Regulatory treatment of Network Rail risks and uncertainties

ORR consultation (18 pages, PDF) on the treatment of risk and uncertainty in Network Rail's price control from 2009.

The paper floats the idea of deferring revenue adjustments for unexpected variations in RPI inflation until the next price review, to accommodate a Government concern about the predictability of public expenditure in cash terms. At the same time, it envisages linking Network Rail's revenues to future changes in interest rate levels (but the possibility of deferring the adjustment to provide predictability of Government expenditure is also mentioned in this context). Pension or tax risks are not considered.

On input prices, the paper casts doubt on the desirability of taking account of unexpected differences between Network Rail's input cost inflation and RPI inflation, although various options are presented, including a logging up regime "subject to an efficiency test".

Possible provisions for interim determinations appear in line with regulatory precedents, but for the expectation that they will operate separately for Scotland and for England and Wales.

For enhancements requested by customers but not included in the price control assumptions, adjustments to revenues are intended to be deferred until the next review, subject to the possibility of a general reopener in the event of an excessive financial burden on Network Rail.

No change is proposed to the five-year price control period or the treatment of volume risks.

ORR has also released a note on RCV amortisation and financeability (7 pages, PDF) and an overview of investment scenarios (8 pages, PDF). An industry seminar on the latter issue is to be held on Wednesday 11 October 2006.

Responses on all these matters by Friday 22 December 2006.

For further information or advice please contact Franck Latrémolière.

Filed under ORR, Price controls, Public transport.

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