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2007-02-28 ORR-001
Office of Rail Regulation

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ORR publishes its Advice to Ministers and framework for setting access charges


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Office of Rail Regulation



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Office of Rail Regulation

ORR publishes its Advice to Ministers and framework for setting access charges
_______________________________________________________________


date
28 February 2007
source Office of Rail Regulation
type Press release



ORR/05/07

The Office of Rail Regulation (ORR) today starts the formal phase of the 2008 periodic review. The review will set how much Network Rail will be able to charge for access to the mainline railway for the period 2009-14. ORR determinations will be based on a clear understanding of what Network Rail needs to deliver, and the regulator's judgments of the revenue Network Rail would be likely to need.

ORR has issued the statutory notice that requires the Secretary of State for Transport and Scottish Ministers to provide by the end of July 2007 details of their high level output specifications (HLOSs) – setting out what they want the railways to deliver in control period 4 (the period from 2009-14) and their statements on the public financial resources available (SoFAs) – detailing the funding that they are willing to provide to support railway services. ORR has published its advice on these decisions setting down its current assessment of the possible level of Network Rail’s funding requirement following appraisal of Network Rail’s initial strategic business plan. ORR has also published its guidance to Network Rail on its strategic business plan that it must submit by 31 October. ORR has also set out the framework for setting access charges and its decision on the upper limit for future freight charges (with an expectation that actual charges will be significantly below the limit).

Bill Emery, ORR Chief Executive, said: “The key challenge to the rail industry over the next few years will be to cope with the rapidly increasing demand for passenger and freight services. It is good news that rail is in demand more than ever, but failing to provide for this growth at lower cost levels will see this environmentally-friendly mode of transport fail to capitalise on its recent gains.

“As the joint safety and economic regulator, we want to see these challenges addressed with full regard to both the safety of the network, and value for money. We have taken a close and critical look at Network Rail's initial strategic business plan. In recent years the company has made improvements in managing the network to deliver better performance (including safety) and efficiency, but we consider that there is significant room for further improvement.”

ORR's assessment on the funding requirement for the railway as it stands in control period 4, without accommodating the anticipated growth in demand, is as follows:


£million (2005-06 prices
Control Period 3

Network Rail's ISBP baseline; (business as usual) scenario; ORR's Advice to Ministers

England & Wales Total
20,810; 19,920; 16,470 to 19,200

Scotland Total
2,470; 2,410; 1,950 to 2,400

ORR will publish its final determinations of Network Rail’s revenue requirement, and overall level of access charges and outputs in October 2008. Final levels of individual access charges and vehicle price lists will be approved in December 2008 following the final determinations.

Freight charges
ORR today also announces its decisions on the upper limit for future freight charges (caps) for control period 4. After analysing Network Rail's cost submissions, and consulting the industry on the issue, ORR has set the maximum level of variable usage charges that freight carriers would pay for use of the network. Based on the analysis to date, the sum could reduce from the current levels of £88m per year in the present five-year period to £41m per year. ORR is setting an absolute maximum capped level of £99m per year (at current traffic levels).

ORR is also putting forward new charges to ensure that certain freight-only rail lines are paid for in their entirety by freight operating companies; consistent with the Government’s intent, as stated in the Future of Rail White Paper, that the full costs should be met by freight operators. These charges will be applied to sectors that we have concluded can afford to pay higher charges. These are: (i) coal for the electricity supply industry (to pay no more than £14m per year, but the final value could be as low as £4m per year); and (ii) carriers of spent nuclear fuel (to pay no more than £1.4m per year, but the final value could be much lower).

Notes for editors
The process to reach this stage began in August 2005 when ORR started the 2008 periodic review. Network Rail published its initial strategic business plan (ISBP) in July 2006, giving its own opinion on the funding needed for the work it intended to carry out. ORR has reviewed and challenged Network Rail's ISBP in detail to reach the figures released today.
The Office of Rail Regulation's 2008 periodic review (PR08) will determine Network Rail's outputs, revenue requirement and access charges for control period 4 (CP4), which will run from 1 April 2009 to 31 March 2014.
The Advice to Ministers starts the formal phase of PR08, under the provisions in Schedule 4a of the Railways Act 1993, as amended by schedule 4 of the Railways Act 2005. It accompanies the notice to the Secretary of State for Transport, Scottish Ministers and other relevant parties of ORR's proposal to undertake a review of access charges.

Press enquiries
ORR Press Office – 020 7282 2188


Railhub Archive ::: 2007-02-28 ORR-001





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