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How to deal with a CAPEX-bias: fixed-OPEX-CAPEX-share (FOCS

Author

Listed:
  • Carlotta von Bebenburg
  • Gert Brunekreeft
  • Anton Burger

Abstract

In recent years, the OPEX-CAPEX-incentive-bias (short: CAPEX-bias) received renewed attention in regulatory practice. A CAPEX-bias occurs when the OPEX solution is the more efficient approach, but regulation sets distorted incentives to choose the CAPEX solution. This paper presents a promising approach to address the CAPEX-bias: the fixed-OPEX-CAPEX-share (FOCS). With FOCS, all expenses, whether for capital goods (CAPEX) or operational measures (OPEX), are treated as TOTEX. A fixed portion, the capitalisation rate of this TOTEX, is then "capitalised" (quasi-CAPEX) and the remaining portion is directly expensed as quasi-OPEX ("pay-as-you-go"). Because all costs are treated equally, any distortion of behaviour that would arise because of the different treatment of costs, disappears. Similarly, the regulatory effort of scrutinising cost classification is no longer required. The paper also discusses practical implementation issues and first international experience.

Suggested Citation

  • Carlotta von Bebenburg & Gert Brunekreeft & Anton Burger, 2022. "How to deal with a CAPEX-bias: fixed-OPEX-CAPEX-share (FOCS," Bremen Energy Working Papers 0039, Bremen Energy Research.
    • Handle: RePEc:bei:00bewp:0039
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    References listed on IDEAS

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    1. Nongluk Buranabunyut & James Peoples, 2012. "An empirical analysis of incentive regulation and the allocation of inputs in the US telecommunications industry," Journal of Regulatory Economics, Springer, vol. 41(2), pages 181-200, April.
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    More about this item

    Keywords

    monopoly regulation; CAPEX-bias; FOCS;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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