Rail Industry Focus

Punctuality matters: raising the bar for CP5

ORR chief executive Richard Price argues that the final determination for Network Rail is ‘stretching but achievable’.

Network Rail has been charged with delivering infrastructure maintenance and improvements to stop regular disruption on busy main lines. The regulator has set its expectations high for the next five years; and this time there can be no excuses.

Speaking at the Future of Rail conference, ORR chief executive Richard Price told delegates that better outcomes would lead to greater freedom for the industry.

He said the ORR has identified “a number of areas where they can go further,” with the determination setting out how quickly it is reasonable to close the gap between Network Rail’s current performance and good practice.

The final determination for the control period 2014-2019 – a weighty and complex document of some 959 pages – includes increased monitoring of Network Rail’s performance, particularly on the worst routes, and new targets on long distance punctuality. The ORR has also called for 20% additional efficiencies over the course of CP5, with day-to-day costs reduced by £1.25bn.

Questions and answers

There have been “big challenges” around punctuality in CP4, with figures diminishing this year down to a low of 84.4% PPM in period 9. Network Rail is currently on track to be saddled with a “substantial penalty” from the ORR for missed targets.

Although the ORR reduced the PPM targets for the first three years of CP5 in its final determination after representations from Network Rail, the final 2019 output remains at 92.5%.

“Punctuality matters enormously to passengers”, Price said, and is the biggest single cause of dissatisfaction in the railway. Tackling this could drive further growth. But he said: “On a congested network, the answers are not straightforward by any means.”

Better asset management is one part of the answer; allowing Network Rail to predict and prevent major incidents before they become critical. A better understanding of rail assets will offer more sustainable and efficient outcomes, the final determination suggests.

There will be mandatory asset management targets in CP5 and the ORR itself is planning to intervene earlier, with more structured monitoring and support to stop a repeat of this year’s performance.

Repairs and upgrades to overhead lines can help to sustain performance improvements – a lesson learnt on the Anglian route, and
being replicated on the WCML.

“Devolution is making a difference,” Price said, with better planning of possessions to get the most work done in the shortest possible time frames, and closer collaboration between Network Rail and the TOCs to support renewals.

A different type of regulation

The ORR will be working differently in CP5, and is determined to be proportionate and effective. The regulator aims to intervene only where necessary, leaving the running of the railway to the industry and giving them the space to use their expertise and innovation.

Price said he strongly believes the rail industry needs the freedom to innovate and deliver, but that the ORR must seek assurance that Network Rail is on track to deliver what it’s funded to do.

“The capabilities and resource are there and I am confident that Network Rail will do it.”

As the final determination itself explains: “There is no doubt that this settlement represents a sizeable challenge for the company. And it is right that it should. But it is in everyone’s interest that Network Rail delivers this challenging determination and hence it includes checks and balances, which are designed to give Network Rail, and the industry, flexibility to respond.

“While the overall output requirements are demanding, we have provided some flexibility. For example, we have set the output for reducing disruption to passengers for the end of the control period, so that Network Rail and the industry can decide the most sensible trajectory to reach that point, taking into account the large investment programme.”

The indicators the ORR will be monitoring are the same as those they would expect Network Rail to have in place itself, and the company will be given increasing freedom once performance turns around and outputs get to the levels they must reach.

Better asset management and planning is key, along with increased collaboration. The potential for greater use of alliancing is there, Price added.

Few and far between

In some areas Network Rail is doing some “very good quality” work, he said, but warned that good examples are too few and far between. “There is a long way to go on asset management and planning.” (More on this on page 92)

The determination explains: “Network Rail has significantly reworked its policies, presenting them in a ten stage process, in line with best practice as recommended by the asset management independent reporter, AMCL. They show a step-change in quality and coverage. New policies have been developed in key areas and existing policies have been refined where previously mature (for example, track) or rewritten where known to be poor (as is the case for civil structures policy).

“The CP5 policies reflect a further move towards the differentiation of asset interventions depending on the asset’s criticality, and therefore better target expenditure on the basis of risk. They also move towards a more targeted approach to asset management, renewing only those components that require renewal where this is believed to be the most cost effective whole life approach.

“Although Network Rail has made significant progress in the development and justification of its asset policies we consider that some areas of weakness remain.

“Deficiencies in Network Rail’s asset knowledge limit its ability to demonstrate that its policies are fully optimised.

“Network Rail still does not have asset data knowledge of sufficient quality, in particular relating to asset degradation.”

A more crowded network means that access is complicated, but Network Rail must be getting the basics right, Price told the conference.

Financials

The Network Rail underspend was highlighted recently by the ORR, and has raised some concerns, but group finance director
Patrick Butcher said the money would be spent in the next period instead.

But with a significant backlog of renewals, Price commented: “Under-spending is not efficiency when your customers suffer the consequences. Spending the right amount in the right place will reduce delays and get costs down.”

The financial monitoring of Network Rail is also changing. The determination document acknowledges that there have been “strong
differences of view between ourselves and Network Rail on the extent to which the company has financially performed in CP4.

These have been caused by factors such as there being no shared view on the most appropriate approach to measuring financial performance, and how Network Rail provides evidence supporting its analysis given issues with data quality. We intend to put this on a firmer footing for CP5.”

Safety and finance

The ORR’s dual role as safety and financial regulator is “complementary”, Price explained. “We are a better economic regulator because we’re a safety regulator and we’re a better safety regulator because we’re an economic regulator”.

He recognised that safety on the UK network is very high compared to the rest of Europe, but added that we cannot be complacent. Track worker safety was recognised as a key area for improvement, as well as continued work to make level crossings safer.

Summary of CP5 efficient expenditure assumptions

£2.119bn – Support

£1.968bn – Operations

£3.056bn – Traction electricity, industry costs and rates

£5.166bn – Maintenance

£1.058bn – Schedule 4

(compensation paid to TOCs for engineering possessions)

= £13.367bn – Total operating expenditure

£12.107bn – Renewals

£12.818bn – Enhancements

= £24.925bn – Total capital expenditure

= £38.293bn – Total expenditure