Memorandum submitted by the Office of
Rail Regulation
SCOPE OF
THE OFFICE
OF RAIL
REGULATION'S
POWERS
1. The Office of Rail Regulation (ORR) is
an independent statutory body established under the Railways and
Transport Safety Act 2003. [13]As
economic regulator for the industry ORR exercises a number of
statutory functions, including:
Setting Network Rail's outputs and
access charges, and monitoring delivery of outputs.
Approving and setting the terms on
which train operators use Network Rail's network, including the
Network Code which sets out the rules for timetabling the network.
Issuing, monitoring and enforcing
compliance with licences held by Network Rail and train operators.
Concurrently with the Office of Fair
Trading, acting as the competition authority for the railway industry.
Under the Railways Act 2005, ORR will take responsibility
for regulation of railway safety from the Health and Safety Commission
and Health and Safety Executive. The transfer is expected to take
place early in 2006.
2. This memorandum outlines:
ORR's responsibilities concerning
fares and ticketing, and how these have changed recently.
ORR's responsibilities in respect
of advanced timetable information, what ORR has done to improve
the situation, and the current position.
ORR's competition law responsibilities
concerning rail fares and ticketing.
FARES AND
TICKETING
3. ORR does not regulate fares. Until recently
this has been the responsibility of the Strategic Rail Authority
(SRA) which regulated fares through franchise agreements. The
SRA used its powers to regulate certain "commuter" fares
(including standard day singles and returns and season tickets
within the London Travelcard zone and certain other major suburban
areas such as Leeds and Manchester) and certain "protected"
fares (including some Saver tickets) where necessary to protect
the interests of rail users. Regulation of fares has now passed
to the Department for Transport (DfT) as a consequence of the
Railways Act 2005.
4. Also, as a consequence of the Railways
Act 2005, ORR has assumed responsibility from the SRA for the
imposition and enforcement of a number of licence conditions dealing
with consumer protection matters. These include requirements for
licensees to be party to certain industry agreements including
in relation to through ticketing. Timetabling information is also
among the matters covered. At the same time DfT assumed various
approval roles under the terms of the licence conditions, including
in relation to through ticketing, to reflect the synergies between
such issues and franchising and fares policy.
PROVISION OF
ADVANCED TIMETABLE
AND FARES
INFORMATION
5. Unlike the airline industry, train operators,
with very few exceptions, only provide reservations and sell reduced
price advance purchase tickets (which are normally linked to travel
on specific train services) when they can confirm the timing of
trains at the point of booking. In consequence, advance, confirmed,
timetable information is vital to enabling passengers not only
to plan their journeys, but also to access cheaper fares.
6. Network Rail is responsible for leading
the process for preparing the timetable, in consultation with
operators. The timetabling process is governed by the Network
Code, and by Network Rail and train operator licences.
7. There are two main elements to the process:
The production of the annual timetable
in December, with an update in June.
Amendments to the base timetable
to reflect Network Rail's programme of engineering work.
A key requirement of this process is to ensure
that Network Rail provides the information about the passenger
timetable to be operated to train operators at least 12 weeks
in advance of operation. This is so that train operators can provide
this information to passengers and make use of it for commercial
purposes no later than 9 weeks in advance. This requirement is
called the Informed Traveller requirement (or T-12).
8. Key activities necessary to deliver T-12
are:
At around 30 weeks in advance (T-30)
of a disruptive possession Network Rail sends affected train operators
a draft of its Period Possession Plan.
By 26 weeks in advance (T-26) Network
Rail confirms the details of the possession plan.
By 18 weeks in advance (T-18) train
operators bid to Network Rail the revisions they wish to make
to their timetabled services (this can either be a detailed revision
or a specification).
By 14 weeks in advance (T-14) Network
Rail, having checked train operator bids or fleshed out specification
bids and having reconciled any conflicts between operators' bids,
makes offers to the train operators of the revisions it intends
to upload by 12 weeks in advance.
In the light of any concerns proposed
by operators, Network Rail "uploads" the revised timetable
into the Train Service Database (TSDB) by 12 weeks in advance
(T-12).
Within 36 hours TSDB feeds into publicly
available timetable information and train operator commercial
systems.
By nine weeks in advance train operators
are required to make information available to their customers.
From the point at which train operator
systems are populated from TSDB, manipulation of the data for
commercial use (eg seat reservations, advanced-purchase fares)
takes around a further day or so.
DELIVERY OF
THE INFORMED
TRAVELLER REQUIREMENT
9. During 1998 it became clear to the then
Rail Regulator that the industry was failing to meet its T-12
commitment. ORR therefore proposed and in May 1999 agreed with
Network Rail (then Railtrack) and train operators, licence modifications
requiring them to meet the requirement.
10. Generally the industry was compliant
with the T-12 requirement before the Hatfield derailment in October
2000. In the period after Hatfield, the need to restore network
operation and remove speed restrictions was given priority, and
compliance with T-12 collapsed. The then Rail Regulator accepted
that network recovery needed to take priority.
11. During 2001-03, Railtrack/Network Rail
and train operators made some attempts to improve the position,
but other priorities (eg the continued focus on removal of speed
restrictions to maintain and improve performance, the work on
the West Coast Main Line upgrade, the Southern Region New Trains
Programme) meant that the industry did not recover the position.
In early 2004 the Rail Regulator concluded that the position was
unsatisfactory and asked Network Rail to produce a recovery plan
to address the breach of its licence.
12. Network Rail's recovery plan, produced
in July 2004, envisaged full recovery of compliance with T-12
by July 2005. The timescale reflected the need to introduce better
planning systems, reorganise train planning offices, and to work
with operators to recover the backlog of work. After extensive
review of the plan, ORR accepted it was the way forward. ORR concluded
that it was not appropriate to make an enforcement order requiring
compliance because to do so would not provide any more impetus
to the recovery process. ORR instituted a regular monitoring regime
with Network Rail and train operators.
13. In the early stages of the recovery
plan, the scale of the challenge to Network Rail and the train
operators became clear. In particular there were serious problems
at Christmas/New Year 2004-05 with both the timeliness and accuracy
of the information. ORR required Network Rail to take further
steps to recover the position, and obtained commitment to these.
ORR also further stepped up its monitoring arrangements.
14. The final milestone in delivery of the
recovery plan was the upload, 12 weeks in advance, on 2 July 2005
of the timetable for the week commencing 24 September 2005 for
all train operators. This was achieved for 21 out of 28 train
operators; for others there were specific problems which were
being addressed. On 19 July 2005 ORR was able to make a press
statement in which it said:
"ORR has concluded that Network Rail has
made good progress. It now has firm managerial control of its
planning of engineering work and is able to provide train operators
with the necessary advance notice of disruption to their services.
Network Rail has also improved its processes for producing an
accurate timetable in the light of this, reflecting the needs
of train operators".
15. At the time this memorandum was written
(late September) timetable revisions for 22 out of 28 train operators
were regularly being uploaded, on target, 12 weeks in advance.
Those operators not meeting the target do not have significant
advanced reservation business, and actions are in hand to address
the problems. The main long distance train operators offering
advance purchase tickets (First Great Western, GNER, Midland Mainline,
First Scotrail, Virgin Cross Country and Virgin West Coast) were
all open for reservations and the purchase of tickets at least
10 weeks ahead.
16. ORR is satisfied that Network Rail and
train operators have arrangements in place to continue to deliver
the T-12 requirement. Given the wide range of influences on delivery
of the T-12 output, and last minute events (for instance the recent
tunnel collapse on the Chiltern line), there will be occasional
failings, but ORR will continue to monitor the position carefully
and seek continued improvement.
17. The implication of this is that information
about the timetable should generally be publicly available just
after 12 weeks in advance, and reservations should be available
at least nine weeks in advance. Where train operators wish to
offer reduced price advance purchase fares, non-availability of
timetable information should not prevent them doing so.
ORR'S ROLE
UNDER THE
COMPETITION ACT
1998
18. ORR can investigate fares that appear
to be excessive under the prohibition in the Competition Act 1998
dealing with abuse of a dominant position.
19. In assessing whether or not there is
dominance, ORR will take into account the extent to which alternative
modes of transport such as bus or coach provide a competitive
alternative for the particular route or routes concerned. In terms
of the abuse, the legal test is whether the price bears any reasonable
relation to the economic value of the product supplied (in this
case the passenger journey).
20. On receipt of a complaint, ORR first
establishes whether the fare is regulated through the franchise
agreement. Fares policy was reviewed by the SRA in 2003, and the
cap on each operator's basket of commuter fares and basket of
protected fares was set at the 2002-03 value of each basket, increased
by RPI+1% in January 2004 and cumulatively each year after that.
Operators have a degree of flexibility to adjust individual fares
within their fares basket as long as the value of the fares basket
as a whole does not exceed the cap, and as long as increase in
any one individual fare within that basket does not rise more
than 6% above the rate of inflation compared with the price charged
for that fare in the previous year.
21. A further consideration for ORR is that
franchise agreements are let at the end of a competitive tender
process. In bidding, potential franchisees assess their expectation
of overall costs and revenues for operating a franchise, which
includes a number of specified public service obligations. ORR
may have to consider whether the application of competition law
to a particular ticket price or service would be appropriate where
this would have an undesirable impact on the performance and viability
of the franchise overall.
Office of Rail Regulation
September 2005
13 The Office of Rail Regulation was established on
5 July 2004. Prior to that date the functions referred to in this
memorandum were undertaken by the Office of the Rail Regulator. Back
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