Structure of costs and charges review

ORR committed to carrying out a review of the structure of charges in its 2004-07 business plan. In the light of changes in the industry structure following the Government’s White Paper, ORR will now carry out a ‘structure of costs and charges review’, which will contain the following elements:

• a review of the structure of costs, including the development of an infrastructure cost model to calculate the cost of operating, maintaining, renewing and enhancing the railway infrastructure for different levels and types of use; and
• a review of the structure of track access charges paid by franchised passenger train operators to Network Rail.

Background

The current structure of track access charges for passenger franchise operators was last reviewed as part of the 2000 periodic review of access charges.  A review of the structure of costs and charges is considered necessary at this time, for the following reasons:

• there is a need for better route and local cost information to meet customers needs and reflect the changes in the structure and functioning of the industry, in particular due to the Government’s Rail Review White Paper.  This sets out a number of changes including the devolution of increased powers and responsibilities to local and regional bodies and the requirement for ORR to analyse the costs of alternative specifications of rail outputs for Government and other funders;
• there is evidence that costs and charges may have diverged, particularly since the 2003 access charges review; and
• there has been further industry research on cost causation that has been carried out since 2000 that is not represented in the calculation of the existing structure of charges.

Phases of the review

A four phase process for the review is proposed, as follows: 

• phase 1: establish the framework for the review, including the setting of objectives, establishing economic principles and clarifying the requirements of the Government and other funders;
• phase 2: undertake incremental analysis of the current cost base, which will allow:
• phase 2a: geographical breakdown of current infrastructure costs to inform devolvement of powers and responsibilities to devolved administrations and local and regional authorities; 
• phase 2b: revision of franchised passenger track access charges.
• phase 3: further analysis of costs for alternative specifications of infrastructure use; and
• phase 4: creation of a computer based model, based on the analytical work from phase 3, to estimate the incremental cost for alternative levels of infrastructure use. 

Phase 1 of this review started formally with the publication of the Structure of Costs and Charges: Initial Consultation Document on 2 November 2004.

The Emerging views and key issues document was published on 8 April 2005 along with an initial report prepared in January 2005 by ORR's consultants Booz Allen & Hamilton on the revision of the variable usage and electrification asset usage charges.

On 22 July 2005 ORR held a seminar on the Structure of Costs and Charges Review at the City University in London. Presentations were given by:

• ORR
• Network Rail
• English Welsh & Scottish Railway
• Booz Allen Hamilton (ORR's consultants)
• TTCI (UK) (ORR's consultants)
• AEA Technology (ORR's consultants)

Documentation  

The following documents are available for download as PDF files: