What Are PIMs?
Performance Incentive Mechanisms (PIMs) are tools that reward or penalize utilities based on performance.
What PIMs Are Designed to Do
- Encourage better outcomes for customers
- Support policy goals like reliability, affordability, and equity
- Ensure accountability
How PIMS Are Designed
- Be clearly defined and measurable
- Use reliable and transparent data
- Focus on outcomes, not just activities
- Be within the utility's control
- Balance risks and benefits for customers and utilities
PIMs may include rewards, penalties, or both.
PIM Guiding Principles
Select a principle below to learn more about how PIMs are designed and evaluated.
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Alignment with Policy Goals and Outcome
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PIMs should be clearly and directly tied to policy goals and desired regulatory outcomes.
PIMs are designed to:
- Support goals related to reliability, resiliency, affordability, regulatory efficiency, equity, decarbonization, and customer service
- Focus on outcomes rather than activities
- Encourage performance improvements beyond existing regulatory requirements
- Promote regulatory efficiency when a single PIM can support multiple outcomes
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Clarity, Measurability, and Verifiability
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PIMs should be transparent and easy to understand.
PIMs are designed to:
- Use clearly defined metrics, targets, and formulas
- Rely on reasonably available, reputable, and reliable data
- Be measurable and independently verifiable
- Support transparency and public accountability
- Utility Control and Achievability
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PIMs should focus on outcomes utilities can reasonably influence.
PIMs are designed to:
- Set achievable but ambitious performance targets
- Consider external risks and uncertainties
- Account for utility-specific circumstances
- Encourage performance improvements beyond business-as-usual practices
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Balance of Risk, Reward, and Customer Benefits
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PIMs should balance utility incentives with customer and societal benefits.
PIMs are designed to:
- Consider customer affordability and bill impacts
- Ensure incentives are proportionate to the level of risk and control
- Evaluate customer benefits alongside utility rewards
- Incorporate equity considerations where appropriate
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Integration with the Broader Regulatory Framework
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PIMs should work alongside existing regulatory tools and processes.
PIMs are designed to:
- Complement existing regulatory mechanisms
- Avoid duplicating other incentives
- Support the broader PBR framework
- Be evaluated through utility-specific proceedings, such as general rate cases
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Incentive Structure and Calibration
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PIMs may be structured as rewards, penalties, or symmetrical mechanisms.
PIMs are designed to:
- Encourage meaningful performance improvements
- Align incentives with policy objectives
- Avoid creating undue burdens on customers
- Support intended regulatory outcomes
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Adaptability, Review, and Safeguards
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PIMs should be reviewed periodically to ensure they remain effective.
PIMs are designed to:
- Adapt to changing conditions and improved data Include safeguards against unintended consequences
- Reduce opportunities for gaming or manipulation
- Support transparent reporting and accountability
Example: Puget Sound Energy
Puget Sound Energy has an approved demand response PIM.
The program:
- Sets a target for energy demand reduction
- Requires benefits for customers in named communities
- Includes a financial incentive capped at $1 million
- Is in place through January 2027
Structure
The demand response PIM:
- Establishes a target of 207 MW through the demand response program
- Requires at least 30 percent of demand response benefits to go to named community customers
- Includes an incentive based on performance above established targets
- Uses measures related to named community benefits, demand response acquisition, and the utility's approved weighted cost of capital
- Caps the total incentive at $1 million
- Remains in effect through the current rate plan ending in January 2027