HERTFORDSHIRE COUNTY COUNCIL

CABINET

MONDAY, 21 DECEMBER 2009 AT 2.00 PM

CONVERSION OF ABBEY LINE TO LIGHT RAILWAY

Report of the Director of Environment & Commercial Services

Author: Alissa Ede(01992 588668)

Executive Member: Stuart Pile, Highways & Transport

  1. Purpose Of Report

1.1To apprise the Cabinet on the proposal to allow trams to run on the Abbey Line in order to improve the frequency of service.

1.2To inform the Cabinet about the progress of the project to date and to seek the Cabinet’s support for the proposal going forward.

1.3To apprise the Cabinet that there are still risks that need to be clarified and issues to resolve before legal agreements can be signed formalising the project. Legal agreements would not be signed until July 2010 at the earliest. Until legal agreements are signed, the County Council is not formally committed to the project and it would not affect the current level of service on the Abbey Line.

1.4To advise the Cabinet that, if following further consultation,it is proposed to move forward with the proposal, the approval of the full Council will be sought to promote a Transport and Works Act Order to transfer statutory responsibility for the Abbey Line from Network Rail to Hertfordshire County Council, subject to there being public support for the proposal.

1.5To apprise the Cabinet that this project involves the cooperation of a large number of organisations including London Midland, Network Rail and the Office of Rail Regulation in addition to the Department for Transport and Hertfordshire County Council. All of these parties participated in a workshop on the project at the end of August and indicated that they were enthusiastic to find a solution to the challenges involved.

1.6To apprise the Cabinet that a consultation on the proposal will belaunched in December 2009.

  1. Summary

2.1On Friday 30 October 2009, the Leader of the Council and the Secretary of State for Transport, Lord Adonis, made an announcement about the Abbey Line that runs between St Albans and Watford Junction stations. They announced the intention to convert this train service, currently running every 45 minutes, to a more frequent service. The intention is that Hertfordshire County Council will be responsible for the new tram service and that the current service will be taken out of the London Midland train franchise and that the money saved by the Government will be transferred to Hertfordshire County Council and used to fund the new service.

2.2Subsequent to the announcement, there was an exchange of letters between the Secretary of State and the Leader of the Council indicating the proposed arrangements and the agreement in principle to take the project forward. These letters are attached to this report.

2.3Hertfordshire County Council officers and Department for Transport civil servants have been working to progress the programme and clarify the issues and risks. This work is ongoing.

2.4A consultation will be launched in December 2009 to seek comments on the principles of the proposal. This consultation will also include a consultation on the proposed Statutory Instrument to remove the line from the franchise arrangements.

2.5There appears to be an economic case for conversion of the Abbey Line to operation with light rail vehicles – though there are issues about financial affordability which would have to be overcome before a contract could be let.

2.6There are technical issues to be overcome, but none appear to be insurmountable. These include potential changes to the electrical system which is currently standard for main line rail but not for trams.

2.7The preferred contracting model is for a long (15 years or more) contract which would include funding the capital, conversion of the line, procurement of the trams and operation. This would be paid for by annual franchise fees to the operator and funded from the savings from London Midland’s franchise and from wider savings on rolling stock.

2.8TheCounty Council would take forward the procurement process in conjunction with the Department for Transport (DfT), and the DfT wouldthen transfer ongoing funding and management of the line to Hertfordshire County Council.

2.9There are still issues to be resolved regarding affordability and risk and further research with the potential market.

2.10There are also risks and issues that need to be clarified regarding insurance liability, programme and process/procedure. These issues need to be resolved before legal agreements can be signed formalising the project. Legal agreements would not be signed until July 2010 at the earliest. Until legal agreements are signed, the County Council would not be formally committed to the project and it would not affect the current level of service on the Abbey Line.

  1. Recommendation

3.1That Cabinet:-

(a)notes the progress on the project to date; and

(b)endorses the steps to be taken by officers, set out in the report, to take this project forward.

  1. Background

4.1The single track Abbey Line runs 6½ miles between Watford Junction and St Albans Abbey Station on the western side of St Albans. The service is operated by London Midland and consists of a train every 45 minutes in each direction. This frequency makes the timetable difficult to remember.

4.2The line is electrified at 25kv alternating current and is operated using a single 4-car Class 321 EMU (electric multiple unit train). This EMU is currently due to be replaced by a Siemens Desiros Class 350 EMU as part of the planned HLOS (High Level Output Specification) cascade of EMUs. The EMU in operation on the Abbey Line could be better used elsewhere and releasing this unit ultimately avoids the DfT purchase/leasing of a new EMU.

4.3There are currently no freight services on the branch and the proposal to convert the line assumes this will continue to be the case. It would be possible to make provision for freight should a service be required – but this would have to run overnight when trams are not operational and the infrastructure would need to be upgraded to allow this.

4.4TheCounty Council (and the Community Rail Partnership formed with the other local authorities) has been seeking to increase the frequency on the line to at least half hourly as it believes that this will provide a more attractive alternative to crowded local roads. As part of the bidding process for the West Midland franchise DfT sought bids for a half hourly service option. The bids provided showed that such a service is not affordable primarily due to the costs of additional rolling stock that would be required to operate the service. Additionally, Network Rail’s estimated costs of a passing loop on the line showed that this would also be very expensive relative to the ticket revenue.

4.5More recently,the County Council, working with London Midland, Network Rail and the DfT, commissioned Mott MacDonald to carry out a review of the potential to convert the line to operation using second hand European trams. This work showed that it ought to be possible to run a light rail service every 30 minutes more cheaply than the existing service. There were some issues with the report, but given the very strong net present value of the conversion and the fact that some errors balanced others out, the project still appears to have a good business case.

4.6The Secretary of State discussed the matter with the Deputy Leader of theCounty Council in late August and asked for a report back to him and the leader of the Council at the end of September. This report to Cabinet includes information from that report, covers the case for conversion, how that conversion may be delivered and paid for, and proposed next steps.

  1. Business Case, Finance And Affordability

5.1There does appear to be a business case for the conversion of the Abbey Line to operation with light rail vehicles[1]. This is based on information received from the current operator, future rolling stock needs, and the consultant’s views of the costs of converting the line and operating it with light rail vehicles.

5.2The financial case for conversion is “fragile” in that though there should be net operational savings compared with the current operation (i.e. the light rail operation should cost the taxpayer less money than the current operation), there are substantial costs of converting the line and there are also transaction and legal costs which are inevitably relatively large in contrast to the scale of the services. No contracts would be let until the issues of financial affordability are overcome.

5.3The economic case is more robust as there will be benefits which are not reflected in the additional revenue. These will include passenger benefits from an increased frequency of service and mode shift benefits arising from some transfer from road to rail (on the basis of the work by Mott MacDonald, mode shift benefits will be relatively modest at less than 100,000 car driver km per year).

5.4The business case for the project currently shows no net cost to government, and therefore it is not possible to provide a NATA (New Approach to Appraisal) compliant benefit cost ratio. The net present value of the scheme (the discounted sum of the benefits, minus the discounted sum of the costs) is estimated to be approximately £9m in 2002 prices. The economic appraisal is clearly at an early stage and based on a number of assumptions. The economic performance of the scheme may change as the project progresses and the technical and contractual issues are resolved.

5.5The intention is for the line to remain within (or at least with links to) the Rail Settlement Plan so that customers can purchase tickets through to any part of the UK National Rail Network. It is also proposed to maintain some regulation of the fares through the contract for operation of the line. However, this should allow for the County Council and the operator to introduce concessionary fare or create a zonal fare structure for travel wholly on the Abbey Line.

5.6The scheme would also have the following benefits, not included in the economic appraisal:

a) The route could be expanded at some stage either closer into Watford or St Albans town/city centres or by creating additional stations along the line for possible park and ride schemes.

b) The redevelopment of the Watford Junction station area could be made easier as roads could cross the Abbey line protected by traffic lights rather than by using a bridge (this could potentially save most of the cost of the investment needed to convert the line). Funding for this redevelopment will be from the Regional Funding Allocations (i.e. DfT)

c) Provide experience to DfT of low cost enhancements and (potentially) different forms of operation.

5.7There are also two potential issues of affordability for the DfT. In the longer term, the DfT can only afford to transfer its savings on the London Midland franchise plus an allowance related to the avoidance of paying for an extra new train in the National Rail fleet and it is not yet clear whether this will be adequate to pay for the operation of the light rail service and the capital costs of conversion. As noted above, the indications are that the savings ought to be adequate but the only way to be sure is to get a bid from a potential operator. There is another short term aspect of affordability related to the set up costs which will include legal costs and procurement costs which could be significant. These are likely to be substantial, though the DfT intend to minimise these by carrying out as much work in-house as possible.

5.8There will also be internal work to be covered both within DfT and the County Council. Some of these aspects can be covered from within existing 2009/10 budgets depending on the timescale of progress. However, others will have to be met from 2010/11 budgets which have not yet been agreed. The County Council is able to cover its own internal costs, but has limited scope to support future external costs.

  1. Technical

6.1Technically there do not appear to be any “showstoppers” with converting the line. These issues were discussed alongside commercial and legal issues at a workshop at the end of August which involved all key players including London Midland and Network Rail as well as Mott MacDonald in support.

6.2There are several views on how to take forward the project with regard to technical issues - DfT and the County Council are working together with other parties to resolve these. One approach is for the DfT or the County Council to review the options and evaluate the best in terms of voltage, type of tram, position of the passing loop etc. This would allow the specifying authority to give a clear specification to potential bidders and potentially optimise for future expansion for limited on-street running[2]. The preferred alternative approach is to ask the bidders to work out their preferred options. This latter approach is favoured as it places responsibility for systems integration and operation with one party and reduces the risk of disputes over any problems with different elements failing to work together effectively.

6.3There has been some debate over the relative merits of a 20 or 30 minute frequency. The 20 minute frequency ought to be more popular and should help with the potential overloading in the peaks, however, the timetable would be less robust as it would have shorter turn-round times and there would need to be two or three passing loops rather than the one required for a half hourly service. We propose that the best way forward is to ask for a base option of a 30 minute frequency with an option price for a 20 minute frequency.

  1. Contractual Arrangements

7.1The light rail service would be a local transport facility and, therefore, best managed locally rather than by the DfT. The DfT would be willing to pass on its savings to the County Council to pay for this. The DfT would also be willing to work in conjunction with the County Council on the procurement process to the point of signature. A formal agreement would be necessary to transfer the funding to the County Council before it could enter into a contract with an operator as described below (paragraph 8.2).

7.2Network Rail (NR) owns the railway and the infrastructure but is unlikely to be able to deliver a low cost passing loop and provide cost effective maintenance. Recognising this,NR has indicated informally that it would be willing to lease the line to the County Council or the operator[3] for them to take responsibility for the infrastructure including stations. The County Council has expressed concerns about the underlying structures – bridges, embankments etc – and NR has indicated that it would be willing to retain risk on these for an appropriate consideration. Again, further work is required to formalise these arrangements and costs.

7.3As described above, it is proposed to incorporate funding, design, construction, maintenance and operation of the light rail operation in a single contract between the County Council and the operator and back to back with a separate lease between Network Rail and the operator (possibly via the County Council). Initial indications are that the market would be willing to consider this type of arrangement provided that the contractual arrangements are kept as simple as possible and the contract is of sufficient length to allow the contractor to recover its costs over a long period; further market soundings will be taken to validate these indications.

  1. Legal

8.1There are a number of legal and planning issues which have emerged with this project.

8.2There were two options[4]for operation of the line with light rail vehicles - (1) DfT could let the line as a single route franchise or (2)the County Council could grant the operator exclusive rights by way of concession. Given that the light rail service would be considered a local transport facility the latter option was chosen.

8.3If the service ceases to form part of, or indeed the entirety of, a DfT let franchise, the line would need to be both formally closed and de-designated as a service to be provided by way of franchise agreement. A formal closure would be done by following the statutory closure process, or alternatively the requirement for a closure could be disapplied by way of Statutory Instrument (“SI”). De-designation would also need to be done by way of SI. It would be possible to combine the orders for disapplying closure and de-designation into a single SI (there are a number of similar projects which have adopted this approach including Merseyrail). An SI would take an absolute minimum of 5 months.

8.4Currently, the DfT has responsibilities as the Operator of Last Resort should the franchisee run into difficulties (“Section 30” responsibilities). These responsibilities ensure that passengers will have a smooth and continuing service in the event that the train operator has financial difficulties. If the line was closed and de-designated and the County Council operated a system pursuant to its powers in the Transport Act 1985, then the section 30 protections would not exist. However, DfT could enter into a contract with the County Council to agree that the County Council will stand behind any tram operator in similar circumstances. The County Council will only enter into this arrangement if it believes that it has sufficient funding for such an arrangement.