No higher charges for Heathrow Spur

The ORR has rejected an application from HAL (the owner of the Heathrow rail link) to recover historical construction costs by levying higher charges on any would be new train operators.

ORR’s decision followed a consultation which elicited 14 responses from industry partners in February and March. ORR’s ruling reaffirmed its previous stance that HAL had failed to produce sufficient evidence to prove its case. It held that HAL appeared more concerned about potential loss of passenger revenue to new train operators than in recovering historical long-term construction costs.

HAL owns both the Heathrow Spur (as the rail link is known) and Heathrow Express (HEX), the dominant train operator. HAL also jointly owns Heathrow Connect (with GWR), the only other current user of the airport link.

The 8.6km (5.3 mile) spur connects the airport with the GWML near Southall and is used by trains serving Paddington. Construction started in 1993 and services commenced in 1998.

HAL had been exempted from certain provisions regarding access and licensing under the Railway Regulations, but that will change in 2018 when Crossrail services begin running to Heathrow.  The DfT was alarmed that HAL track access charges could have an adverse impact on Crossrail finances.

The case is an unusual one: HAL’s was based on interpretation of an EU law that was not in existence when the spur was built; and ORR’s position was compounded because there was no test case in either UK or EU law it could refer to.

Track access charges are levied on the general principle that they should cover the costs incurred from train service operation. However, the Regulations allow two exceptions where the infrastructure manager (in this case HAL) could “levy charges to recover costs above those that are directly incurred”.

The exceptions are allowed under Schedule 3 of the Railways Infrastructure (Access & Management) Regulations 2005, as amended. The first exception does not concern this case; the second exception does.  It stipulates that, “for specific investment projects, where three criteria are fulfilled, the infrastructure manager may set or continue to set higher charges on the basis of the long-term costs of the project.”

The three criteria to be fulfilled: (1) that the project was completed after 15 March 1988; (2) that the project must increase efficiency or cost-effectiveness, and crucially (3) that “the project could not otherwise have been undertaken without the prospect of such higher charges”. (Italics added).

While criteria 1 and 2 were not in dispute HAL’s case rested on the third one (also known as ‘Paragraph 3 Test’), but it was unable to convince the ORR.

The project was originally conceived in 1993 as a joint venture between HAL, its parent company BAA, and the British Railways Board (BRB) then in the public sector. The BRB stake was subsequently transferred.

The ORR maintains that documentation from this period is incomplete though BAA papers reveal that the spur was not conceived as a standalone project but as part of a wider plan to create more capacity at the airport. As a standalone it was considered to be an unattractive proposition.

The ORR found no evidence from the time to indicate that the project would not have gone ahead had there been no prospect of recovering historical long-term costs through higher charges. HAL’s main concern appeared to be to protect revenues from its Heathrow Express (HEX) operations. ORR says it has been informed by HAL that, on average, HEX revenues over the last 10 years equated to 80% of the full operating and historical and long-term costs, but the projected 100% recovery would not be reached in 2018 due to the Crossrail start up.

Summing up, the ORR concluded: “We are not satisfied that HAL has provided sufficient evidence to demonstrate that the Heathrow Spur project could not have gone ahead without the prospect of higher charges to rail users. We have taken into account that the Paragraph 3 Test did not exist at the time the decision to construct the Heathrow Spur was taken. However, in considering all the evidence in the round, we are not satisfied that HAL has met the test.”

Heathrow Express trains run every 15 minutes and take 15 minutes (for most of the day)
Heathrow Express trains run every 15 minutes and take 15 minutes (for most of the day)

Charging framework for the Heathrow Spur

 

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