The next five-year funding period for our national railway is almost upon us. The Office of Rail and Road (ORR) plays a key role in determining what Network Rail needs to deliver in order to efficiently operate, maintain and renew the railway – £31 billion in England & Wales, and £4 billion in Scotland.
Transport Britain spoke to the ORR’s Carl Hetherington, Deputy Director of Economic Regulation and Regulatory Finance. We discussed why Control Period 6 (CP6) should deliver improvements to the railway for passengers, how the lessons learned from Control Period 5 (CP5) have shaped the way the regulator has worked with Network Rail, and how this will stand the future of Britain’s railways in good stead.
The full interview will be published in the next issue of Transport Britain.
In the draft determination, the ORR called for an improvement in reliability. What has been put in place in that sense that makes you happy?
The reliability of Network Rail’s assets needs to improve and the original plans did not include enough expenditure on renewals. After our draft determination, Network Rail agreed to spend around £600 million more on renewals than in its original plans, which should help. But what really counts is how Network Rail uses that funding. We will continue to closely monitor asset reliability in CP6 and how effective Network Rail’s expenditure has been.
What were the main changes between the final determination and draft determination?
The big change was that Network Rail’s revised plans met our overall efficiency challenge, which made around £600m available for spending on renewals.
It was important that we put in place a process called Managing Change, which allows plans to be revised in certain circumstances. This helps to maintain the integrity of the routes, but allows cash to be managed across the company as a whole as effectively as possible. This process recognises that Network Rail is one company, has two main funders, and has individual route businesses.
We also worked on the charges the industry will pay and the legal documentation, e.g. changes to access contracts, which come into effect on 1 April.
How has the collaboration differed between this and the last determination?
This review was very different to previous ones and generally, the engagement was better. Inevitably, there were areas where we disagreed. But there were also areas where working together produced better answers, e.g. on research and development.
In terms of the improvements in the devolved areas, how is that more efficient in terms of infrastructure and rail upgrades made within the control period?
If an organisation is centrally-focused, inevitably decisions on asset management and efficiency initiatives will be taken at a high level and understanding passenger and customer priorities is harder. As you get closer to the asset, you can understand what’s going wrong with it and how you can improve the asset, so that local knowledge is important.
Also, if there are different management teams, different solutions to the same problem may have been developed, so the teams can learn from one another. This will drive efficiency improvements.
One of our key issues is that there is a vast amount of information about the railway and how it is operating. But it’s providing the right information to decision makers who are spending the money that matters.
To illustrate what I mean. After a meeting in Felixstowe with stakeholders, one of ORR’s railway inspectors that I was coming back with, looked at the track and asked the train driver what he thought of its condition and how it was performing. Having this type of direct feedback is important when Network Rail takes decisions about where money is spent.
Regarding the ORR’s role, what lessons has the regulator learned about its own monitoring process, and how will that benefit the network in the next five years?
We have learnt lessons in the last five years. The main one is making sure that as far as possible Network Rail is prepared to deliver from the start of CP6. We now publish information on the leading indicators that will warn us whether or not Network Rail is ready to deliver. This includes identifying the latest position with establishing renewals work-banks, securing access to the railway for planned disruptive engineering work, building up maintenance resources for the start of CP6 and its plans for delivering efficiency savings. Generally, we consider that Network Rail is in a better position to deliver its CP6 commitments than it was at this point before the start of CP5. But more needs to be done. We are going to publish an update on this at the end of March.
The other key issue is route regulation. We need to meet the routes on a regular basis to hold them to account and we are recruiting people to do this. We also need the right balance between having enough information to understand the drivers of Network Rail’s performance without putting too much of a burden on the company. Where possible we use Network Rail’s own management information.
The key to having good quality information is always being inquisitive. It’s not enough to just have an explanation saying where money has been spent. You need to know why. It’s only finding out the answer to that question that allows us to decide if Network Rail is delivering efficiently.
For the full interview, please read the next issue of Transport Britain.