Compensation for withdrawal of railway access rights

At a previous employer, Franck Latrémolière and Nicholas Francis led a study for the Office of the Rail Regulator on the development of compensation algorithms for permanent mandatory removal of rights and/or enabling competition on protected flows.

The work was done in 2001, when UK Government policy favoured 20-year passenger service operating franchises. This long duration made it necessary to design arrangements that would restore a degree of flexibility in the allocation of infrastructure capacity during the course of a franchise. Given the franchise operator's need for financial certainty, any change that could not be voluntarily agreed by all affected parties had to trigger financial compensation for operators that would lose out.

Two types of loss of rights were thought particularly important:

In this context, the regulator invited tenders from consultants to develop and test a set of algorithms that could be used to determine the compensation payable to a train operator as a function of the rights lost. A team led by Franck Latrémolière and Nicholas Francis won and delivered this work.

We used industry-standard tools such as the Passenger Demand Forecasting Handbook (PDFH) as the basis on which to estimate the revenue impact of changes in service levels. This ensured that the algorithm, whilst relatively complex, were reasonably familiar to industry personnel and capable of commanding buy-in. The algorithms were specified in text and algebra, and a test implementation was developed in Microsoft Access. This was used to present the algorithms and sample results in hypothetical cases to a meeting of stakeholders.

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