John Larkinson Office of Rail Regulation Waterhouse Square Holborn by tommyadams

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									                                              40 Melton Street
                                              London
                                              NW1 2EE
                                              Tel: +44 (0)20 7557
                                              9365
                                              Fax: +44 (0)20 7557
                                              9108
John Larkinson
Office of Rail Regulation
1 Waterhouse Square
138-142 Holborn
LONDON         EC1N 2TQ

04 November 2005




Dear John

Re: Network Rail Response to Periodic Review 2008 First Consultation

This letter forms our formal response to the Periodic Review 2008 first
consultation document. Generally we accept the process and timelines
that you have outlined in your document. In the discussions we have
had, it is clearly recognised that the timescales are challenging and it
will be important to ensure that all parties understand the status of
information provided at various stages in the review – our June 2006
cost submission, for example, will clearly be subject to considerable
further work and the steps we are taking to complete this work will be
explained in the submission. In addition, we have a few concerns on
some specific points which we outline below.

Objectives for the review

We support the ORR’s overall objectives for the review. In particular,
we agree that the review should be conducted in a rigorous and open
manner.     Development of the Infrastructure Cost Model should
increase the transparency of our plans and the underlying
assumptions. We believe that it is also important for ORR to be clear
what assumptions and adjustments it makes in reaching its final
conclusions on the required level of expenditure and the outputs that
we will be expected to deliver.

Proposed timetable

We note that the proposed timetable implies that the ORR will be
allowed much more time to review our cost submissions than we will
be allowed in responding to ORR’s information requirements and
initial assessment. For example, the timetable allows four months for
the ORR to review our October 2007 submission, but then only allows
Network Rail two months to respond to ORR’s initial assessment in a
revised submission. We are concerned that this may impact on our
ability to respond effectively to issues and concerns that you raise. It
will also be important to ensure close collaboration on issues as they
emerge throughout the review rather than only relying on publication
of formal documents.

We support ORR’s approach of publishing in December 2005 an initial
assessment of the possible ranges of outputs, efficiency and OMR
expenditure for CP4. However, we note that we have not yet carried
out any analysis on the potential level of efficiency that could be
achieved in CP4 and, given that we are only in the second year of CP3,
there is still some uncertainty over the level of efficiency that will be
achieved in this control period.        Although we agree that it is
reasonable for this assessment to assume that we will meet our
current efficiency targets, this is an important assumption and we are
doubtful about the extent to which the work being done by
consultants will be able to inform the scope for further savings at this
stage.

Network Rail’s output and expenditure

We have recognised the need to improve our business planning
capability and welcome ORR’s support for our proposals. While we will
have made many improvements in our planning capability by June
2006, there still be significant further improvements in our planning
capability beyond that date. For example, the quality of unit cost
information underpinning the Infrastructure Cost Model will continue
to improve and we will develop a more detailed understanding of the
level of efficiency that can be achieved in CP4. We will also continue
to develop our asset management strategy and the Infrastructure Cost
Model.

We agree that the 2006 Business Plan will focus on our plans for the
remainder of CP3 and that we will produce a separate initial cost
submissions for CP4 by June 2006. We believe that it is important to
recognise more clearly the distinction between an annual business
plan and a cost submission.          Our business plan provides an
explanation of our planned activities, expenditure and outputs and our
plans to improve the business. It is an internal management tool and
also provides information to our customers and stakeholders to assist
them in developing their own plans. A cost submission provides
details of our plans to the ORR as part of an access charges review. It
should contain much more detail of the basis of preparation and the
assumptions underpinning our plans. We would not expect to provide
the same level of detail in our annual business plan.

The consultation document makes several references to the 2005 Act
and the White Paper, and the requirements for devolution and
disaggregation.    In many cases the 2005 Act is not explicit on
requirements, a point highlighted in paragraph 5.8 of the document.
We support the separate specification of outputs in Scotland but we
are concerned to ensure that this is not done in a way which could
undermine our ability to manage the overall business to meet the
reasonable requirements of all our customers and funders as
efficiently as possible. In particular, we believe that ORR should do
everything possible to ensure the industry works together towards
common goals and does not become further fragmented. We fear that
if disaggregation requirements are pushed too far and too quickly
there will be increased administrative complexity and bureaucracy and
reduced efficiency. We urge ORR to take full account of these issues
when they establish the information and reporting requirements for
Network Rail and other revisions to the regulatory regime through the
2008 Periodic Review.

We agree that our plans should be based on a greater level of
disaggregation. Our plans will be based on forecasts that are built up
from strategic route sections that reflect different route characteristics
and we will provide greater disaggregation of planned activities.
However, it is important to recognise that in developing longer term
plans, there will be considerable uncertainty about the precise location
of individual items of work and the method by which each work item
may actually be delivered. We will also include more disaggregated
outputs, although we are currently assessing the level of
disaggregation that is appropriate for individual outputs.

Yours sincerely




Paul Plummer
Director, Planning & Regulation

								
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