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UK: Regulation of Network Rail: An update on ORR’s PR18 framework consultation, “Overall framework for regulating Network Rail: A PR18 Consultation – July 2017”

  • United Kingdom
  • Transport

10-08-2017

What is the purpose of the Consultation?

The Office of Rail and Road (the “ORR”) is engaged in the 2018 regulatory review of Network Rail, known as the 2018 Periodic Review or “PR18”. PR18 will determine what Network Rail must deliver in Control Period 6 (CP6), the funding it requires for this, and the incentives needed to encourage effective performance and delivery. This will feed through into the service that passengers and freight customers receive and, together with taxpayers, ultimately pay for. CP6 runs from 1 April 2019 to 31 March 2024.

As part of PR18, ORR has launched a consultation entitled “Overall framework for regulating Network Rail: A PR18 Consultation” (the “Consultation”).

The stated aim of the Consultation is to deliver a “safer, more efficient and better used railway, delivering value for passengers, freight customers and tax payers” and will feed into the overall determination by ORR as to the amount of public funding that Network Rail receives during CP6 and the levels of capacity and reliability that Network Rail is expected to achieve from that budget. The Consultation reflects the ORR’s desire that in future customers and stakeholders have a “more significant role in working closely with Network Rail’s routes and the [system operator] to agree priorities and challenge performance”.

The results of the Consultation will be used by ORR to help it change the way Network Rail is regulated, in particular in the context of a move towards greater devolution to Network Rail Routes and its focus on customer needs and satisfaction.

How is the Consultation structured?

The Consultation will focus on the four key areas which the ORR has identified as CP6 priorities:

  • increasing the focus on regulating each of Network Rail’s Route businesses;
  • encouraging closer interaction between Network Rail and train operators;
  • making greater use of comparison between Routes to incentivise delivery; and
  • strengthening the ORR’s regulation of Network Rail’s System Operator function which ensures that the network operates in a co-ordinated manner.

The Consultation has been split into three constituent parts (namely the consulting document on the overall framework, route requirements and scorecards, and possible measures of the System Operator’s performance).

What is the current status of the PR18 process?

As part of the wider Periodic Review process, the Railways Act 1993 requires the Secretary of State for Transport and Scottish Ministers to each make a statement informing the ORR of their requirements for the relevant parts of the railway network that they are responsible for in respect of the forthcoming Control Period. This is referred to as the ‘Railways Act 2005 Statement’, and comprises two main components:

  •  a High level Output Specification ("HLOS") detailing the outputs the Secretary of State or Scottish Ministers wish to be delivered on the railway network during a Control Period; and
  • a Statement of Funds Available ("SoFA") detailing the funding availability and financial constraints and within which the ORR and industry must deliver the HLOS requirements for the Control Period in question.

The Secretary of State and Scottish Ministers published their respective HLOS and initial SoFAs for CP6 on 20 July 2017 . It is noted that, further to the notice issued by the ORR on 20 July 2017 , the Secretary of State and Scottish Ministers will each confirm their final SoFAs by 13 October 2017.

What are the next stages in the PR18 process?

The deadline for responses to the Consultation is 21 September 2017. The ORR will also conduct consultations in September and November 2017 in relation to ‘charges and contractual incentives’ and ‘aligning incentives and the volume incentive’ respectively, which will also feed into its overall determination for CP6.

In light of the HLOS and initial SoFAs already published by the Secretary of State and Scottish Ministers (together with the final SoFAs to be published in October 2017), Network Rail will produce a set of strategic business plans (“SBPs”) for CP6 and the longer term future. It is anticipated that Network Rail will publish the SBPs on or before 8 December 2017. The ORR will scrutinise and comment on the SBPs prior to conducting a further consultation on its draft PR18 determination for CP6, which is currently anticipated to be published on or before 12 June 2018. Following the conclusion of such consultation the ORR will publish, on or before 13 October 2018, its final PR18 determination for CP6.

Thereafter, Network Rail will:

  •  in December 2018, consult on its CP6 delivery plan;
  • on or before 20 December 2018, publish its price list for CP6 (setting out specific access charge rates that would be payable by train operators);
  • by early February 2019, decide whether to accept or reject the ORR’s final determination for CP6;
  • in March 2019, publish its CP6 delivery plan; and
  • by mid-March 2019, issue its “review implementation notices”, confirming that the review will be implemented on 1 April 2019.

CP6 will then commence on 1 April 2019.

Conclusions

Periodic Reviews are intrinsically important as they set the regulatory framework for Network Rail outputs for the subsequent five year control period. PR18 is particularly significant because of the role it will play in advancing the rail reform agenda in the context of the recent Bowe Review and the Shaw Report – in particular through the move to Route based regulation and the greater focus on the System Operator role.

The Consultation gives stakeholders an opportunity to influence a key part of the PR18 process.

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