Exploring our approach to regulating Network Rail’s ‘system operator’ function

In May, we launched our initial consultation on the 2018 Periodic Review (PR18) of Network Rail.

Our aim for the Review is to support a more efficient, safer and better performing railway in Great Britain, delivering value for passengers, freight customers and taxpayers into the next decade and beyond.

Our approach to regulation is adapting to reflect the considerable changes that have occurred in the rail industry since our last periodic review in 2013. This includes considering a potential new approach to regulating Network Rail’s national system operator function.

Timetabling, capacity management and analysis and long-term planning functions are all component parts of system operation, and all are central to the company achieving better performance.

We think a refreshed approach to regulating the system operator, Network Rail, has the potential to support the company in making the best possible use of the existing network.

This would be a notable change from our current approach. At the moment Network Rail’s system operation functions are not subject to specific regulation or monitoring by ORR – instead, we mainly focus on Network Rail’s infrastructure management functions (for instance, its delivery of enhancements).

Also, the incentives currently in place arguably place significant weight on certain aspects of passenger and freight performance (for instance the public performance measure (PPM) and the freight delivery metric), while providing limited stimulus to accommodate additional traffic or to identify better ways to use the current network.

So we think there could be a benefit to changing this approach in the future and we are currently exploring what that might look like.

For instance, we could identify the ‘system operator’ activities that Network Rail undertakes nationally on behalf of its routes and customers and set a separate settlement for these functions.

This could complement our proposal to regulate more at a route level, following Network Rail’s moves to devolve further responsibilities from the centre to its routes. This would help mitigate the risk of increased devolution to routes, and help promote coherent planning and service provision to those train operators that cross route boundaries.

In setting a separate settlement for the system operator, there are a range of approaches we could adopt. We could set certain performance measures on the system operator – for example, that capture the quality of the timetable and/or the performance of services that cross routes – which Network Rail would be required to report against.

So system operation would sit next to, and complement, activities led by the routes.

As it stands, routes currently play a key role in undertaking some important aspects of operating the system; for instance signalling and leading the response to most disruption.

These roles are not expected to change and we would not expect our regulation of the national system operator to include these activities. This means that when we determine route-level outputs and the related monitoring framework as part of the current periodic review process, we will need to consider how these system operation activities which sit within the routes should be captured.

We are currently developing our thinking in this area and are inviting input from industry and others to inform this. To support this discussion, we have recently published a ‘working paper’ on system operation and related topics that start to explore the issues that we need to work through.

We invite comments on these papers by 24 August.