5 Things We Learned from Analyzing More than 200 Utility Incentives

What the data shows about PIM design and performance for climate, affordability, and other emergent regulatory priorities.

Over the past decade, public utility commissions (PUCs) have increasingly used performance incentive mechanisms (PIMs) to address emerging priorities like affordability, cost control, equity, decarbonization, electrification, interconnection, demand flexibility, and resilience. PIMs are regulatory tools that tie a portion of utility earnings to specific measurable targets. As their use grows, it is important to understand trends, compare performance across jurisdictions, and evaluate whether these mechanisms are working as intended.

RMI’s PIMs Database now contains data on more than 200 PIMs, enough data to extract insights and trends on the application of PIMs for emergent topics across the United States.

PIMs Database Snapshot

Here, we highlight five “PIMsights” we’ve gleaned from analyzing the growing body of data in the PIMs Database.

1: Carrots dominate — and utilities are successfully avoiding sticks

PIMs in the database fall into one of three designs: upside-only (the utility can earn a reward), downside-only (the utility can incur a penalty), or symmetrical (the utility can earn either a reward or incur a penalty). This table shows active PIMs with available performance data each year.

In the database, downside-only PIMs are rare; of the 221 PIMs collated, there are only two, both of which relate to reliability. Symmetrical PIMs are slightly more common. There are no examples in the database of a utility incurring a PIM penalty between 2020 and 2023.

Upside-only PIMs are the lion’s share. Utilities earned a reward for roughly half of the upside-only PIMs each year from 2021 to 2023. Utilities earned rewards against symmetrical PIMs at a much lower rate — only one per year from 2021 to 2023 and none in 2020.

Takeaway: This suggests that regulators prefer to reserve penalty-only mechanisms for core regulatory objectives like reliability, if at all, and upside-only incentives for emergent priorities. (The skew also reflects the PIMs Database’s focus on emergent objectives.) However, even when penalties are possible, utilities are generally successful at avoiding them, suggesting that downside-only designs may be an underutilized, potentially powerful tool to motivate improved performance. Further, downside-only PIMs can motivate performance improvements without adding reward payouts that can put upward pressure on bills.

2: Return on equity (ROE) and shared savings incentive structures lead in popularity and dollars awarded

In the PIMs Database, we categorize PIMs as having one of four incentive designs, as shown in the graphic below:

The tables below summarize how frequently each structure shows up in the database and how rewards were achieved from 2020 to 2023.

ROE basis points and shared savings incentive structures produce the highest average rewards. In 2023, utilities earned $92 million in PIM rewards, of which $58M (63 percent) was the result of 12 ROE-based PIMs and $27.6M (30 percent) was earned based on seven shared net benefits PIMs. Six fixed amount PIMs and five percentage adder PIMs accounted for the remainder.

Takeaway: ROE basis point PIMs are often associated with the largest awards because they scale with the rate base. That scale can send a strong signal, but it also raises a practical question: Are such large rewards necessary to motivate better performance? For commissions using ROE-based incentives, cost-benefit analysis can help confirm that ratepayer benefits exceed the cost of rewards and that incentive levels are right-sized. In contrast, shared net benefits PIMs provide a “built-in” way to ensure ratepayers benefit more than they pay for the level of achieved performance improvement.

3: Percentage adders are rare, but often achieved

Though ROE basis points and shared net benefits are the most common incentive structures and yield higher rewards for utilities,  percentage adders have the most consistent achievement rates.

In 2023, less than half of utilities with ROE-based PIMs were successful in earning a reward, while shared net benefits PIMs were just above 50 percent. Utilities under fixed amount-based PIMs had the lowest achievement rate (27 percent). In contrast, 100 percent of PIMs with percentage adder incentive structures were achieved in 2023.

Why might utilities achieve performance targets under adder-based PIMs more consistently? Used for climate-forward efficiency, demand flex, and electrification, many percentage adder-based PIMs are tied to program delivery targets (e.g., demand response enrollment and peak reduction) rather than broad system outcomes. Utilities are accustomed to managing, measuring, and reporting these metrics through established processes. Another possibility is that the program performance target may tend to be set closer to expected (or planned) delivery levels rather than “exemplary” performance. If so, higher achievement rates could reflect target calibration as much as the incentive structure itself.

Takeaway: It’s not clear why utilities are more successful at achieving targets under percentage adder-based PIMs. While this approach may be appealing for its close tie to observable program delivery, there may be an opportunity to increase target ambition to motivate better performance.

4: Equity-focused PIMs are growing in frequency, and utilities are generally achieving their targets

Equity is the fifth most common emergent topic for PIMs in the database, and also one of the fastest-growing emergent topics in the database (21 equity-focused PIMs have been created since 2021). Other fast-growing topics include demand flexibility and climate-forward efficiency. Equity PIMs are also frequently co-labeled with the topics of reliability (3 PIMs) and affordability (12 PIMs).

Six jurisdictions (CO, NY, NJ, MA, IL, and DC) account for all the equity-focused PIMs we are aware of. These PIMs look different in each jurisdiction, using different metrics. Of these PIMs for which there is performance data, 100 percent were achieved or consistently achieved to date.

Takeaway: Equity is a significant and growing area of regulatory focus. This growth likely reflects a broader policy shift in these states toward explicitly requiring commissions and utilities to consider equity in planning and program design — often alongside affordability and goals to reduce low-income customer energy burden. Given the early trends in utility success rate with achieving equity-focused PIM targets, there may be an opportunity for regulators to either (a) consider strengthening the targets of equity-focused PIMs before renewing them, or (b) consider where the application of symmetrical or downside incentives is warranted.

5: Short-term PIMs dominate, with no-end-date options for fuel cost-sharing PIMs.

The majority of PIMs (84 percent) within the database are designed to sunset after two to three years. Only 4 percent of PIMs have planned implementation lives of five years or more, and even fewer (3 percent) are established for a single year. The breakdown is shown in the chart below.

This pattern suggests commissions often treat emergent PIMs as time-bound experiments rather than permanent features. This allows for testing a metric and observing utilities’ performance before deciding whether to continue, redesign, or retire the PIM. That is a healthy approach for newer policy priorities where measurement, baselines, and understanding of the utility’s ability to influence outcomes are still evolving.

However, not all PIMs are short-term experiments. Some have no end dates. Of those in the database, two-thirds are fuel cost risk sharing mechanisms. These mechanisms are more likely to be open-ended because consistency creates regulatory certainty and supports longer-term planning (e.g., informing procurement and hedging practices), which in turn shapes near-term fuel cost outcomes. The remaining no-end-date PIMs are associated with non-wires alternatives and distributed energy resource-related priorities — areas where commissions may similarly value long-lasting incentives and regulatory certainty. Given their open-ended nature, regulators should evaluate these PIMs on a recurring basis and make the findings transparent, so designs remain fit-for-purpose and performance expectations stay appropriately calibrated over time.

Takeaway: PIM duration should be topic specific. Short terms can support learning and redesign for emergent outcomes, and are best paired with a clear ex post evaluation. That said, shorter-duration PIMs may not provide sufficient time for the fruits of utility actions or process changes to be measured.

What these insights say about the landscape of emergent PIMs in the United States

In recent years, utilities have consistently met PIM targets, earned incentives, and avoided penalties when they are at stake. This can be due to two reasons: targets may be set at readily achievable levels, and/or emergent PIMs may be motivating real performance improvements. Both can be true at the same time, and it is hard to determine which factor is at play in the aggregate.

However, these two explanations can be easier to disentangle at the individual PIM level. Regulators can conduct recurring, transparent, and comprehensive evaluations of a PIM to uncover whether it was effective and why. Such reviews can provide the basis for testing more ambitious targets, adjusting incentive design, and ensuring that rewards are not overused where penalty-based incentives could provide sufficient motivation without increasing costs to ratepayers.

With more data available, regulators can now compare PIMs across jurisdictions and designs, continuing to improve PIMs in service of policy goals — everything the PIMs Database was built to support.