efficient’s Counteroffensive

American Efficient has tapped its influential social network to hire a formidable legal defense team. It includes Seth Waxman, the U.S. solicitor general in the Clinton administration. Last year he contributed $1,000 to the political campaign of Abram’s wife, Sophia Chitlik, state records show. She is in her first term as a state senator, representing most of Durham County.

Kelly, the former FERC commissioner, is also representing American Efficient. Kelly and Abram both sit on the advisory board of Duke University’s Nicholas Institute for Energy, Environment & Sustainability. 

In American Efficient’s rebuttal, the attorneys vigorously denied the allegations in FERC documents, and called them “baseless,” a consequence of bad math and a misreading of the agreements the company had with grid operators. 

The legal team further described the investigation as “misguided” and “incomplete,” alleging FERC investigators cherry-picked information, omitted crucial facts and failed to interview key people.

PJM and MISO had to know about American Efficient’s business model, company attorneys wrote in federal documents filed last week. They approved the company’s measurement and verification plans and reports on “50 separate occasions related to 32 separate capacity auctions over nearly a decade.” 

“FERC investigators have yet to offer any credible evidence that American Efficient made false or misleading statements or otherwise engaged in fraudulent conduct,” company attorneys wrote. “If this case were to proceed, it would be the weakest allegation of market manipulation in Commission history.”

Nothing in the agreements requires energy efficiency providers to contract with end users—homeowners, renters, schools—or to prove they bought energy efficient products solely because of the provider’s program, company attorneys wrote.

“This is not a ‘money for nothing’ case,” the attorneys said. The grid operators “received what they paid for.”

FERC is basing its case on the “incredible notion that the [grid operators] either were hoodwinked by American Efficient or, worse, were simply incompetent in overseeing their markets—for the last 10 years. No court will find that theory remotely credible.”

PJM’s market monitor has long opposed the inclusion of energy efficiency in capacity auctions, arguing they fail to adequately change customer behavior, the company attorneys wrote, arguments that are nearly identical to FERC’s allegations.

American Efficient is being “singled out” and “penalized” for complying with auction rules that grid operators and market monitors simply don’t like, company attorneys wrote. “The allegations are … an utterly improper attempt to use a billion dollar enforcement cudgel to intervene in a policy debate.”

FERC could not comment because the case and other litigation is ongoing.

Grid Inquiries Begin

As American Efficient proposed to bid more energy efficiency into the capacity auctions, some grid operators became suspicious, FERC documents show. In September 2018, ISO-NE began an internal inquiry into its business model after a company subsidiary, Maple, sought to increase by 20 times the energy savings it had previously bid into the market.

ISO-NE asked the company to provide additional information about its operations. It spent a significant portion of 2019 working with American Efficient to better understand the details of its business model, FERC documents show. 

Following an extended exchange of written correspondence, ISO-NE explained to American Efficient why it was partially disqualifying the company from capacity auctions: The company had not been able to provide information on the mechanism by which its incentive payments encourage the purchase of efficient products,” according to FERC documents.

ISO-NE also stated that its decision had “relied on Maple’s statements that its program was substantially similar to state energy efficiency programs,” FERC records show. “Had it known more accurately what American Efficient’s business model was, ISO-NE would not have qualified Maple’s resources for capacity auctions in prior years.”

ISO-NE confirmed to Inside Climate News that Maple “was not qualified” for the 2023-2024 auction. An American Efficient spokesperson said the company is delivering energy efficiency savings to ISO-NE this year.

Without ISO-NE, American Efficient still had access to the larger PJM and MISO markets and continued to expand its offerings there. 

Then in 2021, MISO’s independent market monitor audited American Efficient’s performance. That included a review of detailed documents related to the company’s agreements with retailers and manufacturers, as well as the data that formed the basis for its bids.

American Efficient argued that it fully complied with MISO regulations, but the market monitor disagreed. It discovered several shortcomings in the company’s business model, FERC records show, including inadequate verification of how the products were used—known as “post-installation” measurement and verification. 

The auditors also alleged the company was claiming energy savings associated with products “that aren’t actually energy efficient or that meet only minimum efficiency standards.”

MISO fully disqualified American Efficient from its markets in March 2021. The grid operator referred questions from Inside Climate News to the FERC order.

That left only PJM, integral to American Efficient’s financial viability. American Efficient hid from PJM the disqualifications from ISO-NE and MISO auctions, FERC investigators alleged, for fear the company would lose access to its most lucrative market.

However, American Efficient did disclose this information to PJM in its annual audited statements, company attorneys wrote. “The market operators were aware that questions had been raised concerning American Efficient’s programs—and that far from trying to hide those debates, American Efficient affirmatively disclosed them.”

MISO’s market monitor subsequently alerted FERC’s Office of Enforcement. So did PJM’s independent market monitor, Monitoring Analytics, which had also found discrepancies in American Efficient’s claims, and referred its findings to FERC investigators.

Neither PJM nor its independent market monitor responded to requests for an interview.

Verifying Energy Efficiencies

By the time the Office of Enforcement began its investigation, FERC was more than a decade into its experiment allowing energy efficiency aggregators to participate in capacity auctions. FERC had recognized that reducing consumption can be just as valuable as power generation to keep the electric grid in balance.

The methods of accounting for energy efficiency in the marketplace are complex and vary among grid operators. However, there are some commonalities. The installed measures must permanently reduce electricity usage; they must have a connection with the customer; and the savings must be measured and verified.

Independent companies, like American Efficient, can be aggregators, as can utilities. Duke Energy sells energy efficient products, like smart thermostats, to residential customers offers them a $75 bill credit in exchange. In these instances, the savings can be measured and verified by comparing the energy usage before and after the products are installed. 

Comparatively, American Efficient’s payments to retailers and manufacturers—not customers— were minuscule, FERC investigators found, an average of 19 cents per clothes washer and 12 cents per refrigerator. 

An economist hired by the company asserted in court documents that even these small payments would lead to significant profit margins for the retailers and manufacturers, enough to incentivize them to pass the discounts down to customers. The payment amounts were immaterial, the company lawyers argued, because its agreement with PJM didn’t set a dollar figure.

FERC was also concerned that American Efficient didn’t verify how the retailers and manufacturers used their payments. Some retailers used the payments for “non-price point” activities related to energy efficiency. 

One retailer funded a sustainability team that works across the company to sell as many energy efficient products as possible; another used the money to increase their lighting selection and to print and distribute additional LED lighting guides.

Company attorneys argued even these activities could drive sales: “The fact is American Efficient’s business became as large as it did because it did a best-in-class job of incentivizing the nation’s largest retailers to encourage the adoption of more energy-efficient products.”

American Efficient was certainly dominant. By 2023, the company claimed nearly 75 percent of PJM’s energy efficiency market. That same year, American Efficiency had offered and sold 4,200 megawatts of energy efficiency at auction—nearly as much capacity as the Vogtle nuclear plant in Georgia.

In May 2023, FERC investigators notified American Efficient of its preliminary findings, all of which the company denied. That summer, PJM withheld more than $100 million in collateral from American Efficient, citing “external inquiries” into its business model, but allowed the company to continue bidding into the capacity auctions.

Meanwhile, the Triangle Business Journal honored Abram as one of its “40 Under 40” award winners, bestowed on “rising leaders in the business community.” 

In an interview, the publication asked him to respond to the prompt: “Nothing makes me madder than…”

His response: “the abuse of power.”

Kelly’s Years at FERC

Like Abram, attorney Suedeen Kelly has ties with Duke University. The former FERC commissioner has been a frequent guest speaker and panelist on energy issues. In 2018, she joined the board of advisors of the Nicholas Institute for Energy, Environment & Sustainability and served alongside Mark Laabs, who, with Abram, co-founded Modern Energy, the holding company for American Efficient.

Laabs died in 2024 of cancer. Abram now sits on the Nicholas Institute board with Kelly.

Kelly did not respond to requests for an interview.

A Democrat, Kelly served as a FERC commissioner from 2003 to 2009. She was appointed by former Presidents George W. Bush and Barack Obama. 

“Industry viewed her as a tough, capable regulator,” wrote William F. Hederman, an analyst with Washington Research Group and former director of FERC’s Market Oversight and Investigations, in the trade publication Natural Gas Intelligence. “Kelly has generally been considered an exceptionally strong commissioner.”

When Kelly joined FERC, the commission didn’t have congressional authority to investigate or enforce penalties related to market manipulation. Yet Kelly supported the expansion of that power.

During an initial confirmation hearing before the Senate Committee on Energy and Natural Resources, Kelly responded to a question about FERC’s jurisdiction over market manipulation—the same type of allegation that American Efficient now faces. 

“I know that the committee has considered the possibility of adding that to the legislation, and I think that would be a good idea,” she testified.

Congress did just that, with the Energy Power Act of 2005. The sprawling legislation gave FERC the authority to issue rules and assess penalties to prevent market manipulation in wholesale electric power and gas markets. 

“This is one of the most important and challenging provisions of the Act,” wrote FERC in a factsheet about the law. The commission said it intended to exercise its new powers carefully by assuring that its market manipulation rules are clear. “That will make it easier for regulated entities to assure compliance,” FERC wrote, “and make it easier for the Commission to identify violations.”

FERC began assessing civil penalties in 2007 for market manipulation and other violations. During the last three years of Kelly’s tenure, FERC assessed more than $115 million in civil penalties, federal records show. 

Kelly reiterated her support for enforcement as well as cooperation in 2008, when she testified before the Senate Energy and Natural Resources Committee about the effects of the Energy Policy Act. 

“A strong compliance program presumably would provide market participants with greater assurance that the Commission is not out to play ‘gotcha,’” she said, according to a congressional transcript. “At the end of the day, the American consumer would benefit from a Commission working regularly with market participants to make sure they understand the rules and are playing by them.”

Seventeen years later, Kelly is arguing against some of the powers that she once wielded and espoused.

The Supreme Court Ruling

Last year, two seismic events occurred that changed the course of FERC and the investigation into American Efficient. The U.S. Supreme Court issued a ruling that hollowed out the authority of federal boards and commissions to financially penalize companies. 

And Donald J. Trump was elected to a second presidential term. 

American Efficient’s attorneys have seized on those opportunities, filing constitutional challenges to FERC’s authority. First, they argue the Supreme Court decision nullifies FERC’s ability to financially penalize the company. And second, they say that FERC’s very structure, legally in place for nearly a half century, is unconstitutional because the president can’t remove a commissioner at will except under very limited circumstances. 

Last June, the conservative-dominated Supreme Court ruled the Securities and Exchange Commission couldn’t impose civil financial penalties for fraud using in-house proceedings. The court determined that because these penalties are intended to punish and deter bad behavior, the cases are legal proceedings and the defendants are constitutionally entitled to a jury trial.

That decision gave American Efficient’s lawyers an opening. FERC operates similarly to the SEC, American Efficient attorneys argue, as do FERC’s anti-market manipulation rules, so the Supreme Court’s decision should apply.

The attorneys are asking a federal judge to temporarily halt FERC’s investigation of American Efficient and to erase its fines until he or she rules on the constitutional challenges.

These are “unconstitutional exercises of executive power, that left unchecked, will force American Efficient out of business,” the attorneys write in court documents. 

Yet FERC and SEC have historical and economic differences that the complaint omits, Harvard Law School’s Peskoe said. The SEC regulates private rights—those duties that individuals and companies owe to each other. Parties to private rights cases are constitutionally entitled to a jury trial.

But FERC adjudicates “public rights” because one of the parties is the government. In that case, Peskoe said, the decision initially lies with an administrative law judge, rather than a jury. 

Historically, electricity, gas and railroads were the first public rights entities, a definition the Supreme Court has traditionally upheld, said Josh Macey, associate professor of law at Yale Law School. Macey teaches and writes about bankruptcy, environmental law, energy law and the regulation of financial institutions. 

American Efficient has two options to rebut the allegations, including a jury trial. In that scenario, it agrees to pay the penalty. If it misses the deadline, FERC would take the company to federal court, where it would get a new trial. 

Yet that option is also unconstitutional, the company’s attorneys argue, because the alleged offenses should never have come before FERC in the first place. That option also forces the company to be delinquent on its payment and accrue interest.

The second choice is to go before a FERC administrative law judge; if American Efficient loses, it could take the case to the U.S. Court of Appeals. 

Instead of FERC, the U.S. Department of Justice should investigate and request a penalty amount, the attorneys argue.

That argument contradicts long-standing justifications for administrative agencies, Macey said. “We need regulators who have specific expertise, and we have put those people, most of them, at FERC.

“The DOJ is not set up to do this kind of work,” Macey went on. “There aren’t any employees who have expertise in electricity or gas markets.”

An “Existential Threat”—to FERC, or American Efficient?

American Efficient’s second argument, challenging FERC’s constitutionality as an independent agency, has far-reaching implications. Until the president can remove FERC commissioners at will—and the commission ceases to be an independent body—it can’t investigate or penalize companies that it is supposed to regulate, the company’s attorneys argue.

Congress passed a law in 2005 endowing FERC with these very powers. However, Trump has shown he intends to be unfettered by statute. He recently defied federal law by firing one of the National Labor Relations Board commissioners; she has since sued for wrongful termination.

In mid-March, Trump fired the Democratic members of the Federal Trade Commission. That violated a 1935 Supreme Court decision prohibiting the president from removing executive government officials from administrative government bodies except in cases of “malfeasance or neglect of duty.”

He could do the same at FERC.

“There’s a real irony, given the timing of this complaint,” said Macey. “All sorts of civil servants … for at least 100 years have been understood to be shielded from arbitrary removal. So to say that FERC enforcement power is constitutionally suspect because the commission is independent seems to ignore both 10 to 20 years of Supreme Court precedent and also the current policies of the current administration.”

There’s another path, Macey said, where FERC or the Office of Enforcement ceases to exist. “There’s that issue again, is whether the President can fire a FERC commissioner at will, and that really changes how FERC operates.”

The case has also been upended by political turmoil within the Trump administration. The Department of Justice, which normally would argue on behalf of FERC in federal court, has publicly announced that it will not defend constitutional issues like those in the American Efficient case. That includes the power of the president to remove FERC commissioners at will.

FERC would have no attorneys to represent it unless the Justice Department changes tactics or receives a court order to defend federal agencies.

A nonprofit consumer group in Illinois, the Citizens Utility Board has petitioned the court to intervene in the constitutional case, joining FERC. The group’s attorneys argue that they should be allowed to participate because utilities that serve Illinois consumers buy and sell their electricity from PJM and MISO auctions, and then pass those costs on to the consumers.

“American Efficient’s allegedly unjust profits came from the pockets of the Illinois consumers that CUB is charged with protecting,” court documents read.

Attorneys for the Citizens Utility Board also argue that if the Justice Department refuses to defend FERC in court, they should have the right to help argue the case.

“American Efficient faces a business-ending, existential threat.”

— American Efficient court filings

The company has filed for a preliminary injunction to forestall the penalties, which the court temporarily granted; in response, FERC asked the court to deny the company’s request. 

More court filings are due in April.

American Efficient could still avoid paying the full—or any—penalty. Forty percent of FERC investigations that carry a proposed penalty result in a settlement or reduced fines, federal records show.

Regardless of how American Efficient’s cases are resolved, the company’s financial prospects have dimmed. PJM announced late last year that starting in 2026 it would no longer allow energy efficiency aggregators, like American Efficient, to participate in capacity auctions. FERC approved PJM’s request. 

Two weeks ago, the company challenged FERC’s decision in federal court. Excluded from the PJM market and buffeted by FERC’s investigation, the attorneys wrote, “American Efficient faces a business-ending, existential threat.”

“We hope that FERC ends this enforcement matter without further action,” a company spokesperson told Inside Climate News. “If not, we are prepared to continue this fight, including in court, to protect companies, markets, and consumers from misguided and unjustified government overreach.”