DfT agrees principles of PR18 draft determination
THE Department for Transport says it has been “highly impressed” by the Office of Rail and Road’s proposed reforms of the regulatory regime, saying it “would wish to see the principles carried through to the Final Determination”.
In its response to the regulator’s draft determination for the Periodic Review 2018, DfT welcomes the emphasis the review has placed on Network Rail’s devolution programme as a way of increasing efficiency, and that a shift towards a ‘bottom-up’ approach to assessing NR’s strategic business plans will ensure ORR’s assessments on efficiency and delivery are more evidencebased and informed by customer concerns.
The DfT also agrees with the ORR’s approach to track access charges. This removes many charges whose incentive effects were negligible, and ensures that new open access operations will move towards paying an appropriate share of their costs. It also says it is important that freight and charter operators continue to be protected.
DfT says that while it is not prepared to express views on train operator performance ‘trajectories’, “we regard improvements to train performance as a critical output for Control Period 6”.
It adds that it is prepared to discuss performance targets for current franchises where newly committed enhancements could affect performance, but says it will not excuse operators from working closely with NR to improve performance.
On Network Rail efficiency, the DfT agrees with the ORR’s principle of challenging NR to go beyond the level of efficiencies identified in its strategic business plans, and wants the regulator to continue with its challenge to NR routes to lead the development of efficiency targets.
A proposed shift towards a whole-asset, whole-life approach to efficiency is also welcomed, with the DfT believing this is “crucial to the long-term financial and operational sustainability of the railway”.
When additional efficiencies are identified, the DfT says funds released as a result should be “predominantly allocated” to the improvement of asset sustainability and train performance.
In a bid to smooth investment profiles, the DfT says it wants the ORR to continue to engage with NR, its supply chain and the Government on the establishment of Control Period 6 spending profiles, ahead of its Final Determination. It also agrees with the ORR’s decision to use the Consumer Price Index rather than the Retail Price Index as the indexation factor for track access charges, although its support for this is contingent on the total ‘quantum of income’ across the Control Period.
It also wants the ORR to consider how the rail industry can be “better incentivised to mainstream” research and development.
However, while it accepts the ORR’s reasoning for a proposed reduction in Network Rail spending in this area, “we would encourage the ORR to consider allowing NR a slightly larger allocation than the £100 million proposed in the Draft Determination”.
It adds that this should be contingent on NR presenting a better evidenced and supported business case for the spending.
Cost allocations to NR should not be changed in the Final Determination, the DfT argues, pointing out that its Statement of Funds Available (SoFA) and allocations within that are likely to continue.
It suggests the ORR works with funders to revisit cost allocation formulae in detail early in the next Periodic Review programme, and “well ahead” of the SoFA for Control Period 7 (2024-29).
Extra income identified since publication of the SoFA, from the Crossrail Supplementary Access Charge, would (had it been reported in advance) have meant the government grant being reduced by £250m-£300m.
It says it is highly likely that
the Department will reallocate funding from NR to other areas of spending, and that NR should allocate the funding to contingent renewals which could be cancelled readily and with few consequences.
Where funding allocated to risks that fail to materialise is released, the DfT says it expects it to be spent on upgrading asset condition, improving asset sustainability, and train performance.
The ORR’s proposal to cap NR’s risk for variability in timetabled train miles is supported by the DfT, which says this strikes the right balance between incentivising NR to use capacity effectively while still providing certainty and allowing NR to plan.
Changes to open access track access charges will only apply to new operators, but increases to freight and charter operators will be phased in over two control periods.
However, the Department adds: “We do, however, agree that these operators should move towards paying an appropriate share of their costs over time.”
The DfT says it “strongly supports” the proposed Performance Innovation Fund, which it says will provide a ‘laboratory’ for testing the impacts for major changes to charging without creating wider risks for rail users or passengers.
In the longer term, the Department suggests that a comprehensive review of Schedule 4 and 8 payments could be an area of focus for Periodic Review 2023. It wants to see the rail industry and the ORR collect data and test alternative approaches.