Performance Incentive Mechanisms (PIMs)

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.

Alignment with Policy Goals and Outcome

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

Clarity, Measurability, and Verifiability

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

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

Balance of Risk, Reward, and Customer Benefits

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

Integration with the Broader Regulatory Framework

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

Incentive Structure and Calibration

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

Adaptability, Review, and Safeguards

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