The design of any robust regulatory model for the U.S. PPP market must go far beyond just having an understanding of other models and an ability to articulate the state's regulatory objectives. It must also provide the regulator with a well defined set of tools that are clearly understood by potential PPP providers. False starts during this initial growth period run the risk of impacting effective regulatory framework design by discouraging potential PPP providers from making the types of investments required (often exceeding 1% of total installed cost by the time of financial closure).
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But what are the types of regulatory policy tools that the PPP market might demand?
While clearly linked to the regulatory and other policy objectives selected, it is possible to identify a range of candidates for the regulator to consider. The regulatory choices should be clear and the context for utilization of any particular tool clearly understood. Some of the potential tools the regulator may have at his disposal include:
- Policy framework (this is essential in any regulatory framework selected)
- Concession period and its linkage to rate of return
- Toll rate level, structure, and adjustment mechanisms
- Concession payments (or government subsidy or facilities or services in kind)
- Penalties and fines for non compliance
- Timing of investment and reinvestment
- Quality standards including those related to effective management and operation of the facility over time (for example, accuracy of any electronic billing to ensure that the user is not overcharged and that funds essential for subsequent investment are efficiently collected.)
- Depreciation and amortization rules (tax and accounting policy issues), to the extent within the control of the regulator.
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