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Bill of rights

Cover story - After 15 years patrolling the water sector Ofwat's Bill Emery is moving to head the Office of Rail Regulation. He talked to Bernadette Redfern.

There is no question that Bill Emery will be sorely missed when he leaves his post as Ofwat director of costs and performance and chief engineer in September. Industry insiders credit him with being a driving force in creating the water industry's highly regarded regulatory system.

Now, Emery is switching sectors, moving to the rail industry where he will take up the position of chief executive of the Office of Rail Regulation (ORR). There he will play a key role in determining how much Network Rail will be allowed to charge train operators for using its track.

He takes with him 15 years experience at Ofwat, plus another 15 years industry experience at Yorkshire Water.

He is a chartered civil engineer with a PhD in public health engineering.

Emery is the first to acknowledge that he has a lot to learn about the rail sector, but his vision for regulating it is clear. 'The ultimate objective is to get the right amount of work on the right assets in the right time period for the right price to the right specification. There are lots of rights in there, ' he jokes, 'and you can go wrong on any one of them. How Network Rail demonstrates that it has got it right is the challenge, ' he says.

To do this Network Rail must show that it is carrying out its functions in an efficient way. 'It is right and appropriate that the regulator assumes that there is scope for improvement, and there is a lot of scope in rail I am sure, but the burden of proof rests with Network Rail, ' he says.

So, in short, if the track operator wants the regulator to set access charges high enough to allow it to finance its investment programme, it must convince the regulator that this is being carried out in the most cost effective way.

'If we think that they can do it for less it is up to them to use good information to prove that we are over-challenging them, ' he says.

Developing a consistent system for analysing asset conditions and producing a uniform way of tackling maintenance across Network Rail's fiercely independent regions is a key challenge for Emery. But it is one of the reasons why the water sector has made such significant improvements over the past 10 years.

'One of the greatest successes in water is the evolution of asset management.

In 2000 we reacted to the simplistic models which varied across the industry and pushed for a risk based approach and the development of a common framework, ' he says.

'It was a long term job and it had to be pushed through by the regulatory model. Good asset information is vital. If rubbish data is put into a model then you are left having to make a series of judgments which expose you to unnecessary risk. We pushed the industry to get better information across all aspects of their business so that sound information is used in a sensible way, ' he says.

So how will Network Rail get this good information?

One approach might be to introduce what he calls process benchmarking. This involves direct comparisons of like for like work across its regions to ensure they are all spending their budgets as efficiently as possible.

The aim is also to ensure that regional variations in efficiency are eliminated.

'Process benchmarking is a moving target. Water sector reporters have told us that by doing this you can achieve efficiencies of 20% to 30% across functions, ' Emery says.

Network Rail could also demonstrate its efficiency by comparing its work programmes with those of other track operators. 'There are hundreds of railway systems around the world that we can look at. To ignore them because they have a different model or set-up is simply too easy. There are always comparisons to be drawn, ' he says.

There is also a clear need to ensure that the regulator has a good dialogue with its contractors and suppliers.

'How a company procures its services is up to them - we are not in the regulatory role to make management decisions.

But we do need to understand what is going on in the sector and understand what approaches are working and which seem to be exhibiting problems. There have to be the right carrots and sticks in place to drive efficiency, ' he says.

In contrast to the railways, the water industry seems to be largely winning the battle to generate customer satisfaction.

He says the water industry has an advantage over rail because all the assets are owned by the water companies so customers have a single point of contact.

In the rail sector, problems are often compounded by the fact that Network Rail owns the track, but the train operators run the trains.

One thing that the rail and water sectors have in common is the introduction of a more democratic board structure to replace one which put all the power in the hands of the head of the regulator. Emery was closely involved with this at Ofwat and helped the ORR introduce its new structure, a factor which roused his interest in the ORR job.

'I spent part of this year helping out colleagues in the ORR who had come to Ofwat for advice. There are lots of similarities around the price setting process. Both are monopoly industries with large capital expenditures. It started to get me interested in the rail sector, ' he says.

'As the structure of the organisation was changing I knew there were a few opportunities, and thought I might try my hand at (rail), ' he says modestly. It was also a question of good timing, as Emery points out that the water sector has just been through its five yearly regulatory review, and if he were to stay around much longer he would be sucked into the next one.

'At my time of life it was a case of do it now or never, ' he says.

Emery's rst challenge at ORR is the migration of Her Majesty's Railways Inspectorate from the Health & Safety Executive to ORR. This will more than double the number of staff at the ORR from 130 to over 300.

'There are management issues. It is critical that there is no drop in effectiveness in safety regulation during the transition.

'There are dangers of course.

Safety can't be seen to be threatened by value for money.

The trick is to ensure that safety doesn't suffer and appropriate safety is delivered.' Emery's ambition is to give regulation in the rail industry the same standing as British water regulation. 'At the moment the water industry really is seen as the gold standard of regulation but perhaps in a few years the Office of Rail Regulation will knock it off its perch. It all depends on our ability to get it, right, ' he grins.

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