PR18 draft determination: charges and incentives supplementary documents and consultations
As part of PR18, we have reviewed the structure of the charges levied for use of the network and the incentives in place on Network Rail and train operators.This is important because charges and incentives affect the decisions that Network Rail, train operators and funders make, influencing both the cost of maintaining and renewing the network and how efficiently network capacity is used.
We commenced the review of charges and incentives for PR18 in 2015, and our first consultations on the regimes came at the end of that year. We engaged extensively with industry throughout this process, through consultations, industry workshops, discussions at RDG working group meetings and bilateral discussions.
We published our draft determination on 12 June 2018, which set out our expectations of what Network Rail should deliver over control period 6 (CP6), and the funding required to do so. The draft determination, as well as other associated documents, are available here.
Some of the documents we published alongside the draft determination relate to charges and incentives, and we have listed these below and provided links where you can access them.
Supplementary document: Overview of charges and incentives decisions
Variable usage charge and infrastructure cost charge - update
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Variable usage charge and infrastructure cost charge - update
As part of the 2018 periodic review (PR18), we published a letter providing an update on our work on the variable usage charge and infrastructure cost charges. In particular, the letter outlines that:
- the draft determination (to be published in June 2018) would include a proposal to cap/phase in the variable usage charge (VUC) for freight and charter services over for a time limited period;
- we considered whether such a proposal was appropriate for open access passenger operators; and
- we asked Network Rail to cancel publication of its ‘draft CP6 price list’, consistent with its SBP, scheduled for April 2018. A price list reflecting our proposed approach to capping / phasing-in would be published by Network Rail following publication of the draft determination.
The letter also provided an update on the ongoing development of our infrastructure cost charging (ICC) approach, including two decisions we took in relation to proposals to be included for consultation as part of the draft determination.
Charges and contractual incentives - PR18 update
Published: 13 April 2018
Letters from Department for Transport and Transport Scotland regarding the variable usage charge are published below:
Department for Transport letter
Infrastructure cost charges in CP6
The VUC in CP6tives stakeholder presentation slides - February 2017
PR18 consultation on amending Schedule 4 notification factors
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In December 2017, we published a consultation setting out options for revising notification factors for franchised passenger operators. This followed on from our previous consultation published in December 2016 on changes to charges and contractual incentives.
We received 15 responses from a range of stakeholders. We are grateful to all those who responded. The responses are redacted where appropriate and are available here.
Following careful review of stakeholder responses, we have published conclusions to the consultation. The conclusions document, as well as all other documents relating to this consultation, are available on this page.
Working papers - volume incentive and collaborative working
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Date published: 30 November 2018
Closing date: 25 January 2018
Conclusions published: 24 May 2018 and 12 June 2018
As part of the 2018 periodic review (PR18) of Network Rail, we reviewed a number of charges and incentives.
In November 2017 we published a high-level update on our charges and incentives work, alongside two working papers setting out initial views on the development of the volume incentive in CP6, and on strengthening the incentives for collaborative working between operators and Network Rail.
On the volume incentive working paper, we received nine responses from a range of stakeholders. We are grateful to all those who responded. Following careful review of stakeholder responses, we published a letter to Network Rail outlining our conclusions to the working paper. The responses to the working paper and consultation are available here.
On aligning incentives, we received 12 responses, available here. We also had a number of discussions with stakeholders to inform our thinking on this issue. We are grateful to all those who responded and engaged on this issue.
Our conclusions on this area are set out in our draft determination supplementary document: overview of charges and incentives decisions. In particular, we decided to remove the route level efficiency benefit sharing mechanism (REBS) for CP6.
Update on charges and incentives cover letter
Working paper 6: The volume incentive
Working paper 7: Collaborative working on the rail network
Consultation on charges recovering fixed network costs
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Date published: 28 September 2017
Closing date: 30 November 2017
Conclusions published: 12 June 2018
As part of the 2018 periodic review (PR18) of Network Rail, we reviewed the way in which the charges operators pay to access the rail network are calculated.
In September 2017, we published a consultation on charges recovering fixed network costs. This consultation built on our June 2017 charges and incentives conclusions letter, where we confirmed that we would continue to work towards levying charges to recover fixed network costs on all operators, subject to a market-can-bear test.
The purpose of this consultation was to continue progress on developing our approach to levying these charges, which we have called infrastructure cost charges. This approach involved identifying a number of different market segments and then assessing the extent to which each segment could bear infrastructure cost charges. We set out emerging proposals on the market segmentation for freight and passenger services, and an initial view on the ability to bear infrastructure cost charge for the freight market segments we defined, based on technical analysis undertaken by our consultants. We also set out proposals around the approach to levying infrastructure cost charges on passenger operators.
We received 26 responses from a range of stakeholders. We are grateful to all those who responded. We have published all non-confidential responses (see the link below).
Following review of the consultation responses, as well as further analysis, we have set out final proposals on all aspects of our infrastructure cost charging policy in a consultation published alongside the draft determination.
Consultation responses
Responses to PR18 consultation on charges recovering fixed network costs
Published 12 June 2018
Consultation documents
PR18 consultation on charges recovering fixed network costs
Response pro-forma for consultation on charges recovering fixed network costs
Additional documents
In addition to the above consultation documents, we commissioned CEPA and Systra to produce analysis on the market segmentation and ability to bear mark-ups for different types of freight and passenger rail services. Both documents are available.
Market-can-bear analysis: Freight services, report by CEPA, published 9 October 2017
Market-can-bear analysis: Passenger services, report by CEPA and Systra, revised version published 16 November 2017
For other information on upcoming PR18 publications, please see our PR18 timetable.
PR18 charges & incentives impacts model
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In our June 2017 conclusions to our consultation on charges and incentives, we committed to publishing an explanatory note introducing the model we developed to assess the financial impact on train operators of changes to charges and incentives in PR18.
In July 2017, we published a preliminary version of the model and a preliminary version of the explanatory note and invited comments on our proposed approach. Since then we continued to refine the model as new information became available. The model was completed and used to inform our decisions on the levels of charges (especially the variable usage charge (VUC) and infrastructure cost charge (ICC)) and incentives for PR18. Reflecting the changes that we made to the model since July 2017, this updated version of the explanatory note describes the scope and features of the model and its limitations.
Our intention in publishing the model (and this explanatory note) is to provide transparency on its limitations and, reflecting this, the types of additional information that would be useful for stakeholders to share with us to supplement the evidence that the model provides.
Please read the explanatory note before looking at the model as this sets out its scope and limitations. For example, as the input data used in this analysis is not publicly available, the model uses only dummy data.
Explanatory note introducing the PR18 charges and incentives impacts model
Version 2: June 2018
Conclusions on changes to charges and contractual incentives
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Date published: 15 December 2016
Consultation closing date: 9 March 2017
Conclusions published: 29 June 2017
In December 2016, we published a consultation on changes to charges and contractual incentives. This built on previous work undertaken as part of the 2018 periodic review (PR18) of Network Rail’s outputs and funding – for example, our December 2015 consultation and November 2015 stakeholder letter on Schedules 4 and 8.
We received 37 responses from a range of stakeholders. We are grateful to all those who responded. The responses are redacted where appropriate and are available (see the link below).
Following careful review of stakeholder responses, we made our conclusions to the consultation. Where appropriate we also updated the supporting documents that accompanied the proposals in our December 2016 consultation, to take account of stakeholder comments. Both our conclusions and these updated supporting documents are available below. The conclusions document contains an annex outlining next steps, including details of further consultations in autumn 2017.
Conclusions documents
Conclusions on consultation on charges and contractual incentives
Published 29 June 2017
Responses to PR18 consultation on changes to charges and contractual incentives
Published 29 June 2017
Please see the drop down menus below for the impact assessments and supporting documents to the consultation and conclusions.
Consultation document
Improving incentives on Network Rail and train operators: a consultation on changes to charges and contractual incentives
Published 15 December 2016
Documents supporting conclusions
Final impact assessments
- PR18: Electric Current for Traction (EC4T) – Final impact assessment on keeping the loss incentive mechanism – June 2017
- PR18: Fixed costs - Final impact assessment on options for fixed costs
- PR18: Freight mark up charges - Final impact assessment on simplification option and methodology change
- PR18: Station long term charge - Final impact assessment on the methodology at managed stations
- PR18: Qualifying expenditure (QX) - Final impact assessment on QX transparency
- PR18: Capacity charge - Final impact assessment on options for the capacity charge
- PR18: Coal spillage charge - Final impact assessment on abolishing the charge
- PR18: Schedule 8 - Final impact assessment on Schedule 8 and passenger compensation
- PR18: Schedule 8 - Final impact assessment on approach to setting benchmarks
- PR18: Schedule 8 - Final impact assessment on the measure of passenger operator performance
- PR18: Schedule 8 - Final impact assessment on effectiveness of the SPP regime
Schedule 4 supporting documents
- PR18: Schedule 4 - Decision not to pursue a range of schedule 4 issues in PR18 (updated June 2017)
- PR18: Schedule 4 - Initial thinking on incentives created by notification discount factors (updated June 2017)
- PR18: Schedule 4 - Initial thinking on the approach to calculating the access charge supplement (updated June 2017)
- PR18: Schedule 4 - Initial thinking on negotiated compensation arrangements for planned disruption (updated June 2017)
Consultation and initial supporting documents
We set out below the material that we published at the time of consultation. This includes the consultation document and supporting materials. Where appropriate, these supporting documents have been updated or finalised and are published above.
Consultation:
Improving incentives on Network Rail and train operators: a consultation on changes to charges and contractual incentives
Published 15 December 2016
Annexes:
- Annex A: Summary of control period 5 charges and contractual incentives framework
- Annex B: Glossary
- Annex C: Assessment framework
Draft impact assessments:
- PR18: Fixed costs - Draft impact assessment on options for fixed costs
- PR18: Freight mark up charges - Draft impact assessment on simplification option and methodology change
- PR18: Station long term charge - Draft impact assessment on the methodology at managed stations
- PR18: Qualifying expenditure (QX) - Draft impact assessment on QX transparency
- PR18: Capacity charge - Draft impact assessment on options for the capacity charge
- PR18: Coal spillage charge - Draft impact assessment on abolishing the charge
- PR18: Schedule 8 - Draft impact assessment on Schedule 8 and passenger compensation
- PR18: Schedule 8 - Draft impact assessment on approach to setting benchmarks
- PR18: Schedule 8 - Draft impact assessment on the measure of passenger operator performance
- PR18: Schedule 8 - Draft impact assessment on effectiveness of the SPP regime
Initial thinking and proposals:
- PR18: Schedule 4 - Proposal not to pursue a range of schedule 4 issues in PR18
- PR18: Schedule 4 - Initial thinking on incentives created by notification discount factors
- PR18: Schedule 4 - Initial thinking on the approach to calculating the access charge supplement
- PR18: Schedule 4 - Initial thinking on negotiated compensation arrangements for planned disruption
Stakeholder events
In February 2017, we held two stakeholder events in London and Glasgow to help support attendees in the developing their responses to this consultation. Slides used at these stakeholder events are available.
Charges and contractual incentives stakeholder presentation slides - February 2017