Compensation

As a matter of policy, the Commission believes that a percentage of the budget for all programs endeavoring to produce energy savings should be devoted to payment based on actual energy savings achieved. The only exceptions to this are programs that provide information only and cannot reasonably be expected to estimate energy savings associated with program activities.

In the past, the Commission has offered shareholder incentives to large IOUs for successful program delivery, in lieu of a profit margin. The Commission will no longer make a special provision for shareholder earnings. Both utility and non-utility entities are free to propose program budgets they feel are necessary for their organizations to complete the program delivery successfully.

To spur superior program delivery, all programs, except information-only programs, will have 15% of their payments held back until final program evaluation, measurement and verification have been completed. Thus, 15% of all program payments (except information-only) will be contingent upon performance goals developed as part of the approved program design.

At the time of program approval by the Commission, for all programs except those providing information only, an energy and peak demand savings target should be set. At least a portion of the final payment for each program (total potential of 15% of program budget) must be scaled on the basis of the energy and peak demand savings achieved.

Proposals may also include other benchmarks against which a program can be measured and for which an implementer may earn their final payment. These other benchmarks may include, but are not limited to, estimations of market share, customer awareness or attitudes, or free-ridership.

An example is given below for a program where 100% of the final payment is based on energy and peak demand savings achieved by the program. Proposals may also choose to allocate only a portion of the performance incentive to energy and peak demand savings, leaving another portion to be awarded on the basis of market share or other benchmarks proposed in the program design.

Example 5.1:

Final payment calculation for program where 100% of payment is based on energy and peak demand savings

Projected Savings Verified Savings % of goal

Energy 10,000,000 kWh 8,000,000 kWh 80%

Demand 2,000 kW 1,800 kW 90%

Average % of goal 85%

Program Total Budget: $3,000,000

Potential Final Payment Amount (15%): $ 450,000

Actual Payment Made (85% of potential): $ 382,500

Any benchmarks proposed for receiving the final payment should have the following characteristics:

· Baseline information should be ready available or obtainable

· Achievement must be measurable or demonstrable

· Benchmark should be derived from the program logic or theory

· Benchmark should be related to the market phase described in the table below⁷

Table 5.2. Market Phase and Associated Benchmarks

Market Phase	Benchmark Type
Innovators - Less than 5% market share	Program roll out, awareness, program activity, training
Early Adopters - 5% to 12% of market	Knowledge, certification of quality or performance, market share targets
Early Majority - 13% to 49% market share	Train the trainer activities, net resource benefits, leveraged advertising
Late Majority - 50% to 85% market share	Standard performance contracting activity levels, certification or branding, profitability of third party service providers
Laggards - Greater than 85% market share	No benchmarks needed

With the exception of the IOUs, most program implementers will be operating under a signed contract. The Commission intends that authorized energy efficiency programs, however, will operate in a manner more similar to grants than to service contracts. Thus, payments will be made on a similar basis for all program implementers, according to the general procedures described below.

Table 5.3. Payment Schedules

#	Event	% Payment
Information-only programs
1	Acceptance of final program implementation plan	35%
2	Acceptance of quarterly reports (payments evenly divided among number of reports submitted during course of program)	65%
Non-information programs
1	Acceptance of final program implementation plan	25%
2	Acceptance of evaluation, measurement, and verification plan	10%
3	Acceptance of quarterly reports (payments evenly divided among number of reports submitted during course of program)	50%
4	Final payment based on evaluation, measurement, and verification results	15%

In circumstances where IOUs are administering grants to non-utility grantees, IOUs will also be permitted to retain an administrative fee of no more than 5% of each grant amount. The exact amount will be determined between proposal submission and contract execution, and may depend upon the type of program to be implemented.