Network Rail Recalibrating the Capacity Charge for CP5 Final Report 002 Issue 2 | 24 May 2013 This report takes into account the particular instructions and requirements of our client. It is not intended for and should not be relied upon by any third party and no responsibility is undertaken to any third party. Job number 227755-00 Ove Arup & Partners Ltd Level 10 201 Kent Street PO Box 76 Millers Point Sydney 2000 Australia www.arup.com Network Rail Recalibrating the Capacity Charge for CP5 Final Report Contents Page 1 Introduction 1 1.1 Background 1 1.2 Report Structure 1 2 Overview of Approach 3 3 Data Development 5 3.1 Data Collection 5 3.2 Geographic Hierarchy 6 3.3 Assembling CTS Sections (CTS) 6 3.4 Measuring Capacity Utilisation 8 3.5 CRRD Data Analysis 14 3.6 Train Counts and Train Miles 16 3.7 Composite CRRD:CUI Dataset 17 3.8 Data Development Process Map 18 4 CUI:CRRD Relationship 19 4.1 Analysis by Imperial College 19 4.2 Selecting a Parametric Model 23 5 Tariff Calculations 26 5.1 Applying the CUI:CRRD Relationship 26 5.2 Cost per minute of delay to Network Rail 29 5.3 Raw Tariffs 30 5.4 Tariffs by Service Code 31 5.5 Tariff Calculation Process Map 32 6 Adjustments and De Minimis Threshold 33 6.1 Weekend Adjustment 33 6.2 Freight Flexibility Adjustment 35 6.3 De Minimis Threshold 40 7 High Level Assessment of Changes 41 7.1 Basis of Existing CP4 Tariff 41 7.2 Average Tariff Changes 41 7.3 Causes of Change 42 7.4 Freight Tariff Changes 46 7.5 Open Access Tariff Changes 50 8 Updating the Tariff 52 002 | Issue 2 | 24 May 2013 J:\227000\227755 CAPACITY CHARGE RECALIBRATION\4 INTERNAL PROJECT DATA\4-05 ARUP REPORTS\007 FINAL REPORT - APR 2013\REVISED FINAL REPORT ISSUE 2 -240513.DOCX Network Rail Recalibrating the Capacity Charge for CP5 Final Report 8.1 Background 52 8.2 Development of the Tool 52 8.3 Using the Tool 53 Tables Table 1: Input data requirements Table 2: Numbers and percentages of freight services included in CUI analysis Table 3: Timebands Table 4: Field guide for CUI:CRRD dataset Table 5: Preferred parametric models Table 6: Range of beta parameter estimates Table 7 Example Saturday adjustment calculation Table 8: Proposed freight adjustment calculation Table 9: Capacity Charge tariff comparison table (12/13 prices) Table 10: L and F parameter test results Table 11: Passenger train numbers (2004/5 – 2012/13) Table 12: Freight tariffs by commodity Table 13: Freight moved on the Railway - billion net tonne kilometres Table 14: Analysis of changing freight patterns on Capacity Charge Tariffs Table 15: East Coast Main Line tariffs Table 16: Open Access tariffs Table 17: Example tariff calculation Figures Figure 1: Methodology overview Figure 2: Diagram to show CUI calculation process Figure 3: Data development process map Figure 4: Extract from ICL report on parametric functional forms Figure 5: Estimating the impact of an additional service (illustrative diagram) Figure 6: Service code tariff worked example Figure 7: Tariff calculation process map Figure 8: Percentage of possessions by day of week (calendar year 2012) Figure 9: CRRD per train mile trend (2005/06 and 2011/12) Figure 10: Freight tariff indicative increases waterfall chart Appendices Appendix A Selected Freight Paths Appendix B ICL Statistical Modelling Report and Technical Appendix 002 | Issue 2 | 24 May 2013 J:\227000\227755 CAPACITY CHARGE RECALIBRATION\4 INTERNAL PROJECT DATA\4-05 ARUP REPORTS\007 FINAL REPORT - APR 2013\REVISED FINAL REPORT ISSUE 2 -240513.DOCX Network Rail Recalibrating the Capacity Charge for CP5 Final Report 1 Introduction Arup was appointed by Network Rail in November 2012 to recalibrate the Capacity Charge as part of the 2013 Periodic Review within the railway industry. This report describes the technical work undertaken to recalibrate the Capacity Charge for Control Period 5 (CP5). 1.1 Background The efficient use of capacity is a key issue for Britain’s railway today. As the number of trains operated on the network increases, the network becomes more intensely utilised and it becomes more difficult for Network Rail to recover from delays. The punctuality and reliability of the railway is managed via the individual Track Access Agreements between Network Rail and the passenger and Freight operators, and the Network Code which governs the contract. Each Track Access Agreement includes a performance regime (under Schedule 8 of the agreement). As network capacity becomes more heavily utilised and train performance worsens, delays and cancellations increase, and so payments under Schedule 8 can be expected to rise. Network Rail is funded under a “single till” model that balances its revenues (including any Government grant) with its costs (including increased performance regime payments). If Network Rail was not to receive income to balance the increased Schedule 8 payments arising from a more intensively used network, then the company would not be incentivised to accommodate traffic growth. By compensating Network Rail for increased Schedule 8 costs, the Capacity Charge helps mitigate the risk of Network Rail being discouraged from accommodating traffic growth. It also provides price signals to operators to encourage them to make efficient use of capacity. The Capacity Charge also needs to incentivise operators and funders so that they consider the impact of proposals in terms of their likely impacts on capacity and performance. In summary, the Capacity Charge helps to better align the industry’s goals, enabling Network Rail, which faces the Schedule 8 cost and performance risks of increasing train movements, to recover those costs. The Capacity Charge has been in existence since June 2002. Its introduction replaced some of the Fixed Track Access Charge at that time. It has not been recalibrated in full since then, and thus does not accurately reflect traffic growth, changes in Schedule 8 payment rates or changes to traffic management on the railway since that time. 1.2 Report Structure Following this introduction this report is structured as follows: Section 2 provides an overview of the approach to the recalibration; Section 3 covers the approach to developing underlying datasets for the project; Section 4 summarises the approach to statistical modelling and summarises the models derived; Section 5 details the calculations required to derive Capacity Charge Tariffs; 002 | Issue 2 | 24 May 2013 Page 1 J:\227000\227755 CAPACITY CHARGE RECALIBRATION\4 INTERNAL PROJECT DATA\4-05 ARUP REPORTS\007 FINAL REPORT - APR 2013\REVISED FINAL REPORT ISSUE 2 -240513.DOCX Network Rail Recalibrating the Capacity Charge for CP5 Final Report Section 6 covers the weekend adjustment, freight adjustment and the de minimis threshold; Section 7 provides commentary on the high-level differences between CP4 tariffs and the new CP5 tariffs; and Section 8 discusses the steps required to update tariffs in the future for new service codes. There are two appendices included with the report: Appendix A – Selected Freight Paths Appendix B – Statistical Modelling Technical Appendix 002 | Issue 2 | 24 May 2013 Page 2 J:\227000\227755 CAPACITY CHARGE RECALIBRATION\4 INTERNAL PROJECT DATA\4-05 ARUP REPORTS\007 FINAL REPORT - APR 2013\REVISED FINAL REPORT ISSUE 2 -240513.DOCX Network Rail Recalibrating the Capacity Charge for CP5 Final Report 2 Overview of Approach The technical work required to recalibrate the Capacity Charge has been broken down into the seven stages shown in Figure 1. The figure also shows indicative timings for each stage, providing an indication of how the project has developed. The objective of each stage is summarised in this chapter, and the following chapters of the report examine each part of the recalibration in more detail, to explain the input data used and assumptions made to achieve the outputs in each stage. Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Data CUI:CRRD Calculating Weekend Freight de Minimis Reporting Development Relationship the tariff Adjustment Adjustment Threshold Mar 2013 – Nov 2012 – Jan Dec 2012 – Feb 2013– Mar 2013 – Jan 2013 – Jan 2013 – Apr 2013 2013 Mar 2013 Apr 2013 Apr 2013 Apr 2013 Apr 2013 Figure 1: Methodology overview Stage 1 – Data Development In the data development stage, a combined dataset has been developed that provides a breakdown of capacity utilisation (CUI) and congestion-related reactionary delay (CRRD) for a specified number of geographic sections and timebands on the network. In addition to these core variables, a number of descriptive fields are retained to support the data analysis and tariff calculations. Stage 2 – CUI:CRRD Relationship In the CUI:CRRD relationship stage, the relationship between CUI and CRRD is considered. This stage includes statistical analysis of the combined dataset developed in Stage 1, and selection of a preferred relationship for use in the tariff calculations. Imperial College London (ICL) has supported this stage of the work by undertaking statistical analysis. ICL’s role has been limited to undertaking statistical analysis and their overall contribution to the project is summarised in Section 4.1. Arup has taken the final decision on the selection of parameters to be used in Capacity Charge tariff calculations. Stage 3 – Calculating the Tariff In this stage, the relationship derived in Stage 2 is used to estimate the additional CRRD resulting from adding a train to each geographic section and timeband. 002 | Issue 2 | 24 May 2013 Page 3 J:\227000\227755 CAPACITY CHARGE RECALIBRATION\4 INTERNAL PROJECT DATA\4-05 ARUP REPORTS\007 FINAL REPORT - APR 2013\REVISED FINAL REPORT ISSUE 2 -240513.DOCX Network Rail Recalibrating the Capacity Charge for CP5 Final Report This additional delay is monetised by applying the cost per minute’s delay to Network Rail.