TOTEX
A regulatory allowance framework that combines capital and operating expenditure into a single allowance, so a regulated company has no financial reason to prefer building something over operating differently.
TOTEX was developed by economic regulators, notably Ofwat and Ofgem in the United Kingdom, to remove a structural distortion. Where a company earns a return on capital but merely recovers operating cost, it has an incentive to solve problems with assets rather than with operations. Merging the two into one allowance removes the incentive.
It is therefore a remedy for a bias created by how spending is remunerated. It is a feature of a regulatory settlement, not an analytical technique an organisation applies to a decision.
Sources
Ofwat and Ofgem price control methodologies. ISO 15686-5 for life cycle costing as an analysis method.
Belongs to
Inception & Development
Argued in full
An estimate is a measure of how well the scope is defined