People keep inventing new things that use electricity. As people use more electric stuff, they need to find electricity to power it. One approach is to build new power plants to generate new electricity, but this is expensive, time-consuming and environmentally problematic.

Another way to get electricity for new stuff is for people to use less electricity for other stuff. Rip out your old energy-inefficient light bulbs or appliances and replace them with new, more-efficient bulbs or appliances. Set your air conditioner to 74 instead of 68. Etc.

You might think that these two approaches — (1) build a power plant, (2) use your air conditioner less — would be fungible, and market prices would determine the balance between them. You can get paid for generating a megawatt-hour of electricity, you have to pay to use a megawatt-hour of electricity, and the market price will incentivize some people to generate more and others to use less. 

But electricity is a weird commodity: It can’t be stored easily, and supply and demand have to balance minute by minute. Electric grid operators — the agencies that coordinate regional power grids in the US — care about capacity, making sure that they have enough electricity to meet peak demand. And so they pay power generators not only for each megawatt-hour they produce, but also for adding capacity to the system. There are “capacity auctions” where power generators commit to be available to generate power in future years, and get paid for those commitments out of customers’ electric bills. If you build a power plant, you can get paid both for the capacity that you commit and for actually generating electricity. 

But what about saving electricity? Committing to use one less megawatt at peak times is about as good as committing to supply one more megawatt at peak times. And so grid operators often have capacity auctions for using less electricity: If you commit to use less electricity at peak times, you can get paid for it.

But: What? What does that mean? What could it mean to commit to using less electricity (less than what?), and get paid for it? [1] One thing it could mean is that you install a smart thermostat that turns off the air conditioning at times of peak demand. (This is called “demand response.”) But in theory it could also mean that you get rid of your old energy-inefficient refrigerator and install a new, more efficient one. This causes you to use less electricity, including at peak times; it gives capacity back to the electric grid. Therefore someone should get paid for it.

But: Who? You? It is administratively annoying for a grid operator to pay every consumer, like, $1 for installing a new fridge. Your electric utility? Maybe, and there are programs where utilities get paid for energy efficiency programs. If the Home Depot sold you the new energy-efficient fridge, did Home Depot cause a reduction in peak electricity demand? If Samsung built the fridge, did Samsung cause the reduction? Should the grid operator pay Home Depot? Samsung?

The practical answer is often that nobody gets paid. Sometimes you change a lightbulb without getting a payment from the electric grid. The market for using less electricity is not completely efficient. In most ways, this seems good: If people save electricity without getting paid, that saves electricity and doesn’t cost money; if you got paid for every efficient lightbulb you installed, everyone’s electric bills would be higher to fund those payments.

But if you have a certain sort of mind, you might think “no, people respond to incentives; if the grid paid for every efficient lightbulb, we’d save more electricity.” If you have a certain, not unrelated, sort of mind, you might think “well, if nobody is getting paid for installing these lightbulbs, maybe I should get the money.”

Here’s an amazing story from North Carolina news site The Assembly:

The Federal Energy Regulatory Commission has fined Durham-based American Efficient $722 million and ordered the company to repay more than $410 million in “unjust profits” for alleged fraud in its energy efficiency program. ...

An American Efficient spokesperson said the company “stands by its position that the commission’s allegations are meritless and that it did not commit any wrongdoing.”

FERC took issue with the company’s business model. Durham entrepreneur Ben Abram and his company Wylan Capital purchased American Efficient in 2013. Since then, it has been an energy efficiency aggregator that buys sales data and “environmental attributes”—the inherent characteristics of lightbulbs, appliances, and other products that make them energy efficient—from large retailers, like Lowe’s, as well as other companies. 

American Efficient then used that sales data to calculate the energy savings from the anticipated use of the lighting and appliances, entering those projected savings into “capacity auctions.” ...

“I don’t vote lightly for disgorgement and civil penalties this high,” said FERC Commissioner Lindsay See, a Biden appointee, at a public meeting last week. “But we’ve not been faced with a scam that robbed ratepayers of hundreds of millions of dollars in this way before.

“American Efficient has fought with every legal tool they can muster, and it’s easy to understand why—because their entire business is at stake, their entire business is a scam.”

Here is the FERC order (from April 15), which is not messing around!

This order concerns one of the largest and most brazen frauds in the history of the Federal Energy Regulatory Commission. Today we find that American Efficient, LLC and its affiliates (together, American Efficient) stole half a billion dollars from hard-working Americans by collecting compensation for fake “energy efficiency resources.” 

And here is a 2024 FERC staff report explaining the business. A lot of retailers sell energy-efficient appliances and light bulbs, which predictably reduce electric power usage. That usage reduction is valuable: Power grid operators have capacity auctions where they pay for energy efficiency, so, American Efficient figured, someone should sell this stuff — the usage reduction from the appliances — into those auctions. Selling electricity into capacity auctions is not the core business of the retailers or manufacturers or certainly consumers. All of that energy efficiency is just being wasted, not being turned into capacity payments. Someone should sell it. Why not American Efficient? From the staff report:

What American Efficient passes off as energy efficiency in its capacity supply offers really is just market research. It buys sales data of energy efficient products from large retailers like The Home Depot, Lowes, and Costco and then figures out how many MWs of electricity would be saved if end-use customers installed those products and used them in accordance with predictive models. It then bids those energy savings into the capacity markets as if it caused the savings. ...

American Efficient claims that it obtained the rights to payments for the energy savings caused by customer projects by purchasing from manufacturers, distributors, and retailers “environmental attributes” associated with the energy efficient products that end-use customers used as part of their projects. It claims to have purchased those environmental attributes when it purchased the sales data from its retailer partners and argues that ownership of the attributes gives it the right to take any potential capacity payments away from end-use customers, even though it has no agreement with those customers, has no rights to those customers’ projects, and does not ever tell the customers that the Company is purporting to take their rights away.

It’s just a bet that no one else is getting capacity payments for these appliances, so American Efficient should. The April 2026 FERC order explains that American Efficient signed agreements with “manufacturers, distributors, and retailers,” including “big box stores like Home Depot and Walmart.” The retailers would give American Efficient monthly sales data for energy-efficient items, and American Efficient used that data to calculate how much power was being saved. American Efficient would give the retailers “micropayments” for each item sold, and in exchange it got the “environmental attributes” of the products. The contracts gave it:

“[A]ll rights to claim or receive any incentives, capacity resource payments, or other mechanisms offered by utilities, regional transmission organizations, independent system operators and/or other grid companies related to energy savings; including programs, RFPs, contracts or other procurement activities for energy efficiency resources, emissions reduction credits; and emissions.”

The “micropayments” were fairly small, generally pennies per item. But better than nothing! The thing American Efficient was buying here — “environmental attributes” of light bulbs, “not using as much electricity” — was a new sort of thing, a thing without an obvious market, a thing that the retailers and consumers probably didn’t value very much. There was not a ruthlessly efficient market for not-using-as-much-electricity; lots of people went around reducing their electricity use without getting paid for it. American Efficient was in the business of creating a ruthlessly efficient market for it. If you can get paid for not-using-as-much-electricity, American Efficient was going to buy up as much not-using-as-much-electricity as it could find. [2]

This is both cynical and also, like, capitalism, man. It seems that they more or less believed in what they were doing. From The Assembly:

“What made this approach different is that the end user wasn’t the only party that could move the needle on energy efficiency,” a company spokesperson said. The micropayments “sent a powerful signal through the supply chain.”

FERC argued that a $0.05 payback on a single light bulb cannot influence retailer behavior. 

“But $0.05 multiplied across every qualifying product sale in every qualifying store adds up,” the company spokesman said, “and the academic literature on upstream market transformation confirms what common sense suggests: when you offer incentives at scale, supply chains respond.”

The FERC fined them over $1 billion and referred them for criminal prosecution; they’re out here like “paying $0.05 per light bulb adds up to real power capacity.” I can see both sides!

The way the FERC thinks about it is: You can’t get paid for an energy efficiency program unless you are actually causing a reduction on power usage. From the FERC order:

EER [energy efficiency resources] must be intended to create what the parties call “additionality” — i.e., energy reductions that would not otherwise occur. The record is clear that American Efficient’s program was not “designed to achieve” additionality, but rather was designed to extract rents on sales of EE products over which American Efficient had no influence. Indeed, American Efficient’s executives themselves said so. The company’s then-Policy Director stated that “American Efficient did not believe it was causing energy efficiency to occur, but [instead] was calculating what was already occurring.” American Efficient’s Head of Origination stated in 2018 that “we do not need to provide additionality” and insisted that the company could instead secure capacity payments based on sales of EE products “that are already occurring but for which [the retailer or manufacturer] is capturing $0.”

Sure, of course, the FERC is right: It is better for the grid to pay only for programs that cause a reduction in electricity usage. But doesn’t American Efficient’s argument have a certain charm? Every day, people are doing stuff that uses less electricity. That is valuable, and the grid operators would pay for it. Those people were getting paid $0 for something that had value. The market was inefficient! American Efficient made it efficient.

In 2024, Bill Ackman tried to raise $25 billion for a new closed-end investment fund called Pershing Square USA Ltd., or PSUS. Most closed-end funds trade at a discount to their net asset value, so investors were hesitant to invest: If you paid $50 for a share of PSUS, it would immediately be worth $40 or $45, so why would you buy? Ackman dismissed this concern: PSUS was not a typical closed-end fund; it was Bill Ackman’s closed-end fund, and it would trade at a premium. (Ackman already had another closed-end fund that traded at a discount, but that was different, never mind that.) This argument did not work, and ultimately Ackman pulled PSUS’s initial public offering.

Last month he came back, with a new solution to the problem. The solution is a double IPO: Along with PSUS, Ackman took his hedge fund management firm, Pershing Square Inc., or PS, public. He did not sell shares in PS. Instead, he gave them away to PSUS investors. If you paid $50 for a share of PSUS, you also got some free bonus stock in PS as an incentive.

More specifically, Ackman lined up $2.8 billion of pre-IPO commitments from institutional investors, family offices and ultra-high-net-worth individuals, who committed to pay $50 for (1) one share of PSUS and (2) 0.3 shares of PS. [3] There are 400 million shares of PS outstanding, [4] and it raised money at about a $10 billion valuation in 2024; at that valuation, each share of PS should be worth about $25. These anchor investors made it easier to go out and launch the IPO publicly.

Regular IPO investors got a little less: Buyers in the IPO paid $50 for (1) one share of PSUS and (2) 0.2 shares of PS. Maybe $5 of free stock. Pershing Square did a lot of marketing to retail investors in the IPO, and “Ackman appeared on a podcast with Robinhood Chief Executive Vlad Tenev and visited some banks’ wealth-management offices to pitch financial advisers,” but apparently most of the money in the IPO came from institutions.

The pitch here was not only that you got some free PS stock, but also that incentives were aligned. The more money PS manages, the more it will be worth, and PS manages PSUS. If PSUS’s initial public offering went well and raised a lot of money, and if PSUS traded at a premium to NAV and was able to raise even more money in the future, then that would be good for PS, which would get a lot of future fee revenue from PSUS. The free shares of PS would give potential PSUS investors a stake in making the PSUS IPO as big as possible, rather than waiting to buy shares at a discount in the aftermarket.

Anyway the double IPO priced Tuesday after the close. As I wrote yesterday, “priced” is the wrong word: The PSUS shares were sold at a fixed price of $50, and the PS shares were given away free. But the companies went public, raising $5 billion total (including the pre-IPO commitments). And then they opened for trading yesterday. PSUS opened at $42 per share and closed at $40.90, an 18% discount. [5] At 1 p.m. today, PSUS was trading at about $43.19. PS opened yesterday at $24 and closed at 24.20, roughly in line with my guess in March [6] ; it was at about $30.19 at 1 p.m. today This means:

• If you invested in the pre-IPO private placement, you paid $50 for $40.90 worth of PSUS stock and $7.26 (0.3 shares) of PS stock, worth a total of $48.16, a first-day loss of about 3.7%. As of 1 p.m. today, though, you were back in the black, with $43.19 of PSUS and $9.06 of PS for a total value of $52.25.
• If you invested in the IPO, you paid $50 for $40.90 of PSUS and $4.84 (0.2 shares) of PS, worth $45.74, a first-day loss of about 8.5%. As of today, things are better, with $43.19 of PSUS and $6.04 of PS for a total value of $49.23.

Sort of an awkward middle ground: The people who bought into the private placement before the IPO have made money so far; the people who bought into the IPO have lost money.

Generically the way any business deal works is:

1. One company wants to buy a thing and another company wants to sell it.
2. A businessperson at the buyer company talks to a businessperson at the seller company to negotiate the basic terms of the deal, how much the buyer is buying, what it is paying, etc. These businesspeople might be the chief executive officers of the respective companies, or they might be very junior traders, depending on the size and importance of the deal.
3. The businesspeople reach agreement on the basic terms.
4. “Our lawyers will send you the final contract,” one of them says to the other, and then they go on to other deals.
5. The lawyers for (say) the seller send the lawyers for the buyer a contract with the basic business terms (quantity, price, etc.) filled in, and with some ambiguities in the business deal resolved, and also with some quantity of language about regulatory approvals and material adverse effects and choice of law and mandatory arbitration and other lawyer stuff.
6. The lawyers for the buyer send back proposed changes to the contract, and the lawyers negotiate amongst themselves to get the contract done.
7. Probably the lawyers reach a deal and the two companies sign a final binding contract.

Fine. But here is a question: What happened at Step 3? When the businesspeople agreed to a deal, did they have a deal? Was that a binding agreement, with the remaining steps just filling in some administrative details? Or was that just a first step in the negotiation, with the only binding deal coming in Step 7 when they signed the final contract? 

The answer is “it depends.” Broadly speaking there are two sorts of intuitions:

• In, say, public-company mergers and acquisitions, there is no deal until there’s a signed merger agreement (Step 7). The stuff that the lawyers work out among themselves is critical, and handshake agreements fall apart all the time over detailed negotiations. Every step before Step 7 will involve some disclaimer saying, like, “this is not a binding deal and is subject to negotiation of definitive agreements.”
• In, say, bond trading, a binding commitment is created when a trader says “done” on the phone or a chat (Step 3). Sending a thumbs-up emoji in the chat can create a binding obligation. Various administrative things happen afterwards, but if the two sides’ lawyers and back-office people can’t agree on those administrative things, the traders yell at them until they do.

But not every sort of deal has clear norms; new sorts of deals are being invented every day. Sometimes the buyer will have one sort of intuition (“when we shook hands the deal was done”) while the seller will have the other (“I can change my mind until the final contract is signed”) and there will be a mess. For instance:

Oaktree Capital Management LP sued BJ’s Wholesale Club Inc. for allegedly backing out of a deal to sell its rights to around $29 million in tariff refunds for 70 cents on the dollar.

In a suit filed Monday in New York, Howard Marks’ asset management giant said BJ’s walked away from a binding agreement with Oaktree because “the market value” of its tariff claim had increased above their agreed sale price. ...

Oaktree claims it had a “fully negotiated” final agreement on March 13 to pay BJ’s $20 million for its tariff refund claim. All that remained for the deal to be implemented was for the members’ club warehouse retailer to use all “commercially reasonable efforts to execute and deliver” the agreement back to Oaktree, according to the suit.

An in-house lawyer for BJ’s advised Oaktree on April 14, a day after the target date for execution, that it was “all set with internal approvals on our side,” the suit alleges. But that changed a day later when the same lawyer sent another email.

“Apologies, but please ignore my prior email,” the BJ’s lawyer allegedly wrote. “I jumped the gun and there is an issue with getting final approval that we need to work through. I’ll be in touch as soon as I have more info.”

Here is the complaint. If you are used to, say, mergers and acquisitions, you won’t find this compelling:

The Parties fully negotiated the final Definitive Agreement required to close the transaction and execution copies and wire instructions were circulated. No open terms remained, and there was nothing more to negotiate. 

Yeah but it wasn’t signed! It’s not a definitive agreement until it’s signed! On the other hand, they did sign something on March 13. It was called a “Trade Confirmation,” and if you are used to bond trading then of course a trade confirmation is binding. And in fact it said it was:

The [Trade Confirmation] is “a valid and binding agreement between the parties.” …

The [Trade Confirmation] required the parties to “use commercially reasonable efforts to execute a Definitive Agreement and settle the transaction as soon as practicable, including, without limitation, by providing all requested documents and any proposed revisions to the Definitive Agreement in a timely manner.”

If, after good faith negotiation and the application of commercially reasonable efforts, the Parties were unable to execute and deliver a Definitive Agreement within thirty days after the execution of the [Trade Confirmation] (the “Target Date”), the [Trade Confirmation] provided that the “parties may mutually agree to continue negotiating or any party may at any time elect to terminate this letter and cease further negotiations (‘Walk Away Right’).” 

Oaktree thinks BJ’s had an obligation to get the final contract done; BJ’s thought it could walk away until the contract was signed.

Lazard Buys $575 Million Firm to Boost Private Markets Push. Blue Owl Asset Growth Meets Estimates Amid Direct Lending Slump. India’s Homegrown $1 Billion High-Speed Trading Unicorn Goes Global. Bank of England in stand-off with FCA over trading firms’ capital. DOJ Won Access to KKR’s Emails With Lawyers in Probe of PE Deals. Crypto Rushes to Bail Out Decentralized Lender Targeted by Hackers. White House Opposes Anthropic’s Plan to Expand Access to Mythos Model. SoftBank plans to list new AI and robotics company in the US. An Explicit Solution to Black–Scholes Implied Volatility. Elon Musk Testifies He Was a ‘Fool’ to Fund OpenAI. Polymarket Adds New Detection Tools After Insider Bet Backlash. Half of ‘long shot’ Polymarket bets on military action are successful. Ozempic sells mints. “Telling people how to manifest money by taking their money.” Where the goblins came from.

If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks!