1 PERFORMANCE GOALS AND TARGETS AS PART OF ECONOMIC REGULATION OF ANSPs The UK experience of economic regulation Presented by Harry Bush CB Group Director Economic Regulation UK Civil Aviation Authority

2 CONTENTS Incentive regulation – price and quality Getting there the process assembling the evidence A balanced view on price and service incentives some principles applying them in practice The importance of customer consultation Results and lessons

3 INCENTIVE REGULATION – PRICE AND QUALITY UK issues high cost project overruns delay performance in 2002 Regulation incentives efficiency – RPI-X better service quality – delay performance Consultation with customers a key element

4 GETTING THERE: The process 1½ years could it be shortened? transparency several rounds of consultation Assembling the evidence scrutinising the company business plan efficiency studies benchmarking with wider industry with other ANSPs – Eurocontrol data

5 A BALANCED VIEW ON INCENTIVES: PRINCIPLES Pricing trade off between bearing down in short-term given risks and uncertainties realising benefits from over-performance later Service criteria for incentives scope for management influence capable of measurement assess potential for unintended consequences

6 A BALANCED VIEW ON INCENTIVES: PRACTICE Delay performance introduced at PPP in 2001 strengthened in 2003 amended 2006 – further strengthened and additional weighting to early flights and longer delays issues: does NATS have sufficient control should it better reflect costs of delay to airlines Timely capex potential for trigger incentives tied to milestones precedent in airports regulation CAA considered fully decided against: price cap already incentivised timely capex to deliver efficiency and service measurement issues alternative possibilities – review of project management capability

7 THE IMPORTANCE OF CUSTOMER CONSULTATION A theme of CAA regulation Service and Investment Plan future capacity plan, manpower plan and service and delay targets performance of existing projects and details of future investment programme/projects Operational Partnership Agreement joint NATS/airline working on airspace and traffic management issues NATS appears to have become more responsive to customer needs through consultation processes

8 RESULTS Prices reducing in real terms by 3.4% p.a. from 2006 to 2010 NATS attributable delay per flight reduced from 2.5 mins in 2002 to 24 secs in 2006 Improved consultation with stakeholders/ customers How much of this is due to regulation other factors – eg: traffic recovery from 2001 : completion of Swanwick but regulation provides a framework for transparency incentives building of trust with customers