• In the Farebox Recovery Calculations, Rail Operating Costs have increased by $17.9M.
• However, only $8.4M of rail costs were funded as Direct Operating Costs in 2017/18
• Over half the $17.9M rail operating cost increase is from an additional rail cost item.  Given the massive savings in bus service costs, the 3% Fare Increase is only required because the GWRC has added a $9.5M rail cost item called, in 2017/18, “Rail network Capex” as a Direct Operating Cost !

This analysis starts with the Post about “What do you mean you saved $18M on Buses but spent it on the Trains ?” and shows the Greater Wellington Regional Council (GWRC) seems to have made major bus cost reductions but also equally massive rail cost increases.  The second Post examines the question “They saved over $18M on the buses so are bus users now paying too much in fares ?” and reveals significant changes in bus and rail fare revenue are hidden in the Farebox Recovery Ratio calculations.

This post looks as the rail cost increases and asks if the huge increase in 2018/19 rail operating cost is real. [Reader warning – this post contains a lot of figures and numbers to support the serious issue it raises … you can skip to the Conclusion at the end]

The GWRC 2018 Annual Fare Review

On the GWRC Council of 14th March, approved Item 5 which was the 2018 GWRC 2018 Annual Fare Review (Report 2018.71) (a separate version of this report is here) confirming the need for a 3% Fare Increase and provided the following details with respect to 2018/19 bus and rail cost changes:

By mode, the figures show quite a divergence from the 2016/17 actual figures – with rail well below past actuals and bus above past actuals. This can be explained by:

• the move to gross-based contracts for bus (no net contracts)
• the changes to commercial services (some commercial services will be contracted and some will be exempt)
• significant increase in forecast rail expenditure, including: network track access charges, passenger service fee, network renewals
• savings from new bus contracts.

Yes, that is all the details the GWRC has provided about 2018/19 bus and rail costs and revenue ! It is also weird that this Annual Plan report compares 2018/19 (next year) with 2016/17 (last year) rather than 2017/18 (this year).

There are major cost increases for Rail Operating Costs

Comparing the 2017/18 Farebox Recovery Calculation spreadsheet rail Direct Operating Costs with the 20/18/19 spreadsheet shows an increase of $17,945,226. This is a huge rail cost increase and is also a shock given the rail service commences its second year of operation under TransDev where promised rail savings should be kicking in.  In fact a number of rail cost items have increased significantly:

The above are the three rail cost items with the largest increases.  Overall, 2017/18 rail cost
items have a net increase of $8.4M.

However the comparison with the previous spreadsheet also uncovered that the 2018/19 rail costs had an extra item …

Did the GWRC really add millions in Rail Capital Cost as Operating Cost ?

The surprising discovery comparing the 2017/18 and 2018/19 Farebox Recovery Ratio calculations is that the latter counts an EXTRA rail cost item called “Rail network renewals” worth $9.5M as a rail Direct Operating Cost.  In the 2017/18 account “W.564/2110/2” “Rail network renewals” ($7.4M) is catagorised as “Rail Network Capex” and is not a rail Direct Operating Cost.  But in the 2018/19 spreadsheet we find “W.564/2110/02” “Rail network renewals” ($9.5M) included as a rail Direct Operating Cost !

Finding that the Rail network Renewals item was added between 2017/18 and 2018/19

Firstly, I want to say I did not want to find that the GWRC has added rail cost to their Farebox Recovery Ratio calculation.  For this reason I provide the following information on the spreadsheet cell locations for the Rail network renewals cost item is treated differently in the 2017/18 and 2018/19 spreadsheets.  If you know how to drive a spreadsheet, you confirm from original data whether Rail network renewals was excluded in the 2017/18 Farebox Recovery Ratio calculation but included in 2018/19 calculation:

• The 2017/18 Farebox Recovery Ratio calculation spreadsheet (with edits in BLUE) is available here.
• The 2018/19 Farebox Recovery Ratio calculation spreadsheet (with edits in BLUE) is available here.

As far as I can determine, the Rail network renewals is in both spreadsheets but the 2017/18 “Train” “Operating costs excl. GST” does not include Rail network renewals as a “Train” “Operating costs excl. GST” while the 2018/18 clearly does.  Feel free to check out the actual calculation spreadsheets and point out any mistake I have made in identifying that the Rail network renewals is not a train cost in the 2017 /18 Farebox Recovery Ratio calculation.

Adding Rail network renewals makes a big difference

Accepting the above means accepting that the most of the rail operating cost increase of $17.9M is actually due to the addition of a new rail $9.5M cost item. It is also unclear why the GWRC decided to change a major rail cost item categorised as a Capital Cost in 2017/18 to a Direct Operating Cost in 2018/19. The 2018 Fare Review report outlined above contains no actual amounts but if it did it would say:

By mode, the figures show quite a divergence from the 2016/17 actual figures – with rail well below past actuals and bus above past actuals. This can be explained by: …

* significant increase in forecast rail expenditure, including: network track access charges (+$3.1M), passenger service fee(+$3.2M), network renewals (+$11.8M)

Wellington Regional councillors might have paid more attention to this report at their 14th March meeting if they understood they were discussing and approving a proposed rail operating cost increase of $17.9M.

What is clear from this change is the significant impact on the rail fare recovery ratios if the Rail network renewals item is excluded:

Rail Farebox Recovery Ratios WITHOUT Rail network renewals cost

If the Rail network renewals item is excluded, then the Rail Farebox Recovery Ratio gets very close to the 55% minimum required under GWRC PT policy.  Given the key purpose of the GWRC Farebox Recovery Ratio calculation is to assess whether fare need to be increase, it is important to check the ratios without the Rail network renewals and also without the fare increases:

Farebox Recovery Ratios WITHOUT Rail network renewals and the Fare increases

So that’s it ! The overall PT Farebox Recovery Ratio is still within the 55% – 60% range without any fare increase if we exclude the Rail network renewals item that has been added by the GWRC.  The spreadsheet information indicates:

1. That the GWRC recategorised a $9.5M “Rail Network Capex” cost item as a Direct Operating Cost and so adding this cost to the 2018/19 Farebox Recovery Ratio calculation
2. That without this additional rail cost item, the 2018/19 Farebox Recovery Ratio would remain within the 55% – 60% range required by GWRC Public Transport Policy even if fares were not increase.
3. Therefore the Fare Increases planned by the GWRC are only justified if one accepts that rail network capex expenditure should be funded as a Direct Operating Cost
4. The addition of this $9.5M cost item to become part funded from fares is not mentioned in the 2018 Fare Review or any other GWRC published report.

Conclusion

To recap the results of this analysis of the GWRC 2018 Fare Review:

The 1^st Post, “What do you mean you saved $18M on Buses but spent it on the Trains ?”:

• Lists the background of promised cost savings then the need for a fare increase
• Shows the Farebox Recovery Ratio calculation spreadsheets indicate that the GWRC has made huge ($18.5M) savings in bus operating costs. But these spreadsheets show an equally massive ($17.9M) increase in rail operating cost
• also outlines the refusal by the GWRC to provide Farebox Recovery Ratio calculation information until the Office of the Ombudsman intervened.

The 2^nd Post, “They saved over $18M on the buses so are bus users now paying too much in fares ?”

• briefly outlines how the GWRC Farebox Recovery Ratio policy is used to set fares
• showed $4.5M in bus fare revenue seems to have disappeared from the calculation
• explains that this missing bus fare revenue is the reason why the Bus Fare Recovery Ratio stays just under the maximum permitted limit of 60% and explained why this is essential for any justified fare increase.

This final Post “The Fare increase is only needed because the GWRC added Rail Costs”

• shows that the apparent $17.9M in rail cost increase actually consists of $8.4M of rail cost increases from 2017/18 and the addition of a new $9.5M “Rail network renewal” cost item that was previously categorised as “Rail network Capex”
• this analysis also shows that without the additional of the $9.5M Rail network renewals cost item, the planned fare increases to get $2.4M in additional revenue are not needed as bus savings under PTOM are much greater than real rail cost increases.

It is difficult to escape the logic that the GWRC added the rail cost item to the Farebox Recovery Ratio calculation because, without it, the huge savings in the bus costs removes the justification for its planned fare increase.  Without the fare increase, the GWRC would then need another $2.4M from ratepayers and the NZTA … turning the GWRC rates increase of 6.8% into an increase of over 7.5% or more !

It does seems to be an incredibly cynical move, even for an organisation such as the GWRC, to deliberately add the $9.5M in rail cost and remove $4.5M in bus revenue in order to get more money from unsuspecting commuters through increased fares.  There may be a sound and logical reason for these figures and the author is happy to be proven wrong.  But the GWRC does need to explain the issues raised in this analysis if it wishes to maintain its justification for a fare increase in July 2018.