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Pay 4-Performance Sequel

By January 21, 2019November 5th, 2021Energy Rant

For some strange reason, I’ve learned a lot about pay for performance in recent weeks. To spare tongues everywhere, let’s call it P4P.

P4P efficiency programs are on the move once again. It is interesting to note that the last time P4P was the rage was during the deregulation gambit, almost 20 years ago. Like denim preferences, what goes around comes around with efficiency fads.

The Original

One of the most popular programs during the prior faddy P4P era was called a “Standard Offer” program. What marketing genius(es) coined that brand? I like metaphors, but I can’t think of any that could descend to that level of vapid boredom. It makes a day-old hotdog bun sound delicious.

The standard offer program would pay customers or project developers fixed rates of money, much like utility tariffs, per unit of energy (kWh) and capacity (kW) reduced.

These programs largely failed (I wonder why), but now there is a resurgence of popularity, and I will tell you why — the smart meter. You see, back in the day, measurement and verification methodologies were rudimentary due to lack of reasonably priced data logging equipment, and the limited capabilities of the super-genius electromagnetic meter from days of yore.

Think of the green-screen, monochrome mainframe workstation compared to an iPad or a Microsoft surface tablet, and you get a clear picture. The cost was triple; the dimensions and weight were n-tuples; the data capacity was scintillant; and the user would have to understand things that terrify me, like coding and electrical engineering – oscilloscope-type stuff. We see why these methodologies failed: labor and freight charges.

The smart meter, which is one piece of the smart grid, otherwise known as advanced metering infrastructure, allows for remote, no-touch data collection at the facility level. Theoretically, we can use smart meter data and what are second wave measurement and verification techniques to determine savings with ease and low cost.

Therefore, whether we use temporary data loggers the size of an Altoids tin, or the almighty smart meter, pay for performance is back in style.

Expect a rough ride.


As you might guess, I’m the guy who throws tough questions at any new idea. Not long ago, I discussed with some industry thought leaders some P4P challenges that are likely to emerge. A summary of perceived P4P benefits and associated challenges (tough questions) we discussed are provided in the table below.

Table of Pros and Cons of P4P

Told You So

Two years ago, the National Resources Defense Council produced a nice overview of current practices and historical challenges to pay-for-performance programs. I found this in my recent research after I whipped up the table above, weeks before. The thought leaders considered my prophecies to be speculative. Not so, per NRDC.

Today, I will explain a couple of the probable cons noted, as reinforced by the NRDC paper, and get to more in a week or two.

Equity Among Customers

Regulatory agencies want to see an equitable distribution of program benefits, and therefore, so do utilities. However, the grid, or supply side of energy resources is not equitable so why does the demand side of grid resources need to be? To see why, come to my poster session at the AESP National Conference. Ok. For now, I will just say when a zillion dollar substation or transmission upgrade is needed; it isn’t just the customer(s) served by those upgrades who pay. All customers pay.

The NRDC report calls the concentration of cheap acquisition of efficiency resources, “cream skimming.”


There is a lot of risk to be carried by implementation contractors. There are risks in gross-savings verification, and there are risks with the whimsical net savings determination. Efficiency measures can be down in the noise of any inexpensive whole-building assessment. Building operation may have changed. Tenants may have moved in or out, occupying or vacating entire floors. These are difficult things to assess while the efficiency measure is doing its job perfectly.

Risk mitigation and hunting down these anomalies can cost a lot of money – whether it’s mitigated by insurance, or hunted down to explain away an issue, then litigated for weeks, it’s expensive.

This, too, will be discussed at my Poster Session, Thursday morning at the AESP conference. Cmon ova.

To be continued.

Jeff Ihnen

Author Jeff Ihnen

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