Response from the Office of Rail Regulation
Following the release of the report into Investing
in the railway on 19th January, ORR has considered
the Committee's recommendations and would like to respond on a
number of the conclusions reached.
Firstly, in relation to freight, the Committee reached
the following conclusion:
"17. Rail freight is a crucial part
of our economy, and its needs must be balanced against that of
passenger rail. The Government should produce a freight strategy,
considering road and rail freight together, to ensure a coherent
and fair policy. It must also set out and consult on the practical
steps required to achieve its strategic outcomes, including the
modal shift from road to rail and the decarbonisation of freight
transport. We believe the Office of Rail Regulation must consult
on the track access charging regime with a view to reducing the
current complexity. (Paragraph 60)"
ORR has committed to review Network Rail's charges
and incentives for its next five year funding period (CP6, 2019-2024).
To inform this work, the Rail Delivery Group (RDG) has launched
a programme of work looking at how rail operators are charged
to run trains on Network Rail infrastructure.
ORR acknowledges that the process for PR13 could
have been conducted better as far as the freight issues were concerned
and these points have been picked up in our own process review
for incorporation in the next periodic review. We have engaged
extensively with the rail freight industry to understand these
issues over the last eighteen months and we have sought to work
more closely with freight stakeholders to gain a better understanding
of the sector and its customers and the impact of our work upon
it.
We have already begun the process of engagement with
a wide range of stakeholders on the charging regime for PR18 in
preparation for the publication of an early initial consultation
on the options for future charging structures (with draft impact
assessments) during Q4 2015. As part of this engagement we have
spoken directly with freight stakeholders about their concerns,
such as the potential commercial impacts on different operators
in the sector and the needs of their customers. The Secretary
of State and Scottish Ministers' High Level Output Specifications
(HLOSs) will also play an important part in outlining the Government's
priorities for freight in the next control period.
We recognise that the requirements of different freight
end-customers are highly varied in different sub-sectors (for
instance just-in-time product distribution, supply of the energy
industry and aggregates traffic). The freight train operators
(represented by Peter Maybury, Chairman of the Freightliner Group
and freight-lead for the Rail Delivery Group) attended our board
meeting in January 2015.
We welcome the freight operators' work to set out
and quantify the value of rail freight to the economy - including
broader impacts such as environmental and safety benefits, which
will feed into ORR's preparation for the PR18 review including
our advice to Secretary of State and Scottish Ministers' HLOSs.
We also welcome the work the industry itself has done in conjunction
with ORR, following our discussions on the issues in PR13, to
resolve a number of long-standing issues in the way freight operators
use the network to improve the use of scarce capacity, and to
avoid unnecessary impacts on the reliability of passenger and
other freight train services and to improve whole industry costs
and efficiency. We have seen a step-change in the quality of engagement
on these difficult issues since PR13.
Also, following a successful event to promote dialogue
with freight customers (i.e. the customers of the rail freight
operators) in October 2014, we began the process of establishing
a freight customer panel to represent the sector's interests in
our on-going work programmes and ensure that the concerns of the
sector are fully understood. The panel will have its first meeting
on 4th March 2015.
Secondly, on the performance of Network Rail, the
Committee stated:
"23. While it is essential for Network
Rail to deliver value for money for the taxpayer, efficiency savings
cannot put the safety and reliability of the rail network at risk.
The ORR should consider whether the disruption over Christmas
and the New Year suggests that Network Rail is unable to deliver
the enhancements programme planned for CP5, alongside a safety-focused,
high-performing railway each and every day. In the light of the
change of status of Network Rail the ORR must reconsider whether
fining a public sector body remains an acceptable means for the
regulator to exert control. (Paragraph 80)"
Network Rail delivered more than 98% of the complex
engineering works planned for the Christmas and New Year period
on time, carrying out work on 300 separate projects across 2,000
worksites. It generally has a good record for handing back access
to its network following work on time.
In our Q2 Monitor,[2]
we expressed concerns regarding Network Rail's progress towards
successfully delivering the enhancements projects in CP5. We
identified weaknesses in Network Rail's ability to deliver projects
on time, and in how it manages the complex portfolio of projects
it is expected to deliver in CP5. We requested an improvement
plan and received this in January. We are currently considering
the actions needed to ensure Network Rail strengthens its ability
to deliver the programme.
The ability to levy financial penalties is one of
a range of options available to the regulator in the event that
a license holder is found to have breached conditions in its license.
In some circumstances it may be appropriate to require the licensee
to put in place a recovery plan which then becomes enforceable.
Most recently, when ORR found Network Rail in breach of its license,
it chose not to take any regulatory action because Network Rail
accepted all of ORR's recommendations and agreed that they form
part of the reasonable requirements it is expected to deliver
(if necessary enabling the regulator to take enforcement action
in the future). Reparations are sometimes an alternative to levying
financial penalties, for example, as a result of missing its funded
obligations, and to address issues which disrupted services for
passengers, we required the Network Rail to commit extra funds
(£25m) to improve the resilience of the rail network in London
and the South East.
ORR is currently conducting a review of its enforcement
policy and expects to publish its revised policy by the autumn.
Finally, in their conclusion, the Committee stated:
27. To maximise the benefits of the
increased spending it should be clear how it fits into a longer-term
strategic vision for the railways. While the control periods are
a useful management tool, they need to be matched by the publication
of a long-term plan, which brings together plans for franchising,
rolling stock and enhancements work, and considers the rail network
as a whole. Connectivity between the high speed and classic network
should be prioritised, as should links to ports and airports.
This plan should be linked to an "outturn statement"
for each control period, helping to track spending, provide greater
transparency around benefits realisation. This will strengthen
the accountability of Network Rail and the ORR to Government and
Parliament, as it will be clear if projected outcomes have materialised.
Given the concerns we have expressed about Network Rail's capacity
to deliver the CP5 programme, it is vital for passengers and taxpayers
that it is held to account in this way. (Paragraph 86)
We agree that having a clear longer-term strategic
vision is essential for a long-term asset like the railways. Through
the five-year control period process, ORR aims to work with industry
and government to place each control period within a long-term
vision for GB rail, which takes account of government and industry
plans for franchised services, freight and rolling stock and enhancements
work. Alongside our Final Determination for CP5, we also published
our Long Term Regulatory Statement, setting out opportunities
and challenges for the railway, which also considers how incentives
can be better aligned across the whole industry and supply chain.
A major theme, for instance, of CP6 will likely be the implications
of HS2 for our regulation of the classic rail network, as we seek
to make sure that passengers and freight receive the full benefits.
ORR holds Network Rail accountable in each control
period for the delivery of the outputs that have been specified
and funded, and does so transparently and publicly. At the end
of CP4, we published how Network Rail has performed against their
regulated outputs, for both England and Wales and Scotland in
our regulatory Monitors.[3]
We will continue to report to Parliament and the public on Network
Rail's performance throughout CP5, so that they can be held to
account for delivery of the outputs that the public and passengers
pay for.
2 The Network Rail Monitor is part of how we hold
Network Rail to account. It sets out how we think Network
Rail is doing in delivering its obligations to its customers and
funders, and highlights any areas of concern. See: http://orr.gov.uk/publications/reports/network-rail-monitor
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