ORR ’General Approval’ and ’Open access airport services’ consultations

During August 2023, the Office of Rail and Road (“ORR”) undertook consultations on two track access issues – the first in relation to amendments to the ‘General Approval’ for passenger track access (see the consultation documents here) (the “General Approval Consultation”), and the second in relation to track access charges arrangements for open access airport services (see the consultation documents here) (the “Airport Services Access Charges Consultation”). 

We have summarised below the background to each consultation along with the ORR’s proposals. 

General Approval Consultation

Background

‘General Approval’ refers to a process by which Network Rail and Train Operating Companies (“TOCs”) can agree to make specified amendments to track access contracts without obtaining specific ORR approval. 

ORR’s proposals

In response to feedback previously received, the ORR has proposed to extend the ‘General Approval’ process so as to also apply to relevant track access contracts which are: (i) in place between TOCs and infrastructure managers other than Network Rail; and (ii) subject to the Railways Act 1993. 

The ORR’s proposed draft form of general approval for other infrastructure managers (which has been prepared by way of tracked amendments against the current ‘General Approval’ applicable to Network Rail) is available here.

The ORR comments that its proposals in this area are intended to support improvements in the “alignment of access rights in cases where Network Rail infrastructure connects with or crosses that of other infrastructure managers”.

The General Approval Consultation closed on 21 August 2023.  

Airport Services Access Charges Consultation

Background 

As part of the Periodic Review 23 (“PR23”) process, the ORR stated in its June 2023 draft determination* that it would consider permitting Network Rail to implement a specific additional mark-up charge for new or existing open access passenger services calling at stations for certain airports (‘open access services’ being operated by open access operators, which are train operators that operate services without government support).

Train operators using Network Rail infrastructure are required to pay variable charges and also an “Infrastructure Cost Charge” (“ICC”). These charges cover Network Rail’s costs in maintaining and investing in the infrastructure and for longer-term fixed network costs associated with the infrastructure. TOCs which are subject to contracts referred to by the ORR as ‘concession-style agreements’** pay a specific type of ICC, called a fixed track access charge (or FTAC), which is calculated based on the market segment of the particular services using sections of the network.

Open-access operators pay a different type of ICC, which is broken down by market segment (into “interurban” and “other”). Currently, there are only open-access operators that operate interurban services (between stations that have a set number of entries and exits), and pay a specific cost per train mile. The mark-up is set to be affordable, but sufficient enough to provide a return to Network Rail on top of any usual variable charges paid.

Against that backdrop, the ORR notes that:

• Heathrow Express is the only current open-access operator serving an airport and is presently operating under a bespoke track access contract arrangement incorporating track access payments which are “significantly higher than the charges it would otherwise pay under a model track access contract”; 
• Network Rail’s CP7 Strategic Business Plan has indicated that Heathrow Express may move onto a model track access contract with Network Rail from the start of Control Period 7 (“CP7”); and
• accordingly if Heathrow Express were to move from the existing bespoke arrangement to a model track access contract, it would be able to bear some form of mark-up charge in addition to applicable variable charges.

In that context, the ORR proposes the creation of a further market segment for specific airport services, with its own specific ICC (the “New Charge”) which would be intended to support Network Rail’s fixed costs income and an increase in competition by making it easier for prospective operators to pass ORR forecasting assessments (which are designed to test the viability and overall benefit of a proposed open access service).

In-scope airport services

The ORR has assessed which open-access airport services would be in-scope, to ensure applicable services could bear the New Charge. This has been undertaken by analysing current airport station demand thresholds and passenger flows. 

As the ORR wishes to avoid deterring future entrants and market opportunities which would grow passenger numbers, it has determined that only a set number of stations currently serving airports could sustain services that are subject to the New Charge (see below).

Calculation of the New Charge
 
The New Charge itself has been calculated by analysing net revenue. For three of the in-scope airport stations (Gatwick, Stansted and Birmingham International), the net revenue figures have been extrapolated and assessed against current open-access operator net revenues. The net revenue from these three airport stations were shown to align with higher-end net revenues for existing interurban open-access services. 

Heathrow has been analysed separately to produce a net-revenue forecast, by reference to a model track access contract likely having lower charges than its existing bespoke arrangements, and to factor in specific Crossrail competition and demand variations linked to the Covid-19 pandemic. 

ORR’s conclusions

On the basis of the station demand assessment and net revenue analysis which it has conducted, the ORR concludes that:

the proposed New Charge will be £5 per train mile on Network Rail’s network in 2023-24 prices (subject to CPI increases each year) in CP7 but would be phased in gradually over a five year period for any new operator (other than for Heathrow Express where the New Charge would start immediately if it were to move onto a model track access contract as mentioned above);

the New Charge can be pro-rated for the part of the service that is categorised as being for the airport market segment; 

open-access services that fall in-scope would need to serve one station, that has on average entries/exits of above 15 million passengers (or the station served is within two miles of such a qualifying station); and

the service must also stop at a station that serves an airport directly where the station has on average over 5 million entries/exits a year. Only the stations serving Gatwick Airport, London Stansted, London Heathrow and Birmingham Airport currently fall within this classification.

The Airport Services Access Charges Consultation closed on 31 August 2023. The ORR is now reviewing the responses to the consultation on the proposals outlined above, and is set to make a decision on the implementation of the New Charge as part of its final determination pursuant to the PR23 process, which is due by 31 October 2023. 

Conclusions

It will be interesting to see how the General Approval Consultation and the Airport Services Access Charges Consultation further shape the future track access framework and the outcomes of the ORR’s final determination, and we will continue to monitor developments through to the commencement of CP7. 

If you would like any further information or would welcome a discussion on how our rail team can help you, please do not hesitate to contact us.

*Please see our separate note on the ORR’s draft determination here. 
 **Defined by the ORR as “all operators that are commissioned or directly operated by funders and other devolved rail authorities to provide passenger services”.