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Achieving sustainable railway regulator perspective of the

VIEWS: 3 PAGES: 22

  • pg 1
									                   5th/6th June 2007
                Rail Freight 2007




  The continuing role of rail regulation:
an update from the regulator of Britain‟s
                railways



                     Bill Emery
     Chief Executive – Office of Rail Regulation
                   Aim to cover…

• Our role as the regulator of Britain‟s railways
• An update on the periodic review – towards setting
  access charges for CP4 (2009-14)
• An update on freight charges work and some
  related issues




                           2
              Rail structure: key relationships

                                       Governments
     Other funders
      – PTEs TfL
                     Franchise
                  agreements for                                      „Binding
                 passenger services
                                       HLOS/SoFA
                                                                      arrangements‟
                        only

Passengers
and Freight
                                       Licences, access, enforcement, access
Customers                              charges reviews plus competition and
                         Train             H&S enforcement for sector

                       operators                                                      Infrastructure
                     (passengers &                                                       manager
                                         Track access agreements;
                        freight)              Network Code

                     ATOC, RFG etc..
 Passenger                                                 Rail Safety and
   Focus                                               Standards Board - RSSB

                   Rolling Stock
                 Leasing Companies           Supply Industries
                    - ROSCOs                       - RIA
                                                3
                           Our role …

• The combined safety and economic regulator for Britain‟s
  railways
• Some key roles:
   • Enforcing health and safety legislation as it applies to all duty
      holders – mainline railway, underground, light rail and heritage
   • Determining the charges NR can levy for access to mainline rail
      network consistent with Governments‟ SOFA and our judgement
      of costs/revenue needed to deliver all necessary outputs
      (includes Governments‟ HLOSs)
   • Monitoring & enforcing delivery of these outputs and NR‟s
      compliance with all its obligations
   • Establishing access and licensing regime (including the
      network code) and approving or directing all access
      applications
   • Exercising competition law functions concurrently with OFT,
      where these relate to the railway sector
                                    4
                    Our duties and aims

• Parliament has set down our many and varied duties leaving it
  up to us how we balance between them…
• Some key duties:
   • protect the interests of users of railway services (passengers
      and freight customers)
   • promote improvements in performance by all in railway industry
      but particularly Network Rail
   • promote the full economic use of the network for passengers
      and freight
   • enable providers of railway services to plan their businesses
      with a reasonable degree of assurance but without imposing too
      many constraints on dealing with future challenges



                                  5
                                                     Policy on rail freight?

        • A competitive, private sector activity
        • Plays an important part in the nation‟s logistics
        • A success and is growing
                                                                                                   • Freight moved is defined as
                         25                                                                          net tonne kilometres.
Freight moved - bnTkms




                         20                                                                        • Since 2002-03 there has
                                                                                                     been a 19% increase in
                                                                                                     freight moved.
                         15
                                                                                                   • This increase has been
                         10                                                                          principally driven by a
                                                                                                     dramatic increase in the
                                                                                                     amount of coal moved.
                          5
                                                                                                   • Latest data for 2006-07
                          0                                                                          shows international and inter-
                                                                                                     modal continuing to grow with
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                                                                                                     coal and other relatively flat.
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                                Coal    intermodal & international               6
                                                                                     other
              Policy on rail freight …

• Recognise need for certainty – longer-term access
  agreements and reasonably stable charges…
• Taxpayer content at present to pick up fixed and
  common costs so that freight only pays marginal
  costs (and these only at the efficient longer-term
  level), but
   • All longer-term costs of freight-only lines should be
     covered by freight
   • Need for better understanding of costs and societal
     benefits of rail freight
   • Need to improve efficiency of use of the network

                                7
    2007 is a critical year
    as we are in the thick of
       the 2008 periodic
            review.


8
                                              PR2008 timetable

                                                                                                                                                         Implement
                          Preparation phase                                                 FORMAL REVIEW PHASE                                            - ation



                                           NR
      PR08 Initial                       Initial
                                                                                       Strategy
      Consultation                      Strategic                                      + HLOS                 Iterations?
                                        Business
                                           Plan                                        + SOFA
                                                               Feedback

                            INFO.
                                                                                                                                  DD
                            REQ’TS
                                                                                                        NR
        Consult.
                                                    Analysis
                                                                                                     Strategic                                         Final
                                                      etc                                            Business              SBP                         price
                                                                                                        Plan               Mods                        lists
                     CP4 - Initial                                       Final                                                         Views
                     Assessment                                       Framework,
                     + Financial                                        Advice
                     Framework                     Options &
                                                    Issues
                                                                        + PR08                                                                   FD                  NR
                                                                                                                                                                    Final
                                                                        Notice                                   Update
                                                   for CP4                                                                                                          CP4
                                                                                                                 on CP4
                                                                                                                                                                    Plan

                             Consult.
                                                               Consult.

                2005/06                                 2006/07                                     2007/08                                 2008/09

 Q1         Q2        Q3         Q4     Q1          Q2         Q3             Q4       Q1       Q2        Q3          Q4     Q1         Q2        Q3           Q4

A M J   J   A    S O N D     J   F M A M J     J    A    S O N D          J   F M A M J     J   A    S O N D      J   F M A M J    J    A      S O N D J       F M




                                                                                   9
      Our advice to Ministers (Feb 2007)

• Triggers the formal stage and        • Identified a number of key
   sets 31/7/07 as end date for          issues/challenges
   HLOS/SOFA …                            • Capacity challenge
• Possible overall expenditure            • SoFAs / HLOSs
   projections for 2009-14                • Safety
   (includes NR‟s Base Case               • Asset management
   enhancements)
                                          • Value for money
    • NR ISBP £27.6bn                     • Potential scope for improved
                                             efficiency
    • ORR low £21.3bn
                                          • Incentives
    • ORR high £27.1bn
                                          • Need for a balanced
• Decisions and emerging views               scorecard covering
   on financial and incentive                performance, network
                                             availability and environmental
   frameworks and freight                    footprint…
   charges…

                                  10
      And now an update on
     freight charges work …



11
                   Freight charges

• Last reviewed freight charges 2001
   • resulted in 50% fall in charges
   • but lot has happened since then…
• We consider that:
   • Charges should reflect costs
   • Charges should take into account material
     route/geographical differences in cost to aid efficient
     decisions & utilisation (if good data available…)
   • Charges should be simple to calculate, administer and
     make practical sense


                              12
                Update on recent work

• We completed the work on determining “caps” (published
  Feb07) – to give early clarity that freight sector wanted.
• Government has confirmed its position on freight (including
  the taxpayer covering “in-efficient costs” in medium term…)
• Caps and ranges.
   • Variable charge cap is a bit above existing levels
   • BUT also set out a possible range, with the low-end being
      significantly less than existing caps
   • AND we expect final levels of charges to be significantly below
      existing variable charge levels but cannot guarantee it.
• Freight only lines - concluded that only ESI coal and spent
  nuclear fuel can bear a mark up to pay for their proportion
  of full costs. We are consulting on how to allocate costs to
  freight only lines and the specific form of the charge.
                                   13
             Update on recent work …

• Reservation charges – concluded that these could be an aid
  efficient decisions & utilisation. We will be consulting on the
  “how” and “how much”…
• And of course the PR08 work goes on:
   • NR doing more work on cost estimates for its SBP etc –
   • We make our final determinations in late 2008
• Potential scope for efficiency savings – we applaud and
  value the extensive engagement with the industry on
  exposing potential …
   • In particular, EWS has sponsored a range of studies (e.g.
      Abbott, LEK/TTCI, Doggett, Arup/Symonds, Lloyds) on
      the potential scope for efficiency savings…

                                14
For example - NR costs appear to be well
       above international norms…
                                                           • E.g. recent work
           US/UK Variable                                    (LEK/TCCI) compares NR
       track costs - £ /                                     with the 7 US class 1
                                                             railways … it doesn‟t make
  1000 gross tonne km                                        good reading…
                                                2.3        • It takes much longer to do
2.5
  2                                  1.5
                                                             work on UK railways… very
1.5                      0.85
                                                             long possessions, too
  1        0.44                                              restrictive practices etc…
0.5
  0                                                        • Lots of benchmarking work
                                                             being done to find ways of
                         s1




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           s1




                                   w



                                           Hig
                                Lo
                     las




                                                             doing work more efficiently
          s
      Cl a




                                NR
                   SC




                                           NR
      US




                                                             and just as safely…
                  j. U
                Ad




                                                      15
     And some related
         issues…



16
         Forward planning for freight?

• Big issue is forward planning for freight access on
  congested networks…
   • Importance of FRUS (March 2007) – 30% increase in
     tonnes in period up to 2014-15 (extra 600 loaded trains
     per week)
   • FRUS – identifies potential constraints… potential
     solutions (gauge enhancement, lengthening loops etc..)
   • NR to set down in its SBP what it intends to do…
   • Possible use of transport innovation funding to help pay
     for local pinch-point works
   • Promote third party investment in railway…

                               17
                 Network availability

• Difficult to find right balance between possessions to carry-
  out necessary work on the infrastructure and the railway
  open for business…
• Open of passenger and freight business? Overnight
  possessions hit freight…
• A lot of good work being done to find ways to shorten
  possessions, improve productivity – to enable key routes
  open 24/7… and to at least 50% daytime capacity…
• Looking to NR to set out its plans in its SBP (Oct07)
• We are developing network availability metrics so we can set
  these as regulated outputs for CP4…



                               18
     And to sum it all
           up…


19
        Achieving at successful railway…

All in the railway need to
• Keep up the good work on efficiency, performance, safety
• Grow the public credibility/legitimacy for the railway regime
• Become part of the solution for governments, city regions
   and the economy, not another problem or drain on
   resources…
• Meet customer/funder needs, but also develop the railway
   to meet all future needs in a sustainable way.
    • Investment set to continue at high levels to address both
      network maintenance/renewal and capacity.
• Build up capabilities, promote ever better practices, adopt
   innovative ideas and re-engineer where necessary…
   Recognise if anything the pace of change will increase.
                                  20
                    And to conclude

• Good progress so far by NR and all its partners –
  performance up, efficiency improving. Passengers and
  freight customers are returning to the railways
• We have provided some early certainty for the freight
  sector as part of the ongoing periodic review
• There are a number of big challenges – for example getting
  costs down, handling growth and responding to climate
  change…
• Your recent track record gives us confidence that Britain‟s
  railway industry will rise to them…
                                                      Thank you


                               21
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