Friday 7 May 2021

 

< back | business | images | knowledge | library | rail unveiled | home

archive

::: RMT to stage 24-hour strikes on East Midlands Railway



Railhub Archive
2000-03-20 ORR-001
Office of the Rail Regulator

0

Rail Regulator rejects Railtrack performance targets for 2000-01


keywords: click to search


Railtrack



Phrases in [single square brackets] are hyperlinks in the original document

Phrases in [[double square brackets]] are editorial additions or corrections

Phrases in [[[triple square brackets]]] indicate embedded images or graphics in the original document. (These are not usually archived unless they contain significant additional information.)


Office of the Rail Regulator

Rail Regulator rejects Railtrack performance targets for 2000-01
_______________________________________________________________


related documents


2000-02-17 Railtrack board agree biggest ever investment plan for 2000/01 (Railtrack plc)

2000-01-20 Railtrack announces third quarter operating improvements (Railtrack plc)

_______________________________________________________________


date
20 March 2000
source Office of the Rail Regulator
type Press release

note ORR/00/07


The Rail Regulator, Tom Winsor, today outlined intended performance targets
for Railtrack for the year 2000-01.

He gives notice that in the period 2000-01 Railtrack is expected to achieve a
5 per cent performance improvement in minutes delay attributable to causes for
which Railtrack is responsible in addition to catching up any shortfall for
the period 1999-2000 and rejects Railtrack's proposal of 5 per cent alone.

Commenting on this, Tom Winsor said:

'I welcome Railtrack's efforts to meet the 1999-2000 target of 12.7 percent
(which is 7.5 percent plus the shortfall from the previous year). The company
has worked hard to achieve it and is doing well. However, the final figure
will not be known until next month.

'The 2000-01 target of 5 percent plus catching up any shortfall in the current
year is fair and achievable. This figure has been recommended by my experts
and independent consultants appointed by me for this purpose.

'Railtrack needs to take this target as seriously as it is taking the current
one. For 2001-02 onwards, I hope to rely primarily on improved contractual
incentives rather than enforceable targets, and next month I will be
publishing my provisional conclusions on the incentive framework.'

NOTES FOR EDITORS

1. Railtrack has been told that the Regulator expects to establish
separate targets of 5 percent improvement in delays and cancellations of
passenger and freight trains for which Railtrack is responsible. This is on
the basis that Railtrack achieves all of the 12.7 percent target for the year
1999-2000. If Railtrack does not do so, the Regulator expects to require it
to achieve all of the 1999-2000 shortfall as part of its target for 2000-01.

2. Railtrack proposed to the Regulator that the 2000-01 target should be
a 5 percent improvement on whatever is achieved in the current year. If
Railtrack fails fully to achieve the existing 12.7 percent target, its
proposal would have meant that some of the 2000-01 5 percent target would have
been eaten up by the shortfall in 1999-2000. The Regulator has therefore
rejected that proposal.

3. The Regulator will finally establish the 2000-01 target when he has
considered how well Railtrack performs in the current year and the reasons for
any shortfall.

4. In August 1999 the Regulator commenced enforcement action against
Railtrack to incentivise it to achieve the 1999-2000 target of 12.7 percent
reduction in delays to passenger trains attributable to Railtrack fault. The
penalty imposed in that enforcement action was 4 million pounds for every
percentage point by which Railtrack failed to meet the 12.7 percent target.

5. The penalty of 4 million pounds per percentage point of any shortfall
was necessary to incentivise the company to achieve the 1999-2000 target
because it had failed to take appropriate remedial action until late in the
year.

6. In relation to the 2000-01 target, if there is a shortfall the
Regulator expects to impose a penalty of 2 million pounds per percentage
point. But if the company fails timeously to take the necessary management
action to meet it, the penalty could be up to 4 million pounds per percentage
point. This is explained in the attached letter from the Regulator to the
Chief Executive of Railtrack dated 17 March 2000.


17 March 2000

Gerald Corbett Esq
Railtrack PLC
Railtrack House
Euston Square
London NW1 2EE


Dear Gerald

PERFORMANCE TARGETS AND PENALTIES FOR 2000-01

1. You have indicated that you intend to publish in the 2000 NMS a
performance improvement target for 2000-01 of 5 percent per train movement for
both passenger and freight trains against the base actually achieved for
1999/2000.

2. My office has now received advice from Booz Allen and Hamilton on
your performance targets for 2000-01. The advice confirms our own view that
in 2000-01 it is possible for Railtrack to achieve 5 percent improvement on
the 12.7 percent target for the current year. In the light of this I am
presently minded to accept a 5 percent target on the basis that you will also
catch up any shortfall and that the 5 percent target applies separately to
passenger and freight. Before reaching a final decision, however, I will need
to consider all the circumstances including the reasons for any shortfall. I
will write to you about this when the final figures for this year are known.

3. As indicated in the October 1999 periodic review document, I believe
it is in the public interest for me to provide advance guidance on the
circumstances in which I would expect to take enforcement action and the basis
for any monetary penalties. I also note that, if enacted, clause 200(3) of
the Transport Bill would require me to publish a statement of policy with
respect to the imposition of penalties and the determination of their amount.
This reinforces my October 1999 decision.

4. The proposed approach for 2001-02 and beyond will be set out as part
of the periodic review and, as indicated in the October 1999 periodic review
document, I hope to be able to rely primarily on improved contractual
incentives with less need to resort to enforcement of your network licence.

5. For 2000-01, however, the periodic review will not serve to remedy
the acknowledged shortcomings of the existing contractual incentive regime.
Moreover, it would not be appropriate for me to wait until later in the year
to inform you of my present thinking on this issue since this would make it
more difficult for you to take account of any potential penalty when managing
your business (e.g. when making investment decisions which could have an
effect on performance).

6. I hope that it will not prove necessary for me to take further
enforcement action in relation to your performance targets for 2000-01. If I
am required to do so, however, I am presently minded to set the monetary
penalty at 2 million pounds per percentage point of any eventual shortfall
from the established target. In reaching a final decision on the potential
penalty, I would of course need to take account of all the relevant
circumstances including Railtrack's ability to finance its activities and the
other matters mentioned below. As with the potential penalty for the current
year, I would also expect to make provision for minutes delay to be left out
of account if Railtrack had reduced minutes delay to the greatest extent
reasonably practicable.

7. The reasons for a penalty of 2 million pounds per percentage point
are those set out in paragraph 53 of the section 56 notice which I published
on 19 August 1999. This paragraph stressed the importance of considering the
interaction with the incentives provided by the existing performance regime
and the periodic review. I was particularly concerned to avoid double
counting by penalising Railtrack twice. The basic approach was therefore to
start by establishing the level of penalty required to compensate for the
shortcomings of the existing contractual incentives.

8. Since August 1999, you have responded positively to the incentives
provided by my enforcement action. I believe that the experience in this
respect supports the need for stronger incentives. In addition, the SSRA has
confirmed its view that the incentives for TOCs and Railtrack to improve
performance should be doubled and this provides further support for a penalty
of 2 million pounds per percentage point in 2000-01.

9. As you will appreciate, this level of penalty for next year is
entirely consistent with the way in which I established the penalty of 4
million pounds per percentage point in the current year. In the years 1998-99
and 1999-2000, Railtrack failed to take appropriately early remedial action in
relation to its shortfalls in performance. In order to incentivise compliance
with the target, therefore, it was necessary in August 1999 to introduce a
higher incentive for compliance to offset the increase in costs (e.g. because
work may not have started soon enough). This point was explained in paragraph
56 of the section 56 notice.

10. If, later in the year, I am required to make an enforcement order
and it appears that you are unlikely to achieve the target because you have
not planned appropriately and taken account of the potential penalty, then I
may have to set a higher penalty to provide sufficient incentive to incur the
costs of complying with the target over a shorter period. However, I do not
presently expect this to exceed 4 million pounds per percentage point.

11. The contents of this letter reflect my current thinking and are, of
course, subject to my consideration of any relevant representations which may
be made to me in consequence of this letter or subsequently.

12. I am copying this letter to Lord Macdonald, Sir Alastair Morton and
Mike Grant and will publish it and issue it to the Stock Exchange at 07.00 on
Monday 20 March 2000.


TOM WINSOR


Extract from Railtrack's Performance Targets: Statement by the Regulator -
issued 19 August 1999


56. However, the cost of meeting these targets may have increased since
they were established (e.g. because work may not have started soon enough).
This means that, if the penalty is based only on the value of the improvement
in performance, Railtrack may not have an adequate incentive to meet the
target. The values referred to in the previous section therefore need to be
uplifted to derive an appropriate penalty.


Railhub Archive ::: 2000-03-20 ORR-001





Friday
7




Not logged on
Visitor










347 stories



4 documents



2 collections





2 documents



8 documents