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Why Michigan Utilities May Be Hostile to PPAs
A power purchase agreement (PPA) with an electric utility is the holy grail for independent power producers. Yet, for regulated investor-owned utilities, such as DTE Energy, or Consumers Energy, they offer little, if any, economic benefit. As a regulated monopoly, these investor-owned utilities (IOU) cannot “mark up” the cost of wholesale power purchases. They can only recover their actual cost, dollar for dollar. (Imagine a grocery store not allowed any margin on the sale of canned goods.) If they cannot mark up their wholesale purchases of electricity, how can they earn a profit for their shareholders? Normally, they generate profits from the fixed return allowed on their capital investments, as reviewed and approved by the Michigan Public Service Commission. Thus, they have a disincentive to enter any PPA because it forestalls the day when the IOU can build new generation and collect a return on its new investment. Want more PPAs? Want the risk of generation failures shifted from the ratepayers to the private sector? One way would be to allow IOUs to earn a profit on purchased power. Otherwise, we will always see them opposing PPA mandates such as RPS or PURPA.