Rail Professional interview: Richard Price
August 2012
Katie Silvester
A year into his role as head of the ORR, Richard Price tells Katie Silvester how Network Rail is progressing with its efficiency improvements
The Office of Rail Regulation (ORR) is in the middle of one of the busiest periods in Network Rail’s funding cycle, which it oversees. The government has just announced its High Level Output Specification (HLOS) for Control Period 5 (2014 to 2019), which sets out what rail projects will be funded. The ORR acts as a go-between for the DfT and Network Rail, scrutinising Network Rail’s plans and financial reckoning on behalf of the department.
To put it in a nutshell, the DfT says what it wants from Network Rail and the funds that are available. Network Rail comes back and says: ‘We can’t do all this for that amount of money.’ And the ORR negotiates with Network Rail about which bits can be done more cheaply, or delayed, until an agreement is reached about exactly what will go ahead for what cost. At the same time, there is constant pressure on Network Rail to improve its efficiency and reduce its costs.
CEO Richard Price has been in post for just a year, so this is the first HLOS he has worked on. Network Rail’s job is really only about one thing, reckons Price – asset management.
‘I think Network Rail has achieved a lot over the last decade. It really bears repeating that its costs have already come down over the past 10 years by 40 per cent and it has achieved levels of punctuality across the system. Customer satisfaction is close to record levels and it’s had a transformation in that period and that’s something that it should be proud of.
‘But there are still huge challenges. Its costs are still too high by any measure. It’s got big challenges in delivering the commitments that it made in the last periodic review, most obviously around punctuality. And it’s got a lot of work to do in ensuring that it really understands its asset base and has world-class management practices. Getting asset management right is the key to unlocking everything else: efficiency, performance, capacity and safety.’ But Price says he is impressed with the approach Network Rail’s new CEO David Higgins is taking to asset management.
A big part of Price’s job is to drive Network Rail’s efficiency targets. Various studies have found that the infrastructure owner’s European counterparts are usually able to run their operations more cheaply than Network Rail – and a key part of the McNulty value-for-money study focused on finding ways to cut costs on infrastructure management. The organisation has efficiency targets to meet each year.
‘Network Rail has already said it can achieve significant savings through the five years of the next control period, roughly at the low end of what Sir Roy McNulty’s report looked at. We have our analysis, which draws on a range of comparators – railways in other countries, comparisons across the UK rail network and comparisons with other sectors suggest that actually Network Rail could go significantly further. What we’re doing through the periodic review is really probing that to make sure that we all have a clear sense of what the network ought to cost on the best asset management, best use of technology, best deployment of the workforce and productivity.’
The biggest impact that the McNulty report has had on Network Rail has been its move to devolution. Its former regions have been split into standalone businesses, which are supposed to be working more closely with the Tocs they serve. Although the further fragmentation of the industry will no doubt see some costs rise, in the long run these closer local relationships are aiming to reduce costs by avoiding the bureaucracy associated with Network Rail when it was a single organisation. So has Price seen any areas of improvement here?
‘Devolution is a really good thing,’ he says. ‘It’s early days – I think we have to see how this works. It helps to make the cost of various things much more explicit, but there’s much further to go in terms of improving transparency in terms of just what it is that customers and taxpayers are funding.’
South West Trains is working on an even deeper alliance with Network Rail’s Wessex region, which will see the line between Toc and Network Rail become even more blurred. If successful, it could become a blueprint for other areas of the country. ‘In terms of alliances, again it’s early days,’ says Price. ‘I’m encouraged by what I’ve seen so far in the Wessex and south-west alliance. We’re conscious that there are concerns from third party operators about the extent to which they could be discriminated against by that alliance, so we’ll be watching very carefully for that.’
Confusingly, Price refers to passengers as ‘customers’, even though Network Rail rarely has a direct relationship with passengers. Network Rail itself usually uses the term ‘customers’ to refer to the Tocs it serves.
‘Asset management plans are not something that customers really see, but if you’re a passenger and your train is delayed because a piece of track or a structure has failed or there’s a speed restriction, it does impact on you. Or if you’re a taxpayer and you’re paying a lot more for a piece of infrastructure than it would cost if it was in another country, you want to know why that is. Actually, the asset management is key to getting a lot of those things right.’
On a day-to-day basis, Network Rail is judged mainly on its punctuality achievements, as Tocs are under most pressure to get that right for their customers. Network Rail has missed its targets on freight punctuality and long-distance passenger trains, so Price and his colleagues have asked freight operators to convene a freight recovery board and to meet with the freight industry to discuss its concerns.
‘On long distance, we have significant concerns that Network Rail is not meeting the commitments it was set up for, through the last periodic review. It is close to record levels, but it is not at the level that Network Rail committed to and took funding for.’ In the past, the ORR has become involved in the bonus rows that seem to ensconce Network Rail each time executive bonus payments come around. The daily papers always make a fuss about how high the bonuses are, but don’t really take on board that they are an agreed part of a senior executive’s remuneration package, not an optional extra that is only justified in an exceptionally good year. Price’s predecessor Bill Emery wrote to Network Rail on one occasion asking it to consider reducing the bonuses, following a mixed year performance wise. Are Network Rail’s bonuses still acceptable, when the public are so critical of them?
‘I think in general, in a system where senior executives in this organisation have a big influence on its performance and its costs and it really matters to the public and there’s a huge amount of public money at stake, I think it makes sense for a larger proportion of their remuneration to be at risk than not so that their reward is explicitly related to what they can achieve for customers.’
The other part of the ORR ’s job is to oversee safety on the railway, since it took over the HM Railway Inspectorate, which was previously part of the Health and Safety Executive. The ORR ’s safety remit is headed up by Price’s colleague Ian Prosser.
‘The recent history of the industry on safety is good,’ says Price. ‘The industry needs to make sure it’s learning lessons where things go wrong and continuously improve. The other area that Ian Prosser and his team have been working on is occupational health, around risks like driver fatigue and health risks in depots where chemicals aren’t always well managed and well documented.’
The ORR has been criticised for prosecuting Network Rail through the courts for safety breaches. Fines to the tune of millions of pounds have been handed out to Network Rail. The problem is this – Network Rail gets its funds from the public purse, as well as from train operators via train fares and the charges that freight customers pay. So we are all, as taxpayers, paying towards that fine, as are passengers. The families of the survivors of the Potters Bar crash recognised the futility of such a system and asked that Network Rail not be fined. But in the end, it was fined £3m.
‘There are distinct regimes for safety penalties and penalties we impose in relation to performance. In relation to safety, those penalties are imposed by the courts, so they are the same as any other safety penalty and it’s right that they do that. It’s important that happens where there’s been a safety lapse, as it would in any other industry.’
But they’re fining the public, how is that appropriate? Taxpayers’ money that has been allocated to the railways is simply taken back and given to the Treasury.
‘The reputations of the managers in that business are also at stake, so I think fining in those circumstances sends very important very clear signals, but it’s equally important that it focuses management’s attention on learning lessons where things have gone wrong. The most important thing is that we don’t see preventable accidents on the railway recurring. That’s absolutely the critical thing.
‘On performance penalties, like the ones we’re just signalling Network Rail may have to pay if it fails to meet its punctuality commitments for next year, we are consulting at the moment whether there is another way Network Rail can be penalised which has a much more direction connection to benefits to customers. Rather than taking money out of the system, the penalty can be that Network Rail has to divert money into improvements for passengers that would not otherwise happen.’
The ORR doesn’t currently deal with Tocs. But Price has made a bid for his organisation to take over the regulation of train operators too – he believes it would simply be a natural extension of the ORR’s current remit. The ORR already deals with open access operators, but it has been a while since any additional open access routes were approved. Hull Trains wants to expand its offering, as does Grand Central, but nothing has got the go-ahead yet. A Grand Central bid to run services from Euston to Blackpool was turned down last year on the grounds that it would take revenue away from franchised operators. A new company, Alliance Rail, has ambitious plans to bring direct rail services from London to Bradford, Rochdale and Huddersfield. But Alliance, headed by ex-Grand Central boss Ian Yeowart, has yet to get approval for any of its routes.
‘We support open access where it’s in the interests of customers and taxpayers. Open access can bring really significant benefits, essentially tapping into latent demand out there. There are issues at the moment around capacity on the East Coast, where there are competing bids for that capacity. We have a process for considering that and weighing up the potential uses of capacity. You should not read into that, though, either that we favour one operator over another or that we are particularly against open access. In general we are in favour of open access. I can’t comment on applications that are under consideration now. Where there’s capacity we will consider bids from open access operators and franchises. We don’t discriminate.’
A year into his role, Price is clearly enjoying his job – but feels there is a lot more to be done. ‘The scale of the transformation that’s required across the industry is colossal,’ he says. But he has already made an impact over that year – train operators are up in arms about his proposals for Tocs to be regulated by the ORR (see the Michael Roberts interview in our July issue). It remains to be seen whether Price’s bid to expand the ORR’s role will get the go-ahead from the DfT, but if it doesn’t Price is sure to have more ideas up his sleeve.
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