RAB rules for NATS En Route plc

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Client Civil Aviation Authority (CAA)
Dates 2015
Service(s)Policy & Economics, Strategy & Finance

The Civil Aviation Authority (CAA) appointed Cambridge Economic Policy Associates (CEPA) and its sub-contractor, Grant Thornton, to review the “RAB rules” proposed by NATS (En Route) plc (NERL) for “Reference Period 2” (RP2), the five-year period from 1st January 2015 to 31st December 2019.

NERL proposed the RAB rules to the CAA as part of finalising the RP2 charges. The proposed RP2 RAB rules are a set of principles to determine the value of the Regulatory Asset Base (RAB) for NERL’s UK Air Traffic Services (UKATS) and Oceanic businesses, and to roll them forward to establish closing values for each year during RP2.

A set of rules were established for Control Period 3 (‘CP3’), which started on 1st April 2011. CP3 was originally due to end on 31st March 2015 but was cut three months short, with RP2 starting from 1st January 2015. The process of moving from a financial year to a calendar year calculation is referred to as “calendarisation” and represents a major element of the proposed revisions to the RAB rules.

The objective of our project was to review if NERL’s proposals complied with CAA-stated policies and the financial assumptions underpinning the determination of NERL’s charges for RP2.

CEPA provided a report to the CAA setting out the extent to which the proposed RAB rules and associated modelling aligned with CAA policy. This report was used to inform the CAA’s process for finalising RP2 tariffs and asset values, and identifying areas where further change might be required.

The project involved in-depth discussion with NERL over the proposed changes and the detail reflected in the regulatory rules and financial models. The CEPA workstream for this project involved five main stages. The first of these was a review of the RAB rule proposals to identify potential issues. We then resolved these queries with NERL to establish the clear areas of deviation. Having identified these areas, solutions were developed and documented, with quantification of each deviation’s impact. The final stage involved the preparation of the CEPA report.