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PR18 consultation on charges recovering fixed network costs

  • United Kingdom
  • Transport - Rail

10-10-2017

Background

As part of the 2018 periodic review (“PR18”) of Network Rail, the Office of Rail and Road (“ORR”) is reviewing the way in which the charges that operators pay to access the rail network are calculated. This review has the aim of improving the decisions that Network Rail, train operators and funders make, and it is intended play an important role in producing better outcomes for passengers, freight customers and taxpayers. ORR believes there is a strong case for reform in terms of the level of transparency around fixed network costs, and how these costs are recovered from operators. In June of this year, ORR published a letter presenting a conclusion on the proposals set out in its December 2016 ‘Charges and Incentives’ consultation. The letter outlined that ORR has the intention of continuing to work towards levying charges to recover fixed network costs from all operators, including open access operators (“OAO”). This consultation has therefore been commissioned to continue progress on developing ORR’s approach to levying these charges.

What does the consultation cover?

In the consultation documentation, ORR sets out its initial views around a potential approach to defining passenger market segments for the purpose of levying infrastructure cost charges and also sets out its proposals on the design of, and approach to, levying infrastructure cost charges on passenger operators, both franchised and open access. ORR also puts forward its proposals to retain the existing approach to market segmentation for freight services.

Proposals for the design of passenger infrastructure cost charges

In relation to OAOs, ORR has considered levying infrastructure cost charges as a rate per:

(i) train mile;

(ii) vehicle mile; and

(iii) passenger mile.

Based on its assessment, ORR is proposing to levy OAOs’ infrastructure cost charges as a rate per train mile, and, to that end, is inviting feedback on the following questions:

(i) Do you have any comments on our proposal to levy any infrastructure cost charges on open access operators as a rate per train mile? Do you think there are any additional considerations we should include in our assessment of the different metric options?

(ii) Do you have any comments on our proposed approach to varying franchised passenger operators’ infrastructure cost charges in response to changes in traffic, on an annual basis. Do you have any comments on the particular approach we have proposed, which is based on changes in timetabled traffic, or any of the other options we have considered in our assessment?

Market segmentation for passenger services

ORR has set out its initial views around a potential approach to defining passenger market segments for the purpose of levying infrastructure cost charges. In order for ORR to levy charges to recover fixed network costs from all operators, legislation requires ORR to assess the ability of different market segments to bear charges above directly incurred costs. ORR is seeking views on the results of the technical analysis undertaken to date on passenger market segmentation and around how these emerging findings could inform a passenger market segmentation.

Market segmentation for freight services

ORR is proposing to retain the existing approach to market segmentation for freight services, based on commodities carried. In the consultation documentation ORR sets out its initial views on the freight market segments which appear to be able to bear infrastructure cost charges in control period 6 (“CP6”). ORR is proposing to allow Network Rail to continue levying infrastructure cost charges on trains carrying coal for the electricity supply industry, spent nuclear fuel and iron ore.

ORR is seeking feedback on all of the above proposals as part of the consultation.

What are the next steps?

ORR will continue to work to develop a robust and well-defined market segmentation for passenger services over the coming months. Based on feedback to this consultation ORR intends to set out a proposed market segmentation for passenger services as part of its June 2018 PR18 draft determination document. The consultation period opened on Thursday 28 September 2017 and will close on Thursday 30 November 2017.

 

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