Rate-of-return method Sample Clauses

Rate-of-return method. 4043. Under the rate-of-return method, the tariff adjustment mechanism is devised so as toto allow the private partner an agreed rate of return on its investment. The tariffs for any given period are established on the basis of the private partner’s overall revenue requirement to operate the facility, which involves determining its expenses, the investments undertaken to provide the services and the allowed rate of return. Reviews of the tariffs are undertaken periodically, sometimes whenever the contracting authority or other interested parties consider that the actual revenue is higher or lower than the revenue requirement of the facility. For that purpose, the contracting authority verifies the expenses of the facility, determines to what extent investments undertaken by the private partner concessionaire are eligible for inclusion in the rate base and calculates the revenues that need to be generated to cover the allowable expenses and the return on investment agreed upon. The rate-of-return method is typically used in connection with the supply of public services for which a constant demand can be forecast, such as power, gas or water supply. For facilities or services exposed to greater elasticity of demand, such as tollroads, it might not be possible to keep the private partnerconcessionaire’s rate of return constant by way of regular tariff adjustments.