An energy efficiency aggregator told a North Carolina federal judge that it will go out of business without an order blocking the Federal Energy Regulatory Commission from imposing nearly $1 billion in penalties against it for alleged market manipulation and tariff violations.

Counsel for North Carolina-based American Efficient LLC argued during a nearly three-hour hearing in Winston-Salem on Friday that a decision on FERC's show cause order — which accuses American Efficient of running an allegedly unqualified energy efficiency program in electricity markets operated by PJM Interconnection, the nation's largest regional grid operator — could come any day.

If and when the agency does render a final assessment, that order will trigger a domino effect in which American Efficient's lender will seize its assets and the aggregator will stop receiving weekly payments for the energy savings it generates, said Seth Waxman of WilmerHale, who represents American Efficient.

American Efficient's suit centers in part on claims that FERC's in-house enforcement proceedings rob it of a right to a jury trial under the Seventh Amendment.

But if FERC is able to render a final assessment against American Efficient before its constitutional challenge is decided, Waxman said, "We will be out of business before we could invoke a jury trial right."

Waxman argued the risk of insolvency is proof of the irreparable harm American Efficient faces without a preliminary injunction.

American Efficient's injunction bid relies in large part on claims that FERC's enforcement case flouts the Supreme Court's June 2024 ruling in Securities and Exchange Commission v. Jarkesy , which limited agencies' use of in-house administrative courts to impose monetary civil penalties.

But counsel for the government countered Friday that unlike Jarkesy, American Efficient will get its day in court. According to Marianne Kies of the U.S. Department of Justice's Civil Division, who argued for the government, FERC's in-house proceedings include a pathway to the federal district court. That's different from Jarkesy, she said, in which the ball was only in the SEC's court to choose the forum.

"They're going to get district court review," Kies said of American Efficient, adding that to interrupt FERC's process that leads to district court review would be "nonsensical."

According to Kies, this isn't the first time American Efficient has claimed it faces imminent insolvency. She said the aggregator has cried wolf in two other cases, but the real problem lies with its business model.

Waxman spent the early portion of Friday's hearing explaining American Efficient's business model and its role in the energy market to U.S. District Judge Thomas Schroeder, who is tasked with deciding its preliminary injunction bid.

According to Waxman, grid operators like PJM calculate ahead of time the peak energy demand expected for their region in a given year and hold an auction to ensure that demand can be met. In other words, he said, PJM creates a market to ensure the lights stay on when the weather gets hot and electricity demand is at its highest.

In addition to power plants that bid to provide a certain amount of electricity, companies like American Efficient can also bid by promising to reduce the peak load demand. Both the power plants and the energy efficiency aggregators then get paid by PJM for their contribution to the market, Waxman said.

American Efficient backs its promise to reduce the peak load with cash collateral. That means if American Efficient were ever unable to follow through on its promise to reduce demand, PJM has a cash reserve to buy extra power on the spot market as needed.

Waxman said that has never happened to American Efficient, but PJM has nonetheless held on to $120 million in American Efficient's collateral from prior delivery years based in part on the threat of FERC's hefty civil penalties. American Efficient has challenged PJM's withholding of that collateral in a separate case.

The $120 million PJM is holding onto actually belongs to American Efficient's lender, Waxman said. The only reason it remains in business is because its lender has agreed to place the loan in forbearance. But if FERC issues the expected $1 billion in civil penalties against American Efficient, he told the court, it will officially be in default and the lender will come after its assets.

In the interim, PJM is also still paying American Efficient weekly for its energy savings under a prior agreement. But those payments will undoubtedly cease if and when FERC's order comes down, Waxman argued. He said those weekly payments are American Efficient's sole source of income.

The government, however, said American Efficient risks going out of business not because of FERC's impending assessment, but because the only market it operates in is no longer available to it. Kies explained that PJM changed its bidding rules last year to exclude energy efficiency resources like American Efficient from participating in electric capacity auctions.

FERC signed off on the changes, which American Efficient is now challenging in the D.C. Circuit court.

While Waxman conceded American Efficient does have to succeed in that challenge to stay in business long-term, FERC's near-term assessment of penalties puts it in immediate danger of insolvency unless Judge Schroeder issues an injunction, he said.

Still, Kies said, American Efficient can't show it's likely to succeed on its Seventh Amendment claim because FERC's enforcement proceedings leave open the door to a jury trial. She said if FERC assesses civil penalties against American Efficient, and it doesn't pay within 60 days, FERC must go to the district court to enforce the order.

Kies also clarified that interest on FERC's penalties doesn't start accruing until after the federal district court renders a final order, meaning there is no risk of extra penalties against American Efficient in the interim.

Waxman countered that even if American Efficient doesn't have to pay FERC anything while the case is in district court, all the power is still in FERC's hands. He argued FERC gets to decide when to bring the federal court case and has up to five years to do so. By the time it gets to the district court, Waxman said, American Efficient likely won't exist.

A secondary claim raised in American Efficient's complaint challenges the structure of FERC itself. The aggregator has specifically alleged FERC's commissioners are unconstitutionally shielded from the removal authority of the president under Article II of the Constitution.

That argument goes hand-in-hand with the Trump administration's efforts to overturn tenure protections guaranteed for members of independent agencies under the 1935 Humphrey's Executor v. U.S. ruling.

The U.S. Supreme Court in September agreed to revisit Humphrey's Executor in a case involving the Federal Trade Commission, though it didn't explicitly say whether it would consider how that precedent applies to other independent agencies with similar protection provisions.

Given the government's posture, Judge Schroeder questioned Friday whether FERC intended to defend against American Efficient's Article II claim. He pointed to a February letter in which acting U.S. Solicitor General Sarah M. Harris announced the Justice Department will no longer defend the constitutionality of for-cause removal provisions at independent federal agencies.

Kies said the Justice Department's guidance remains enforced, but that the government still intends to defend FERC against the Article II claim on other grounds; she did not elaborate on what those might be.

Friday's hearing also included arguments on Citizens Utility Board of Illinois' motion to intervene in American Efficient's case against FERC. The consumer group has based its intervention bid in part on claims the government won't adequately defend FERC against the Article II claims. CUB additionally says utility customers in Illinois — which is within PJM's footprint — would be harmed if FERC's investigation is enjoined.

Judge Schroeder questioned whether CUB has an interest in any of the money at stake in the case. In response, Caroline Flynn of Earthjustice, who represents CUB, pointed to a staff report attached to FERC's order to show cause against American Efficient.

In that report, she said, FERC envisioned repaying rate payers, such as CUB's utility customers, with the disgorgement from American Efficient. FERC's show cause order issued in December contemplates $722 million in civil penalties against American Efficient and the disgorgement of about $250 million in profits.

Judge Schroeder took both motions under advisement. He did not indicate when he expects to render a ruling.

American Efficient is represented by Seth P. Waxman and Kelly P. Dunbar of WilmerHale, Mark A. Hiller and Cary B. Davis of Robinson Bradshaw & Hinson PA, and Suedeen G. Kelly and John N. Estes of Jenner & Block LLP.

FERC is represented in-house by David L. Morenoff, Robert H. Solomon, Susanna Y. Chu and Jared B. Fish, and by Marianne F. Kies of the U.S. Department of Justice's Civil Division.

The Citizens Utility Board of Illinois is represented by Caroline Flynn, Alexander L. Tom and Nick Lawton of Earthjustice and James L. Conner of Calhoun Bhella & Sechrest LLP.

The case is American Efficient LLC et al. v. Federal Energy Regulatory Commission et al., case number 1:25-cv-00068, in the U.S. District Court for the Middle District of North Carolina.