Purchased Power Expense - Power Purchase Agreement (PPA) Cost
Recording the cost of purchasing electricity from independent generators under long-term Power Purchase Agreements (PPAs), recognized as electricity is delivered.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Purchased Power Expense (FERC Account 555) | Expense (+) | 285,000,000.00 | - |
| Accounts Payable - Independent Power Producer (PPA) | Liability (+) | - | 285,000,000.00 |
💡 Accountant's Note
Utilities without sufficient owned generation (or with growth exceeding owned supply) purchase power from Independent Power Producers (IPPs) under PPAs — long-term contracts (10–25 years) at negotiated prices. The PPA may be structured as: (1) Energy-only (variable cost per MWh delivered); (2) Capacity + energy (fixed capacity payment plus variable energy charge); or (3) Virtual PPA (financial settlement against market price). FERC Account 555 tracks purchased power expense. Under ASC 842/840, long-term PPAs may qualify as embedded leases requiring on-balance-sheet treatment.
Practitioner & Systems Framework
💻 ERP Architecture
PPA cost tracking requires recording delivered energy volumes (confirmed by settlement) multiplied by the contract price. For PPAs with capacity components, the fixed monthly capacity charge is expensed regardless of actual energy taken. Must-run PPAs (where the utility pays even if it doesn't dispatch the unit) can create significant below-market commitments that require disclosure.
⚠️ Audit Flags
Auditors assess PPAs for embedded lease treatment under ASC 842 (does the buyer control the use of the specific identified asset?). PPAs that qualify as embedded finance leases dramatically change the balance sheet — the full PV of future payments becomes a liability. Non-capacity-based PPAs (energy-only) typically don't qualify. The FERC NOPR on PPA lease treatment has created significant uncertainty in this area.
📄 Required Documentation
PPA contract with all terms (capacity, energy price, term, facility description), energy delivery records, capacity payment calculations, embedded lease assessment (ASC 842 test), PPA disclosure in financial statement notes (future minimum payment schedule).
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