1. Study on Regulatory Options for Further Market Opening in Rail Passenger Transport Stakeholder Meeting 10 February 2010 Session 2B Great Britain Case Study Presented by Chris Dugdale

2. Market opening in Great Britain 1.Key features 2.Structure 3.Experience 4.Stakeholder comments 5.Conclusions 6.Discussion session

3.  Pragmatic rather than theoretical solutions  Parcelling of all domestic services into groups and letting as franchises:  Complete disappearance of the incumbent  Rolling stock is provided by third parties  Government cover any changes in infrastructure charges  Guarantee of train paths throughout the franchise  Open access is permitted if it is not “primarily abstractive ” 1. Key features

4. 1. Key features Regulated open access  Open access can provide new routes and more imaginative services, but  Open access can undermine the finances of franchise holders So:  Open access is permitted provided its purpose is not primarily to abstract revenue from other services and that it provides public benefits (in terms of new journey options, etc.)  The Regulator makes that decision

5. 1. Key features Franchises and open access

6. Government  Sets strategy  Determines budget  Awards passenger franchises Network Rail (Infrastructure)  Delivers Network  Accountable for reliability  Leads industry planning ORR (Regulator)  Prices rail outputs  Safety regulation Train Operating Companies  Deliver services for customers “publicly specified, privately delivered” Government Network Rail (NR) Passenger Operations Office of Rail Regulation (ORR) Commercial contract Regulatory contract Track Access Agreement 2. Structure

7.  Ministry lets the franchises, management sometimes regional  Office of Rail Regulation is economic and safety regulator  Regulator also regulates infrastructure manager 2. Structure

8.  Specification of service levels, certain quality stipulations  Payment to or by franchise holder, franchise holder normally keeps the revenue  Cap and collar system to protect the franchise holder from exogenous influences on revenue  Requirement to join “industry schemes” and keep network benefits 2. Structure Characteristics of the franchises

9.  Unified ticketing, ticket inter-availability  Requirement for impartial ticket selling  Revenue allocation system  Single train enquiry service  Unified rail card system  Single published timetable but:  Punctuality penalties mean that connections are rarely held 2. Structure Network benefits

10.  Assets worked more intensively  More passengers  Newer rolling stock but:  More complex legal structures  Many of the benefits expected haven’t been realised (transfer of risk to the private sector, reduction in total cost, ) 3. Experience

11. 3. Experience Passenger volumes 1938-2007 (billion passenger km)

12. 3. Experience Government support £M constant prices

13.  Need to keep the regulatory regime flexible to allow for changing circumstances  Avoid “big bang” changes  Some mixture of franchise, concession and open access desirable  Combination of safety and economic regulator desirable  Network benefits essential – a judgement on what lies within scope for commercial flair and what is part of the basic passenger experience  Allow for the fact that the provision of public services has a political dimension  Leave some spare infrastructure capacity so as to allow freight operators credibility 4. Stakeholders comments

14.  Successful model for allocating revenue – permits inter- available tickets  Successful tendering process – at least three bidders each time  Standard model accommodates franchises contributing to the Government and supported by the Government  Solution for open access – “permitted where not primarily abstractive ” 5. Conclusions What solutions were found

15.  No solution for exogenous effects on revenue  Solution for rolling stock provision is not perfect  Total costs are high, but appear to be largely as a result of increased infrastructure spend 5. Conclusions What still needs attention

16. Questions:  Do you agree with this analysis?  Are there any other issues of equal importance that need to be brought out?  What lessons can one learn from the British experience? 6. Discussion session