In the past couple of months, Energy Rant introduced pay-for-performance (P4P)trends in our industry. See Tectonic Power and Pace, and Tooling Pay for Performance. It reminds me of the overused engineering adage: we provide services that are fast, cheap, and good. Pick two. In the case of P4P, “performance” may include goal achievement, cost-effectiveness, fairness, equity, or a host of other criteria. Pick two.
I think most people in our industry would consider P4P to include meeting program goals and cost-effectiveness targets. In other words, we, as the buyer, will pay you, as provider, a bonus for exceeding savings goals and being cost effective as defined by savings per dollar spent.
Let us consider goal attainment and cost-effectiveness. Slick Willy Sutton once answered the question, “why do you rob banks?” “Because that’s where the money is.” If a program manager wants to go after goals and cost-effectiveness, they might target the largest industrial customers – because that’s where the money is. They can achieve 5 GWh (5 million kWh, or 400 homes’ consumption) in one large industrial facility for less cost than achieving the savings across dozens or hundreds of homes, small businesses, or school districts.
Moreover, as of October 1, 2018, LED light bulbs practically walk into buildings, pop off the fixture cover, and hop right into fixtures with no one noticing. It might be harder to stop this from happening than it would be to make it happen.
Similarly, program managers can achieve savings at much lower cost near their office in the Bay Area than they can throughout PGE’s territory – in the valley, ghost towns, foothills of the Sierras or Timbuktu, California. The Bay Area is where the money is, both in literal terms and regarding energy consumption and concentration of savings-potential wealth and traditional wealth. What about the coffee shop in Yuba City or car wash in Redding? Too far; too bad; so sad. I’m not speaking for PGE. I’m just making a point. The money is where energy consumption is dense and close by, not fractured and five hours away.
Homeowners and apartment dwellers vote. Large companies, where the money is regarding savings potential and capital is most abundant, do not. This is another factor utilities need to consider in P4P requests. Many, if not most, jurisdictions still grade on a bottom-line basis. That is, did you meet the portfolio savings goal? If a few Peters are robbed to pay a few Pauls, such is life. There will always be some of that. That is the way it rolls on the supply side. The folks at the end of the line are expensive. Cutting them off would pass the RIM test (I’m not advocating for that).
Please do not misunderstand. As described with numbers many times this year, efficiency is the least expensive resource, compared to supply-side options, even if customers in one area pay for efficiency on the cheap for implementation in another area.
Finally, we need to keep the lords of the arbitrary attribution freaks in front of the train. In other words, attribution must be defined ahead of time at the measure level, including for custom-efficiency projects. Pay for performance cannot include the arbitrary risk of having large slices of savings stripped away ex post facto. There are many ways to do this. Want some? Get in touch with Michaels.