Select Committee on Transport Minutes of Evidence


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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