Supplementary memorandum by Tom Winsor,
Rail Regulator (RI 21B)
Accountability of Railtrack
1. This paper summarises the accountability
of Railtrack to the public interest.
2. There has been a considerable amount
of debate about the sufficiency of Railtrack's accountability
to the public interest and to its customers.
3. The present Regulator has stated publicly
that the existing regulatory regime is deficient in a number of
important respects, and has therefore been pursuing a programme
of reform using the mechanisms for change already built into the
regime, so as markedly to strengthen and improve it. In addition,
the Transport Act 2000 has enhanced the regulatory system with
effect from 1 February 2000.
4. Railtrack is a monopoly supplier of an
essential service. Accordingly it is subject to public interest
regulation, established under the authority of Parliament.
Railtrack also faces accountability under contracts.
5. The Regulator's programme of reform of
the accountability of Railtrack began in 1999. It covers substantially
all of Railtrack's core business, and has three main limbs
(a) reform of the financial structure of
the industry through the periodic review of Railtrack's access
(b) modifications of Railtrack's network
licence to strengthen the conditions on which Railtrack is authorised
to operate its network; and
(c) strengthening and streamlining Railtrack's
contracts with its dependent customers, namely the train operators
(passenger and freight).
6. That programme of reform is nearing completion.
7. Railtrack's accountability can be divided
into five general areas
(a) accountability for the operation, maintenance
and renewal of the network, including in matters of the allocation
of capacity, timetabling and management of operational disruption;
(b) accountability for the enhancement of
(c) accountability for the closure or disposal
of parts of the network and the company's landholdings;
(d) accountability for the approval of rolling
stock for use on the network; and
(e) accountability for safety.
8. The principal legal sources and instruments
of Railtrack's accountability are
(a) the economic regulatory regime, established
under the Railways Act 1993, the Competition Act 1998 and the
Transport Act 2000, and the licences and other instruments made
(b) contracts with its customers and funders,
including train operators (passenger and freight) and the Strategic
(c) the process of the periodic review of
Railtrack's access charges, under which the Regulator may adjust
the amount of money which Railtrack may charge for use of its
network taking into account the company's past performance;
(d) industry-wide codes which establish operational
and technical rules and procedures which need to be common for
all industry participants;
(e) the general rules of administrative law
which apply to Railtrack when it is carrying out duties of importance
to the public, such as the type approval of new rolling stock;
(f) the safety regulatory regime, established
under the Health and Safety at Work etc. Act 1974 and regulations
made under it (principally the Railways (Safety Case) Regulations
Types of enforcement
9. The methods of enforcement of these instruments
differ. In general terms
(a) enforcement of economic regulatory instruments,
such as the conditions of Railtrack's licences and the statutory
prohibitions on anti-competitive practices and abuse of a dominant
position, is in the hands of the Rail Regulator;
(b) enforcement of contracts and industry-wide
codes is in the hands of the parties to the contracts in question.
In the case of access contractswhich allow train operators
to use Railtrack's networkit is the passenger and freight
train operators themselves which are able to take the necessary
action, and public authorities have no locus in their enforcement.
In the case of contracts between Railtrack and funders (such as
the SRA), enforcement is in the hands of the funder;
(c) the periodic review process is conducted
by the Regulator, with a right of appeal of the Competition Commission;
(d) the rules of administrative law permit
any person with a sufficient interest in the matter to take action
by applying for appropriate public law remedies such as judicial
(e) enforcement of safety requirements is
in the hands of the Health and Safety Executive, using enforcement
and prohibition notices under the Health and Safety at Work etc.
Act 1974 and regulations made under it; violation of these
rules generally carry criminal sanctions.
Statutory basis for enforcement of licence conditions
10. Enforcement of licence conditions by
the Regulator takes place under section 55, Railways Act 1993,
as amended and supplemented by the Transport Act 2000. Those powers
of enforcement are considerable.
Scope of enforcement orders
11. The enforcement regime enables the Regulator
to take action to require Railtrack to comply with its licence
obligations if it is in breach, or where the Regulator is satisfied
that a breach is likely.
12. An enforcement order may contain such
provisions as the Regulator determines are appropriate to ensure
that Railtrack complies with its licence obligations. Therefore,
it may specify the result which Railtrack must achieve, leaving
it to the company to determine how best to secure that result.
Consequences of breach of enforcement order
13. Breach of an enforcement order has the
(a) it is a breach of statutory duty, and
so can be the subject of civil legal proceedings against Railtrack
by any person adversely affected; for example, this could involve
a freight customer suing for damages for loss of business;
(b) the Regulator may obtain an injunction,
ordering performance of the order; breach of an injunction is
a contempt of court, and punishable as such;
(c) the Regulator may impose monetary penalties;
in 1999, he did so, at the rate of £4 million for every one
percentage point by which Railtrack fell short of its passenger
train performance target;
(d) the Secretary of State may revoke the
network licence if
(i) Railtrack continues to fail to comply
with an enforcement order after receiving three months' notice
of the Secretary of State's intention to revoke the licence on
that ground; and
(ii) the revocation of the licence is a proportionate
step for the Secretary of State to take; this means that the licence
could not be revoked for a trivial breach.
14. In addition, the Transport Act 2000
strengthens the enforcement regime in several respects, including
empowering the Regulator to impose a monetary penalty for a past
breach of the licence.
Enforcement of Competition Act 1998
15. The Competition Act 1998 makes provision
for a special regime of enforcement, with rights of appeal to
the Competition Commission Appeal Tribunal.
16. Under the Act, the Regulator has the
power to impose financial penalties of up to 10 per cent of an
offending company's turnover.
17. The operation, maintenance and renewal
of the network is Railtrack's core business. In general terms,
(a) timetabling and signalling trains over
the network in real time, including dealing with operational disruption;
(b) inspection of the state of its assets,
collecting and maintaining data about them, and carrying out preventative
and unscheduled maintenance;
(c) renewal of its assets in a timely fashion;
(d) the sale to train operators (and others)
of the capacity of its network, by means of access agreements
which confer rights to use the network to an extent specified
in the agreement; this will usually specify the numbers of trains
which the beneficiary is entitled to run over a given period,
their journey times, stopping patterns and other characteristics.
Condition 7general requirements
18. Railtrack's network licence was granted
on 31 March 1994 by the Secretary of State.
19. That network licence contains conditions
with which Railtrack must comply. The most important of these
is Condition 7 (network stewardship), which requires the company
(a) maintain, renew, replace, improve, enhance
and develop the network;
(b) in accordance with best practice and
in a timely, efficient and economical manner;
(c) so as to meet the reasonable requirements
of train operators and funders in respect of the quality and capability
of the network;
(d) all this to the greatest extent reasonably
practicable having regard to all relevant circumstances including
matters of finance.
Condition 7network management statement
20. Condition 7 also requires Railtrack
annually to publish a statementcalled the network management
statementstating how it expects to comply with that obligation
for the next 10 years. The statement must be provided in sufficient
detail to enable providers and potential providers of railway
services to plan their businesses and to enable funders of railway
services to plan their future financial and service requirements,
in each case with a reasonable degree of assurance. The network
management statement must contain
(a) projections of future network quality
and capability requirements;
(b) planned modifications to the network;
(c) the expected effect of such modifications
on the quality and capability of the network, the quality of network
services and the ability of users to provide improved services
to their customers;
(d) the estimated costs of, and the method
proposed for financing, such requirements and improvements within
Railtrack's overall financial framework; and
(e) a progress report on the matters referred
to in the last published statement.
21. This is a wide-ranging and significant
condition. It goes to the heart of Railtrack's responsibilities
for the maintenance and improvement of the network, including
the expansion of its capacity. Under Condition 7, Railtrack may
not be required to undertake work without appropriate financial
arrangements. The decision on the adequacy of the work and of
the associated financial arrangements is a matter for the Regulator,
not the company.
22. The Regulator has the power, every five
years, to revise the financial structure and the levels of Railtrack's
charges, in a process known as the periodic review of Railtrack's
access charges. Each five year period is known as a "control
period". The Regulator may, if there is an appropriately
strong case, carry out one or more interim reviews during a control
period. Regulators of the other privatised network industries
have the same powers. The Regulator's decision on a periodic review
(including an interim one) can be appealed by Railtrack to the
Competition Commission, whose decision is final.
23. The first control period was from 1995-2001.
The second begins on 1 April 2001 and lasts until 31 March 2006.
24. The financial framework for the first
control period, established in 1995, was not fit for purpose and
the Regulator has, for the second control period, determined that
substantial improvements are required.
25. The recent periodic review has defined,
in far greater detail than the one in 1995, what Railtrack has
to deliver for the money it receives in the second control period.
These things are usually referred to as the relevant "outputs".
This definition includes
(a) specific incremental outputs, such as
annual performance improvements and reductions in the numbers
of broken rails;
(b) investments which the company must make
in order to comply with new obligations, such as the installation
(c) other enhancement schemes which the SRA
has stated it wants to buy as part of the periodic review (these
are known as "incremental output statement schemes"
or simply "IOS schemes"); and
(d) greater specification of the condition
which specified classes of Railtrack's assets must meet, for example
in terms of track geometry and the number and severity of temporary
26. Railtrack is accountable for the delivery
of these outputs in several different ways.
27. The first is through the performance
regime established in each of the access contracts with passenger
and freight train operators. The periodic review has strengthened
and simplified the contractual economic incentives on Railtrack
to reduce delays. To the extent that delays increase because of
a deterioration in the condition of the network, this will have
an immediate adverse financial impact on the company. However,
improving the performance regime on its own is not enough, since
the condition of the network can deteriorate significantly before
there is any impact on performance. Accordingly the Regulator
has determined that additional measures are necessary, described
Adjustments to charges
28. In the recent periodic review, the Regulator
has set out the approach he would expect to take in the 2006 periodic
review if Railtrack fails to deliver the required outputs.
29. This includes the ability of the Regulator
to make adjustments to the company's regulatory asset base (or
and hence access charges, if Railtrack fails to deliver the required
outputs. For example, there is an automatic adjustment mechanism
if the actual incidence of broken rails is different to the incidence
assumed in the periodic review. This too provides a direct financial
incentive for good stewardship of the network, and, the more it
secures that the company performs to expectations, or outperforms
them, the better the condition of the network.
30. In short, it is a system of considerable
scope and flexibility which allows the Regulator to
(a) clawback money paid (by adjusting future
charges) if the company has failed to deliver in some respect;
(b) ensure that the company is appropriately
financed for the efficient and competent delivery of additional
outputs, such as the installation of new safety systems.
Enforcement by Regulator
31. If, despite the above measures, the
company is still seen to be falling well short of the relevant
targets, this may be an incidence of a serious failure of stewardship.
As such, immediate enforcement action by the Regulator may be
the most appropriate course of action. If so, this could
result in monetary penalties. The Regulator has published, in
the periodic review, general guidelines on the basis for establishing
such penalties. The basic principle is that the penalty should
be set at a level which is sufficient to incentivise the company
to comply with the relevant obligation without imposing unnecessary
risk on the company.
Local output statements
32. Although the periodic review has focussed
primarily on aggregate national output measures, the Regulator
will also require these national outputs to be translated into
local output statements which can be enforced by train operators
through their access contracts.
Enforcement action taken under Condition 7
33. The present Regulator has taken enforcement
action against Railtrack for breach of Condition 7 on three occasions
since July 1999, in relation to
(a) failure to meet passenger train performance
targets in 1998-2000 (August 1999);
(b) lack of progress on the West Coast route
modernisation (November 1999-May 2000);
(c) the national rail recovery plan following
the Hatfield derailment (January 2001).
West Coastspecial case
34. The West Coast route modernisation is
a project of considerable national importance. The Regulator has
taken action to compel Railtrack to produce credible and robust
plans in relation to the upgrade, and options which the SRA needs
to make its decisions on the particular outputs which it wishes
to finance in the public interest.
35. The Regulator, in conjunction with the
SRA, is establishing detailed milestones for the progress of the
project, and will use his reporters
to monitor progress. If problems occur, the Regulator will require
Railtrack to produce and carry out an appropriate remedial plan.
He may back up delivery of remedial action with enforcement of
Railtrack's network licence.
Other action re stewardship issues
36. In addition, the Regulator has used
his powers under Condition 7 to apply pressure on Railtrack, without
the necessity of formal enforcement action against the company
at this stage, in relation to
(a) Broken rails The Regulator
has taken continual action in this respect since 1999, when it
became evident that the number of broken rails was significantly
rising. He has required Railtrack to produce a plan to reduce
the number of broken rails, and the Regulator and HSE commissioned
to review both the adequacy of this plan and the quality of Railtrack's
rail management strategies. The Regulator is now considering Railtrack's
response to the report, and will continue to ensure that it takes
action to improve performance in this area;
(b) Track quality The Regulator
has identified significant decline in track quality since the
formation of Railtrack, and has required Railtrack to improve
the standards of its track maintenance by producing and delivering
a track quality improvement programme. This programme is continuing,
and the Regulator will be reviewing its achievements during 2001;
(c) Possessions strategies Following
concern expressed by train operators and others about planning
and management of possessions, the Regulator required Railtrack
to produce plans to improve the arrangements. He is now considering
further action in the light of recent failings at Willesden and
37. Railtrack's network licence was granted
in March 1994 when the company was in the public sector. Although
the then Government stated that, if and when a decision to privatise
the company was taken, the licence would be strengthened to make
it fit for a private sector Railtrack, when the company was privatised
in May 1996 no appreciable change to the licence was made.
38. Accordingly, the Regulator has embarked
on a programme for the reform of Railtrack's network licence,
to improve Railtrack's accountability in a number of important
39. The licence can be amended in one of
(a) by acceptance of Railtrack;
(b) by compulsory means, without Railtrack's
agreement, after the matter has been referred by the Regulator
to the Competition Commission and the Commission has agreed with
the Regulator that the public interest requires the change to
40. Naturally, the Regulator would prefer
to modify Railtrack's network licence by acceptance, but he has
stated that he is prepared to send the matter to the Competition
Commission using the compulsory amendment procedure if necessary.
Changes to be made
41. The changes which the Regulator intends
to make to Railtrack's network licence are described below.
42. Railtrack (and its maintenance and renewal
contractors) needs to have comprehensive and reliable information
about the condition, capacity and capability of its network. Information
of that kind is also needed by others, including train operators,
rolling stock manufacturers, developers of new railway facilities
(such as freight terminals), local authorities and PTEs.
43. The Regulator's proposed new licence
condition requires Railtrack to establish and maintain such a
register, to a high standard of accuracy and completeness.
44. The Regulator's consultation on the
terms of the appropriate new licence condition asked how third
party access to the data on the register should best be secured.
The general consensus was that third parties should have a contractual
right to the information, rather than a right enforceable only
by the Regulator. Accordingly the Regulator will consult further
on the terms on which that access may be secured.
Reporters on Railtrack's stewardship of the network
45. The monitoring of Railtrack's stewardship
of the network cannot and should not involve regulatory shadowing
of everything Railtrack does. However, it is necessary, on an
auditing and occasionally closer basis, to make an assessment
of the adequacy of Railtrack's work.
46. The Regulator's new licence condition
provides for independent experts to be appointed by Railtrack,
with the approval of the Regulator, to carry out assessments and
investigations in relation to the extent and nature of Railtrack's
work. An example will be the sufficiency of its maintenance and
renewal of the network. The expertscalled "reporters"will
be paid for by Railtrack but will report direct to the Regulator,
and be accountable to him.
47. The Regulator will be able to determine
what depth and level of investigation is carried out, and with
what frequency. A core task for the reporters will be to verify
the information provided by Railtrack in the annual return (see
below). At the very least, this will involve audit of the processes
used to collect the data and/or the data itself. In some cases,
however, specific issues may be examined in more detail and the
reporters may be required by the Regulator to provide an independent
review of recovery plans where particular stewardship problems
have arisen. The reporters would also be expected to provide a
report on progress against the milestones established (in conjunction
with the SRA) in relation to the West Coast route modernisation.
Dealings with dependent persons
48. Railtrack's relationships with its customersmainly
(but not exclusively) train operators, rolling stock manufacturers
and other railway industry playershave often been criticised
as unresponsive, inefficient and in other respects unsatisfactory.
49. The proposed new licence condition requires
Railtrack, in its dealings with third parties of a stated classthat
is, including the persons mentionedto behave with due efficiency
and economy and in a timely manner, including in all respects
with that degree of skill, diligence, prudence and foresight which
should be exercised by a skilled and experienced network owner
Annual return on performance and condition of
50. The outputs which Railtrack was expected
to deliver in the first control period (1995-2001) were never
clearly defined. It is not therefore surprising that the way in
which Railtrack reports on these outputs has tended to be rather
ad hoc and inconsistent. However, the recent periodic review
has started the process of defining much more precisely what Railtrack
is required to deliver for the money it receives.
51. The Regulator's proposed licence modification
will require Railtrack to provide an annual return to the Regulator.
That annual return will report on the performance and condition
of Railtrack's network over the previous year. It will therefore
consolidate the existing and new information in more consistent
and useful format and will include an explanation of any significant
variances. The annual return will operate in addition to the Regulator's
existing powers to obtain information from the company, and the
verification and monitoring arrangements to be established by
means of reporters.
52. The Regulator intends to modify Railtrack's
network licence so as to include a new condition which enables
him to prevent Railtrack disposing of assets if to do so would
be contrary to the public interest. This matter is dealt with
in paragraphs 94-96 of this paper.
53. It is important that Railtrack's ability
to finance its core activities is not prejudiced by other ventures
which the company may, in its commercial judgement, decide to
undertake. Accordingly, the Regulator has decided that it is necessary
for Railtrack to be required to preserve, protect and defend its
core assets for railway purposes, and ensure that they cannot
be pledged for the purpose of non-core activities. It is also
necessary to ensure that Railtrack maintains an appropriate capital
structure and that transactions between the core business and
other (unregulated) parts of the group are on an arm's length
54. The licences of other regulated network
businesses have been modified to introduce stronger controls on
financial ring-fencing and the Regulator's proposed modification
of Railtrack's network licence is consistent with the approach
in other regulated industries. Although this is not currently
a major issue with Railtrack, the Regulator considers it appropriate
to introduce best practice in this area before rather than after
potential problems materialise.
55. Railtrack's current regulatory accounts
are of very limited use to either the Regulator or investors.
In particular, the level of information was clearly inadequate
to inform the recent periodic review and the accounts provide
investors with very little information on how the company is performing
against the assumptions which were made at the time of privatisation.
56. The Regulator's proposed new licence
modification will therefore require Railtrack to provide more
detailed and disaggregated information in a way which is consistent
with the approach and assumptions adopted in the recent periodic
review. Railtrack will also be required to provide an explanation
of material variances between the periodic review assumptions
and what actually happens in terms of expenditure and revenues
in particular areas. This will help to establish whether these
variances are due to differences in the company's efficiency,
prices or outputs.
Contracts of public importancerequirement
for regulatory approval
57. With the increase in the numbers of
trains being run, the capacity of some parts of the network is
fast running out. It is a matter of considerable public importanceas
well as commercial significance to the companies concernedthat
the capacity of the network is used efficiently and on the right
types of services.
58. Accordingly, the Railways Act 1993 provides
that the Regulator should oversee and control the consumption
of the capacity of railway assets (track, stations and light maintenance
depots). The capacity is consumed under contractscalled
"access contracts"between the facility owner
(in the case of track, this is Railtrack) and the beneficiary
(the train operator).
59. Because of the importance of these contracts,
the legislation requires that, unless exempted or subject to special
each access contract must be approved by the Regulator. In doing
so, the Regulator operates according to public interest criteria.
Compulsory access to railway facilities
60. In the case of its network, if Railtrack
demands from a train operator unreasonable termsfor example,
too high a priceor unreasonably refuses access altogether,
the train operator can obtain access using compulsory means under
section 17 of the Railways Act 1993. This means that any abuse
of Railtrack's monopoly power in granting access to its network
can be checked and, if necessary, overcome.
61. If a section 17 application is made
to him, after following due process the Regulator is empowered
to direct Railtrack to enter into an access contract with the
train operator in question on terms which the Regulator, not Railtrack,
decides. These terms will include the price to be paid, the capacity
to be provided, a specification of the other services which Railtrack
must provide and the standard they must reach, and the remedies
available to the train operator if Railtrack fails to honour its
obligations under the contract.
Approval of agreed access contracts
62. If Railtrack and the train operator
have agreed the terms on which capacity is to be sold to the train
operator, that contract still needs to be approved by the Regulator.
The Regulator can require the contract to be changed before he
approves it, and this power is used in many cases.
63. Once approved by the Regulator, the
contract is enforceable only by the parties to it.
Strengthening of contracts
64. The Regulator is in the process of exercising
his powers to produce standard contracts
for access to railway facilities, starting with access to Railtrack's
network. His policy is that the present generation of access contracts
are too weak to ensure that Railtrack is held properly to account
inasmuch as they do not have adequate specifications of the outputs
Railtrack is required to deliver or adequate remedies if it fails.
This matter has been thrown into sharp focus by the aftermath
of the Hatfield derailment.
65. Accordingly the Regulator will ensure
that the next generation of access contractswhich will
run alongside the new franchise agreements which the SRA are devising
as part of the franchise replacement programmewill be stronger,
using these improved standard terms. His policy is also to simplify
and streamline them in a number of respects.
Local output statements
66. Part of the process of reform of access
contracts involves the introduction of a mechanism under which
the train operator is entitled to production by Railtrack of a
statement of the outputs in respect of its network which it is
required to deliver to that train operator. This is the general
obligation to maintain and improve the network
made specific and local.
67. Once established (whether by agreement
with the train operator or after a process to resolve differences),
the train operator will be entitled to enforce the local output
statement, and will have remedies for non-delivery by Railtrack.
Amendment of existing access rights
68. In certain circumstances, a train operator
is entitled to secure a change to his existing access contractwhether
as to the numbers of trains he runs or some other aspect of his
contractual rightsagainst the will of Railtrack.
69. This procedure requires the assistance
of the Regulator in providing criteria for an arbitration of the
issue between the train operator and Railtrack, and secondly in
approving the outcome of the arbitration. Once made, the change
is binding on Railtrack and the train operator.
Timetabling and other disputes
70. Under the industry-wide network code,
the Regulator acts as appeal body for certain disputes in relation
to the establishment of the working timetable (which is usually
put in place twice a year) and the codes of practice for dealing
with operational disruption.
71. Appeals are made to him after the parties
(Railtrack and the train operator) have failed to agree on the
relevant matter. The Regulator's decision is final and binding.
72. The same principles apply to contracts
with funders, except that they may invoke the compulsory access
provisions only if they wish to buy capacity for the purpose of
the operation of trains.
73. In relation to enhancements of capacity,
see paragraphs 79-91 of this paper.
74. Under Condition 3 of its network licence,
Railtrack is obliged to supervise the system of technical and
operating standards with which it and other operators of networks,
trains, stations and depots must comply. These are known as Railway
75. By supervising the system of Railway
Group Standards, Railtrack must ensure that they are fit for purpose.
This involves a system of continuous review and an obligation,
in appropriate cases, to amend or abolish existing Railway Group
Standards and to devise new ones. An example is the case of tilting
trains for the West Coast main line, where completely new standards
are required for new technology.
76. These standards could be operated as
a barrier to entry to the railway industry. They can also involve
significant costs for the persons whose equipment or organisations
are obliged to comply with them. Accordingly Railtrack must be
seen to be operating the system of standards-setting and reform
in an impartial and open way.
If any person is dissatisfied with a decision by Railtrack in
this respect (whether a decision to act or a decision not to take
action), that decision can be appealed to the Regulator.
77. A large number of Railway Group Standards
are ones which require compliance by Railtrack itself. Accordingly
it is a further term of Condition 3 that Railtrack itself abides
by those Railway Group Standards. If it fails to do so, the Regulator
can take enforcement action for breach of that part of the network
Rolling stock approvals
78. The Regulator has received a complaint
against Railtrack for breach of Railway Group Standards. This
concerned the provision to rolling stock manufacturers of appropriate
information about the condition and gauge of its network. The
Regulator has considered the complaint and expects to announce
his decision in Spring 2001.
79. Railtrack's network licence (Condition
7) also requires the company to improve, enhance and develop its
network in accordance with best practice, to meet the reasonable
requirements of its customers and funders.
80. Condition 7 is an important instrument
in ensuring that Railtrack expands the capacity and capability
of its network wisely and well, at the right times and at the
81. The railway industry has a number of
industry-wide codes which establish common rules for the improvement
of railway assets. The most significant of these is the network
code which contains a procedure for changes to the network. That
procedure contemplates agreed or compulsory network changes.
82. If the compulsory procedure is used,
it is for the parties to the code to enforce it. However, if there
is dispute, an application can be made to the Regulator for a
determination and his decision is final and binding.
Powers to change industry-wide codes
83. The industry-wide codes also have procedures
under which the codes themselves can be changed. This is necessary
to ensure that they can be improved over time and can be adapted
to meet changing circumstances, including the requirements of
the public interest.
84. There are two change procedures
(a) a democratic one, in which Railtrack
and train operators have voting rights, but where the final approval
of the Regulator to the change is still required; and
(b) a public interest one in the hands of
the Regulator, under which he can make changes, if necessary without
the agreement of the affected parties, if the public interest
would be served by them.
85. The Regulator is in the process of reviewing
the network code with a view to its reform, and has published
a number proposals in this respect.
86. The Regulator's powers to monitor and
enforce delivery of specific as well as national outputs in relation
to the steady state network apply with equal force to enhancements.
Thus, the Regulator is in the process of establishing, in conjunction
with the SRA, a programme of works and milestones to ensure efficient
and competent delivery of the West Coast route modernisation project.
87. These powers can and will, as necessary,
be applied to other enhancements, for example the upgrade of the
East Coast main line.
Section 16A-Icompulsory enhancement of
network with SRA support
88. If Railtrack demands unreasonable terms
for an enhancement, or unreasonably refuses to carry one out,
section 16A-I of the Railways Act 1993
established a mechanism under which the Regulator can direct Railtrack
to carry out a specified enhancement on terms which the Regulator,
not Railtrack, determines.
89. The application for section 16A-I directions
may be made either by the SRA or by another personfor example
a train operator or a developer of a new rail freight facility
or stationwith the consent of the SRA.
90. It is the duty of the Regulator, under
this new statutory procedure, to give a determination which ensures
that Railtrack is adequately rewarded for carrying out the enhancement.
This means that the price and other terms must be fair.
91. Once the Regulator has directed Railtrack
to carry out the enhancement, Railtrack has a statutory duty to
Statutory closure procedure
92. Closure of railway facilitiesincluding
parts of Railtrack's networkis subject to a statutory closure
93. Closure proposals must be made to the
SRA. If it believes the closure should be allowed, it must publish
a notice to that effect. After receiving representations, the
Secretary of State decides whether the closure should have effect.
Conditions may be attached to a closure consent by the Secretary
of State. Failure to comply with this procedure, or with the conditions
of a closure consent, may lead to enforcement action.
Disposal of assets
94. Railtrack's assets are complex. They
include virtually all of the national network of track and signalling,
stations and depots.
They also include substantial land assets beside or near the railway
which, if disposed of for non-railway purposes, would in most
cases be lost to the railway for good.
95. The Regulator intends to modify Railtrack's
network licence so as to include a new condition which enables
him to prevent Railtrack disposing of assetsincluding landif
to do so would be contrary to the public interest. His proposed
new licence condition is substantially the same as the corresponding
conditions in the licences held by electricity network businesses.
96. It requires the company to obtain the
approval of the Regulator to material disposals of land and other
assets, whilst allowing the company freedom to deal with its land
assets in non-material cases without the need for regulatory intervention.
97. Railtrack has an important role in approving
new rolling stock for use on its network. Without that approval,
new rolling stock may not be brought into service.
98. There are two types of approval
(a) vehicle acceptance, which is essentially
concerned with the safety of the railway vehicle; and
(b) route acceptance, which deals with whether
a particular vehicle or type of vehicle is safe to be operated
on particular parts of the network (for example, in matters of
Railway Group Standards
99. Railtrack is required by relevant Railway
to operate a competent and appropriate system of vehicle and route
acceptance. Failure to comply with those requirements would be
a breach of Condition 3 of its network licence, enforceable by
Vehicle and route acceptance contracts
100. The Regulator is considering publishing
for contracts between Railtrack and applicants for vehicle and
101. Such contracts would specify clearly
the responsibilities of Railtrack and the applicant in relation
to the process, and require Railtrack to provide timely, complete
and accurate information which applicantssuch as rolling
stock manufacturersneed to design, build and commission
new rolling stock. They would also require Railtrack to carry
out its part in the vehicle and route acceptance process in a
timely, efficient and competent manner, with skill, diligence,
prudence and foresight. The contracts would also specify appropriate
remedies in case of breach.
102. As a track access contract, if Railtrack
were to demand unreasonable terms or unreasonably refuse to offer
a vehicle and route acceptance contract, the Regulator would be
able to direct Railtrack to do so under section 17, Railways Act
103. Enforcement of the contract, once entered
into, would be in the hands of the applicant.
104. The safety regime for the railways
is under the supervision and control of Her Majesty's Railway
Inspectorate, part of the Health and Safety Executive. It is not
within the scope of this paper to deal with that regime, which
is largely self-contained.
Office of the Rail Regulator
26 January 2001
ACCOUNTABILITY OF RAILTRACK--UPDATE
1. This paper is a brief update on the information contained in my written evidence dated 26 January 2001 in relation to the accountability of Railtrack.
Programme of reform--general
2. The programme of reform of the accountability of Railtrack to the public interest is nearer completion, with the making of modifications of Railtrack's network licence in several important respects. The process of establishing stronger and simplified access contracts is also further advanced and I expect it to be completed, after appropriate industry and public consultation, in autumn 2001.
Asset register (paragraphs 42-44 of 26 January 2001 evidence)
3. The licence modification requiring Railtrack to establish a comprehensive and reliable register of the condition, capacity and capability of its assets was made on 18 April 2001.
Reporters on network stewardship (paragraphs 45-47)
4. The licence modification establishing a system of reporters on Railtrack's stewardship of its network was made on 11 April 2001. The process of appointing the first reporters is under way.
Annual return on network performance and condition (paragraphs 50-51)
5. The licence modification requiring Railtrack to provide an annual return on the performance and condition of its network was made on 11 April 2001.
Regulatory accounts (paragraphs 55-56)
5. The licence modification requiring Railtrack to provide detailed and disaggregated information for use in measuring actual expenditure against the assumptions in the periodic review was made on 11 April 2001.
Office of the Rail Regulator
25 April 2001
23 See, for example, the Regulator's publications on
the periodic review of Railtrack's access charges; Railtrack's
Stewardship of the Network, Office of the Rail Regulator,
London, November 1999; House of Commons Committee of Public Accounts,
35th report, The Office of the Rail Regulator: Ensuring that
Railtrack Maintain and Renew the Railway Network, The Stationery
Office Limited, London, July 2000 Back
Railways Act 1993 and licences issued under it; Health and Safety
at Work etc. Act 1974 and regulations made under it; Competition
Act 1998 Back
The terms of certain key contracts - namely contracts for the
use of the capacity of Railtrack's network - are subject to the
Regulator's control under sections 17-22, Railways Act 1993; see
paragraphs 57-67 of this paper. Back
Under Schedule 4A, Railways Act 1993, as inserted by the Transport
Act 2000 Back
Before the enactment of the Transport Act 2000, the Regulator
could only impose penalties for breach of an enforcement order,
and could not do so if the breach had been remedied by the time
he took enforcement action. Back
Schedule 4A, Railways Act 1993 (as inserted by the Transport Act
Train Protection and Warning System Back
The regulatory asset base is the value of the assets on which
the company is entitled to earn a reasonable rate of return (determined
by the Regulator). The lower the RAB, the less money the company
can make in this way. The Regulator sets the RAB at each periodic
review, and can, at any time during a control period, make a statement
of an adjustment to the RAB which he will or intends to make if
the company falls short in some respects, or exceeds its obligations Back
In order to reduce uncertainty for investors, the Regulator has
published the circumstances in which he would expect to make such
As explained in paragraphs 13-14 of this paper. Back
See paragraphs 66-67 of this paper. Back
See Railtrack's performance targets: Statement by the Rail
Regulator, Office of the Rail Regulator, London, August 1999. Back
See West Coast Main Line: Statement by the Rail Regulator,
Office of the Rail Regulator, London, November 1999; West Coast
Main Line: Modified Final Order against Railtrack PLC, Office
of the Rail Regulator, London, March 2000; and West Coast Main
Line: Final Order against Railtrack PLC, Office of the Rail
Regulator, London, May 2000. Back
Regulator's statement of reasons for provisional enforcement
order in the case of the national rail recovery plan, Office
of the Rail Regulator, London, January 2001. Back
See paragraphs 45-47 of this paper. Back
Transportation Technology Center, Inc, Pueblo, Colorado; their
report is published on the ORR website Back
See Railtrack's Stewardship of the Network, Office of the
Rail Regulator, London, November 1999. Back
Under section 12, Railways Act 1993. Back
See sections 13-15, Railways Act 1993. Back
See minutes of evidence, part of House of Commons Committee of
Public Accounts, 35th report, The Office of the Rail Regulator:
Ensuring that Railtrack Maintain and Renew the Railway Network,
The Stationery Office Limited, London, July 2000. Back
Exemptions under section 20, Railways Act 1993 and general approvals
under section 22, Railways Act 1993. Back
His duties under section 4, Railways Act 1993. The Regulator has
also published criteria for the approval of access contracts,
and will shortly be revising those criteria after public consultation. Back
Section 18, Railways Act 1993. Back
Section 21, Railways Act 1993. Back
Condition 7 of Railtrack's network licence. Back
Under Part 9 of Schedule 7 of each passenger track access agreement.
If the change results in Railtrack having to do more work, it
may require an adjustment of charges. The Part 9 mechanism is
not present in freight track access agreements. Back
Presently called the Track Access Conditions. Back
Condition 3 of Railtrack's network licence was amended with effect
from 31 December 2000 so as to require the standard-setting and
reform system to be carried out by a separate Railtrack company,
namely Railway Safety. Back
See also paragraphs 97-103 of this paper. Back
See paragraphs 18-21 and 32-36 of this paper. Back
As part of the use of his powers to establish standard access
contracts under section 21, Railways Act 1993. Back
See also paragraphs 34-35 of this paper. Back
As inserted by section 223 of the Transport Act 2000. Back
Most of Railtrack's stations and all its depots are leased to
train operators and others. Railtrack operates only 14 of its
See paragraphs 74-78 of this paper. Back
In this respect, the Regulator has received a complaint of breach
of Condition 3 of Railtrack's network licence. He expects to announce
his decision shortly. Back
Under section 21, Railways Act 1993. Back
At present, Railtrack has two such contracts. Each was entered
into on 1 May 1998. The first is with West Coast Trains Limited.
The second is with CrossCountry Trains Limited. Back