Seattle Unveils “Pay for Performance” Pilot Program

Seattle is known as the Emerald City, a moniker that dates to 1982. Since then, various groups have attached many different meanings to the title, including a nod to the city’s environmentally progressive stance on a variety of issues, including energy.

The Pacific Northwest already offers low electricity rates due to clean hydropower and decades of effective energy efficiency programs. A major player in that story has been Seattle City Light (SCL), the 10th largest public electric utility in the country. SCL was the first utility in the nation to go greenhouse gas neutral (in 2005). In 2011, its energy conservation programs helped customers reduce their consumption by 1.1 million MWh, enough to power 124,000 Seattle homes (one third of SCL’s residential service) and saving customers nearly $800 million.

Now, SCL is testing another innovative approach: Pay for Performance.

Pay for Performance (PfP) programs target buildings with a specific minimum energy footprint, and work to implement energy efficiency projects across multiple systems, such as lighting, windows, and HVAC. Once a program member’s energy savings exceed a certain threshold (often 15 percent), they become eligible for an annual rebate per kWh saved each year from the utility. This provides for annual ongoing savings based on verified energy conservation performance, in contrast with traditional one-time rebates for a particular piece of energy efficiency equipment (such as upgraded lights).

Seattle’s entrance into the PfP arena—which began earlier—took a step forward in August, when RMI and the Northwest Energy Efficiency Council (NEEC) held a workshop in Seattle to discuss the potential for PfP programs. The workshop fostered promising discussions, but at the time the city committed only to explore the idea of PfP further. By October, though, Seattle Mayor Mike McGinn announced a plan to move forward with a pilot program. “The city is looking for ways to help businesses be creative in their approach to saving energy,” he said in a press release.

Then, in November, SCL released a formal request for proposal (RFP) to actively enlist business participants in the pilot program. What began this past summer as a workshop to share ideas has resulted in definitive action, “all of this in no small part to the intellectual and political capital that RMI brought to the idea,” says NEEC Executive Director Stan Price.

In the initial stage of the pilot, SCL seeks three buildings, each with at least 50,000 square feet of conditioned floor area and a minimum 85 percent “office” type occupancy. Service providers will work with building owners to find an energy efficiency solution customized to each building, with support from SCL. Such service providers can include energy service companies (ESCOs), which often embrace the type of whole-systems, deep-savings efficiencies compatible with PfP programs. Any eligible savings—once verified—will qualify the owner for a rebate paid annually over the course of the three-year pilot period.

In the first iteration of the RFP, the incentive was set at a flat 3¢ per kWh annually. After discussions with local stakeholders, including NEEC, SCL modified the incentive payment and reissued the RFP in January. Mike Little, the SCL Project Manager, described the changed RFP as providing “greater flexibility in the incentive levels to be paid as part of the pilot program, effectively allowing proposers to bid into the pilot.” The incentive—which gets larger as the proposed energy projects target more savings—will push building owners to craft more aggressive energy efficiency efforts.

Such PfP programs—and other similar efforts—tap into something SCL and other utilities have by now realized: that kWh saved through efficiency are the United States’ cheapest source of energy, more cost effective than building new power generation (such as via coal-burning plants). And while PfP programs are but one of many approaches for tapping into energy savings, they are one that holds much promise. Other Pacific Northwest utilities are closely watching the SCL pilot process, and appear poised to emulate or expand the program if successful.

It’s an exciting time to envision what the future holds for energy efficiency programs in the Pacific Northwest and across the country.

Recommended Reading 

• Pioneering Pay For Performance In The Pacific Northwest
  
• Selling Electricity and Efficiency: Many Utilities Are Up To The Task
• Seattle CEOs Read For The New Energy Era

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