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Periodic Review 2008

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Periodic Review 2008 Periodic review 2008: Draft determinations June 2008 Periodic review 2008: Draft determinations Contents Foreword .............................................................................................................. 3 Summary .............................................................................................................. 6 Acronyms and abbreviations ........................................................................... 18 1. Introduction ................................................................................................. 21 PART A: BACKGROUND AND APPROACH..................................................... 25 2. Background and approach......................................................................... 27 PART B: OUTPUTS AND EXPENDITURE......................................................... 37 3. Overview of our outputs and efficient expenditure assessment ............ 39 4. Accountability and outputs ........................................................................ 43 5. Maintenance and renewal expenditure...................................................... 59 6. Operating expenditure................................................................................ 97 7. Efficiency assessment.............................................................................. 103 8. The overall scope for OM&R efficiency improvement in CP4 ............... 137 9. Enhancement expenditure ....................................................................... 145 10. Network Rail’s ability to deliver the CP4 capital programme ................ 165 11. Safety management .................................................................................. 169 12. Overall efficient expenditure .................................................................... 177 PART C: FINANCIAL FRAMEWORK AND THE REVENUE REQUIREMENT 182 13. Overview of the financial framework and revenue requirement ........... 183 14. The high-level financial framework and the allowed return .................. 185 15. The regulatory asset base and amortisation .......................................... 201 16. Revenue requirements.............................................................................. 213 17. Financeability ............................................................................................ 217 PART D: ACCESS CHARGES, NETWORK GRANT AND OTHER INCOME. 221 18. Overview of access charges, network grant and other single till income......................................................................................................... 223 19. Track access charges............................................................................... 225 20. Network grant ............................................................................................ 261 21. Station long term charge .......................................................................... 265 22. Other charging issues .............................................................................. 269 23. Other single till income............................................................................. 275 PART E: CONTRACTUAL AND FINANCIAL INCENTIVES ............................ 279 24. Contractual and financial incentives....................................................... 281 25. Schedule 8 – performance regime........................................................... 283 OFFICE of RAIL REGULATION • June 2008 1 Periodic review 2008: Draft determinations 26. Schedule 4 – possessions regime ........................................................... 293 27. Financial incentives .................................................................................. 305 PART F: AFFORDABILITY OF THE HLOSs.................................................... 315 28. Affordability of the HLOSs........................................................................ 317 PART G: IMPLEMENTATION, EARLY START AND HOLDING NETWORK RAIL TO ACCOUNT ...................................................................... 329 29. Implementation.......................................................................................... 331 30. Early start................................................................................................... 337 31. Holding Network Rail to account ............................................................. 341 Annex A: Specific objectives for PR08 .......................................................... 345 Annex B: Draft notice for Network Rail’s 2009 business plan ..................... 347 Annex C: Train performance........................................................................... 353 Annex D: ORR assessment of enhancement schemes in Network Rail’s SBP update...................................................................................................... 363 Annex E: Network grant calculations............................................................. 371 June 2008 • OFFICE of RAIL REGULATION 2 2 Periodic review 2008: Draft determinations Foreword extensively on all the important issues. We have Challenges and opportunities undertaken detailed and thorough reviews and Measured in many ways, Britain’s railways have challenge of Network Rail’s plans and carried out rarely been more successful. Passenger kilometres further extensive work ourselves to inform our are greater than at any time since 1946, on a determinations for the next five-year control period – network that is nearly half the size. Freight traffic has 1 April 2009 to 31 March 2014. also grown strongly since privatisation. Train Our draft determinations of Network Rail’s outputs performance on most parts of the network has and access charges for 2009-14 are part of a improved considerably, with 9 out of 10 passenger balanced package that we have established trains arriving at their destination on time despite carefully, based on strong evidence, to ensure that increasing congestion. Safety indicators continue to Network Rail improving as it should will be able to show steady improvement, with rail being the safest finance its activities. We consider that the incentive mode of travel in Britain (measured in terms of arrangements and regulatory protections we have passenger kilometres). There has been significant established strike the right balance between risk and investment in the infrastructure and rolling stock. reward and encourage Network Rail, working with its Network Rail has improved the efficiency of industry partners, to strive to outperform our operating, maintaining and renewing the network determinations, whilst delivering improvements in over the last five years by nearly 30%. And rail is an train performance, safety and capacity. The other environmentally friendly mode of travel. All this has parts of the package include: the licence obligations; led to increased levels of passenger and freight the monitoring and enforcement of the outputs, the customer satisfaction. financial framework and the various protections we But our evidence highlights that there remains have established for Network Rail against risks and significant room for further improvement. These uncertainties; and the contractual and incentive improvements will need to be made if the arrangements. We expect the balanced package set opportunities and challenges that lie ahead are to be out in our draft determinations to be considered and addressed successfully. Passenger and freight judged as a whole. traffic are expected to continue to increase Network Rail has committed to becoming a world- significantly and customer expectations in terms of class company through transforming its processes reliability, safety, comfort, and value for money will and developing the skills and competencies of its similarly grow. As passenger demand for weekend workforce. We strongly support this objective and travel continues to grow, there are increasing welcome many of the initiatives that the company expectations that the railways will be open for has set out in its plans for 2009-14. However the business for longer, thereby necessitating different evidence we have collected and the analysis we and more efficient ways of managing the have undertaken in the periodic review has infrastructure. And this will need to be achieved convinced us that, in order to become world-class, alongside continued improvement in worker safety Network Rail must make bigger and faster and accommodating the different needs of freight improvements than it has proposed. Our draft customers. As other transport modes continue to determinations therefore both challenge and reduce their emissions through the use of new incentivise Network Rail to work together effectively technology, rail will also need to find ways of with its industry partners in order to respond to the improving its environmental performance if it is to challenges to improve capacity, train performance maintain its relative environmental advantage. and safety, whilst driving further improvements in However, as it stands today, and despite the efficiency than it has proposed. progress made over the last five years, the railway The scale and pace of change required means that remains too expensive to take full advantage of the Network Rail will need to ensure that it has sufficient opportunities. If they are to be grasped fully, there capability, including the strength in depth and will need to be significant further improvements in customer focus of its management. It will need to efficiency. continue
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