Horden Peterlee Station

Transcription

1 Horden Peterlee Station Full Business Case: December 2016 Durham County Council

2 Contents 1 Introduction Purpose of the Document Introduction Current Constraints Proposed Scheme Strategic Need Benefits Timescale for Delivery Structure of the Document Strategic Case Introduction Background to the Scheme Location and Context Scheme History Existing Situation Existing Transport Network and Public Transport Services Existing Rail Provision Demand & Catchment Local Area Identified Problems and Issues Case for Change Comparable Schemes Housing Growth Employment Growth Additional Factors Strategic Fit National Fit Regional Fit Local Fit Aims and SMART objectives Scope Scheme Benefits Synergy with other Schemes Political Support for the Scheme Conclusions Economic Case Introduction Critical Success Factors Options Appraisal

3 3.3.1 Longlisted Options Shortlisted Options Preferred Way Forward Demand Forecasting Background Introduction Existing Demand Forecasting Methodology Trip Rate Model Gravity Model Full Tickets Reduced Price Tickets Season Tickets Forecast Demand Comparison with Trip Rate Model Abstraction Impact on Through Travellers Demand and Revenue Forecasts Appraisal Methodology Assumptions Methodology Analysis of Monetised Costs and Benefits Benefits and Disbenefits Costs Updated Values of Time Appraisal Results Core Results Wider Economic Benefits Option & Non-Use Values Operational Costs and Revenue Generated Preferred Option Value for Money Statement Conclusions Commercial Case Introduction Output Based Specification Procurement Method Contract Management Durham County Council s Contract Management Payment Mechanism Project Milestones

4 4.6 Risk, Constraints and Dependencies Primary Risks, Constraints and Dependencies Further Considered Risks Network Rail Risk Fund Land Issues Planning Issues Conclusions Financial Case Introduction Overview Assumptions Costs Capital Costs Whole Life Costs Operational Costs and Revenue Generated Land Assembly Costs Risk Assessment Risk Management Approach Risk Register Risk Allocation and Transfer Optimism Bias Funding Arrangements Conclusions Management Case Introduction Governance Project Governance and Resourcing Rail Industry Governance Assurance Approvals Station Operation Programme Delivery Design Stage Implementation Stage Exit Strategy Risk Management Strategy Risk Assessment Evidence of Delivery Capability Communications and Stakeholder Management Communications Strategy Consultation

5 6.8 Monitoring and Evaluation Benefits Realisation Plan Reporting Conclusions Summary and Conclusions Introduction Summary Conclusions Appendices Risk Tables Network Rail Pre-GRIP Feasibility Report Mott MacDonald Horden Peterlee Station Demand Forecasting and Economic Assessment Letters of Support 4

6 1 Introduction 1.1 Purpose of the Document This document provides the business case for Horden Peterlee Station. The business case has been compiled in line with Treasury Guidance on the Green Book (Treasury, 2011) and WebTAG (Web-based Transport Analysis Guidance), the Department for Transport s transport appraisal guidance and toolkit outlined in: Transport Business Case Assessment (DfT, 2011). It therefore covers the five cases: Strategic; Economic; Financial; Commercial and Management. 1.2 Introduction A new station to be known as Horden Peterlee located on the Durham Coast Line seeks to provide improved public transport access to the people and businesses of Horden and Peterlee, including the adjacent communities of East Durham. The proposed site of the station is known locally as South East View and lies at the Ordnance Survey coordinates of 444,658, The site is situated between Seaham (8.5km to the north) and Hartlepool (12km to the south) stations and will be served by the existing Middlesbrough to Newcastle upon Tyne, via Hartlepool and Sunderland service, which presently operates at hourly intervals throughout the day Current Constraints The construction of a new station at Horden Peterlee will fill an appreciable gap in rail service provision given the lack of intermediate stations between Hartlepool and Seaham. At present there is a 21km gap between Hartlepool and Seaham stations which restricts access, for a substantial number of residents, to the rail network. Durham County Council s Regeneration Statement (2012) states that a station in this area of County Durham will create an economically sustainable solution to the access constraints within the east of the County and is essential in order to raise the profile of the area in relation to business and leisure, as well as offering residents wider travel horizons and greater opportunities in relation to employment and access to services. The scheme will therefore seek to address these access constraints by: Providing access for residents to a larger labour market and the presence of higher value jobs, both to the North and South of Horden Peterlee; Providing access to a wider range of services and leisure facilities including improved access to the region s largest hospitals and education facilities; Providing a park and ride facility, as existing neighbouring stations are limited to relatively low numbers of parking spaces; and Providing a modal change alternative from the car, contributing to lessened congestion on the A Proposed Scheme The proposed construction of a new station at Horden Peterlee will involve: Two opposing platforms of circa 100m length, consistent with the longer trains specified in the Northern Franchise; 5

7 Modular platform construction (steel or precast concrete) with typical platform furniture including: waiting shelters, benches, lighting columns, help points, CCTV, CIS screens etc; Pedestrian steel footbridge with stairs and ramps; 100 space car park and ride facility with associated taxi, drop off and bus route; Two lane vehicular access road to the station, via Dene Street (off Blackhills Road) with improvements to allow busses to pass in opposite directions; Appropriate walking and cycling links to Horden and Peterlee, with cycle parking provided; and Walking links provided to the existing Durham Heritage Coastal Path. Furthermore, the design of the proposed station is to be in full compliance with rail and highway standards including: Network Rail s Station Design Principles 1, Secure by Design Station Scheme Guidelines 2, Design Manual for Roads and Bridges 3 and Manual for Streets Standards 4. The station is to be fully accessible and compliant with the Equality Act Strategic Need The scheme is guided by a number of key strategic drivers; these can be divided into local, regional and national subsets and are explored in detail over the course of the following section The Strategic Case. The table below provides a brief summary of the high level policy drivers which demonstrate the need for pursuing the scheme: Level Policy Driver Reasoning How the scheme contributes Local County Durham Infrastructure Delivery Plan Describes the requirements to 2030 which are needed to support forecast levels of growth, addresses specific objectives including improving existing rail network, supporting economic growth and enhancing connectivity within the County and with other parts of the region. Local Regional County Durham Regeneration Statement More and Better Jobs: Strategic Economic Plan for the North East Highlights the need for greater connectivity stating: transport infrastructure improvements will enable and ensure the successful development of employment and housing sites and help residents to access opportunities across the County and the region. Details a number of strategic priorities for transport investment including: investing to support economic and employment growth, connecting businesses and increasing the accessibility of local people to employment locations, unlocking the potential The construction of a new station improves existing public transport provision within the east of the County, allowing residents improved access to the region both North and Southbound. The creation of a new station at Horden Peterlee will create an economically sustainable solution to the access constraints of the area helping residents access employment, education and training opportunities. Selected as a priority project by the North East Local Transport Body on the basis that the scheme aligns with the SEPs target of improving the North East s strategic connectivity, improving 1 Design Standard for Accessible Railway Stations, Department for Transport, March Secure Stations Scheme Guidelines, Department for Transport, July Design Manual for Roads and Bridges, Highways England, Design Manual for Streets Standards 2, Chartered Institution of Highways and Transportation,

8 National The National Transport Strategy & Supplementary: Transport Constraints and Opportunities in the North of England of employment sites which directly contribute to economic growth and provide sustainable solutions to economic challenges. Recognises that city-focussed growth across the North will lead to growth in the demand for travel between cities, city regions and their surrounds. Enhanced connectivity within is the foremost priority: improving the existing rail network and creating new capacity allowing improved labour market efficiency, enabling firms to access a larger labour supply, and wider employment opportunities for workers and those seeking work. access from all parts of the North East to priority locations for economic growth helping access to areas of employment opportunity. Transport connectivity is vital to the quality of life and the economy of the region. Horden Peterlee will support the economic success of the region by increasing the efficient movement of people, providing a low carbon alternative to travel ensuring equality of travel opportunity for all, allowing people to connect with employment and other essential services. 1.4 Benefits The scheme will improve accessibility in Horden and Peterlee, providing a new public transport option in the East of the County. It will provide improved linkages both north and south bound into the main employment and service sector hubs of the region: Newcastle upon Tyne, Sunderland, Middlesbrough and the Tees Valley. The scheme will therefore significantly contribute towards alleviating access constraints within the area by providing ready access to employment, education and training, leisure and the health facilities available in the wider region. The monetised economic assessment of the scheme has been undertaken in compliance with the guidance outlined in the Government s Web-based Transport Analysis Guidance (WebTAG). The Economic Case details how the scheme will provide a Net Present Value of 3.17m exclusive of wider economic benefits, though when wider economic benefits and option/non-use values are included this rises to 25.6m. This gives the scheme a Benefit Cost Ratio (BCR) of 1.59 for the core transport appraisal rising to 5.74 when the aforementioned wider economic benefits are included. This rating demonstrates that the scheme provides a medium to very high value for money return on investment. There are, of course, additional qualitative benefits which have not been quantified in the economic appraisal associated with the scheme which will be outlined in further detail over the course of The Strategic Case and The Economic Case. 7

9 1.5 Timescale for Delivery Key milestones for the delivery of Horden Peterlee station are set out in the table below: Milestone Projected Completion Date Option Feasibility Report 08/04/2016 New Stations Fund Submission 25/11/2016 Business Case Submission 09/12/2016 Completion of RRD document 31/01/2017 Completion of GRIP3 option selection 31/07/2017 Indicative schedule for full GRIP 3 completion 31/03/2018 Completion of land acquisition 31/03/2018 Completion of GRIP4 & 5 outline and detailed design 31/03/2019 Planning Application Approved 31/03/2019 Completion of GRIP6 & 7 construction and handback February 2020 Station Opens January 2020 Completion of GRIP8 project closeout September Structure of the Document Following this introduction section, the structure of the document will continue as follows: Section 2: The Strategic Case outlines the case for change and ascertains the strategic fit of the scheme within current national, regional and local policies, strategies and plans. Section 3: The Economic Case appraises the costs determining the value for money of the scheme. Section 4: The Financial Case provides a budget breakdown demonstrating that the scheme will result in a fundable and affordable deal. Section 5: The Commercial Case provides the procurement arrangements establishing that the scheme will result in viable procurement and well-structured deal. Section 6: The Management Case outlines the management arrangements demonstrating that the scheme is capable of being delivered successfully. Section 7: Summary and Conclusions This section provides a summery outlining the key issues and findings of the business case. 8

10 2 Strategic Case 2.1 Introduction This section covers The Strategic Case for the scheme; The Strategic Case determines whether or not an investment is needed, either now or in the future. It demonstrates the case for change that is, a clear rationale for making the investment; and strategic fit how an investment will further the aims and objectives of local, regional and national strategies. This section, therefore, outlines the evidence, detailing why the scheme is required, along with providing a wider policy and regional context. In summary this section will: Outline the existing socio-economic characteristics of East Durham in order to draw comparisons to other localities with existing rail provision, setting the context of investment; Summarise the main catchment, along with the drivers of change that could affect future demand, specifying the business need for the scheme; Examine the suitability for alternative modes as well as the proposed rail station to meet the travel requirements for this part of the East Durham catchment, building a case for change; and Highlight the specific transport challenges which are relevant to the scheme, as well as the scheme s contribution to overarching policy objectives, determining the strategic fit. Additionally, in accordance with best practice as outlined in The Green Book, this section will determine: SMART spending objectives; Potential business scope and key service requirements; and Benefits, constraints and dependencies of the scheme. Finally, evidence of the political support offered by stakeholders for this scheme is given, which includes: Durham County Council, North East Combined Authority, North East Local Enterprise Partnership, Network Rail and Northern Rail. Therefore, the Strategic Case will be structured around the following headings: Background to the Scheme; Existing Situation; Identified Problems and Issues; Case for Change; Strategic Fit; Aims and SMART objectives ; Scope; Scheme Benefits; Synergy with other Schemes; Political Support for the Scheme; and Conclusions. 9

11 2.2 Background to the Scheme Location and Context The proposed station site is South East View which lies at 78miles 1450 yards on the LEN3 line. Land availability and assembly is straightforward, with all of the required land either in the possession of Durham County Council or Network Rail. Horden Peterlee will be located between Seaham station 8.5km to the north and Hartlepool station 12km to the south, and will operate on the on the Durham Coast Rail Line, which runs from Middlesbrough to Newcastle via Hartlepool and Sunderland. Durham station which sits on the East Coast Main Line is a further 21km away via the road network. The site location is shown below: South East View station location: Source: Durham County Council There is a large population catchment (circa 41,500) located adjacent to the station. However, there is no catchment to the East, given the proximity to Durham s heritage coast. It should be noted that only 10% of the population catchment for the station is located within the 800m generally used as a proxy for an acceptable walking distance, therefore, the accessibility plan and design of the station will ensure that there is adequate provision for other modes of transport such as: bus, car and bike, to access the station. Though Horden has had its own station in the past the area has not been served by a functioning commercial 10

12 rail link since 1964, additionally, Peterlee with a population of 27,900 is one of the largest centres of population in England without access to the rail network 5. Given the location of the proposed station the potential population catchment may be further increased by the proximity of several other communities in the immediate hinterland of East Durham, this becomes possible because of the considerable distance to stations at Durham, Hartlepool and Seaham and the associated difficulties in accessing these stations via the road network due to congestion and poor availability of park and ride services Scheme History Proposals for a new station on the Durham Coast line have been deemed a priority for East Durham by the County Council since its move to unitary status in 2009 and the production of the first iteration of the County Durham Regeneration Statement which stated: We will ensure that transport services and infrastructure improvements in East Durham, such as increased public transport provision combined with the opportunities that the Durham Coast line provide help residents to access employment, education and training. The creation of a new station at Horden Peterlee will create an economically sustainable solution to some of the access constraints of the area. 6 In 2012 consultants AECOM were appointed to produce demand and revenue forecasts for the proposed station. This study built on earlier work produced by Association of Train Operating Companies (ATOC) which indicated a new station could generate a BCR of 8.8:1. Although the ATOC 7 study examined a number of proposed stations from other parts of the UK, a new station at Horden Peterlee was expected to generate one of the strongest economic cases. The study employed a regression based forecasting methodology with a Trip End model used to produce forecasted income for a new station at Sea View South. In 2013 the Department for Transport launched the competitive New Stations Fund to be managed by Network Rail with a funding pot of 20m. Durham County Council submitted a funding bid based on this work produced which illustrated the strong strategic, commercial, economic and environmental case for a new station. Although the bid was well received by Network Rail it ultimately opted to decline the application for station funding given the feasibility process had not yet reached GRIP3 status. Since this point, however, and following further discussions with Network Rail, Durham County Council elected to halt progress with the Sea View South site which was the subject of the New Stations Fund Bid, as the site had shown to have unforeseen barriers to development. Durham County Council saw fit to widen the scope of the proposed scheme to look at five possible station sites within Horden, with Network Rail commissioned to provide a pre-grip feasibility study in which only two sites were identified as viable and the original preferred site of Sea View South was ruled out. South East View was selected as the preferred option and will be progressed through the GRIP process. 5 Connecting Communities, ATOC, Regeneration Statement, Durham County Council, Connecting Communities: Expanding Access to the Rail Network, ATOC,

13 To date, Horden Peterlee station has been selected as one of the six transport schemes prioritised by The North East Local Transport Board with a, 3.4m share of committed Local Major Scheme funding totalling 31.1m as outlined in the North East Strategic Economic Plan (SEP) 8 Durham County Council have also reiterated their commitment to the scheme in the latest iteration of the Regeneration Statement and in identifying Horden Peterlee as one of the Council s six foremost priority projects. 2.3 Existing Situation Existing Transport Network and Public Transport Services The key transport networks surrounding the vicinity of the scheme are comprised of the following routes: The A19 dual carriageway between North Tyneside and Thirsk via the Tyne Tunnel, South Tyneside, Sunderland, Tees Valley and Peterlee. This is a strategic alternative to the other main north south corridor (the A1 / A1(M); The A1086 single carriageway road from Easington to Hartlepool via Horden and the Durham Coast. This route primarily fulfils a local function between Peterlee and Hartlepool; and The A689 from Billingham and Hartlepool, the A66 dual carriageway between Thornaby and Middlesbrough, plus the A184 dual carriageway between Sunderland and Newcastle. The approaches to the main urban areas in the Tyne and Wear and Tees Valley city regions are affected by significant congestion, which leads to slower, less reliable journey speeds. These negative impacts on car and bus travel serve to make the proposed station at Horden Peterlee on the Durham Coast Line rail services more competitive. Existing bus services take 35 minutes for the journey between Peterlee and Sunderland which compares poorly with the timing of alternative modes. An express bus service runs between Newcastle, Peterlee and Middlesbrough via the A19 with an 80 minute end to end journey time. Journey times between Peterlee and Newcastle are roughly 45 minutes. The X9/X10 services, operated by Go North East, are branded as the Tyne Tees Xpress 9. Although there are two services per hour between Newcastle and Middlesbrough, only one operates via Peterlee town centre. The other service diverts from the A19 to call at a bus stop in a location which is relatively isolated from the town centre, and hence offers limited integration with the wider public transport network. There are no direct services from Horden to either of the Tyne and Wear or Tees Valley conurbations, excepting the hourly 23 Arriva Service to Sunderland originating at Hartlepool with a 70 minute journey time, commuters from Horden would otherwise be required to make the 20 minute bus journey to Peterlee before their onward journey north or southbound. Given the congestion issues affecting the A19 at approaches to the main urban areas highlighted above there is an increasing risk that buses will be affected by heavy and worsening traffic congestion at junctions and on strategic routes within the Tyne & Wear and Tees Valley conurbations. This inevitably influences journey time reliability and becomes increasingly prevalent during peak periods. In conclusion journey times by rail from the proposed Horden Peterlee Station would be faster and more reliable than competing modes 8 More and Better Jobs: North East Strategic Economic Plan, North East LEP, Traveline,

14 of public transport, especially during peak periods and would significantly aid in reducing some of the access constraints of the area Existing Rail Provision The existing weekday Durham Coast Line timetable comprises a service between Middlesbrough and Newcastle operating at hourly intervals for the majority of the day - 15 services per day in the northbound direction and 16 services per day in the southbound. Northbound, trains depart Middlesbrough at 32 minutes past the hour between and Outside this period, there are departures at and 17.39, 18.32, 19.40, Southbound, there are departures from Newcastle at 30 minutes past the hour between and 20.30, with further services at and The existing Saturday timetable is broadly similar to the weekday service pattern, although there are minor revisions to the timing of trains. However, on Sundays, services operate every 1-2 hours, with just six through trains between Middlesbrough and Newcastle. As noted above due to traffic congestion issues at approaches to the main urban areas in the Tyne and Wear and Tees Valley conurbations, coupled with the relatively poor provision and lengthy journey times of the public bus network and prohibitive parking charges within the urban centres, rail as a mode of transport, particularly during peak periods, could be seen as a favourable mode of transport for many residents of East Durham. However, at present for those in the Horden Peterlee catchment the necessity to access bus feeder services to access rail services at Seaham and Hartlepool as well as a lack of readily available park and ride facilities results in extended journey times (direct bus journey time is slightly more competitive compared to the bus/rail option) and a lack of incentive to use rail as a means of commuting. Construction of a new station at Horden Peterlee with an associated park and ride facility would vastly increase the incentive to use rail for the catchment area both in respect to associated cost and reduced journey time Demand & Catchment The importance of improving strategic connections to enable the catchment area associated with the scheme to access a wider range of jobs or training opportunities is well understood, particularly, given the limitations of existing travel choices outlined above. The opportunities to improve existing modes has been considered in the past, however, the fact that limited potential improvements exist meant such proposals would be unlikely to realise transformational changes to support economic growth in comparison with those realised by the construction of a new rail station. Ultimately, this lack of ability to improve existing modes and the limited effect improvements would realise resulted in each option being deemed less attractive than the construction of a new station operating the existing Middlesbrough to Newcastle upon Tyne, via Hartlepool and Sunderland service. At present there are around 3,400 people living within 800m of the proposed Horden Peterlee station, with a further 36,921 living within a 5km catchment of the proposed station site, including the settlements of Horden, Peterlee, Easington Colliery, Easington Village, Blackhall Colliery and Blackhall Rocks to the west. However, there is no catchment to the east, given the proximity of the scheme to Durham s heritage coastline. It is also worth noting that approximately 8% of the total catchment is located within the 800m from the proposed station site which is generally used as a proxy for an acceptable walking distance. 13

15 This reinforces the importance of providing convenient access to the station, through the availability of car park and ride facilities and enhanced bus routes. There is a considerable level of both current and future demand for the use of the proposed station with prospective housing and employment growth, indicating the scope to increase the total number of people likely to use the new station and associated rail services. The Economic Assessment and Demand and Revenue forecasts for a new station in Horden Peterlee produced by the consultants Mott MacDonald 10 and explored in detail in The Economic Case details how the introduction of the proposed station will facilitate 71,000 trips from the newly construction station per annum by 2024, representing 100% demand build up reducing vehicle kilometres by 850,000km per annum in the North East region. Furthermore, based on the assumed catchment for the proposed station site none of these trips are assumed to be abstracted from neighbouring stations. The forecast revenue ( 265,461) considering modal shift associated with additional stopping time at Horden, was also expected to exceed the typical annual operating costs ( 57,916) of the station thereby generating a financial surplus of over 200,000 per annum by In addition to the catchment and demand forecasts provided by Mott MacDonald for the proposed station, it can be assumed that other areas will benefit from the proposed scheme. Opportunities to interchange with the Tyne & Wear Metro and other stations along the Durham Coast Line exist to expand the immediate travel catchment. As such the following areas can be expected to register a net gain from the introduction of a new station along the Durham Coast Line at Horden Peterlee: Newcastle; Gateshead; Middlesbrough; County Durham; Hartlepool; Stockton-on-Tees; South Tyneside; North Tyneside; Sunderland; Darlington; and Further afield. As noted previously, the catchment to the east of the proposed station is reduced comparative to similar sized stations by its proximity to the Durham heritage coast (a notable proportion of the 800m catchment east of the proposed station site extends into the North Sea) as a result, some of the station s potential walk-in catchment from an 800m radius is effectively zero. However, whilst this outcome is clearly a constraint in terms of attracting a potential residential catchment for work related trips, it does create an opportunity to attract inward visitors to the Durham heritage coast from a tourism prospective. 10 Horden Peterlee Railway Station, Demand Forecasting and Economic Assessment Report, Mott MacDonald for Durham County Council, November

16 2.3.4 Local Area Population Over half of East Durham s population of 94,200 live in areas designated as urban in nature, using the former District of Easington as a proxy for East Durham the area has a population density of 6.6 (people/hectare) which is nearly three times that of that of the County average (2.3) 11. Peterlee is one of the two major urban centres of the area, the other being Seaham, the rest of the area is primarily comprised of large former colliery settlements, of which Horden is one. Peterlee was formed in 1948 as part of the New Towns legislation. Peterlee s influence, and catchment extends to around 27,900 people, this makes it one of the largest centres of population in England without access to the rail network 12. The population of Horden (MSOA: E , 6,548) has seen recent decline of 1.7% as areas such as Seaham have seen significant growth between (12%) 13 it is also worth noting that Seaham has its own station and is far better connected to the large Tyne and Wear and Tees Valley conurbations. There has also been a significant efforts made to regenerate the area over this period with associated housing development. Labour Market The East of Durham in general, like most of County Durham has suffered from the decline of the coal mining industry. Since the 1970s until the last colliery closure in 1993, the area has been undergoing a period of economic restructuring, however, this period also saw the reduction of manufacturing, heavy engineering and textiles in tandem with the loss of mining which made up the bulk of employment opportunities in the area. Indeed, the 1981 Census showed 53% of all employed males worked in coal mining, understandably the loss of coal mining, has resulted in large scale issues in relation to unemployment. Since the decline in mining activities, measures to diversify the economy have been progressively introduced. Sites within Peterlee have been developed into new commercial and manufacturing centres for the area, with a growing employment base on its large industrial estates. However, despite these efforts the majority of businesses in the area are classified as small, with ten or fewer employees and more generally the economic structure of the area remains weak, with an unemployment rate of 7%, significantly higher than the rest of County Durham (4.8%) and Great Britain (3.7%) 14. It is also worth noting that the area, and in particular Horden has a considerable issue with youth unemployment. The proportion of Job Seekers Allowance claimants under 25 years of age is significantly higher than the rest of the county, the region and England and Wales. In Horden 41.9% of the total claimant count were aged under 25, while in Peterlee this figure dropped to 34.6% the average for County Durham as whole is 33.4% while the average for the North East and England and Wales is 31.2% and 28.1% respectively. Opportunities for young people remain a concern as Horden Medium Super Output Area (MSOA) has the highest percentage of JSA claimants in the 18 to 24 population at 21.3% in East Durham, and one of the highest in the County, with the average at 9.8% for the County 11 ONS, Connecting Communities, ATOC, Experimental LSOA and MSOA population estimates, ONS, ONS, NOMIS,

17 and 7.2% for E0ngland and Wales. 15 Furthermore, in June 2012, the last date data was made available, there were 6 people claiming Job Seekers Allowance (ONS) in East Durham for each local Jobcentre Plus advertised, vacancy 16. It is expected that the proposed scheme will offer enhanced employment opportunities to those in the catchment area in order to begin to tackle these structural challenges. Index of Multiple Deprivation (IMD) Understandably, this higher than average level of unemployment bares a significant impact on household income, the average household income in comparison to the rest of the County can be seen in the table below: Household Income in East Durham: Area Lower Quartile Average (Median) Income Upper Quartile East Durham 16,500 20,900 27,200 County Durham 18,400 24,500 32,900 Source: CACI 2012, Durham County Council In addition, the average weekly household income per household for the catchment served by the proposed Horden Peterlee station is just 438 which is significantly lower than other stations on the Durham Coast Rail Line. However, it cannot be assumed that the presence of comparatively low levels of household income is solely due to a higher instance of benefit claimants. In reality this is due to a combination of the high levels of unemployment and relatively large numbers of those employed in elementary occupations 17. The scheme will also offer the opportunity of enhanced linkages to a wider pool of employment opportunities, particularly higher value jobs. The Index of Multiple Deprivation (IMD) can be used to highlight other significant challenges for the area. Nearly two thirds (61.9%) of the Lower Super Output Areas (LSOA) in the station catchment are in the top 20% of deprived areas in the UK, whilst about 90% of the employment domain of the LSOAs are in the top 20% deprived areas in the Country 18. Levels of crime are higher than average and access to education, skills and training is lower. These indicators highlight the challenges and add to a strong case to improve connectivity from East Durham to enhance access to a broader range of services and opportunities. Car ownership & Travel to Work East Durham occupies a strategic location between the North East s two city regions; the A19 trunk road forms the main route through the area linking it to the conurbations of Tyne & Wear in the north and Tees Valley in the south. Over 600 households within 800m of the proposed station have no access to a car, with nearly 6,100 households within 5km having 15 ONS JSA Claimant Count, NOMIS, Jobcentre Plus, Notified vacancies by occupational group, June The Business Register and Employment Survey, ONS, DCC, English Indices of Multiple Deprivation,

18 no car available. This is the equivalent to approximately one-third of households having no access to a car or van and can be seen below in the comparative table: Car ownership and travel to work 800m v 5km isochrones Statistic 800m 5km Car ownership (no car) 622 6,098 Population 3,370 41,486 Travel to work 1,026 14,816 Working population 1,000 4,470 Source: Durham County Council Car ownership therefore can be adjudged to be comparatively low, however, residents of the area who do own a car are far more likely to use a car to travel to work, below is a summary of the primary commuting modes for residents of the area likely to be influenced by the construction of a new station at Horden Peterlee: Rail: the proportion of commuting journeys by rail in the North East is significantly lower than the average for England & Wales. The overall total reflects the much higher levels of rail commuting to other major cities including London, Leeds and Manchester. However, the results indicate the performance of Districts served by the Durham Coast Line are achieving a significantly lower rail mode share compared with the overall average; Bus: in contrast to the results for rail travel, the North East achieves a higher average mode share for bus compared with the overall total for England & Wales. This outcome is being influenced by high usage in both Newcastle and Gateshead which are served by more extensive bus networks. Other parts of East Durham have a bus mode share which is comparable to the average for England & Wales including County Durham, Hartlepool, Stockton and Middlesbrough; Car: travel by this mode in the North East is generally higher than the average for England & Wales. This outcome reflects the limitations of rail and bus services in some areas, which has increased the importance of car usage for commuting trips, in spite of the reduced car household ownership; and Other: the proportion of trips by other modes the North East is similar to the total for England & Wales. However, this is still higher than the County Durham average which would suggest a greater prevalence of walking and cycling in the Region than the County average. Given the low levels of car ownership and the instance of car ownership as a primary mode of commuting it can be determined that the relatively poor public transport offer to areas of employment opportunity in the Tyne and Wear and Tees Valley conurbations is a significant barrier for those seeking work. 2.4 Identified Problems and Issues As noted there are a number of existing constraints that the proposed scheme is seeking to address these include: 17

19 Lack of direct rail connectivity from the Horden Peterlee catchment to the major employment centres in Newcastle, Sunderland and Middlesbrough; Poor existing public transport journey times to access these employment centres, particularly, using existing bus services to access rail services via the Durham Coast Line at Seaham and Hartlepool; Inability of public transport services including current rail and bus services to compete effectively with private transport journey times for this catchment, this constraint is exacerbated by the higher percentage of households without access to a car relative to the rest of England and Wales as demonstrated above; Resulting reduced likelihood that residents are unable to access higher paid jobs in the major employment centres, since the alternative local opportunities in Peterlee are relatively restricted; and The restricted public transport offer from Horden Peterlee leading to increased levels of car usage along the A19 corridor for those households which do have access to a car, which has resulted in deteriorating journey time reliability, particularly, at the outskirts of the major Tyne and Wear, Tees Valley conurbations and increased levels of emissions. The proposed construction of a new station at Horden Peterlee will relieve or eradicate these issues. However, the scheme itself is subject to a number of potential constraints. Although there are no specific technological issues effecting the construction of the station or the site itself, constraints and dependencies which need to be addressed include: At present there is an Existing User Work Crossing at Blackhills Farm, the proposed scheme is located close enough to the existing level crossing at Blackhills Farm (and the associated whistle boards) to detrimentally effect its safe functioning. The acquisition of the farm would neutralise the level crossing. Positive discussions have taken place between Durham County Council and the landowner with regards to transferring the ownership of the land, with a view to the Council completing the purchase by March 2018 at the latest; The requirement to identify a robust operational solution that enables trains on the Durham Coast line to call additionally at Horden Peterlee. With the current services operating from Nunthorpe to Hexham via Middlesbrough and Newcastle, there are timing constraints to consider which would prevent an extra stop at the new station unless the timetable was revised. Durham County Council has held discussions with the Northern franchisee, Arriva Rail North who are confident the timetable can be condensed by up to three minutes in order to call at the new station, either through line speed enhancements or an alternative pattern for services on the Durham Coast Line; and The key inter dependency to the proposed scheme is the Durham Coast Resignalling & Re-control project. This project has already installed the infrastructure on site for the re-signalling element of the works identified and is within GRIP4 for the re-control of the infrastructure to York ROC As such discussions are ongoing between Durham County Council and the Durham Coast Re-signalling & Re-control 18

20 project to understand mutual proposals and timescales. It is considered that economies of scale may be gained by working with the aforementioned project These issues will be carefully reviewed and monitored throughout the development of the scheme in order to understand the resulting implications for the scope of the works and the subsequent impact on the design and construction of the station. 2.5 Case for Change Comparable Schemes There are number of existing comparable rail schemes the success of which helps to reinforce the case that a station at Horden and Peterlee would tackle the considerable access constraints evident in the catchment area of the proposed site and deliver benefits in relation to economic regeneration. Four schemes have been reviewed and are summarised below: 1. Monitoring data compiled on behalf of Welsh Government including a number of schemes in South Wales: A report 19 featuring various case studies in South Wales and elsewhere indicated that access to rail services can contribute to higher population and employment growth, since the improved transport could help to redistribute economic activity around nodes. The relationship between rail improvements and house prices, deprivation or changes in car ownership, however was less apparent; 2. Monitoring reports produced on behalf of Transport Scotland: Two monitoring reports have recently been produced which examine the impact of two recently opened lines (Larkhall to Milngavie south of Glasgow 20 and Airdrie to Bathgate in the Central Belt 21 ). For the Larkhall scheme, increasing the attractiveness of the surrounding area for inward investment and land development. This indicated that 1,800 new homes are expected to be built, although the increase in employment land has been very limited. However, there is evidence to suggest the scheme has contributed to retaining and attracting residents to the area, albeit spending some of their money elsewhere. The assessment of the Airdrie to Bathgate scheme did not show any material changes in GVA for the specific local authority areas that have benefited by the proposals, although the rail corridor only covers a relatively small part of each geographic area. However, the monitoring data indicated that the scheme has contributed to promoting social inclusion to communities in North Lanarkshire and West Lothian. The scheme has also helped to increase the number of public transport trips; 3. Robin Hood Line (RHL) in Nottinghamshire 22 : The line from Nottingham to Worksop via Mansfield was re-opened in three phases. This case study is particularly relevant to the Horden Peterlee example since part of the catchment area served by the RHL included locations affected by mining and the decline in traditional industries. Until 19 Regional and Local Economic Impacts of Rail Investment, Mott MacDonald for Welsh Government 20 Larkhall Milngavie Railway Project Evaluation Study, Scottish Transport Applications Research Airdrie Bathgate Railway Project Evaluation Study, Scottish Transport Applications Research Case of Rail, Nottinghamshire County Council, Steer Davies Gleave

21 the RHL was reopened, the absence of convenient travel options to access employment opportunities in Nottingham and elsewhere resulted in high unemployment. Once services on the RHL had restarted, surveys confirmed the following benefits: 40% of work related trips were not previously made; 28% of work trips have changed as a result of the improved travel choices offered by the RHL; It was not possible to complete 7% of trips by any other mode than the RHL; and 42% of passengers using the RHL were attracted by the speed of the rail service; there was evidence that the proximity of the RHL to an industrial park adjacent to Sutton Parkway has led to inward investment being secured at a faster rate. The resulting employment creation has helped to regenerate the local economy as well as delivering wider social and environmental benefits. 4. Comparison of observed versus modelled demand using newly opened railway stations 23 : This study for the DfT reviewed a number of examples where demand was significantly higher or lower than the original forecasts, along with an analysis of the contributory factors. The review of contributory factors confirms there is no evidence that stations located in relatively deprived areas will necessarily under-perform relative to the initial forecasts assuming the input assumptions are correct. It is also worthwhile reiterating that the forecast demand using Horden Peterlee is significantly lower compared with many of the examples cited in the evaluation report. This comparative analysis indicates the forecasts for Horden Peterlee appear relatively cautious compared with other examples. It can be concluded, then, that there is evidence that the availability of travel opportunities has contributed to higher population and employment growth rates in contrast to the rates seen in comparable areas, there is also some evidence to suggest that new rail schemes can act as a catalyst for inward investment. However, perhaps of most relevance to the proposed scheme is the evidence gained from the assessment of the Robin Hood Line in Nottingham, in particular, the high percentage of respondents who indicated that they have been able to access jobs that they would not otherwise been able to which serves to reinforce the case for the construction of a scheme at Horden Peterlee Housing Growth County Durham Partnership s Sustainable Communities Strategy (SCS) sets out a long term vision and the priorities for a better future for County Durham and its communities. The spatial expression of this vision is the Local Development Framework Core Strategy or County Durham Plan (CDP). The CDP will seek to identify the requirements and the spatial locations affected, by identifying those areas which will attract new and long lasting investment. CDP Policy 48 (Provision of New Transport Infrastructure) permits new transport infrastructure identified in the County Durham Infrastructure Delivery Plan that enhances connectivity both within the 23 DfT Station Usage and Demand Forecasts for Newly Opened Railway Lines and Stations, Steer Davies Gleave

22 County and other parts of the region and beyond to deliver economic growth, regeneration and tourism. The County Durham Plan identifies Peterlee as a main town and Horden as a secondary settlement. Land has been allocated within the Peterlee area, with the proposed wide range of upgraded and new houses acting as a catalyst for wider community regeneration. Such development will help to ensure that East Durham is a competitive place to do business allowing residents to take advantage of the new opportunities that development brings. Some of the specific sites identified in the CDP which would potentially fall within the catchment of the proposed scheme include: A site in Horden to accommodate 390 new homes to be delivered in the medium term; A site adjacent to Shotton school for 70 homes (medium term); A site adjacent to Dene House school for 70 homes (short term); North Blunts 85 homes (long term); South of Edenhill Community Centre 90 homes (long term); and South of Passfield Way 35 homes (medium term). The delivery of these new sites would boost the potential in-scope catchment serving the proposed station. Evidence from the evaluation of rail schemes analysed in the above section suggests that a higher growth rate could be achieved following the completion of measures to improve connectivity. Planned housing developments, then, only serve to add to the case for the development of the proposed station. In reality the scheme would be likely to offer additional economic benefits to the proposed developments, which in turn would serve to enhance the viability of the station itself Employment Growth The policy context for improved connectivity for a new station in East Durham is clearly identified in the suite of policy documents prepared by Durham County Council. This includes the County Durham Regeneration Statement covering the ten year period from 2012 to 2022 which provides an overview of the current economic development picture in the County and what is required to make County Durham a better place to live, work, invest and visit, outlining the spatial, social and economic priorities for regenerating County Durham. To supplement the planned housing growth described above, several strategic sites for employment growth have also been provisionally identified, including: 15.2 hectares of land north west of Peterlee, 10.8 hectares south west of Peterlee; and 1.6 hectares in Horden. The creation of additional jobs would help to boost the existing number of jobs adjacent to the site, helping to expand the number of employees able to work in the Horden Peterlee area, with measures to improve connectivity acting as a catalyst for investment and potentially encouraging inward travel into the area from along the Durham Coast Line Additional Factors The Durham Heritage Coast between Sunderland and Hartlepool has emerged from its industrial past to act as a catalyst for economic revitalisation through tourism. This 10m renaissance scheme started in the 1980 s and has led to much of the coast being 21

23 designated as either of national or international significance. It is growing into a major visitor attraction albeit with limitations on access. It is expected that a new station on the Durham Coast Line would help create a new access point, complementing those existing links and create walk out train back leisure opportunities. The scheme will provide pedestrian connectivity from the station to the Heritage Coast and coastal footpath; this would feasibly act to support the wider economy by attracting a wider range of visitors to the area particularly during the weekends for leisure and recreational activities. 2.6 Strategic Fit This section provides an overview of how the scheme aligns with the vision and policies contained within national, regional and local plans and strategies National Fit Central Government has placed a strong emphasis on the role that infrastructure has to play in delivering economic growth in recent years. Although, estimates indicate that over 375bn of investment is needed to fully upgrade the UK s key infrastructure to an adequate level 24. Infrastructure investment is undoubtedly a key economic driver, providing a multiplier effect for the economy helping to attract and retain business and jobs. Nationally, it is recognised that our transport infrastructure needs to support UK business growth, not only in terms of supporting the movement of people and goods but also in respects to providing more efficient forms of transport, reducing journey times. Connectivity between cities and markets is pivotal in realising business potential and boosting growth within the UK s economy, rail services are fundamentally central to this task. The scheme at Horden Peterlee, then, provides a strategic fit with many of the Government s policies relating to transport, growth and infrastructure through improving access by rail within the East of County Durham and improving equality of access to employment opportunities in the wider city region both to the north and south of Horden Peterlee. As stated, economic growth is one of the main drivers of National Government policy, The Plan for Growth (2011) sets out the Government s economic policy objective: To achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries. One of the four key ambitions stated within the Plan for Growth is to encourage investment and exports as a route to a more balanced economy, under this ambition are the aims of: Increasing private sector employment, especially in regions outside London and the South East; and Increasing investment in low carbon technologies. In addition, the National Planning Policy Framework recommends that plans address barriers to investment, promote accessible development and exploit opportunities for the use of sustainable transport. The new station at Horden Peterlee, clearly, provides a strong strategic fit with the Government s established aim of increasing employment, removing barriers to work and investing in sustainable transport and low carbon modes of transport. 24 Investment: Impact on Consumers Bills, Public Accounts Committee,

24 Furthermore, The Transport Act (2000) requires strategic transport authorities to produce local transport plans that provide a strategy that supports economic growth, whilst maintaining transport assets and reducing the impact of climate change. The Making Sustainable Local Transport Happen (2011) White Paper illustrates how well connected infrastructure is essential in helping grow the UK economy. Asserting that sustainable transport needs to be made more attractive for business and individuals, recognise their needs, consider modal shifts and enable better routes to market. The National Transport Strategy states that transport investment should support private sector investment and support a rebalanced economy to ensure sustainable prosperity for all. In addition, the White Paper Creating Growth, Cutting Carbon (2011) sets out a vision for: A transport system that is an engine for economic growth but one that is also greener and safer and improves quality of life in our communities. There are also a number of further national policies which relate to improving accessibility to, and integration of public transport, especially for the mobility impaired. These include: Transport for everyone: an action plan to improve accessibility for all; and Door to door: a strategy for improving sustainable transport integration. By providing a new station in Horden Peterlee, public transport accessibility will be improved for all sections of the population, especially for those who have no access to a private vehicle. Bus stops and outside the station and the incorporation of a park and ride facility will allow for cross-mode interchange offering not only an important opportunity for residents to access a wider labour market with better paid jobs but also offering a green and sustainable means of doing so, contributing to improved GVA in the Horden Peterlee catchment with the additional benefit of reducing congestion and emissions, clearly this scheme achieves a strong strategic fit with national priorities Regional Fit The National Transport Strategy & Supplementary: Transport Constraints and Opportunities in the North of England report recognises that city-focussed growth across the North will lead to growth in the demand for travel between cities, city regions and their surrounds. Enhanced connectivity within the North therefore is the foremost priority: improving the existing rail network and creating new capacity allowing improved labour market efficiency, enabling firms to access a larger labour supply, and wider employment opportunities for workers and those seeking work Enhancing rail travel between the North s city regions and between the North and other city regions across the country will support the North s city regions to exploit their comparative advantages and so secure economic growth. It will do this by: Facilitating greater business to business interaction; Extending labour markets; Supporting cities retail, leisure and visitor economies; and Providing an alternative to what will be a more congested Strategic Road Network. Onward connectivity however is crucial to these aims and this is provided by the local Journey to Work networks in each city region. Improvements to the connectivity of these networks would strengthen the benefits that further enhancements to inter-city connectivity in the North would deliver. It s clear that the Horden Peterlee scheme strongly aligns with this 23

25 aims by improving a local journey to work network namely the Durham Coast Line supporting the economic success of the region by increasing the efficient movement of people, providing a low carbon alternative to travel and ensure the equality of travel opportunity for all, allowing people to connect with employment and other essential services. Commissioned by the North East LEP and published in April 2013, an Independent Economic Review was carried out by a team of independent experts led by Lord Adonis. The Economic Review outlined an agenda for the future of the North East, focussing on five priorities: Championing North East International, promoting the region at home and abroad as a magnet for trade, talent, tourism and inward investment; A doubling in the number of youth apprenticeships to tackle low skills and high youth unemployment, alongside higher school standards and an increase in the proportion of young people going on to higher education; Development of strong innovation and growth clusters, stimulating universities and their graduates, existing companies, and public institutions, to create and finance new high growth enterprises and jobs; Improved transport infrastructure and services to overcome the relative national and international isolation of the North East and to improve connections within the North East so that people can get to and from work more easily and affordably; The creation of stronger public institutions, including the location of key national institutions such as the new British Business Bank in the North East. A review of transport was part of the overall Economic Review, with the aim of supporting its central objective to create more and better jobs. The transport review recommended setting up Transport North East, a new transport agency to serve the new Combined Authority in the North East, the latter focusing on economic growth, job creation, skills development and improved transport links. Furthermore, the transport review recommended the region s partners should adopt the recommended intermediate transport priorities for roads, public transport, air and sea. In terms of rail, the transport review recommended that rail becomes the natural choice for business trips. Rail was also stated as helping to deliver an area-wide commuter catchment, particularly to support the four Newcastle-Gateshead Accelerated Development Zone sites. Developing the full potential of rail freight was also identified as an issue. A new station at Horden Peterlee could help to achieve a number of these objectives by contributing to an expanded commuter catchment area, whilst the stops at Heworth and Newcastle Central would offer convenient access to the four Newcastle Gateshead Accelerated Development Zone sites, as well as the Tyne & Wear Metro for employment opportunities elsewhere, whilst more broadly the scheme will contribute to tackling the considerable youth unemployment problem in East Durham by offering enhanced connectivity to a larger more vibrant labour market and tackling the relative isolation from services by offering quality of access. The North East LEP published the Strategic Economic Plan (SEP) for the North East in March The SEP is identified as an essential part of the development of an Agenda for Growth. The plan sets out a clear economic vision and ambition for the North East to 2030, 24

26 based on the available evidence including the North East Independent Economic Review Report. The SEP aims to inform how the economy of the North East develops over the next 10 years. The vision states that by 2024, our economy will provide over one million jobs compared with the 750,000 currently provided. Supporting the vision, the SEP aims to halve the gap between the North East and the national average (excluding London) on three quantifiable measures: Gross Value Added (GVA) per Full Time Equivalent (FTE), with wages and profits rewarding workers and investors and sustaining high levels of employment; Private sector employment density, with more companies and jobs driving a high growth economy; and, Activity rate, with no one left behind, and those distant from or disadvantaged in the labour market helped to take advantage of the opportunities created by a successful, growing economy. The SEP aims to close the gap in terms of the scale and quality of employment, matching a workforce which is increasingly better qualified with a higher skilled workforce. There are plans to create an additional 60,000 private sector jobs by 2024, over and above the 40,000 new jobs forecast in the absence of any of the Plan s interventions. The SEP (Section I: Transport and Connectivity) identifies a role for improved transport accessibility and connectivity in a number of areas, as it: Improves the area s strategic connectivity an area targeting smart specialisation, trading and exporting needs fast, reliable and resilient connectivity to external markets by road, rail, air and sea. It is equally about facilitating visitors to come to the area ; and Improves access from all parts of the area to the priority locations for economic growth, getting people to jobs. Transport plays an important part in ensuring that urban centres with the greatest economic potential can thrive, and everyone can participate in the area s job market. The SEP also commits to reducing carbon emissions from transport. It therefore supports active travel for shorter trips, improving the efficiency and reducing demand on the road network, and promoting greater use of public transport. On rail specifically, the SEP raises the requirement for better local rail services into Newcastle from a number of locations including County Durham. Although the 2014 SEP is currently being refreshed, the Local Enterprise Partnership has reconfirmed their commitment to these aspirations. The delivery of these targets and outcomes will boost both the number and quality of employment opportunities in the North East. As a result, the accessibility improvements that would be offered by a new station at Horden Peterlee will enable people living close to the station to secure these jobs without incurring slow journey times. The proposed scheme therefore also demonstrates a strong strategic alignment with regional strategies as well as national ones Local Fit The County Durham Regeneration Statement ( ) outlines five ambitions: Thriving Durham City; Vibrant and Successful Towns; Sustainable Neighbourhoods and Rural Communities; 25

27 Competitive and Successful People; and A Top Location for Business. The statement pledges to lift constraints on development and stimulate investment in the infrastructure needed to increase economic activity and wealth, as such the statement highlights the need for greater connectivity stating: transport infrastructure improvements will enable and ensure the successful development of employment and housing sites and help residents to access opportunities across the County and the region. The creation of a new station at Horden Peterlee will create an economically sustainable solution to the access constraints of the area helping all residents to access employment, education and training opportunities, this aligns with the regeneration statement s ambitions to create sustainable neighbourhoods and rural communities by improving equality of access to employment and services, and competitive and successful people by helping economically inactive or underactive residents access a wider labour market and opportunities to increase their skills in the regional service hubs both north and south of the station. The Local Transport Plan 3 and The Infrastructure Delivery Plan (IDP) for County Durham describe County Durham's policy transport policy objectives and infrastructure requirements until The Plan states that transport and accessibility infrastructure inherently supports the economy, promotes social inclusion and can deliver solutions that address the causes of climate change. The infrastructure requirements outlined within the delivery plan therefore aim to support economic growth and enhance connectivity either within the County or with other parts of the region. With regards to rail the outside of the East Coast Main Line the plan states that the County s remaining passenger routes have low line speeds and infrequent services which can make them uncompetitive with other modes and are therefore primed for enhancement. However the railways in County Durham are well placed to make a significant contribution to economic regeneration goals in key areas and furthermore offer, unlike road and air, the potential to contribute positively to a wide range of other policy objectives including climate change, quality of life, equality of opportunity and security. The Council's vision for rail therefore is to develop and promote a sustainable and integrated rail network which is able to provide for the current and future needs of residents, businesses and visitors to County Durham and that will contribute to the economic growth and regeneration of the County. The proposed station at Horden is reaffirmed as priority for the County Council in the delivery plan, as the scheme seeks to connect deprived communities in the County with areas of opportunity as well as maximising inward investment opportunities by facilitating access to a wider labour market, it is clear then that the proposed scheme not only represents a good strategic fit nationally and regionally but meets local priorities and fits with the vision and priorities of the Council going forward. 26

28 2.7 Aims and SMART objectives It is necessary to clearly state the desired objectives of the scheme in order to identify the full range of options that may be available for delivery, helping to evaluate potential investments. The following aims were therefore developed; aligning closely with the strategic objectives detailed above it is expected that the scheme will: Facilitate economic activity, employment growth and more convenient access to employment opportunities across the North East Local Enterprise Partnership (NELEP) area, encouraging equality of opportunity for local residents; Connect some of the most deprived communities in the County with areas of opportunity for employment and training; Support business investment and productivity growth to increase Gross Value Added per full time equivalent in the NELEP area, including enhanced access to opportunities in the Tyne & Wear and Tees Valley City Regions, as well as maximising inward investment opportunities by facilitating access to the wider labour market in other city region areas; Minimise the impact of future traffic growth using the highway network, especially the A19 corridor given the wider congestion issues that affect the Tyne & Wear and Tees Valley city regions; Support lower carbon travel by encouraging sustainable travel choices which are competitive versus car; and Improve accessibility for households without access to car, providing more convenient links for essential social, education and leisure activities. However, these aims can often be difficult to measure directly, in which case it is essential to specify appropriate objectives that can be clearly measured and relatable to the desired outcomes of the scheme. SMART objectives were therefore developed to help progress in terms of producing outputs, delivering outcomes and meeting the aims of the scheme. SMART objectives are: Specific; Measurable; Achievable; Relevant; and, Time-bound. The SMART objectives developed for the proposed scheme are: Facilitate 71,000 trips from the newly constructed station per annum by 2024, representing 100% of demand built up Generate 960,000 (undiscounted in 2016/17 prices) of revenue from , representing 100% of demand built up; Increase the park and ride capacity along the Durham Coast Line by 100 parking spaces; Reduced vehicle kilometres by 850,000 km annually per annum in the North East region; 27

29 Reduce public transport journey times (in comparison to bus journeys) during peak periods of at least 3 minutes from Horden Peterlee to/from Newcastle; Reduce public transport journey times (in comparison to bus journeys) during peak periods of at least 10 minutes from Horden Peterlee to/from Sunderland; and Reduce public transport journey times (in comparison to bus journeys) during peak periods of at least 13 minutes from Horden Peterlee to/from Hartlepool. These objectives will be monitored and evaluated in order to ensure that the desired benefits of the scheme are realised, the detail of which will be expanded on in The Management Case. 2.8 Scope Determining the scope of the scheme is a vital means of providing context for the relevant costs and benefits when considering the potential options for the scheme s delivery. As such an assessment was undertaken in order to consider the parameters and the key service requirements necessary to achieve the strategic objectives outlined in the above section, a summary of the assessment is detailed in the table below: Potential Business Scope & Assessment Do nothing This option would fail to address the planning, regenerative and environment objectives described which require improved transport connections to fully achieve these outcomes. Improve existing public transport services - The dispersed nature of the travel demand along with the size of the market would result in the introduction of feeder services being unlikely to contributing towards overarching objectives Infrastructure improvements would be required to ensure vehicles are not affected by traffic congestion causing journey time reliability problems during peak periods the diversity of travel markets served would be relatively limited. Investing in the road network The cost of delivering improvements in line with the benefits generated by the introduction of a new station would be prohibitive. Infrastructure improvements would be further complicated by the fact that the trunk highway network is not owned by Durham County Council. New station elsewhere in East Durham An additional station serving the Durham Coast Line would enable the catchment regular links to Sunderland, Middlesbrough and Newcastle. However, potential sites in Blackhall Colliery or Easington Colliery were discounted as sites for a rail station in East Durham as they are not central to East Durham s population resulting in lower predicted patronage reducing the viability of the scheme. New station serving Horden Peterlee catchment - An additional station serving the Durham Coast Line would enable the catchment regular links to Sunderland, Middlesbrough and Newcastle. Travel opportunities could be further increased through interchange at Sunderland, Heworth or Newcastle which provides access to the Tyne and Wear metro network Journey times would be faster and more reliable than competing modes especially during peak periods Key Service Requirements Maintain existing public transport services. Provide feeder bus services to stations along the Durham Coast Line. Provide Express coach improvements and improved bus services to major employment centres. Invest in road network in order to alleviate traffic congestion during peak periods. Construction of a station operating on the existing Durham Coast Line with available land and patronage requirements. Construction of a new station operating on the existing Durham Coast Line both north and south bound with one service per hour in both directions. The construction of a 100 space park and ride facility at the site of the proposed station. 28

30 It was determined that only the construction of a new station along the Durham Coast Line at Horden Peterlee would be financially viable and achieve the desired strategic objectives outlined above. In order to frame the delivery of the scheme and in order to help realise the aims, objectives and benefits it was concluded that the newly constructed station must: Be comprised of a two platform railway station, with a minimal operational length of 100m; Provide a 100 space car park and ride facility; Have readily available public transport access; and Ensure appropriate pedestrian and cycle links into Horden and the Coastal Path. 2.9 Scheme Benefits The scheme will improve accessibility in the East of Durham, providing a new public transport option for the local catchment associated with Horden Peterlee. It will offer improved public transport choices into the major conurbations in Tyne and Wear and Tees Valley as well as the wider regional transport network and therefore will contribute towards improved access to employment, education and leisure facilities. The proposed park and ride facility at the station is likely to provide an alternative, key park and ride facility for commuting trips along the Durham Coast Line. Its location, easily accessible from the A19 will be relatively attractive for passengers who already commute to the major employment centres of the region. The construction of a new station is therefore likely to have several major impacts: Generate in excess of 71, trips per year to and from the new rail station Provide enhanced employment and skills opportunities Encourage commuters who currently drive to park and ride at the new station Provide access to leisure facilities and increase inbound visitation to the Durham Heritage coast This scheme also has the potential to produce marginal economic benefits, through reductions in congestion and therefore improved reliability of car journey times. The monetised economic assessment of the scheme is detailed in The Economic Case, shows how by 2024, the station will generate an operational surplus against costs of 960,000 highlighting the viability of the proposed scheme Synergy with other Schemes A new semi-fast service on the Durham Coast Line would complement the new station proposal at Horden Peterlee. It is assumed that this service would only stop at major centres and not Horden allowing passengers to avail themselves of the increased stopping times. This proposed frequency improvement would deliver a significant reduction in generalised journey time compared with the existing hourly service. The resulting journey time benefits would undoubtedly help to support many of the economic objectives of the scheme, most 25 Horden Peterlee Railway Station, Demand Forecasting and Economic Assessment Report, Mott MacDonald for Durham County Council, November

31 notably increasing the public transport choices between Horden Peterlee and catchments in the Tyne & Wear and Tees Valley conurbations which attract a more diverse number of well paid jobs, allowing equality of access for residents. This aspiration to operate two trains per hour was not included in the Northern Rail Invitation to Tender, although stakeholders will continue to make the case for frequency improvements. However, the replacement of the existing Class 14X diesel units, which are generally deployed on the Durham Coast Line, with a higher specification alternative will take place from the start of This improvement will enhance the service quality and capacity for existing passengers Political Support for the Scheme The Council s Regeneration Statement states that a station in this area of County Durham will create an economically sustainable solution to some of the access constraints of the area and is essential in order to raise its profile in relation to business and leisure as well as offering residents wider travel horizons and greater opportunities in relation to employment and access to services. Durham County Council are fully committed to the success of the scheme, this is demonstrated by the Council identifying Horden Peterlee as one of the Council s six foremost priority projects and providing funding via the capital programme. Horden Peterlee station has also been selected as one of the six transport major schemes prioritised by The North East Local Transport Board with a 3.4m share of committed Local Major Scheme funding totalling 31.1m as outlined in the North East Strategic Economic Plan (SEP) on the basis that the scheme aligns with the SEP s target of improving the North East s strategic connectivity, improving access from all parts of the North East to priority locations for economic growth helping access to areas of employment opportunity. Network Rail, Northern Rail, British Transport Police and the Department for Transport (DfT) have all been consulted during the process of project development and are key stakeholders supportive of the scheme. The provision of a new station to assist with regeneration aspirations closely matches the DfT s priorities of reducing transport carbon emissions and creating economic growth. The proposed site of the station is also the preferred option of both Network Rail and Northern Rail Conclusions The Strategic Case has presented an analysis of the existing situation, identifying the need for the scheme by detailing the social and economic characteristics of the area and the relatively poor availability of existing transport links. In particular, this section has highlighted a major accessibility gap affecting the Horden Peterlee catchment area, which in turn has a negative impact on the ability of residents to access higher paid jobs in the main employment centres of the region in Newcastle, Middlesbrough and Sunderland. The current public transport travel options from Horden Peterlee are 25% slower than driving, resulting in journey times which are too slow to offer a viable commutable option. Although there are railway stations at Seaham and Hartlepool, local buses linking Peterlee and Horden with these stations are slow and infrequent and provide inconvenient timings with rail departures. This results in very slow end-to-end times. The Strategic Economic Plan for the North East outlines a vision to provide over 1 million jobs by 2024, along with the creation of higher value jobs. If the residents of the Horden 30

32 Peterlee catchment are able to benefit from new investment and job opportunities, accessibility to these opportunities must be improved. The construction of a new railway station, has a strong strategic fit with national, regional and local plans and strategies and is best placed to meet the underlying aims of the scheme: facilitating economic activity, employment growth, connecting the most deprived communities, supporting business investment and productivity growth, supporting lower carbon travel and improving accessibility for households without access to car. The station will significantly assist in removing the barriers to accessibility to the larger employment centres of Newcastle, Middlesbrough and Sunderland and offer equality of opportunity for residents in East Durham. 31

33 3 Economic Case 3.1 Introduction This section covers The Economic Case for the scheme; The Economic Case demonstrates that the spending proposal optimises public value for money. Explaining how this requirement is achieved by, identifying and appraising a range of realistic and achievable options, in terms of how well they meet the spending objectives and the critical success factors agreed for the scheme. This section, therefore, provides a preferred way forward which is subjected to a Value for Money (VfM) assessment, this monetised economic assessment has been prepared in compliance with the guidance contained within the Government s web-based Transport Analysis Guidance (WebTAG) 26 and Her Majesty s Treasury Green Book 27. In summary this section will: Assess options to identify all of their impacts, and the resultant value for money, to fulfil HM Treasury s requirements for appraisal and demonstrate value for money in the use of taxpayers money; Set out the methodology for the demand forecasts and economic appraisal Examine the economic, environmental, social and distributional impacts of the proposal using qualitative, quantitative and monetised information; Provide a range of economic appraisal sensitivity tests; and Determine the extent to which the proposal s benefits outweigh its costs. Additionally, in accordance with best practice as outlined in The Green Book, this section will determine: Critical Success Factors; Longlisted and Short Listed Options; and The Preferred Way Forward. The Economic Case will, therefore, be structured around the following headings: Critical Success Factors; Options Appraisal; Demand Forecasting; Appraisal Methodology; Analysis of Monetised Costs and Benefits; Appraisal Results; Preferred Option; Value for Money Statement; and Conclusions. In addition to these factors the impact of the proposed Station at Horden Peterlee of additional patronage for leisure, health, education and events should not be underestimated 3.2 Critical Success Factors Critical success factors are the attributes which are essential to the successful delivery of the preferred option. The critical success factors form part of the set of criteria for the initial 26 Transport analysis guidance: WebTAG, DFT, The Green Book: appraisal and evaluation in central government, HM Treasury,

34 assessment of each potential option, along with the investment objectives and potential benefits, costs and risks. The critical success factors should be identified and agreed by key stakeholders, but should not be set at a level which could potentially bias or exclude important options at an early stage of options analysis. The overriding point is that Critical Success Factors should be crucial, not desirable, however, they do not form direct spending objectives. As such, in addition to the investment objectives set out in the Strategic Case a number of factors critical to the success of the project and relevant in judging the relative desirability of options were drawn up. The aforementioned Critical Success Factors are shown in the table below: Key Critical Success Factors Description 1. Strategic Fit & Business Need The project will be assessed on how well it: Meets the agreed investment objectives, related business needs and service requirements Fits with local, regional and national strategy, policy and objectives as outlined in the Strategic Case 2. Value for Money The project will be assessed on how well it: Optimises value for money providing the optimal mix of benefits costs and associated risk 3. Supplier Capacity and Capability The project will be assessed on how well it: Matches the ability of suppliers/contractors to deliver the required services Is likely to result in a sustainable arrangement that optimises value for money over the full term of any contract 4. Achievability The project will be assessed on how well it: Is likely to be delivered given the ability to respond to the changes required Is likely the option is to be delivered successfully in practice, taking into account the skills and capacity to deliver the project 5. Affordability The project will be assessed on: The extent to which the option fits within the likely resource available Matches any other funding constraints 3.3 Options Appraisal An options appraisal is a technique for reviewing various options towards achieving a specified end goal and analysing the costs and benefits of each one. It helps to ensure informed decision making by providing a process that requires: Key objectives that must be achieved; Description of the various ways of achieving the key objectives; Pros and cons of each of the proposed solutions along with a consideration of the respective benefits that they may deliver. As such, it is crucial, early on in the inception of a proposal to determine what you are seeking to achieve and undertake preliminary reviews of existing information before arriving at a short list of options. 33

35 The Strategic Case outlined above clearly fulfils these requirements detailing the aims and SMART objectives of the proposed scheme, whilst taking heed of the policy context, local need and strategic priorities of the Council. As noted in The Strategic Case, the aims of the proposed project are to: Facilitate economic activity, employment growth and more convenient access to employment opportunities across the North East Local Enterprise Partnership (NELEP) area, encouraging equality of opportunity for local residents; Connect some of the most deprived communities in the County with areas of opportunity for employment and training; Support business investment and productivity growth to increase Gross Value Added per full time equivalent in the NELEP area, including enhanced access to opportunities in the Tyne & Wear and Tees Valley City Regions, as well as maximising inward investment opportunities by facilitating access to the wider labour market in other city region areas; Minimise the impact of future traffic growth using the highway network, especially the A19 corridor given the wider congestion issues that affect the Tyne & Wear and Tees Valley city regions; Support lower carbon travel by encouraging sustainable travel choices which are competitive versus car; and Improve accessibility for households without access to car, providing more convenient links for essential social, education and leisure activities. Whilst, the SMART objectives of the proposed project are to: Facilitate 71,000 trips from the newly constructed station per annum by 2024, representing 100% of demand built up Generate 960,000 (undiscounted in 2015 prices) of revenue from , representing 100% of demand built up; Increase the park and ride capacity along the Durham Coast Line by 100 parking spaces; Reduced vehicle kilometres by 850,000 km annually per annum in the North East region; Reduce public transport journey times (in comparison to bus journeys) during peak periods of at least 3 minutes from Horden Peterlee to/from Newcastle; Reduce public transport journey times (in comparison to bus journeys) during peak periods of at least 10 minutes from Horden Peterlee to/from Sunderland; and Reduce public transport journey times (in comparison to bus journeys) during peak periods of at least 13 minutes from Horden Peterlee to/from Hartlepool Longlisted Options The identification and appraisal of a range of options that will deliver the service changes and outputs required is critical. This effectively takes the form of a long list of options, Value For Money (VFM) needs to be secured through looking creatively at all the opportunities and systematically identifying and comparing the alternative ways of delivering project objectives to determine the option which best meets the requirements at optimum cost. 34

36 To start this process initial options relating to the delivery of the strategic aims noted above were considered and subsequently sieved on the basis of issues relating to feasibility, funding, acceptability (public and political) and scope. This not only removed certain options but allowed certain options to be further developed and clarified. As such, early in the inception of the proposed scheme the Council discounted investing either in the road network or the provision of additional bus services for residents as an alternative owing to concerns with issues of state aid, the complexity of the relationship with current service operators and the potentially weak cost benefit ratio of doing so. Investments outside the scope of the scheme were also considered in the long listing this can be viewed in section 2.8 Scope, however, given the long-term strategic imperative for Horden, as outlined in The Strategic Case, it was deemed that developing an option which addressed the strategic priorities for Horden, met the aforementioned objectives as well as meeting criteria for feasibility, was in reality impractical Shortlisted Options The remaining options were subjected to a further sieving process which primarily considered the critical success factors outlined in the section above in addition to the factors outlined below: Consideration of previously proposed schemes and ongoing initiatives; Consideration of identified problems & issues; Consideration of outcomes; Consideration of opportunities; Consideration of implementation; and Discussions with consultees. The remaining options were taken forward into a more detailed qualitative assessment to ensure full alignment with the policy objectives, problems & issues, VFM and the five national objectives for transport: economy, safety, environment, accessibility and integration in addition to the factors noted above. Ultimately, it was determined that only the construction of a rail station at Horden Peterlee could adequately fulfil the selection criteria, meet the strategic objectives and key critical success factors whilst still producing VFM for the taxpayer. Furthermore, it also held that the development of a rail station at Horden would feasibly act as a catalyst to further growth in the town and should be seen as an early enabler of the Council s investment priorities within Horden and the wider East Durham area Preferred Way Forward Upon determining that a rail station at Horden Peterlee best met the selection criteria an intermediate preferred way forward became clear. An assessment was then undertaken to consider the potential scope, parameters and options for the preferred option to best achieve the overall strategic aims of the project. For the purpose of this exercise it was agreed that the range of options to take this proposal forward should meet both the aforementioned Critical Success Factors in addition to the four foremost objectives outlined below: 1. Achieve design standards prescribed by Network Rail; 2. Capable of achieving patronage expectations of the train operating company; 3. Ensure the futureproofing of station design; and 35

37 4. Design in keeping with stations of similar magnitude and appropriate to the level of anticipated demand. The four options are presented in the following table: Proposed Station at Horden Peterlee: Option Appraisal Option 1 Option 2 Option 3 Option 4 Description Do Nothing Small scale Preferred Proposal Large Scale Assumes no public sector investment is possible, resulting in a failure to enable the development of station at Horden Peterlee. Construction of a double platform station, though without a car park, bus turning circle, taxi drop off points and appropriate cycle lanes. Construction of a double platform station with infrastructure consistent with similar new stations including car park and ride facility, bus layby facility, taxi drop off point and appropriate pedestrian and cycle links. Construction of a double platform station with a manned information booth, enclosed passenger waiting facilities, toilets and concession stands. Critical Success Factors Objectives Justification Costs CSF5 CSF4 CSF3 CSF2 CSF1 O4 O3 O2 O 1 0 8m m There would be a loss of opportunity for private sector investment and accessibility would remain an issue for the town. Though the station would be serviceable without the inclusion of a park and ride facility, bus turning circle, taxi drop off points and appropriate cycle lanes there would be an inevitable reduction in patronage reducing the station s viability. The proposal adequately meets all the spending objectives and critical success factors and would provide the best balance between benefits and costs. Costs outweighs benefits in terms of VFM to taxpayer, increased costs lower BCR hindering the viability of the proposal. Summary Source: Durham County Council Discounted Discounted Preferred Discounted 36

38 The four options ranged from `Do Nothing to a `Large Scale intervention. This Large Scale option was ruled out due to excessive costs for the additional works in comparison with the other cheaper options, whilst the Do Nothing option or status quo was deemed unactable to the County Council. On merit, a preferred option was reached, referred to as option 3 in the table. This option includes: Two opposing platforms of 100m length, consistent with the longer trains specified in the Northern Franchise; Modular platform construction (steel or precast concrete) with typical platform furniture including: waiting shelters, benches, lighting columns, help points, CCTV, CIS screens etc; Pedestrian steel footbridge with stairs and ramps; 100 space car park and ride facility with associated taxi, drop off and bus route; Two Lane vehicular access road to the station, via Deene Street (off Blackhills Road) with improvements to allow busses to pass in opposite directions; Appropriate walking and cycling links to Horden and Peterlee, with cycle parking provided; and Walking links provided to the existing Durham Heritage Coastal Path. The selected option aims to create an economically sustainable solution to some of the access constraints within the east of the County outlined in The Strategic Case, helping connecting communities to areas of opportunity by simultaneously raising the profile of the area in relation to business and leisure and offering residents wider travel horizons and greater opportunities in relation to employment and access to services. Furthermore, this option will maximise both demand and viability therefore resulting in the best value for money (VFM) for the taxpayer. Having considered the available options, determining that only the development of a rail station could meet the critical success factors and selecting a station option that best meets VFM requirements, it became necessary to consider station site options and the associated delivery challenges. The sections below detail this process, though in short, only two site options were deemed viable for the construction of the proposed station. As such, it was decided to undertake the economic appraisal for both options to determine which site was preferable. The preferred option will be identified in section 3.8 whilst the benefits and, importantly, the VFM (Value for Money) and affordability of the project will be outlined in the summation of this chapter. In conclusion the options appraisal has indicated there is a sound case for the selected route whilst the following sections will explore the practical suitability and feasibility for a final selected site. 3.4 Demand Forecasting Background Durham County Council have previously commissioned studies for the proposed scheme, the most recent being the production of Outline Demand Forecasts and an economic assessment for a station located, specifically, at Horden Sea View. However, following discussions with Network Rail Durham County Council saw fit to widen the scope of the proposed scheme to look at five possible station sites within Horden. Upon conducting the 37

39 rigorous Option Appraisal outlined above and following a Pre-Grip Feasibility study by Network Rail, two sites were identified as viable: South East View: considered a good location for a new station, offering level ground with no significant land contamination or rail industry risks; and Old Horden: considered a good location for a new station, offering similar conditions to South East View. As such consultants Mott Macdonald were commissioned to provide Demand Forecasting and an Economic Assessment with a brief to determine the viability of the remaining options Introduction Demand forecasts have been developed using two distinct methodologies. The first uses a simple trip rate model, whilst the second uses a more complex gravity model. The outputs of the gravity model have been used in the production of the economic assessment, whilst the trip rate model has been produced to give comfort that the gravity model is producing demand in the right order of magnitude Existing Demand Existing demand has been sourced from the Northern Rail version of the MOIRA rail demand forecasting program (NT03). This models demand at all stations on the Northern network, with demand at stations outside the area of interest aggregated (for example demand to/from Edinburgh includes that for Edinburgh Waverley, Haymarket and 40 other intermediate stations in the south east of Scotland). Using MOIRA, demand for stations along the Durham Coast Line, between Sunderland and Stockton has been analysed. The first table below shows demand by origin / destination (rounded to nearest 50) whilst, the second shows, demand by ticket type: Total demand at stations along the Durham Coast Line: Sunderland Seaham Hartlepool Seaton Billingham Stockton Carew Origin 323,400 90, ,350 35,800 44,550 34,450 Destination 273,700 33, ,800 21,600 31,450 38,500 Total 597, , ,150 57,400 76,000 72,950 % Origin 54.2% 73.0% 68.3% 62.4% 58.6% 47.2% % Destination 45.8% 27.0% 31.7% 37.6% 41.4% 52.8% Source: Moira MT03 Journeys March 14 March 15. Mott Macdonald. Total demand by ticket type at stations along the Durham Coast Line: Sunderland Seaham Hartlepool Seaton Billingham Stockton Carew Full 210,350 54, ,750 29,100 46,450 46,650 Reduced 215,150 41, ,300 14,150 16,600 13,200 Season 171,600 27,500 95,100 14,150 12,950 13,100 Total 597, , ,150 57,400 76,000 72,950 % full 35.2% 44.2% 40.1% 50.6% 61.1% 63.9% % reduced 36.0% 33.7% 44.4% 24.7% 21.8% 18.1% % season 28.8% 22.1% 15.5% 24.7% 17.1% 18.0% Source: Moira MT03 Journeys March 14 March 15. Mott Macdonald. 38

40 The data indicates that all stations between Sunderland and Stockton are net passenger generators (i.e. there are more passengers originating at the station) with the exception of Stockton. This may be due to complex station choice issues in the area (i.e. longer distance travellers are likely to use Eaglescliffe and Thornaby stations rather than Stockton). Full ticket types dominate at the southern end of the route at Billingham and Stockton, with reduced and season tickets contributing a higher proportion of demand at Sunderland, Seaham and Seaton Carew. The most popular destinations from the six stations were investigated, and top ten flows are shown in the series of tables below: Top ten flows from Sunderland and Seaham: Destination Sunderland Cumulative% Destination Seaham Cumulative% Demand Demand Newcastle 108, % Newcastle 42, % London BR 52, % Sunderland 23, % York 34, % Hartlepool 8, % Hartlepool 24, % Middlesbrough 5, % Metro Centre 15, % Metro Centre 5, % Middlesbrough 13, % Stockton 1, % Edinburgh 7, % Heworth % Seaham 6, % Thornaby % Stockton 3, % Billingham % Thornaby 3, % Aberdeen % Edinburgh % Source: Moira MT03 Journeys March 14 March 15. Mott Macdonald. Top ten flows from Hartlepool and Seaton Carew: Destination Hartlepool Cumulative% Destination Seaton Carew Cumulative% Demand Demand Newcastle 124, % Newcastle 10, % Middlesbrough 57, % Middlesbrough 7, % Sunderland 47, % Sunderland 3, % York 46, % Stockton 3, % London BR 33, % Thornaby 2, % Metro Centre 24, % Billingham 2, % Thornaby 17, % Metro Centre 2, % Stockton 14, % Darlington % Darlington 6, % Heworth % Billingham 5, % Hartlepool % Source: Moira MT03 Journeys March 14 March 15. Mott Macdonald. Top ten flows from Billingham and Stockton: Destination Billingham Cumulative% Destination Stockton Cumulative% Demand Demand Newcastle 13, % Hartlepool 9, % Middlesbrough 5, % Newcastle 6, % Sunderland 4, % Sunderland 6, % Hartlepool 4, % Middlesbrough 3, % Seaton Carew 3, % Seaton Carew 2, % Metro Centre 2, % Billingham 1, % Darlington 1, % Metro Centre % Thornaby 1, % James Cook % Redcar % Leeds % Abderdeen % Darlington % Source: Moira MT03 Journeys March 14 March 15. Mott Macdonald. 39

41 Top ten flows from Thornaby and Middlesbrough: Destination Thornaby Cumulative% Destination Middlesbrough Cumulative% Demand Demand York 65, % York 91, % Middlesbrough 36, % Darlington 49, % Newcastle 35, % Newcastle 44, % Darlington 35, % Redcar 39, % Redcar 27, % Hartlepool 23, % Leeds 25, % Saltburn 22, % Hartlepool 13, % Leeds 21, % Saltburn 11, % Whitby 20, % Manchester 9, % Thornaby 18, % London BR 6, % London BR 15, % Source: Moira MT03 Journeys March 14 March 15. Mott Macdonald. The data shows that Newcastle is the largest destination in terms of demand for all five stations north of Billingham inclusive. However, Newcastle does not form one dominant destination, and at none of the stations does it account for more than 50% of demand. Sunderland and Middlesbrough are also important destinations from stations on the coast line, along with Hartlepool and (from station at the northern end of the line) Metro Centre. Many of the top ten flows from stations are relatively self-contained either to destinations on the Durham Coast, or to destinations beyond Newcastle and Middlesbrough which are served by direct trains. Sunderland and Hartlepool show more inter-regional demand as compared to the intermediate stations. Both record strong flows to York and London, and this is likely to be as a result of having direct trains to these destinations via Grand Central services The existing rail trip rates per thousand-population for commuting to work journeys is shown below, the illustration shows that the highest trip rates are observed around Durham. On the Durham Coast Line, the areas around Seaham and Hartlepool show reasonable trip rates. The areas of Peterlee and Horden currently have low rail trip rates as would be expected for an area with no local railway station. Commuting trip rates by rail in the North East: Source: 2011 Census, Courtesy of Mott Macdonalnd. 40

42 3.4.4 Forecasting Methodology The different types of model which can be used in the production of station demand forecasts are summarised in the DfT s Guidance note on passenger demand forecasting for third party funded local rail schemes (2011) 28. These are ordered by complexity and cost (showing the simplest model first) as follows: Trip rate model; Trip end model; Gravity model; Mode choice model; and Four stage model (trip generation, distribution, mode choice, assignment). Further guidance is also given in the UK rail industry s Passenger Demand Forecasting Handbook (PDFH) 29. For the purpose of this economic assessment demand forecasts have been developed using two distinct methodologies, as previously noted. Using the two separate methodologies ensures that the appraisal results are robust allowing for some element of substantiation and assuring both the Council and the potential operator of the long term viability of the proposed scheme. The first model developed was a simple trip rate model for the station, whilst the second was the development of a more complex gravity model which takes better account of the attractiveness of major centres and the competitiveness of alternative modes. The outputs of the gravity model have been used in the production of the economic assessment work and the appraisal results which will be outlined later in this chapter, whilst the trip rate model has been produced to give comfort that the gravity model is producing aggregate demand in the right order of magnitude Trip Rate Model In order to develop demand forecasts for the two viable station sites at South East View and Old Horden a simple trip rate model was developed, using a trip rate per thousandpopulation and three different isochrones from the station sites, as follows: 0-800m of the site, to represent a walk-up catchment; 800m-2km of the site, to represent walk-up and cycle catchments; and 2-5km of the site, to represent a drive-up catchment. The isochrones were calculated using accessibility modelling software which developed a walking network, based on the road network, footpaths and cut-trough s. Although distances are based on the walking network the demand calculated represents demand by all modes. Using assumed speeds, the catchments represent the following typical journey times: 800m a journey time of 11 minutes, assuming a walk speed of 1.2m/s; 28 Guidance note on passenger demand forecasting for third party funded local rail schemes, Department for Transport, December GB Rail Passenger Demand Forecasting Handbook v5.1, April

43 2km a journey time of 27 minutes, assuming a walk speed of 1.2m/s, or a journey time of 10 minutes, assuming a cycle speed of 12kph; and 5km a journey time of nearly 7 minutes assuming an average car journey time of 42.9kph. To develop trip rates for the two proposed station sites, nearby stations along the Durham Coast Line, between Newcastle in the north and Nunthorpe in the south were identified and assessed as comparator stations for Horden. The following table details this process: Stations considered as comparators for Horden: Station Comments Comparator Newcastle Large City Centre station poorer comparator No Heworth Competition with Metro services poorer comparator No Sunderland Large City Centre station poorer comparator No Seaham Similar socio-economics potential comparator Yes Hartlepool Large Town Centre station poorer comparator No Seaton Carew Similar socio-economics potential comparator Yes Billingham Similar socio-economics potential comparator Yes Stockton Catchment overlap with Thornaby poorer comparator No Thornaby Includes long distance services poorer comparator No Middlesbrough Large Town Centre station poorer comparator No James Cook Suburban type area probably a poorer comparator No Marton Suburban type area probably a poorer comparator No Gypsy Lane Suburban type area probably a poorer comparator No Nunthorpe Suburban type area probably a poorer comparator No Source: Mott Macdonald. From this list Seaham, Seaton Carew and Billingham were identified as possible comparators for Horden. However, following initial investigation it was revealed that National Rail Travel Survey (NRTS) data contains very few records for Seaton Carew (N = 10), therefore that station was removed from the list of comparator stations. Trip rates derived using NRTS are summarised below: Derived daily boarding rates per thousand population at comparator stations using NRTS data: 0-800m 800m-2km 2km-5km Uplift beyond 5km Seaham (N=174) % Seaton Carew (removed N=10) % Billingham (N=94) % Average % Source: NRTS (2005) and 2014 mid-year population estimate, Mott Macdonald. As a sense check a trip rate by way of Census Travel To Work (TTW) data for the comparator stations Seaham, Seaton Carew and Billingham was also determined. Using rail commute trips within the distance isochrones before constraining total demand at each station as observed in the MOIRA data. In effect this assumes that all trips generated by the station are within 5km of the station. The resulting trip rates are shown on the next page: 42

44 Derived daily boarding rates per thousand population at comparator stations using Census TTW data: 0-800m 800m-2km 2km-5km Beyond 5km Seaham Seaton Carew Billingham Average Source: Census 2011 and 2014 mid-year population estimate, Mott Macdonald. In comparison to NRTS data, the Census data produces a lower trip rate in the 0-800m and 800m-2km isochrones, with a higher trip rate in the 2-5km isochrone. No uplift factor for trips beyond 5km of the station has been included. The trip rates can then be applied to the population at the two proposed station sites within the distance isochrones, as shown below: Population within distance isochrones at proposed station sites 0-800m 800m-2km 2km-5km South East View 3,334 7,818 28,191 Old Horden 2,769 7,800 25,814 Source: 2014 mid-year population estimate, Mott Macdonald. The following shows the resulting daily demand forecasts using the two methods described above: Forecast daily boarders in 2015 at proposed station sites using trip rates derived from NRTS data 0-800m 800m-2km 2km-5km Beyond 5km TOTAL South East View Old Horden Source: Mott Macdonald. Forecast daily boarders in 2015 at proposed station sites using trip rates derived from census TTW data 0-800m 800m-2km 2km-5km Beyond TOTAL 5km South East View Old Horden Source: Mott Macdonald. The above shows that demand figures derived using both methodologies are of a similar magnitude. However, it is noted that the geographical decay of trips is greater where NRTS data has been used; this suggests that the majority of trips are likely to originate close to the station site. In comparison, where Census TTW data has been used the majority of trips are predicted to be in the 2-5km distance band. This is perhaps more likely to occur at Horden, where the main residential areas of Peterlee are slightly further from the station. Therefore these forecasts were considered more suitable as a comparison between the station sites. To account for two-way travel we have analysed demand data from MOIRA to show the number of productions and attractions at each of the comparator stations. This shows that on average total demand is a factor of 1.51 higher than productions at Seaham, Seaton 43

45 Carew and Billingham. We have applied this factor to our generated number of boarders above to calculate total demand at the proposed station. In order to annualise daily demand a factor of 312 was used; this accounts for all days of the year, minus Christmas Day and Boxing Day when no rail service is operated whilst weighting each weekday as one, Saturday at two thirds of a weekday, Sunday as half of a weekday and Bank Holidays as one third of a weekday. Forecast annualised demand, calculated using the Census TTW trip rates, for the two proposed sites is shown below, together with observed data for the comparator stations: Forecast annualised demand in 2015 (using census TTW data) at the proposed station sites compared to existing stations along the Durham Coast line Proposed Station Site Productions Attractions TOTAL DEMAND South East View 53,800 27,250 81,050 Old Horden 49,450 25,050 74,500 Existing Station Productions Attractions TOTAL DEMAND Seaham 90,650 33, ,200 Seaton Carew 35,800 21,600 57,400 Billingham 44,550 31,450 76,000 Source: Mott Macdonald The data above suggests that forecast demand at the two proposed station sites is of a similar magnitude to demand observed at Billingham. The Old Horden site is predicted to have marginally lower demand because it is not as centrally located within Horden, though based on the simple trip rate model outlined above both proposed sites have a healthy enough demand to be considered viable Gravity Model As noted above, the more complex gravity model was developed to inform the production of the economic assessment with the simpler trip rate model detailed above used to give comfort that the gravity model produced demand in the right order of magnitude. The gravity model uses an analogy with Newton s Laws of Gravity, allowing for an explanation of trips between various origins and destinations giving a fuller picture of demand. The Passenger Demand Forecasting Handbook (PDFH) 30 section C10 provides a typical gravity model form. The model parameters are estimated using least squares regression. In addition, PDFH B10 suggests that the following are included: Distance from station; Socio-economic characteristics of population; Rail service quality, measured by frequency, journey times, speed or fare; Quality of competing services; and Attractiveness of destination. 30 GB Rail Passenger Demand Forecasting Handbook v5.1, April

46 In the development of the model - full, reduced and season ticket demand was considered separately. Additionally, station pairs along the Durham Coast Line, plus Hexham and Metro Centre which have direct services from the Coast Line were also considered. This includes all stations between Sunderland and Middlesbrough, plus Newcastle, Metro Centre and Hexham. Journeys between those station pairs which do not touch the Coast Line (i.e. Metro Centre-Newcastle) have been excluded. During development of the model the decision to use the double log-linear formulation common to PDFH was taken. The typical model form therefore is: Vij = μ + αgc + δp + γ NC Where: Vij = log of demand between i and j; i = origin, j = destination GC = log of rail generalised cost, P= log of population NC = % households with no car available μ = intercept, α δ γ = model coefficients Linear regression calculations were undertaken using IBM s software Statistical Package for the Social Sciences (SPSS). This predicts both the model coefficients, as well as estimating the level of demand using the predicted model form Full Tickets As noted above the three ticket types (full, reduced and season ticket) were modelled separately, with a regression model produced for each separate ticket type before incorporating the results in to the gravity model, in order to give a rounded picture of demand. The full price ticket model was developed with the variables shown in the table below it is noted that the demand on the Newcastle-Sunderland and Sunderland-Newcastle movements has been excluded from the regression model, as these flows were particularly high, and not necessarily representative of the levels of demand at a station at Horden- Peterlee. Model parameters for the full ticket segment Variable Standardised Coefficient t-test of significance Constant Rail Generalised Cost Rail/Car Generalised Cost Economically active population at origin Workplace population at destination % households with no car at origin Car parking spaces at origin station Jobs to population ratio at origin Concessions at origin Middlesbrough destination dummy Adjusted R-squared value Source: Mott Macdonald 45

47 *Note: the model coefficients were investigated and found to be significant at the 5% level - in that the t-statistics reported are greater than 1.96 or less than The coefficient predicted for concessions at origin is negative; this is considered acceptable as the English National Concessionary Travel Scheme (ENCTS) pass allows free bus travel as opposed to varying levels of discount on local rail services, favouring demand for the former. The model has been used to predict demand in 2015 which has been compared to observed demand from MOIRA as shown below: Observed demand versus model predicted demand full ticket segment Station Observed Predicted Difference % Difference Hexham 4,000 3, % Metro Centre 19,150 8,850-10,300-54% Newcastle 151, ,950 29,250 19% Sunderland 110, ,050-1,000-1% Seaham 51,150 42,750-8,400-16% Hartlepool 198, ,500 21,850 11% Seaton Carew 26,250 21,950-4,300-16% Billingham 38,050 48,200 10,150 27% Stockton 41,550 48,150 6,600 16% Thornaby 102,450 55,650-46,800-46% Middlesbrough 177, ,000-29,600-17% Overall 920, ,400-33,200-4% Source: Mott Macdonald and MOIRA In total the full ticket model under-predicts demand by around 4% on the modelled movements. Much of this difference is recorded at stations at the southern end of the Durham Coast Line, including Thornaby and Middlesbrough. Using the gravity model forecast full price ticket demand in 2015, at the two proposed station sites in Horden can therefore be shown as: Forecast annualised demand on full tickets in 2015 to/from stations within the gravity model Proposed Station Site Productions Attractions Two-way Demand South East View 42,650 13,600 56,250 Old Horden 31,750 9,850 41,600 Source: Mott Macdonald Reduced Price Tickets The reduced price ticket model has been developed using the variables highlighted below. As above it is again noted that Sunderland-Newcastle and return have been removed from the analysis, together with Hartlepool-Newcastle and return. These movements contained very high levels of demand which were not well predicted by the model and were therefore considered to be outliers. 46

48 Model parameters for the reduced ticket segment Variable Standardised Coefficient t-test of significance Constant Rail Generalised Cost Rail/Bus Generalised Cost Economically active population at origin Retail floor space at destination % households with no car at origin Car parking spaces at origin station Concessions at origin Metro Centre destination dummy Middlesbrough destination dummy Newcastle destination dummy Adjusted R-squared value Source: Mott Macdonald *Note: dummy variables were used for Middlesbrough, Newcastle and Metro Centre on the destination end to better distribute demand. These have the effect of increasing demand to these three destinations to varying degrees. All variables including the destination dummies used in the model were found to be significant using the t-test of significance. The model was found to be consistently under-reporting demand by 22.3% across the total modelled flow. In order to improve the predicted values in the model an uplift factor of was added to the predicted values to more closely represent observed values the results can be observed below: Observed demand versus model predicted demand reduced ticket segment Station Observed Predicted Difference % Difference Hexham 2, ,350-61% Metro Centre 42,650 47,050 4,400 10% Newcastle 76,000 65,450-10,550-14% Sunderland 33,150 31,350-1,800-5% Seaham 36,850 26,700-10,150-28% Hartlepool 55,600 55, % Seaton Carew 12,450 8,250-4,200-34% Billingham 11,600 18,050 6,450 56% Stockton 8,750 15,550 6,800 77% Thornaby 24,150 21,400-2,750-11% Middlesbrough 55,700 50,700-5,000-9% Overall 359, ,250-17,850-5% Source: Mott Macdonald and MOIRA Overall the reduced ticket model under-predicts demand on the modelled movements by around 5%, with demand at Hartlepool closely matching observed values. Forecast demand on the reduced ticket segment is, therefore, shown over: 47

49 Forecast annualised demand on reduced tickets in 2015 to/from stations within the gravity model Proposed Station Site Productions Attractions Two-way Demand South East View 6, ,750 Old Horden 5, ,050 Source: Mott Macdonald Season Tickets The season ticket model was developed using the variables shown below. All coefficients were found to be significant using the t-test, with exception of rail/bus generalised cost. This coefficient is not significant using the t-test. However, the model went on to predict better with the inclusion of the variable than without it, it was also felt to be important to retain a variable which represented inter-modal competition. Model parameters for the season ticket segment Variable Standardised Coefficient t-test of significance Constant Rail Generalised Cost Rail/Bus Generalised Cost Economically active population at origin Workplace population at destination % households with no car at origin % social class A or B at origin Concessions at origin Adjusted R-squared value Source: Mott Macdonald The model has been used to predict demand in 2015, which has been compared to observed demand from MOIRA as shown below: Observed demand versus model predicted demand season ticket segment Station Observed Predicted Difference % Difference Hexham 4,000 2,300 1, % Metro Centre 4,050 10,550 6, % Newcastle 192, ,350-14,650-8% Sunderland 164, ,550-17,800-11% Seaham 27,350 30,150 2,800 10% Hartlepool 84,400 61,100-23,300-28% Seaton Carew 12,850 14,150 1,300 10% Billingham 9,500 12,500 3,000 31% Stockton 11,700 21,150 9,450 81% Thornaby 28,450 28, % Middlesbrough 43,650 34,600-9,050-21% Overall 578, ,650-40,050-7% Source: Mott Macdonald and MOIRA Predicted demand from the model is shown as 7% lower than the demand which is observed. It is noted that a large difference between predicted and observed values occurs 48

50 at Hartlepool, although other stations which are likely to be similar to Horden- Peterlee, including Seaham, Seaton Carew and Billingham all show slight over predictions in demand. Forecast demand on season tickets for the two proposed station sites at Horden is, therefore, shown below: Forecast annualised demand on season tickets in 2015 to/from stations within the gravity model Proposed Station Site Productions Attractions Two-way Demand South East View 1,750 1,200 2,950 Old Horden 1,750 1,150 2,900 Source: Mott Macdonald Forecast Demand The gravity model was used to predict demand between Horden and stations along the Durham Coast line, with the addition of the Metro Centre and Hexham. Percentage uplifts have been applied to account for demand to and from other stations; based on MOIRA demand data for Seaham. The uplift factors were disaggregated by ticket type and production / attraction and are shown below: Uplift factors to produce total modelled demand Full Tickets Reduced Tickets Season Tickets Uplift for demand from Horden Uplift for demand to Horden Source: MOIRA, based on demand at Seaham Finally, total forecast demand at the two proposed station sites (together with observed demand at selected stations) is shown below: Forecast annualised demand in 2015 (using the gravity model) at the proposed station sites compared to existing stations along the Durham Coast line Proposed Station Site Productions Attractions TOTAL DEMAND South East View 53,750 15,650 69,400 Old Horden 41,450 11,700 53,100 Existing Station Productions Attractions TOTAL DEMAND Seaham 90,650 33, ,200 Seaton Carew 35,800 21,600 57,400 Billingham 44,550 31,450 76,000 Source: Mott Macdonald Forecasts from the gravity model suggest a significant difference in demand between South East View and Old Horden. Demand at South East View is anticipated to be of a similar magnitude to that of Billingham, where Old Horden is notably lower. 49

51 The proportional split of demand by ticket type for reference is shown below: Demand split by ticket type in 2015 with observed demand at comparator stations South East Old Horden Seaham Seaton Carew Billingham View Full 59,050 43,650 54,850 29,100 46,450 Reduced 7,350 6,550 41,850 14,150 16,600 Season 3,000 2,900 27,500 14,150 12,950 TOTAL 69,400 53, ,200 57,400 76,000 % full 85.1% 82.2% 44.2% 50.6% 61.1% % reduced 10.6% 12.3% 33.7% 24.7% 21.8% % season 4.3% 5.5% 22.1% 24.7% 17.1% Source: Mott Macdonald (predicted) and MOIRA (observed) As shown the gravity model suggests a large proportion of demand (~80% of total) will be on full ticket types in comparison to 44% of existing demand at Seaham and 61% of existing demand at Billingham. This is a particular function of the gravity model, with the socioeconomic indicators around Horden (in particular economic activity and social class) driving very low levels of season ticket demand. Disaggregating demand by trip purposes produces very similar proportional splits at both the proposed Horden station sites and Seaham. It should also be noted that the gravity model is considered to be a more robust forecasting methodology, as it is based on observed socioeconomic indicators in a given local area. However, some indicators, which may represent specific trip purposes (e.g. education, healthcare, football and other specific leisure trips), have not been included in the model employed, nevertheless across all segments the model predicts demand to within 7% of the observed values. The top ten destinations from the two proposed station sites at Horden were also been compared, with a summary provided below: Modelled flows from South East View and Old Horden Destination South East Cumulative % Destination Old Horden Cumulative % View Demand Demand Newcastle 22, % Newcastle 17, % Sunderland 11, % Sunderland 8, % Hartlepool 5, % Hartlepool 4, % Middlesbrough 4, % Middlesbrough 3, % Metro Centre 1, % Metro Centre 1, % Stockton 1, % Stockton 1, % Seaham 1, % Seaham 1, % Billingham 1, % Billingham 1, % Seaton Carew 1, % Seaton Carew % Thornaby % Thornaby % Hexham % Hexham % All others 2, % All others 2, % Source: Mott Macdonald 50

52 The above shows that for both the proposed station options Newcastle is the biggest destination, accounting for just over 40% of total demand from Horden-Peterlee. Sunderland is the second largest destination, whilst Hartlepool is generally a slightly bigger destination than Middlesbrough. A comparison with observed flows shows similar proportions of demand from Seaham to Newcastle (47%) and Sunderland (26%), which gives comfort that the model is predicting accurate demand flows Comparison with Trip Rate Model As noted previously, the trip rate model was developed to give a level of reassurance that demand predicted by the gravity model is in the right order of magnitude. A comparison between the demand predicted using the two different methods is detailed below: Difference in forecast demand in 2015 using trip rate and gravity model methods Productions Demand Demand Difference % Difference predicted by trip rate predicted by Gravity Model South East View 53,800 53, % Old Horden 49,450 41,450-8,00-16% Attractions Demand predicted by trip rate Demand predicted by Gravity Model Difference % Difference South East View 27,250 15,650-11,600-43% Old Horden 25,050 11,700-13,350-53% Total Demand Demand predicted by trip rate Demand predicted by Gravity Model Difference % Difference South East View 81,050 69,400-11,650-14% Old Horden 74,500 53,100-21,400-29% Source: Mott Macdonald The table above shows that the gravity model forecasts less demand than the trip rate model. The more central site of the two proposed, South East View - shows the least variation between the two models. It is also noted that the gravity model produces a greater variation in demand across the station sites. There is also some degree of variation between productions and attractions; the difference in demand forecast by trip rate and gravity model is much lower proportionally for production than for attractions. At South East View the forecast trip productions using the two methods are almost identical. Much larger percentage differences between the two sets of figures are observed for trips attracted to the station. Using the gravity model provides a far more robust analysis, being based on competition with other modes as well as local socio-economic variables; the demand forecasts used by this method will therefore be carried forward into the economic assessment Abstraction In the development of the gravity model a number of issues and assumptions were considered which will feed through into the economic appraisal of the proposed station. The potential for abstraction was evaluated between the existing stations at Seaham, Hartlepool and Horden. Initial analysis using crow fly distance isochrones suggested that only Seaham s existing catchment area would marginally overlap with the 5km isochrone at 51

53 Horden. However, more detailed analysis based on distance isochrones showed that in reality there will be no overlap in the 5km catchment area at Seaham. As there is no overlap in the 5km isochrones no abstraction assessment has been undertaken and as such the assessment was conducted assuming a station at Horden will not abstract demand from the neighbouring stations Seaham and Hartlepool Impact on Through Travellers Through travellers are those rail passengers who currently use the section of line between Seaham and Hartlepool and are likely to be impacted by travel time changes as a result of a new station at Horden Peterlee. This takes the form of a time penalty for all services which call at Horden, for the purposes of the economic assessment the assumption that calling at Horden will incur an additional three minutes of journey time was made as specified by Arriva Rail North. In order to assess the likely impact of calling at the proposed station the MOIRA rail demand forecasting program was used. This was the Northern version of MOIRA (NT03) and was obtained with permission from the Northern franchisee. MOIRA allows the modelling of the impact of the additional journey time on through travellers, with outputs recorded in four ways: Loss of rail demand due to additional travel time; Loss of rail revenue associated with changes in demand; Transfer of a proportion of the lost rail demand to travel by car, resulting in an increase of vehicle kilometres; and Additional journey times for that demand which remains on the railway. Arriva Rail North Ltd the newly appointed Northern franchisee has committed to providing an hourly service in both directions between Middlesbrough and Newcastle as part of the new Northern franchise. Arriva have confirmed that a proposed new semi-fast service is very likely to route via the Coast Line, instead of the original proposal for using the freight line between Stockton and Ferryhill via Stillington, because of the strong likelihood of the semifast service routing on the coast line, but not stopping at Horden, it is notable that through travellers originating from the major population centres, will be able to avail themselves of the additional three minutes noted above. Therefore for the purposes of this assessment it was assumed: 16 trains in either direction calling at Newcastle, Durham, Stockton, Thornaby and Middlesbrough; Journey times quicker by two minutes for each intermediary station not called at, resulting in a total IVT reduction of 6 to 8 minutes; and An evenly spaced timetable at intermediary stations between Middlesbrough and Newcastle, i.e. Hartlepool would see two departures in each direction 30minutes apart. Using this methodology it was estimated that the demand and revenue impacts of calling services at Horden, this is summarised in the table below: 52

54 Demand and revenue impacts on through travellers in 2015 Ticket Type Demand Impacts Revenue Impacts Existing service stopping service calls at - - Horden Total -6,105-35,838 Source: MOIRA, revenue presented in 2015 prices, Mott Macdonald This suggests a loss of 35,838 per annum as a result of lost demand due to calling trains at Horden. The main flows which are impacted will be Hartlepool to/from Sunderland and Newcastle Demand and Revenue Forecasts Guidance contained within TAG Unit M4 Forecasting and Uncertainty 31 suggests that demand and revenue forecasts should be produced for three different years. However, the gravity model which was developed uses cross-sectional data i.e. data from a single year. It has not been tested using data over a period of time (i.e. longitudinal data). Therefore the decision was taken to use the gravity model to develop forecasts for 2015 and factor forwards using an aggregated growth factor. Future year forecasts have been calculated by taking the 2015 base year forecasts and applying the relevant underlying growth factors using elasticities specified in the Passenger Demand Forecasting Handbook (PDFH) 32 forecasts for the following years were subsequently developed: Base year 2015; Opening year 2020; Intermediate year 2026; and Demand cap year Demand in intermediate years was calculated through interpolating demand in the four forecast years. Data sources and elasticities used in the demand forecasts are summarised in below: Data sources and elasticities used in growth forecasts Element Data source Elasticity source Population TEMPRO 7.0 PDFH 5.1 table B1.6 Employment TEMPRO 7.0 PDFH 5.1 table B1.6 GDP per capita TAG data book annual parameters (Summer PDFH 5.1 table B ) Rail fares RPI +0% PDFH 4 table 2.6 Car ownership TEMPRO 7.0 PDFH 5.1 table B2.4 Car fuel cost TAG data book M4.2.3 (Summer 2016) PDFH 5.1 table B2.4 Car journey time TAG data book M4.2.3 (Summer 2016) PDFH 5.1 table B2.4 Bus journey time TAG data book M4.2.3 (Summer 2016) PDFH 5.1 table B2.4 Bus fares RPI +2% PDFH 5.1 table B2.4 Source: Mott Macdonald Car ownership, population and employment statistics are taken from planning data and have been sourced from TEMPRO v7.0. This is based on a study area which is representative of 31 TAG unit M4 forecasting and uncertainty, Department for Transport, November GB Rail Passenger Demand Forecasting Handbook v5.1, April

55 the Horden and Peterlee areas, including the zones of Blackhall Colliery, Easington, Easington (rural), Peterlee, and Shotton Colliery. GDP, car fuel, car journey time and bus journey times are sourced from the TAG data book of summer These are given either as annual parameters or as a series for use in rail demand forecasting. In accordance with TAG Unit M4 (paragraph 8.3.3) 33 real percentage GDP growth has been reduced by 0.2% each year to account for switching between the RPI (retail price index) and CPI (consumer price index) measures of inflation within the GDP forecasts. Rail fares and bus fares are both subject to high level assumptions. Regulated rail fares are subject to a cap on increases of +0% above the rate of inflation measured by RPI. The Conservative Party Manifesto for the 2015 General Election 34 committed the Conservative Government to freeze commuter rail fares (i.e. regulated fares) in real terms for the life of the Parliament. Without further guidance, the assumption that rail fares rise at a rate of RPI+0% until 2020, and thereafter at RPI+1% until the demand cap year was made. There is little available guidance on bus fare increases; as bus fares are unregulated, for the purposes of the economic assessment an assumption that bus fares rise at RPI+2% until the demand cap year was made. For both rail and bus fares it was assumed that there are no further changes after the demand cap year 20 years in the future. In rail demand forecasting elasticities are applied to changes in exogenous factors, and the elasticity is applied as a power to the rate of change. Many of these elasticities are sourced from Passenger Demand Forecasting Handbook (PDFH) As such rail fare elasticities were sourced from PDFH4 in accordance with the requirements of TAG Unit M4 36, paragraph Revenues per passenger were calculated using current ticket prices between the relevant stations. These have been converted and discounted to 2010 prices so as to be in the correct price base for input into the economic appraisal. For Horden it was assumed that revenue per journey will fall exactly halfway between that for Seaham and Hartlepool (i.e. if Seaham-Sunderland is priced at 3.60 and Hartlepool-Sunderland at 6.60 then it is fair to assume that Horden-Sunderland would be priced at 5.10). Horden-Seaham and Horden- Hartlepool revenues have both been assumed to be half of the Hartlepool-Seaham revenue. Revenue growth is based on the current fares policy which specifies growth of RPI+0% per annum. Based on discussions with the franchisee Arriva, it has been assumed that beyond 2020 fares rise at RPI+1%. Revenues have been converted to real terms prices using the GDP deflator in the TAG data book. In line with guidance in TAG Unit A revenue increases assume the same cap year as for demand growth. 3.5 Appraisal Methodology The following section highlights the main high level assumptions which have been made for the economic appraisal of the proposed scheme. It includes details on growth rates, discount 33 TAG unit M4 forecasting and uncertainty, Department for Transport, November page 14, accessed 6 th January GB Rail Passenger Demand Forecasting Handbook v5.1, April TAG unit M4 forecasting and uncertainty, Department for Transport, November TAG unit A5-3 rail appraisal, Department for Transport, December

56 rates and the methodology used to calculate both user and non-user benefits over the standard 60 year transport appraisal period. Further detail can be found in the Demand Forecasting and Economic Assessment Report provided by Mott MacDonald 38 which can be found attached Assumptions The methodology used in the economic appraisal has closely followed the guidance set out in the Government s Transport Appraisal Guidance (TAG) for railway business cases. This is primarily contained in TAG Units A1.1 Cost-Benefit Analysis 39 and A5.3 Rail Appraisal 40. As such, a number of high level assumptions were made, including: Base forecast year: 2015 Scheme opening year: 2020 Demand growth cap: 2036 (20 years from current year) Appraisal period: 60 years Price base: 2010 market prices Discounting: 3.5% for 30 years (to 2046), then 3.0% thereafter The rail industry standard Passenger Demand Forecasting Handbook (PDFH) 41 has also been referenced throughout. This provides a series of recommended values for use in demand forecasting based on a range of evidence. Table B12.1 of PDFH5.1 provides recommended lag values, assuming that not all demand, revenue and benefit will accrue in the opening year of the scheme and that people will change their behaviour over a period of time. For new to rail demand we have assumed the following (taking into account the different trip purposes): Year 1 (end of 2020) 70% of demand, revenue and benefits realised; Year 2 (end of 2021) 85% of demand, revenue and benefits realised; Year 3 (end of 2022) 95% of demand, revenue and benefits realised; and Year 4 (end of 2023) and thereafter 100% of demand, revenue and benefits realised. This follows the advice contained in B12.1 of PDFH regarding demand lags and the build-up of demand for major new services. For through travellers the same guidance has been followed but this time relating to deteriorations in generalised journey times. The resulting build-up of demand is: Year 1 (end of 2020) 80% commute and 100% non-commute demand, revenue and benefits realised; Year 2 (end of 2021) 95% commute and 100% non-commute demand, revenue and benefits realised; and 38 Horden Peterlee Railway Station, Demand Forecasting and Economic Assessment Report, Mott MacDonald for Durham County Council, November TAG unit A1.1 cost benefit analysis, Department for Transport, November TAG unit A5-3 rail appraisal, Department for Transport, December GB Rail Passenger Demand Forecasting Handbook v5.1, April GB Rail Passenger Demand Forecasting Handbook v5.1, April

57 Year 3 (end of 2022) and thereafter 100% of demand, revenue and benefits realised Methodology Benefits of the scheme have been calculated using a simple spreadsheet model. User benefits take the form of time savings, and are calculated in accordance with the change in consumer surplus as specified in TAG Unit A1.3 User and Provider Impacts 43. This uses the so called rule of a half, where new passengers attracted to the railway as a result of an improvement, in this case the provision of a new station, are assumed to enjoy half of the total number of minutes saved. This uses the following formula: Where: Change in Consumer Surplus = ½ Σ (T0ijm + T1ijm) (P0ijm P1ijm) T = time; P = perceived costs i = origin, j = destination, m = mode 0 = without scheme, 1 = with scheme Standard monetary values for different journey purposes (detailed in TAG data book A1.3.1, Summer 2016) 44 are then applied for each year to convert the total number of minutes saved into a financial value according to the purpose of the journey (i.e. commute, works business or other). Values of time are also assumed to grow in line with forecasts included in the TAG data book A (dated December 2014). For the proposed scheme at Horden the benefits to new to rail users have been assessed. This has looked at all elements of the rail journey, including access times. Non-user benefits come under two main categories; time saving to road users as a result of road decongestion (itself a function of some road traffic diverting to rail), and reduction in the social cost of car use again as a result of road traffic diverting to rail. These are referred to as Marginal External Costs (MEC) and are assessed using the methodology detailed in TAG Unit A5.4 Marginal External Costs Analysis of Monetised Costs and Benefits This section provides an analysis which quantifies in monetary terms as many of the costs and benefits of the proposal as is feasible, including items for which the market does not provide a satisfactory measure of economic value, where this is the case a detailed explanation is provided as to how the factors have been quantified. 43 TAG unit A1.3 user and provider impacts, Department for Transport, November TAG Data Book A1.3.1, Department for Transport, Summer TAG Data Book A1.3.2, Department for Transport, December TAG unit A5-4 marginal external costs, Department for Transport, December

58 3.6.1 Benefits and Disbenefits User Benefits New to rail demand has been calculated using a gravity model for movements along the Durham Coast Line. The average time savings were then applied based on the rule of a half. External costs of car use are applied using the net-change in vehicle-kilometres. This is the difference between origin and destination (e.g. Horden-Newcastle) and the distance between origin and Horden railway station. For new to rail demand it was assumed that 44% of trips divert from driving the full origin-destination distance, whilst the access modal split from Seaham to account for drive-up demand to the new station at Horden was taken. Costs and benefits calculated for new to rail demand are therefore shown in the table below: Sources of benefit for new to rail demand: Application Demand Journey Time Saving Revenue Marginal Economic Costs Source: Mott Macdonald New station induces demand from local area Change in access and on-train time applied using rule-of-a-half Apply average revenues from Seaham/Hartlepool to new demand Assume 44% of new trips transfer from car. Apply distance to calculate kilometre change Result Induced demand at new station Decrease in journey times, giving benefits to users No overall change for private sector; increased revenue balanced by reduced subsidy. Reduced cost to public sector through reduction in subsidy. Loss of indirect tax to Government Decrease in highway kilometres, so marginal benefits to congestion, accidents and environment Loss of indirect tax to Government through reduced use of fuel In order to assess the likely impacts of the new station at Horden on through travellers (i.e. all travellers who are currently using rail on the section between Seaham and Hartlepool) the MOIRA rail demand forecasting program was used. MOIRA allows for the modelling of the impacts of calling stopping services at Horden, by assuming an additional three minutes journey time between Seaham and Hartlepool in both directions. Outputs from MOIRA report, changes in demand, revenue, and rail mileage. Demand changes as a result of the increased journey time can be used to calculate mode switch and any change in vehicle-kilometres. Referencing TAG Unit A which suggests that 26% of new to rail users are attracted from car drivers, this assumption was applied in reverse to suggest that 26% of demand lost as a result of the increased journey time will transfer to car drivers. This was then applied to forecast the annual change in mileage in order to produce vehicle-kilometres and calculate the marginal external costs. For the purposes of this assessment it was assumed that 85% of through traveller demand would avail themselves of the semi-fast service, and 15% would be on the stopping service. 47 TAG unit A5-4 marginal external costs, Department for Transport, December

59 Costs and benefits calculated for through rail travellers are therefore shown in the table below: Sources of benefit for through rail travellers: Application Demand Journey Time Saving Revenue Marginal Economic Costs Source: Mott Macdonald Additional journey time to call at Horden results in some demand on through movements switching to alternative modes Additional 3 minutes journey time between Hartlepool and Seaham to allow additional call at Horden Loss of demand leads to loss of revenue most likely on short distance, low revenue movements Assume 26% of rail kilometres lost switch mode as car drivers. Apply distance to calculate kilometre change Result Demand decrease on through movements Increase in journey times, giving disbenefits to through travellers who remain No overall change for private sector; decreased revenue balanced by increase in subsidy. Increase cost to public sector through increase in subsidy. Gain of indirect tax to Government Increase in highway kilometres, so marginal dis-benefits to congestion, accidents and environment. Gain of indirect tax to Government through increased use of fuel Growth to through traveller demand was not applied in this case, on the basis that the impact of the additional three minutes journey time is limited to that demand which is already on the network. Similarly revenue growth is limited to the real-terms increase in prices Non-User Benefits Non-user benefits are referred to as Marginal External Costs (MEC); the following elements have been counted according to valuations contained within the TAG data book A5.4 (dated Summer 2016) 48 : Congestion; Road accidents; Greenhouse gas emissions; Local air quality; Road traffic noise; Road infrastructure repairs; and Indirect taxation impacts. External costs of car use resulting from demand at Horden have been applied with net decongestion benefits and indirect tax costs calculated using the net change in vehicle kilometres. This is shown in the table below, for the assumed scenario of the existing 2016 stopping service calling at Horden and the semi-fast service between Middlesbrough and Newcastle routing via the Durham Coast Line. 48 TAG unit A5-4 marginal external costs, Department for Transport, Summer

60 Change in vehicle kilometres because of the scheme in 2020 South East View Reduced highway distance from origin to destination because of mode shift to rail (new to rail demand) -865,482 Increased highway distance origin to destination because of mode shift to car (through traveller demand lost to rail) 30,000 Total Impact -835,482 Source: Mott MacDonald This assumes that 44% of new users to rail formerly drive from their origin to destination. This guidance is contained within Appendix C of TAG Unit A5.4 Marginal External Costs. This figure was used as a change in trip numbers rather than a change in train kilometres was being forecast. For through travellers 26% of demand lost to rail transfers to car drivers was assumed, again using the guidance contained in TAG Unit A5.4; this figure is slightly different to that noted above as it relates to forecasting a change in train kilometres. Using outputs from MOIRA it is possible to calculate the total end-to-end journey distance for each movement in order to calculate annual vehicle kilometre changes. For new rail demand forecast demand to all stations on the Durham Coast Line (minus Heworth), plus Metro Centre and Hexham was completed. Road distances for the equivalent journey by car were calculated using the AA route planner website. Drive-up demand at Horden has also been considered. This has taken half of the distance of the trip isochrone as the average distance from origin to Horden i.e. 400m as the average distance in the 800m isochrone, 1.4km as the average distance in the 0.8-2km isochrone and 3.5km in the 2-5km isochrone. The change in vehicle kilometres was then used to calculate the total benefit of marginal external costs. This uses pence per vehicle-km which are contained in A5.4.2 of the TAG data book (Summer 2016) 49. Pence per vehicle-km are reported for several road types, so an assessment of the type of roads which are likely to see a change in vehicle-km was necessary. As a result the assumption that the majority of all journeys will take place on average roads was made, excepting the following elements: The first 2km and last 2km of all journeys, which are assumed to be on Inner and Outer Conurbations, other roads ; and Where the origin or destination is: Metro Centre, Newcastle, Sunderland, Hartlepool, Stockton, or Middlesbrough it was assumed that 5km, instead of the usual 2km, at that end of the journey is on Inner and Outer Conurbations, other roads. Applying the monetary values from the TAG data book therefore allowed the calculation of monetary impacts for the seven elements of Marginal External Costs, which is included in section 3.7 Appraisal Results Wider Economic Benefits As part of the proposal for a new station at Horden to help create opportunities for employment, the visitor economy and to stimulate the housing market, a better understanding of the indirect wider economic impacts and benefits of the station was required to provide a fuller appreciation for the economic assessment. This section 49 TAG unit A5-4.2 marginal external costs, Department for Transport, Summer

61 summarises land use and economic development analysis which supports the traditional transport appraisal undertaken as part of the BCR calculations in the economic assessment. As noted throughout the preceding Strategic Case, the study area is characterised by a relatively small population and employment base both of which have demonstrated a pattern of decline in recent years. The local economy is over-reliant on public sector jobs although there has been some growth in housing values over the last five years. A new rail station serving the area would bring the labour markets of Sunderland and Hartlepool/ Teesside to within 15 minutes of Peterlee-Horden by train. Improved connectivity to labour markets can also increase the attractiveness of locations for housing developers and for subsequent occupation of new housing by in-moving families. The proposed rail station, aligned with land-use planning, can support the area to mitigate against continued decline and be part of a package that supports modest growth, reflecting the scale of the area, in the longer term. Durham County Council s Local Planning Framework remains under development. However, based upon studies elsewhere, wider economic benefits have been calculated. It is anticipated that these will be validated once the Local Plan has progressed to an Issues and Options stage Employment Land The usual approach is to correlate infrastructure development with positive expectations of additional employment land take up, from which it is possible to calculate both an economic value based on job generation and GVA uplift. To this wider social/community impacts in terms of the positive benefits can be built in which flow from, for example, enhanced pedestrian safety, accessibility to social and community infrastructure and any resulting enhancements to sustainable transport. The case studies used by Mott MacDonald in the preparation of the economic appraisal indicate that similar economic benefits could be generated in Peterlee with the opening of a new station: The review of the evaluation of the March-Wisbech line found that by including additional employment land take up, the BCR of the line rose significantly; The opening of the Laurencekirk station was found to have reduced congestion on the road network, freeing up capacity for freight and other business use; Again for March-Wisbech, the expectation was that an additional 10% of employment land would be taken up with the station; and Half of all local businesses surveyed along the Larkhall-Milngavie Line stated the scheme had had a positive effect on their business. Based on other studies around new stations, it is assumed that there will be some additional economic activity, and there will likely be some additional economic stimulus, specifically in the SME and micro-sized (i.e. less than 10 employees) market. The provision of allocated development land and suitable employment premises would be required to support this growth but proximity to a rail station can increase labour market catchments which are attractive to small businesses and a combination of land-use and transport planning could combine to deliver a moderate level of employment growth in future. On the basis of 3.6ha per year take up as recently reported in Easington, a 10% uplift would yield additional economic benefits from an 0.36ha of additional employment land take up about the size of a football pitch per year. If the employment land yielded an additional

62 employees per hectare (as with the March-Wisbech study) the employment benefits are small. In addition, the GVA benefits would also be small about 250,000 per year. However, this takes no account of the precise use (classification) of additional employment land, or any locally meaningful level of attribution and although these benefits are relatively small they are set within the context of a small geographic area making them important Housing Across a five year period there were approximately 45 housing completions per year in the study area, with over half (24) directly in Horden and Peterlee. Evidence suggests uplift in housing demand following the introduction of a new station particularly in the case of rural stations: Yorkshire the study by Blainey and Preston indicated the population of areas with a new station grew 8% more than the population of similar control areas which lacked such rail connectivity; and The same study also found the opening of a new station leads to a 7-10% increase in house prices in the station s postcode sector even if house prices increased by a more modest amount, the increased confidence in Peterlee could trigger new investment and economic confidence. As with employment land, there was no attempt to make any such forecasts on a site by site basis. However, if population does grow by 8% over a twenty year period across the study area, then, as a high level indicator: Example of how Population Growth led to Growth in Demand for Housing: Settlement Blackhall Rocks Easington Colliery Easington Village Current Pop Current Households Pop/Household (Avg. Household size) 8% Pop increase anticipated linked to new station No. of Houses req d to accommodate Pop growth over 20 years 1, , ,855 2, ,243 2,710 2,718 1, ,935 1,350 Horden 7,309 3, ,894 4,022 Peterlee 20,443 9, ,078 10,155 Blackhall Colliery 3,720 1, ,018 2,144 TOTAL 40,321 19, ,547 21,096 Source: Mott MacDonald Thus, assuming the size of each household remains constant, there will be a need for additional housing units of around 1,500-1,600 homes over that period. Modelling real house price growth at 1% per annum and assuming an additional new houses are constructed each year then there are associated economic benefits to having a station. In 2016 prices, there would be an additional volume of sales valued at 145m- 155m over the 20 year period. 61

63 However, it should be reiterated that the precise quantum and location of sites brought forward for housing will be key determinates of the scale, value and type of housing which is likely to be constructed over this period Visitor Economy In 2014, a study of the entire County Durham coastline 50 found the following: Tourism in the area was valued at just under 110m pa; This was the product of 2.97 million visitors per year, with an average day visitor spend of 19.70; Overnight visitors spent an average of per trip; and Over 1,500 people were employed in tourism along the Durham coastline. It is impossible to deduce how many people from this latter survey visited the Heritage Coast specifically; however it should be assumed that a relatively high proportion of the 2.97m visitors to the Durham Coastline would be visitors of the Heritage Coast. It is also possible to say: The 2014 study showed the opportunities to grow the visitor economy the number of visitors to the Durham Heritage Coast was about a tenth of those visiting the Northumberland Coast which has much better connectivity across the North East region, even from Durham; Reports from the Durham Heritage Coast Partnership continue to highlight the lack of skills and facilities which serve the tourist and visitor market at present 51 ; and The area is an identified strategic asset for the sub region s Tourist Strategy. Growing tourism is one way in which this station can have a significant economic impact In terms of examples and evidence from elsewhere: Evidence from the Bamford Loop Environmental Statement in the Peak District shows how enhancements to rail services into key tourist destinations can add moderate, but beneficial, numbers of jobs and GVA to the local economy. It would not be unrealistic to see a similar scale of visitor economy benefits to the growing tourist economy of the County Durham coastline; and The appraisal of the Moorlands and City heritage railway scheme in rural Staffordshire also demonstrated how increasing access to a tourist destination through rail service enhancements and new stations and lines can have significant local economic impacts on the visitor economy. ONS figures 52 suggest that across the region 3.9% of all jobs are in some way related to tourism. If applied to the study area, then across all sectors, about 380 jobs are in the visitor economy. Using the figures calculated for the Moorlands and City heritage railway scheme, which attributed an additional 20,000 visitors per annum to the area, directly as a result of the railway, then there could be a similar level of job (between 10 and 20 additional jobs) and GVA ( 200k-300k per annum) creation. This is not unrealistic evidence suggests there are now 3m annual visitors to the Durham Coastline in total. A 20,000 visitor increase only represents a 0.006% increase. The railway 50 Durham Tourism Management Plan, Visit County Durham, Durham Heritage Coast Masterplan: Business Plan, Visit County Durham, April The Geography of Tourism Employment, Office for National Statistics,

64 station would also fit into a broader sustainable tourist strategy, raising the proportion of nonlocal visitors and increasing additional visitor spend (and wider economic benefit) still further Option and Non-use Values An option value is the willingness-to-pay to preserve the option of using a transport service for trips not yet anticipated or currently undertaken by other modes, over and above the expected value of any such future use. Option values are associated with uncertainty about use of the transport facility. An option value may exist even if the option of using the transport service is never taken-up, as they are related to each individual s attitude to uncertainty. A non-use value is a value that may be placed on the continued existence of a good regardless of any possibility of future use by the individual in question. The motivation for the desire for the good to continue to exist may, however, vary from one circumstance to another. For example, individuals may value a good for altruistic reasons or for reasons associated with indirect use. Examples of situations where non-use values may exist in a transport environment include: A resident in a village deriving benefit from the knowledge that the elderly can use public transport to access the facilities they need; Where the vitality of a community may depend on the transport link - for example where a substantial proportion of the economic activity in the community stems from either passing trade or from business associated with the provision of transport services; and Where cultural heritage value of transport infrastructure is large. There is Department for Transport guidance 53 on assigning monetary equivalents as a standard measure of option/non-use values. As such, it is straightforward to produce a range of values estimating Option and Non-use values. The values used are as referenced, it was decided to maintain the Department for Transport s recommendation for using only those households within 2km of station, even though in this instance, a case for the inclusion of those communities slightly further away could likely be made. For reference the valuation across the entire study area, including those households between 2km and 5km away from the station is provided in the table below: 53 TAG Unit A4.1: Social Impact Appraisal, Department for Transport, January

65 Option & Non-use Valuations under various assumptions: Households between No. of Households Option/Non-use valuation ( s, 2016 prices) m 2, , , , , m-2km 5, , ,395 1,386,793 1,456,928 2km-5km 12, , ,618 3,327,164 3,495,430 Total (exc , ,391 1,975,585 2,075,497 2km-5km) Total (incl 2km-5km) 20,480 1,144,277 1,531,009 5,302,749 5,570,927 Source: Mott MacDonald Thus depending on the values assigned to the option and non-use valuation, a community benefit value of between 426,000 and 2.1m is derived for all households within 2km of the proposed station for a single year Summary of Wider Economic Benefits The table detailed over summarises the various wider economic benefits outlined above. The figures given may, however, be conservative as: The benchmarks used (often based on appraisals and business cases which have been peer assessed by funding organisations) are themselves conservative and use conservative assumptions; There is no detailed visitor and tourist information on which to make any precise forecasts on visitor numbers; Temporary construction benefits from either: (i) developing employment land; (ii) building houses; and, (iii) constructing the station itself has not been calculated; and A wide range of option and non-use values have been set out to give an idea of the values which could be used in any study or future funding application. 54 Review of Economic Assessment in Rural Transport Appraisal, Scottish Government Social Research, The Economic Value of Rail in the North of England, PTEG, July Review of Economic Assessment in Rural Transport Appraisal, Scottish Government Social Research, TAG Data Book A4.1.8, Department for Transport, Summer

66 Summary of potential wider economic benefit impacts: Impact/Benefit Benefit 1 Benefit 2 Benefit 3 Notes Employment Land Housing Visitor Economy Option and use valuation Source: Mott MacDonald 0.36ha additional land developed additional homes per year 20,000 additional visitors (direct attribution) Mid value of range in table for all homes within 2km of station: 1.25m pa. Value using DfT WebTAG Data Book: 2.08m 250,000 GVA pa (estimate valid for 2016 prices) Midpoint of resulting sales uplift: 149.6m (assuming 1% real house price growth pa, 2016 prices) 230,000 GVA pa (estimate valid for 2016 prices) 15 additional employees (over a ten year period as land is developed) employees in tourism/visitor economy Based on recent detailed studies elsewhere. Detailed site by site analysis would be expected to yield a greater impact Depending on land and construction costs detailed temporary construction impact could be modelled using TEAM Based on recent detailed studies elsewhere. Station also creates an asset for the visitor economy which yield further economic benefit (e.g. shops and services around the station) Annual values per households at 2016 prices based on households within 2km from proposed station Physical Activity Modelling The scheme has the potential to impact on physical activity levels in two discrete ways: Increasing walking and cycling levels where these active modes are used to access and/or egress stations; and Potentially, abstracting from existing, more localised, walking and cycling through a simultaneous change in mode and destination, i.e. due to improved rail accessibility opening opportunities for travel which were not previously available or considered. As the extent of the latter is less well known due to dependency on standard UK rail industry diversion factors values are provided separately. To estimate the associated benefits, and potential disbenefits two modelling tools are employed: 65

67 The World Health Organisation s (WHO s) Health Economic Assessment Tool (HEAT); and Sport England s MOVES model. Critically, these capture different health impacts with the former focussing on mortality and the latter on wellbeing aspects and cost savings to the National Health Service (NHS). Access and egress mode shares for both production and attraction stations are taken from analysis of National Rail Traveller Survey (NRTS) data, and, for abstraction of local walk and cycle trips to rail, average walk and cycle distances are taken from the Department for Transport s National Travel Survey (NTS) data for HEAT This tool provides an assessment of the economic value of the reduced mortality that arises from an increase, or decrease, in walking and cycling. The calculation can be performed using the following data: Number of people walking or cycling; Frequency of their walking or cycling; and Duration or distance walked or cycled. By using before and after scheme data, HEAT can be used to estimate the number of premature deaths prevented by the additional walking and cycling, and the value of these reductions. The advantage of the HEAT is that it uses a methodology designed by the WHO and endorsed by the UK DfT in TAG. This means that it carries the credibility needed to evidence the benefits of active travel investment within the transport sector MOVES MOVES looks at additional benefits achieved by the scheme, in terms of the Quality Adjusted Life Years (QALYs) gained. This is the product of the years of life gained (as with less disease, people live fuller, longer lives) and a value associated with the quality of life during those additional years. In this case we use the NICE threshold value of 25,000 per QALY gained as a measure of the amount that the NHS has said it is willing to pay for the benefits. 66

68 Summary of Estimated Health Benefits The table detailed below summarises the resulting physical activity benefits from the two separate models: Core Scenario Physical Activity Benefits (monetary values are discounted s in 2010 values and prices) Impact Value Access and Egress Changes A- HEAT Analysis (Changes in Mortality) 690,526 B- MOVES Analysis (Changes in Wellbeing) 1,302,455 C- MOVES Analysis (Cost Savings to NHS) -238,357 (cost saving) Change in Mode D- HEAT Analysis (Changes in Mortality) -216,253 E- MOVES Analysis (Changes in Wellbeing) -363,024 F- MOVES Analysis (Cost Savings to NHS) 65,841 (cost increase) TOTALS A+B 1,992,981 C -238,357 A+B+D+E 1,413,704 C+F -12,516 Source: Mott MacDonald Costs Closure of Blackhills Farm Level Crossing The operating costs for the Blackhills Farm level crossing have been estimated at 5,000 in 2016 prices. Future operating costs have been assumed to follow the trend for other OPEX as detailed in the Demand Forecasting Report. No optimism bias is applied to these costs as they are considered existing. Costs are converted to market prices using the standard TAG adjustment factor, discounted to 2010, and converted to a 2010 price base. The resulting stream of Present Value of Costs (PVC) saving is estimated to be - 100,800, which applies to all scenarios and tests. In addition, the reduction in the risk of accidents due to conflicts between trains and other users of the crossing was considered using standard Rail Safety & Standards Board (RSSB) values, based on guide values provided by Network Rail. The estimated annual safety benefit from removing the crossing is 2,259 in 2016/17 values and prices. The result is a Present Value of Benefits (PVB) of 57,506, which again applies equally to all scenarios Capital Costs Durham County Council is in an ongoing discussion with Network Rail; costs are currently evolving for the station, based on budget costings and before any discussions on value engineering have taken place. The table below provides a breakdown of the funding profile for South East View. This has emerged as the preferred option in terms of engineering feasibility following a pre GRIP 3 study by Network Rail. 67

69 Base capital costs for South East View 2016/ / / /20 Total Project Management Project Design Other Project Costs Preliminaries Overheads and Profits Construction Optimism Bias Total ( m) Source: Network Rail presented in 2016/17 prices to the nearest thousand, allowing possibilities for rounding errors in the total Operating Costs High level operating costs for the scheme have been developed based on similar scheme proposals for a simple, unstaffed, halt. These have been uplifted at a rate of 2.9% to account for the assumed difference between construction and general inflation, general inflation itself through an RPI forecast, as well as using the appropriate RPI factor to convert to 2016/17 prices. A full breakdown of the assumed operating cost during the period of 2018 to 2024 is provided below. This includes maintenance, renewals, and utility costs. Assuming the station will be an unstaffed halt, similar to Seaham, Seaton Carew and Billingham. We have therefore included costs for lighting, CCTV, help points and long-line public address. In addition to these elements Mott MacDonald also cross-referenced against the Long Term Charge (LTC) levied by Network Rail. The costs of the LTC over Control Period 5 ( ) are published on the Network Rail website 58. Assuming that the LTC for Horden will be similar to that at other stations on the Durham Coast line; we the average values for Seaham, Seaton Carew and Billingham was taken as a proxy for the LTC for Horden. This equates to 12,357 per annum in 2016/17 prices. TAG Unit A specifies that non-staff operating costs should rise in line with RPI and be capped in the same year as demand growth, i.e As such, costs are inclusive of: Preliminaries at 15%; and Optimism bias at 1% per annum Accessed 11 January TAG unit A5-3 rail appraisal, Department for Transport, December

70 Base operating costs for South East View: Element Electricity 3,009 3,104 3,200 3,298 3,397 3,499 3,604 Cleaning/Maintenance 21,065 21,728 22,402 23,085 23,778 24,491 25,226 Vandalism 7,523 7,760 8,001 8,245 8,492 8,747 9,009 Minor Repairs 3,009 3,104 3,200 3,298 3,397 3,499 3,604 Major Overhaul Major Refurbishment Patch Surfacing 0 0 8, Platform Resurfacing M&E and Lighting 1,655 1,707 1,760 1,814 1,868 1,924 1,982 Lighting Renewals Feeder Pillar CCTV Help Point Renewal , PA Renewal TOTAL 36,262 37,404 47,204 39,740 57,916 42,160 43,425 Source: Mott MacDonald, 2016 prices. It must be noted that all quoted operating costs are presented in 2016/17 prices. Values used within the economic appraisal were discounted, and deflated back to 2010 prices with a market price adjustment applied Scheme Costs for Appraisal A number of adjustments are required to costs before they can be used in the economic appraisal. This is documented in TAG Unit A1.2 Scheme Costs 60 and includes the following elements: Optimism bias and risk; Real price increases are accounted for by looking at comparative rates of inflation for general costs and for construction costs. This assumes that general inflation rises at 2.5% per annum, whereas construction inflation rises at 5% per annum; Re-basing to 2010 has been undertaken using the general inflation deflator (using RPI from the TAG data book dated Summer 2016); Discounting to 2010 using a discount rate of 3.5%for 30 years and 3% thereafter; and Conversion to market prices using an indirect taxation factor of 1.19 (or 19%). Optimism bias is defined as the historic tendency to underestimate scheme costs. TAG Unit A5.3 Rail Appraisal 61 provides differing rates of optimism bias dependent on which stage of the Network Rail GRIP process the scheme is currently at. The level of optimism bias decreases as the project progresses to completion. In addition to optimism bias, risk also represents a potential source of error in scheme cost estimates. This is defined as an event with known probabilities and can be measured, using Quantified Risk Assessments. Horden is currently at GRIP stage 3, and as specified in TAG this should include optimism bias of 40% for capital costs; no QRA contingency value should be included at this stage. In 60 TAG Unit A1.2 Scheme Costs for Appraisal, Department for Transport, January TAG unit A5-3 rail appraisal, Department for Transport, December

71 addition, 1% optimism bias per annum should be included in the operating costs. This figure is added each year and is not included as a cumulative impact. The resulting costs of the scheme, as input into the economic appraisal are shown below: Scheme capital costs used in the economic appraisal: Source 2016/ / / /20 Total Local Funding (DCC) Regional Funding (LGF) National Funding (NSF) Total Capital Costs Source: Network Rail and Durham County Council 2016/17 prices rounded m s Updated Values of Time The Department for Transport commenced a consultation period in November 2015 concerned with recent research on values of time; the Department of Transport plan to include this recent research in updates to TAG slated to be published in May Several documents have been published, including one which specifies how sensitivity tests can be undertaken using the updated values of time 62. One method is to use the results of the core appraisal and adjust them as follows: Commute time saving values to be increased by 50% for car users and by 47% for public transport users; Business time saving values to be reduced by 33% for car users, 8% for rail users and 39% for other public transport users; Other non-work time saving values to be reduced by 18% for car users and by 24% for public transport users; and Marginal External Costs to be reduced by 10%. As such the values for the core scenario were taken and adjusted as per above, as stated in the appraisal results which are detailed in the following section. 3.7 Appraisal Results The following section sets out the results of the economic appraisal of the proposed scheme. It brings together the costs and various benefits of the scheme as detailed above, summarising the overall value for money by quantifying the scheme in terms of a Benefit Cost Ratio (BCR) Core Results It should be noted that for all the results detailed below benefit and cost data for the scheme have been deflated to a common price base (2010 prices), whilst costs have been converted from factor prices to market prices, discounted for the 60 year appraisal period, and converted to 2010 prices. At this stage, two tests have been considered for South East View: 1A Semi-fast service routed via the Durham Coast line; and 62 uing_impacts_of_transport_investment.pdf - accessed 12 January

72 1C Semi-fast service routed via the Durham Coast line, with mode shift from walking and cycling for new rail travellers. Both tests (A and C) represents the reference case, which includes 3 minutes stopping time at Horden, the semi-fast service routing via the Durham Coast Line, 10.55m cost estimate and modal shift away from rail. Test C, however, also considers the physical activity disbenefits for travellers newly attracted to rail, i.e. reductions in walking and cycling for local journeys (simultaneous change in mode and destination). As noted in the preceding section values of time were also consulted upon by the Department for Transport in 2015/16. Whilst not approved, it is anticipated that these changes will be in place before the proposed station at Horden Peterlee is open. Core results for the two testes are presented in the table below. Benefits are exclusive of option and non-use values, and the indirect wider economic benefits associated with employment land, housing and the visitor economy as outlined in 3.6 Analysis of Monetised Costs and Benefits, instead these economic impacts will be subsequently outlined and added to the core tests in the following sections. Monetised costs and benefits for South East View station option ( m): Test NPV BCR New VoT NPV New VoT BCR 1A Core + 3mins + Durham Coast semi-fast m cost 1C Core + 3mins + Durham Coast semi-fast m Cost + mode shift from walking and cycling for local journeys Source: Mott MacDonald (Values and prices presented in a discounted 2010 base) Wider Economic Benefits As noted, the estimates of the Wider Economic Benefits (WEBs) for the scheme are detailed above in section 3.6. Considering the WEBs relating to labour supply, the projected Present Vale of Benefits (PVBs) over the 60-year appraisal period is: 3.23M GVA from the delivery of employment land; and 3.54M GVA to the visitor economy. The inclusion of the employment land and visitor economy benefits is made on the assumption of labour market failure, as per the WEBs in TAG, and, for Department of Transport purposes, demonstrable net benefit to the UK (as opposed to displacement of activity from other areas), i.e. that the jobs which are implicit in the GVA estimates are net additional. This is plausible on the basis of the deprivation and unemployment levels in the Horden- Peterlee area, and as such they are added as a sensitivity line within the economic metrics. To ensure compliance with TAG, the values are multiplied by a market price adjustment factor and a labour supply multiplier 63. The total PVB for the wider economic impacts therefore rises to 3.27M. The effect of adding this is shown in the table below, with the Net Present Value (NPV) and Benefit Cost Ratio (BCR) increasing accordingly. 63 TAG Unit A2.1 wider impacts, Department for Transport, January

73 Monetised costs and benefits for South East View station option, adjusted for WEBs ( m): Test PVB PVB+WEBs PVC NPV BCR 1A Core + 3mins + Durham Coast semi-fast m cost 1C Core + 3mins + Durham Coast semi-fast m Cost + mode shift from walking and cycling for local journeys Source: Mott MacDonald (Values and prices presented in a discounted 2010 base) Option & Non-Use Values Due to the magnitude of the option and non-use values for the scheme relative to other benefits, driven by the number of households within a recommended catchment consideration of 2km from the new rail option, It is deemed sensible to report on these benefits, outside of the core and WEBs adjusted NPVs and BCRs. The table below summarises the relative impact on economic appraisal metrics and the subsequent increase in BCR. Monetised costs and benefits for South East View station option, adjusted for WEBs and Option and Non-use Values ( m): Test PVB PVB+WEBs PVC NPV BCR +OVs+NUV 1A Core + 3mins + Durham Coast semi-fast m cost 1C Core + 3mins + Durham Coast semi-fast m Cost + mode shift from walking and cycling for local journeys Source: Mott MacDonald (Values and prices presented in a discounted 2010 base) Operational Costs and Revenue Generated The table detailed below shows the operating cost and passenger revenue forecasts for the period from 2020 to 2024, the current expected end date of the Arriva North franchise, in 2016/17, undiscounted, prices. Values in red under OPEX - Revenue indicate a surplus/clawback against operating costs, including modal shift associated with the additional 3 minutes of stopping time at Horden Peterlee, highlighting the viability of the proposed scheme. South East View 2020 to 2024 Financial Case Test Results (undiscounted 2016/17 prices): Test OPEX( ms) Passenger Revenue ( ms) OPEX Revenue ( ms) 1A Core + 3mins + Durham Coast semifast m cost Source: Mott MacDonald 72

74 The table below summarises the OPEX and revenue forecasts by year to 2024 for scenario 1A. South East View 2020 to 2024 Financial Case OPEX and revenue by year (undiscounted 2016/17 prices): Year OPEX ( s) Passenger Revenue ( s) OPEX Revenue ( s) , , , , , , , , , , , , , , ,545 Source: Mott MacDonald 3.8 Preferred Option As noted in section 3.3 Options Appraisal only two site options were deemed viable for the construction of the proposed station. This conclusion stemmed from the Pre-Grip Feasibility Study conducted by Network Rail 64 - which determined only two of a possible five station sites entered in to the study were deemed viable owing to construction challenges, contamination and risk elements of the three sites deemed unsuitable for development. Although, it was decided to undertake the full economic appraisal for both the remaining options to determine which site could be deemed as the Preferred Option it became immediately clear upon conducting the demand forecasting and the monetised assessment of costs that South East View should be considered the Preferred Option owing to the reality that this site: Is central to the population generating the greatest demand; Delivered anticipated lower costs; Sited in the most suitable location; and All land required for the station s development was either in Durham County Council or Network Rail s ownership. The decision to name South East View as the Preferred Option is in line with Treasury Guidance 65 which notes that selecting the preferred option should be a reasonably straightforward step in the decision making process as generally the option with best NPV should be considered the Preferred Option. In this instance South East view not only delivered the greatest benefits but also possessed the lowest cost. As such, throughout the economic appraisal the assessment uses South View as the site option and is noted as such. 3.9 Value for Money Statement Securing value for money from new public infrastructure requires careful consideration. With newly built assets particular consideration has to be given to design, whole life costs, fitness for purpose, operational efficiency, and end of life costs as well as the initial impact of the capital payment. Clearly the detailed economic assessment outlined above provides comfort 64 Horden Station: Pre-FRIP Feasibility Study, Network Rail, March Greenbook Supplementary Guidance on Delivering Public Value from Spending Proposals, HM Treasury,

75 that the proposed station at Horden Peterlee is viable both in terms of the benefits it delivers and its operational sustainability. The Benefit to Cost Ratio (BCR) which is outlined in the preceding sections is typically classified into one of five bands detailed in the Government s Value for Money (VfM) 66 guidance for transport schemes these are: Poor, if BCR is below 1.0; Low, if BCR is between 1.0 and 1.5; Medium, if BCR is between 1.5 and 2.0; High, if BCR is between 2.0 and 4.0; and Very High, if BCR is greater than 4.0. The below table highlights the various tests conducted for the proposed scheme, their respective BCR s and an assessment of their Value for Money based on the government guidance outlined above. Value for Money Statement for different tests: South East View (test 1A) South East View (test 1A) +WEBs South East View (test 1A) +WEBs +Option/Non-use Values Benefit Cost Ratio (BCR) Value for Money (VfM) Medium High Very High Source: Mott MacDonald As such it can be conclude that the proposed scheme clearly fulfils HM Treasury s requirements for appraisal and demonstrates value for money in the use of taxpayers money Conclusions The Economic Case has demonstrated that the spending proposal optimises public value for money. It has identified and appraised a range of realistic and achievable options, in terms of how well they meet the spending objectives and the critical success factors agreed for the scheme before coming to a decision on the Preferred Option which was subjected to a Value for Money (VfM) assessment highlighting the compatibility the scheme has with the Government s requirements for value in the use of taxpayers money. In summary, two viable sites for the proposed station were identified as a result of the feasibility study by Network Rail, which reviewed five possible locations. These were South East View and Old Horden, with South East View eventually emerging as the favourable site or Preferred Option based on demand forecasting and a subsequent economic assessment. The Economic Case detailed above provided a full economic assessment of the South East View site considering a new station at this location to be developed as an unmanned halt with passenger waiting facilities, footbridge, and a 100- space car park. The appraisal for the proposed station at the South East View in Horden-Peterlee has been assessed based upon the most likely scenario of a 3 minute calling time at Horden-Peterlee, and the introduction of 66 Value for Money Assessment: Advice for Local Transport Decision Makers, Department for Transport, December

76 Arriva s hourly semi-fast service routing via the Durham Coast. This helps to ameliorate some, but not all, of the time disbenefits for through travellers from calling at Horden. With a current capital cost estimate of 10.54m (2016/17 prices) the: Core appraisal generates a Benefit to Cost Ratio (BCR) of 1.59 and a Net Present Value (NPV) of 3.17m, exclusive of indirect wider economic benefits from option/non-use values, employment land development and the visitor economy; New values of time (VoT), released for consultation by the DfT, result in a BCR of 1.62 and a NPV of 3.35m; and When WEBs and option/non-use values are separately added to the core appraisal, the NPVs increase to 6.4m and 25.6m and the BCRs to 2.19 and The core scenario offers medium value for money, and high when WEBs are considered, increasing to very high when option and non-use values are incorporated, as classified by the Government s Value for Money (VfM) guidance. In conclusion the development of a new station at the South East View site in Horden offers a unique opportunity for transport operators, the people of Horden and the wider community. The scheme is not just presented as a transport scheme offering improved connectivity throughout the local area, but also as a tool to draw additional investment into a declining economic region and therefore provide both financial and social benefits for all parties. There is a clear case for Durham County Council to develop a new railway station located at Horden based on value for money. 75

77 4 Commercial Case 4.1 Introduction This section forms The Commercial Case for the scheme; The Commercial Case is concerned with issues of commercial feasibility and sets out to answer the question can the proposed scheme be effectively delivered through a workable commercial deal or deals? The Commercial Case, therefore, provides evidence on the commercial viability of the proposal and the procurement strategy that will be used to engage the market. It presents evidence on risk allocation and transfer, contract timescales and implementation timescales as well as details on the capability and skills of the team delivering the project and any personnel implications arising from the proposal. In summary this section will: Provide an initial assessment of the commercial viability of the proposal, both in terms of attractiveness to potential suppliers and in terms of providing long-term value for money; Outline the envisaged deal structure/s, key contractual clauses and payment mechanisms; Provide a procurement strategy clearly defining the ownership of any assets; Appropriately allocate risk and explain the steps which are being taken to mitigate that risk; and Set out the key contractual milestones and delivery dates. The Commercial Case will, therefore, be structured around the following headings: Output Based Specification; Procurement Method; Contract Management; Project Milestones Programme Implications and Risk; and Conclusions. 4.2 Output Based Specification At this stage of the proposed project s development, a brief has been developed and has informed Network Rail s Pre-GRIP Feasibility Report 67 with general layout drawings and a detailed site plan, taking into account critical rail considerations; Building & Civils, Signalling, Electrification & Plant and Track. The design of the proposed station is to be in full compliance with Railway Group and Network Rail Standards 68 as well as DfT and European standards and guidelines e.g. DfT document Design Standards for Accessible Railway Stations 69. The station is to be fully accessible and compliant with the Equality Act Horden Station: Pre-FRIP Feasibility Study, Network Rail, March Catalogue of Network Rail Standards, Network Rail, Sept 02-Dec Design Standards for Accessible Railway Stations, DfT, March

78 The outputs of the scheme which were fully costed in Network Rail s Pre-GRIP Feasibility Report are also set to inform the brief for the Development Services Agreement between Durham County Council and Network Rail. Those output requirements are: New unmanned railway station, with two opposing platforms of circa 100m length; Platform construction to be modular (steel or precast concrete) and have all usual platform furniture (waiting shelters, benches, lighting columns, help points, CCTV, CIS screens etc.); Steel footbridge with stairs and ramps; Car park for 100 cars with associated taxi, drop off and bus layby; New access roads (and footways) from nearby highways to be sufficient for two passing buses; General external lighting to the platforms, bridge and car parks; Small power outlets for CIS, CCTV, PA, Ticket Machines, Help points etc.; CCTV covering any public area, especially ticket machines, with either on site 30 day storage of information or remote monitoring; Customer information screens; A Public Address System; and Water Services: A new cold water mains service will be required and/or a water tap, for cleaning only. 4.3 Procurement Method The proposed scheme will be delivered by Network Rail under the instruction of Durham County Council. Network Rail as the authority responsible for the UK s railway network is governed by a range of procurement rules; these rules will, ultimately, act to govern the procurement of the proposed scheme. As noted above Network Rail is accountable for the operation, maintenance and renewal of railway assets. It therefore possesses a considerable interest in any proposed improvements to the rail network, and as such, there are certain services that only Network Rail can supply, these are described as non-contestable services. Non-contestable services include: Protecting the railway network and its operations; Information provision; Safety management; and Consents and access to the network. There are two procurement routes that can be undertaken for the commissioning of any new scheme on the railway network 70, these are defined by the possible roles that Network Rail will undertake in the delivery of the proposed scheme: Network Rail commissioned directly to deliver the scheme; or Promoter (in this instance Durham County Council) to deliver the scheme with Network Rail offering an Asset Protection (ASPRO) role. 70 Investment in Stations: A guide for promoters and developers, Network Rail, December

79 In the first scenario Network Rail works to develop a deliverable and standards-compliant design in collaboration with the promoter. Network Rail then oversees construction prior to handing over the asset to the selected operator. The Office of Rail Regulation (ORR) identifies that Network Rail will in many cases act as the delivery agent, and will take on risks that it is best placed to manage; this is inclusive of both design and construction risks. The second scenario involves Network Rail working closely with the promoter to agree works in principle before commencing on detailed design. Network Rail would approve plans in a two tiered process and offer guidance on technical issues and interaction with other railway schemes in the locality. Under this scenario any costs to Network Rail relating to asset protection are charged back to the developer through mechanisms detailed in the ASPRO contract. Under this scenario the third party can seek prices from suppliers for contestable services, which include design and delivery of the scheme. It is envisioned that the proposed scheme will follow the first scenario with Network Rail responsible for the design and construction of the station on behalf of Durham County Council. As such, the works relating to the new station will be governed solely by Network Rail and their procurement rules, for this scheme (relating to the construction of the station) there are no possibilities to use alternative procurement rules. Where construction takes place outside of that specifically relating to the construction of the station, for example, on the 100 space car park and the approach roads to the station the procurement process will follow Durham County Council s prescribed procurement strategy which is based on a number of strategic outcomes: Deliver the scheme within the available funding; Deliver the scheme to programme; Ensure stakeholders acceptance and support; Ensure best value is delivered; and Ensure that appropriate quality is delivered. Delivery of these outcomes will be achieved by engaging the works contractor at an earlystage in the planning and delivery of the scheme and mobilising appropriate strengths by: Using the contractor s experience and input in reviewing the construction estimates; Obtaining the contractor s experience and input to the design and construction programme to ensure the programme is robust and achievable; Using and building upon the partners in-house knowledge and experience from engaging through consultation with all stakeholders; and Engaging the contractor in the final detailed design process to improve buildability and ensure value for money. In house highway design and construction teams are available supported by relevant frameworks, from which competitive tenders would be run if required. Durham County Council has delivered approximately 50m of highway projects, employs 200 operational and 40 design employees. Durham County Council utilise contractors via procured frameworks to obtain best value for money. Coordination would be ensured throughout the GRIP process to ensure consistency between the on and off-line infrastructure. One way of ensuring this would be for Network Rail to design the car park up to the end of GRIP stage 4 following this Durham County Council would undertake the detailed design in GRIP stage 5. 78

80 4.4 Contract Management Network Rail have developed, and The Office of Rail Regulation (ORR) have approved, the below template contracts which would be relevant for this project 71. These are designed to offer a fair balance of risk between the promoter (in this instance Durham County Council) and Network Rail. The contracts as defined by the ORR are as follows: Development Services Agreement: for development and design work undertaken by Network Rail on behalf of the promoter; and Implementation Agreement: with Network Rail acting as construction manager, this is an agreement for enhancement works on or about the controlled railway infrastructure to provide detailed design and implementation of the promoter s scheme with the contracting strategy agreed between Network Rail and the promoter. A Development Services Agreement (DSA) is already in place between Durham County Council and Network Rail taking the project through to GRIP Stage 3. Discussions have taken place between Network Rail and Durham County Council regarding the option of adopting a design and build approach to the scheme. This would provide optimum early engagement with the specialist contractors and mitigate the limited scheme delivery timeframe. Should this approach be adopted a further Development Services Agreement with Network Rail will be identified and entered into upon approval of funding for the scheme. The entering into of any agreement is subject to the relevant Durham County Council, North East Local Enterprise Partnership, New Stations Fund and Network Rail Investment Panel approvals. Upon arrival at the appropriate GRIP stage, for the implementation phase of the proposed station, Durham County Council will enter into an Implementation Agreement with Network Rail who will subsequently identify and appoint the appropriate contractor from their competitively procured framework Durham County Council s Contract Management Any additional works related but not directly pertaining to the construction of the station itself i.e. as noted above the proposed car park and associated highway works will fall under Durham County Council s contract management process. Durham County Council has single supplier contracts for the next three years in traffic management, road milling, carriageway resurfacing and road patching. Specialist surfacing contracts and road marking contracts are in place for the next two years. Additionally, there are three highway framework contracts ranging in value from < 50k, 50k- 250k and 250k+ with 5 contractors in each lot, and a street lighting framework with 3 contractors. Contracts are also in place for the purchase of materials with local quarries, builders merchants and street lighting columns. The authority has an internal resource of Highway and Street Lighting Designers and has the ability to obtain further assistance from surrounding local authorities or procure via NEPRO Consultancy. Having established framework providers will minimise any risk in delivery of the project. 71 The Policy Framework for Investments: Conclusions, ORR, October

81 For any necessary statutory undertaken diversion works, work will be ordered directly by the County Council, following the statutory C5 process. Durham County Council as the anticipated contractor for the off-line works is supported by an established framework of contractors. For these contracts pricing levels (either fixed prices or rates) and programme delivery periods are transferred to the required sub-contractor. The key benefits of this are that Durham County Council can manage the overall programme for the off-line works and ensure flexibility of the network for all highway schemes throughout the period, thereby reducing the risk of successful contractual claims or cost escalations Payment Mechanism Durham County Council uses its systems to manage an annual budget in excess of 1billion of revenue and capital expenditure and will manage the overall income and expenditure elements of the scheme. The established procedures of the council are that payments will be made by the council upon receipt of invoices related to agreed purchase orders. Purchase orders will be issued in line with the progress of the scheme. Onsite inspection is undertaken during the life of the scheme to ensure construction related costs are consistent with the estimate of the design. 4.5 Project Milestones Network rail have provided an indicative programme for a typical station construction, though this does not include obtaining authorities and funding, key milestones are shown below: Proposed Horden Station Programme Milestone Projected Completion Date Options Feasibility Report 08/04/16 Business Case submission to the Region 09/12/16 New Stations Fund submission 25/11/16 Completion of RRD document 31/01/17 Completion of GRIP3 option selection 31/07/17 Indicative schedule for Full GRIP 3 completion 31/03/18 Completion of land acquisition 31/03/18 Completion of GRIP4-5 outline design and detailed design 31/03/19 Source: Pre-GRIP Feasibility Study, Network Rail, April Risk, Constraints and Dependencies Primary Risks, Constraints and Dependencies Durham Coast Re-signalling & Re-Control Project The key potential risk to the proposed scheme is the Durham Coast Re-signalling & Recontrol project 72. This project has already installed the infrastructure on site for the resignalling element of the works identified and is within GRIP4 for the re-control of the infrastructure to York ROC. As such discussions are ongoing between Durham County Council and the Durham Coast Re-signalling & Re-control project to understand mutual proposals and timescales. It is considered that economies of scale may be gained by working with the aforementioned project. 72 Horden Station: Pre-GRIP Feasibility Study, Network Rail, March

82 Level Crossing At present there is an Existing User Work Crossing at Blackhills Farm, the proposed scheme is located close enough to the existing level crossing at Blackhills Farm (and the associated whistle boards) to detrimentally effect its safe functioning. The acquisition of the farm would neutralise the level crossing. Positive discussions have taken place between Durham County Council and the landowner with regards to transferring the ownership of the land, with a view to the Council completing the purchase by March 2018 at the latest. Please refer to the attached Risk Register, with the project subject to a Quantified Risk Appraisal at the appropriate stage in GRIP Further Considered Risks The below represents the principle risks identified: Proposed car park position may lie partially over where Blackhills V Dene was infilled in the 1930s. Buildings also built on top since. Appropriate construction standards for car park. Possibility of colliery spoils within historic eastern embankment. Allowance made within estimate and option of leaving it largely in situ. Works adjacent to heritage coastline and nature reserve. Appropriate access not to impinge on these areas. Land purchase of Blackhills Farm. Owner has indicated a willingness to sell. Stakeholder engagement may increase project costs. Appropriate management of design and budget, in coordination with Network Rail. There are other risks related to the proposed scheme these are covered in detail in The Financial Case and can be viewed in the attached Risk Assessment. The below forms a brief summary of the risks which have been identified: Adaption of signalling equipment including moving of signals; Timetable implications for rail services and future timetable aspirations; Potential contamination issues; Topographical surveys required to confirm local topography; Works adjacent to operational railway; Construction adjacent to a number of residential properties; Third party and Local Authority interfaces; Land purchases and land rental; Construction access; Unforeseen ground conditions including impact of historic mine working; Lack of availability of possessions or short notice cancellations; Insufficient power supplies in the area; Interface with other NR projects; Ecological constraints and presence of protected species; and Proximity of dwellings and/or other non-rail infrastructure/boundaries to potential station. 81

83 4.6.3 Network Rail Risk Fund Network Rail possess a Rail Risk fund, however, funds only cover costs and risks which are outlined at each strategic review, costs and risks associated with third party funded schemes are not covered 73. Risk funds have been developed to pay for these elements, as follows: Network Rail Fee Fund (NRFF): covers the potential liabilities arising from the template agreements; and Industry Risk Fund (IRF): covers low probability, high impact industry risks such as operational emergencies on the network. These funds are contributed through a percentage of scheme costs, which will be defined within the template Agreements Land Issues The scheme will be built upon land within either within Network Rail s or Durham County Council s ownership. Upon completion of the works, sign-off / hand-back to Network Rail will take place. No liability for the provisions of the rail related elements of the scheme will remain with Durham County Council following hand-back to Network Rail. In principle the parts of the scheme on rail owned land will pass into the ownership of Network Rail. The station charge will reflect what is included in the station lease area and the assets contained within it. The Annexes to the Station Lease will identify the maintenance, repair and renewal responsibilities (Network Rail and Station Facility Owner) for the assets introduced and the bearer of associated costs. The car park on Durham County Council owned land will remain in Durham County Council ownership, discussions with regards to the leasing, operation and maintenance of said car park will take place upon completion of the project Planning Issues A planning application for the scheme is yet to be submitted, however, there are no foreseen issues pertaining to the planning which would hinder swift approval. 4.7 Conclusions The Commercial Case has successfully highlighted the commercial viability of the proposed scheme and detailed the procurement strategy that will be used to engage the market, providing additional evidence on risk allocation and transfer, contract timescales and implementation timescales. In summary, the scheme will use Network Rail procurement methods for the direct construction of the proposed station, whilst it is envisioned that Durham County Council will be responsible for the delivery of the car park and approach roads and therefor follow Durham County Council s prescribed procurement strategy to this end. Durham County Council has also entered into early discussions with Network Rail over adopting a final design and build approach to the scheme. This will initially use a Development Services Agreement between Durham County Council and Network Rail, 73 Stakeholder Relations Code of Practice: Investing in the Network, Network Rail, Accessed April

84 leading on to an Implementation Agreement in order to construct the scheme. Early discussions to this end will help to mitigate risk and expedite the programme suitably. 83

85 5 Financial Case 5.1 Introduction This section details The Financial Case for the scheme; The Financial Case demonstrates that the preferred option will result in a fundable and affordable deal. The Financial Case is primarily concerned with issues of affordability, demonstrating that funding has been secured and that it falls within appropriate spending and settlement limits. The Financial Case covers the lifespan of the scheme and all attributable costs; it therefore, requires the spending authority to set out the capital and revenue requirements for the spending proposal over the expected life span of the service, together with an assessment of how the deal will impact upon the finances of the public sector organisation as a whole. In summary this section will: Profile the current financial situation of the organisation and provide an assessment of the ability of the organisation to provide on-going support; Provide an initial assessment of the overall affordability of the preferred option and outline possible funding sources and requirements; Detail any capital and/or revenue constraints; Offer statements of strategic and in-principle support from key stakeholders; and Resolve any major issues, including: identifying funding gaps, provision for dealing with the financing of any time or cost overruns and estimating any contingent liabilities that may result from the proposal. The Financial Case will, therefore, be structured around the following headings: Overview; Assumptions; Costs; Risk Assessment; Funding Arrangements; and Conclusions. 5.2 Overview Capital costs for the scheme have been developed and agreed by Network Rail and Durham County Council, based on the costs which were included in the Options Appraisal Report 74 and Durham County Council s subsequent liaison with the Project Team and the Associate Sponsor for the project at Network Rail. It should be noted at this stage of the Business Case, that all costs are indicative only. Network Rail will be commissioned to provide detailed design and further itemised costings upon progress through the GRIP stages. Furthermore, Durham County Council will be responsible for the full capital cost and risk of delivery of the new station inclusive of any required operational subsidy to the Train Operating Company until the station becomes self-financing, although as evidenced further on in the Financial Case, this is not thought to be necessary. 74 Horden Station: Pre-FRIP Feasibility Study, Network Rail, March

86 5.3 Assumptions The financial appraisal was informed by Network Rail s Pre-GRIP Feasibility Study 75 which covered the following key constraints: Effects/implication of existing Track alignment; Effects/implication on existing Signalling arrangement; Local topography including earthworks, drainage and contaminated land risk; Risks associated with various site options; and Impact of/on known projects. Positive outline discussions have been held with the prospective operator with regards to input into the operating cost estimate. This input includes the costs of any increased staffing, the impact of the three extra minutes required on the timetable and promotion a summation of these costs is provided below. 5.4 Costs As noted above, the costings outlined below are high level costs, and will need to be refined as the project develops, it is understood that these costs are likely to be revised on an ongoing basis. All costs where not otherwise stated are using 2016 prices and inclusive of VAT, a risk uplift has been applied in accordance with the level of detail consistent with the current GRIP stage as set out in Network Rail s estimating guidelines and work instructions, whilst the indirect costs have also been assessed on a percentage basis of the direct costs in accordance with the GRIP level of detail Capital Costs Capital costs for the scheme have been developed by Network Rail, based on the costs which were included within the Option Appraisal Report 76. Costs have been adjusted for risk and Optimism Bias, this follows advice contained within WebTAG Unit A5.3 Rail Appraisal 77 which states that no Quantified Risk Assessment contingency is required at GRIP Stage 3, but Optimism Bias should be applied at 40% of the capital cost. In order to include the costs for the economic appraisal, costs are presented relative to the stage of development of the scheme further price conversions upon progress to a latter GRIP stage may be required, at present costs use a base date of Q If further conversions are necessary WebTAG Unit A1.2 Scheme Costs 78 recommends: Retail price increases are taken account of by looking at the comparative rates of inflation for general costs and for construction costs. This assumes that general inflation rises at 2.5% per year, whereas construction inflation rises at 5% per year; Discounting using a discount rate of 3.5% for 30 years and 3% thereafter; and Conversion to market prices using an indirect taxation correction factor of Horden Station: Pre-GRIP Feasibility Study, Network Rail, March Horden Station: Pre-FRIP Feasibility Study, Network Rail, March TAG unit A5-3 Rail Appraisal, Department for Transport, December TAG unit A1.2 Scheme Costs, Department for Transport, January

87 However, costs are currently evolving for the proposed station and are represented here before further discussion on value engineering or detailed design has taken place. The following table therefore, presents a breakdown of capital construction costs provided by Network Rail relative to the stage of development of the proposed scheme. Capital Costs summarised by element: Volume Element Total Cost % of Point Comments REF ( ) Estimate 1 Direct Construction Works Railway Control Systems 360, % 1.02 Train Power Systems - 0.0% 1.03 Electric Power and Plant 55,00 0.7% 1.04 Permanent Way 140, % 1.05 Telecommunication Systems 62, % 1.06 Buildings and Property 1,961, % 1.07 Civil Engineering 1,400, % 1.08 Enabling Works 40, % TOTAL DIRECT CONSTRUCTION COSTS (A) 4,020, % 2 Preliminaries, Overheads and Profit Preliminaries 1,206, % 2.02 Contractor Overheads and Profit 605, % If zero include in rates TOTAL INDIRECT CONSTRUCTION COSTS (B) 1,811, % TOTAL CONSTRUCTION COSTS (A+B) 5,831, % 3 Project Design/Development Costs Project/Design Team Fees 827, % 3.02 Project Management Team Fees 799, % 3.03 Other Project Costs 603, % TOTAL EMPLOYER INDIRECT COSTS (C) 2,230, % POINT ESTIMATE (A+B+C) 8,061, % 4 Risk 4.01 Risk or PMean or P80 3,224, % Point of estimate TOTAL POINT ESTIMATE + RISK (D) 11,286,676-5 Inflation 5.01 Inflation (RPI Indices) - - TOTAL INFLATION ALLOWANCE (E) Taxation and Grants Tax allowances and grants - - TOTAL CAPITAL COST ESTIMATE (F) 11,287,000 Excluding VAT Source: Network Rail, Q prices Following further detailed discussions with Network Rail, Durham County Council were able to reduce the total cost estimate to 10,553,669.07, this revised estimate is based on the following assumptions, which differ from the pre-grip budget estimate produced by Network Rail and detailed above: Durham County Council will undertake off-line civil elements, costs will therefore be borne at Durham County Council rates; 166,000 increase in platform (inclusive) costs associated with 100m platforms, plus associated fees and optimism bias (Network Rail estimates); 86

88 Decrease in Network Rail s associated add on costs; and Waived 20,000 charge for land transfer. The revised cost estimate is therefore broken down as such: Railway Control Systems 360k Electrical Power and Plant 55k Permanent Way 140k Telecommunications Systems 62.5k Building and Property 1,757.4k Civil Engineering 1,400k Enabling Works 40.9k Preliminaries 1,144.7k Contractor Overheads and Profits 496k Project design team and Fees 787k Project Management Team Fees 624k Sponsor 124.7k Allowance for TOC/FOC Compensation 545.7k Optimism Bias 3,015k Total 10,554K The GRIP Stage 3 selection study will further work up costs, including any value engineering opportunities such as safe zone working or modification to the station scope including footbridge designs. Network Rail has confirmed their intention to actively engage with Durham County Council in order to identify methods to ensure financial efficiency for the project and to prioritise the best value for money Whole Life Costs Consideration will be given to all phases of a station s life during the GRIP process, from design and procurement through operation, maintenance and end-of-life salvage to establish the most effective allocation of fiscal resources. Optimising functionality of station design will minimise operational costs and waste. This can deliver significant cost and energy savings over the life span of the station and provide an improved economic return. The following considerations will be taken into account in line with Network Rail s Whole Life Cost Manual 79 in order to reduce the whole life cost of the proposed project: A configuration plan and specification of materials and equipment to minimise operational and maintenance costs; Design for ease of access for replacement, repair and cleaning of fixtures and components with minimal impact on station operations and users; Design for preventative, as opposed to corrective, maintenance and a maintenance strategy that is factored into the design; Detail for weather resistance, protection against corrosion between dissimilar materials; Suitability of design to local climate and circumstances (in this instance Coastal); Standardisation; and Sustainability. 79 Whole Life Costing Manual (WLC), Network Rail,

89 Further investigation of whole life costs and performance should be undertaken for the Preferred Option taken forward for development in the latter GRIP design stages Operational Costs and Revenue Generated Any new station should comply with DfT policy that the scheme should cover its on-going costs from newly generated income. This evidence is provided by setting operating costs (including station access charges) against generated income, revenue abstracted from neighbouring stations, and revenue lost through longer journey times, for 30 years. High level operating costs for the scheme based on similar proposals for an unstaffed halt have also been provided with the addition of a 2.9% uplift to account for an assumed difference between construction and general inflation, a breakdown of which is reproduced below: Base operating costs for South East View: Element Electricity 3,009 3,104 3,200 3,298 3,397 3,499 3,604 Cleaning/Maintenance 21,065 21,728 22,402 23,085 23,778 24,491 25,226 Vandalism 7,523 7,760 8,001 8,245 8,492 8,747 9,009 Minor Repairs 3,009 3,104 3,200 3,298 3,397 3,499 3,604 Major Overhaul Major Refurbishment Patch Surfacing 0 0 8, Platform Resurfacing M&E and Lighting 1,655 1,707 1,760 1,814 1,868 1,924 1,982 Lighting Renewals Feeder Pillar CCTV Help Point Renewal , PA Renewal TOTAL 36,262 37,404 47,204 39,740 57,916 42,160 43,425 Source: Mott MacDonald, 2016 prices. Nevertheless, taking both these operational costs and the through traveller demand loss into account against the passenger revenue forecasts for the period from 2020 through to 2024 in 2016/17 undiscounted prices, provided by Mott MacDonald, there is a revenue surplus in the year of opening of 148, shown in the table below. This proves the proposed station clearly meets the DfT s stress test to cover its on-going costs from newly generated income. South East View 2020 to 2024 Financial Case OPEX and revenue by year (undiscounted 2016/17 prices): Year OPEX ( s) Passenger Revenue ( s) OPEX Revenue ( s) , , , , , , , , , , , , , , ,545 Source: Mott MacDonald 80 Horden Peterlee Railway Station, Demand Forecasting and Economic Assessment, Mott MacDonald, July

90 5.4.4 Land Assembly Costs The land on which the proposed project is to be constructed is either in ownership of Network Rail or Durham County Council. However, for the safe operation of the station, the selected option requires the permanent closure of a level crossing in the immediate vicinity of the proposed station site via the purchase of Blackhills Farm. Durham County Council has entered into discussions with the owner, having conducted a valuation of the property and associated buildings. Durham County Council intends to conclude this purchase by March 2018 at the latest. The cost will sit outside of the budget for the station as the Council possesses an interest in purchasing Blackhills Farm that is unrelated to the rail station proposal namely in order to sanitise the land on the otherwise unspoiled Heritage Coast and safety concerns relating to the nature of the level crossing itself. 5.5 Risk Assessment Risk Management Approach There are always associated differences between what is expected and happens within a project. As part of the development of a project it is important to identify measure and allocate risk. The risk management approach shown in the cycle diagram below will be used to identify, cost and manage project risks for the scheme and project. The methodology follows a recurring process to be implemented across the project lifecycle. It aligns with Office of Government Commerce Management of Risk (MoR) best practice guidance 81 to benefit reliable and resilient cost estimation that delivers real Value for Money savings. Risk Management Approach: Source: Durham County Council The following describes how the proposed project and the Project Delivery Team will identify and manage project risks for the proposal aligned with this approach to Risk Management: 81 Management of Risk Guidance for Practitioners, Office of Government Commerce,

91 Identification - Delivery risks associated with the proposed project have been identified during a risk workshop. This register contains both scheme specific risks and general risks to delivery Analysis The production of a risk register will enable the effective management and communication of potential conflicts, ensuring appropriate mitigation is incorporated into subsequent design and development stages. The risk register identifies the potential causes and consequences of each risk identified. The register will be a live document, maintained and owned by the Project Manager. Costing The cost estimation for the scheme considers additional design costs and predicted costs for construction and operation. The cost estimation will be refined as the project progresses through the GRIP stages and is subject to value engineering. Management - Actions to mitigate risk will be managed and monitored by the Project Manager at Interim Reviews. Team members best placed to manage the identified risks will be assigned ownership of specific actions, with progress reported on a regular basis to the Project Manager. Risk workshops will be held to support the development of mitigation measures designed to lower the overall scheme risk. Review The risk register will be reviewed and updated on a regular basis. Where the severity of a particular risk impact changes, the cost and programme implications will be revisited and future actions agreed in accordance with appropriate change management procedures. Mitigation performance and residual risk would be also subject to review at the end of commissions and inform the lesson learned process. Risk Management is a specific role for the Project Team, with the Project Board ultimately having responsibility for the project. Risk Management is therefore owned by the Project Board. The project board includes representatives from suppliers and users; this will make sure that all main players of the project are able to contribute to the identification of key risks and management of risks. Effective communication (through the regular Project Board meetings) will ensure that all partners are updated on progress; issues are addressed as they arise and discussion with regards to risk takes place on a frequent basis Risk Register The production of a Risk Register forms an integral task associated with standard project management procedures that are conducted by both Durham County Council and Network Rail. A Risk Register for the proposed project was prepared through a Risk Workshop with the Project Team and other Local Authority officers with responsibility for scheme delivery, finance and procurement. This workshop considered risks for all delivery components of the project. Each identified risk was assessed in terms of its impact on cost, time, quality and the probability of the risk occurring. The Risk Register for the proposed project will be reviewed regularly throughout the detailed design, procurement, construction and post-construction phases of the project as a standard item to be addressed by the Project Delivery Group, any unresolved, significant issues or problems which are identified or that occur in development will be escalated through the appropriate governance procedures that are in place. 90

92 Key components of the Risk Register are noted below: The Risk register is used to record all risks and issues of the project; The Risk Register is a live document and will be updated regularly throughout the life span of the project. Each risk is to be designated to an individual owner who is responsible for managing and mitigating the risk; There will be regular risk workshops involving the Project Team to ensure risks are robustly identified and considered; The Risk Register will provide mitigation measures, with the risk review process to continue to monitor and develop mitigation actions for all identified risks, including action plans for major risks; and The Risk Management Processes will follow Prince 2 practices and a 5x5 matrix. Further details on the Risk Assessment undertaken for the scheme are included in the attached Appendices where key risk components have been identified together with likelihood, impact on cost and also anticipated mitigation measures to address the risks. A summary of the top risks that have been identified for the scheme and are set out below: Top Project Risks: Risk Event Consequence Mitigation Probability Impact Failure to incorporate No station operating company, station Ongoing discussions with Arriva/Northern calls at Horden built but no services Rail, in receipt of letter Peterlee into to call at station of support in principle 12.5% 5 (High) existing timetable Planning Application not Approved Failure to Acquire Blackhills Farm Delays During GRIP Process Non approval at planning committee for proposals, delays or project terminated Failure to close level crossing which conflicts with whistle board issues. Time delays with potential increase in scheme costs Station opening delayed beyond timescales within New Stations Fund Bid Criteria Source: Durham County Council Thorough preparation of planning application in dialogue with relevant officers and stakeholders 12.5% 5 (High) Ongoing discussions with landowner, who has indicated willingness to sell 12.5% 5 (High) Programme contraction opportunities to be reviewed during GRIP Stage 3 Selection Study. Possible opportunities include design and build tender, as well as Green Zone construction method 35% 4 (Intermediate) Of the top four risks, all have levels of probability well below 50%; however, the impact on cost if they were to occur would be high. Mitigation measures must continue to be developed and managed as the proposed project progresses in order to manage the likelihood of any of the risks occurring. 91

93 5.5.3 Risk Allocation and Transfer The Implementation Agreement, between Durham County Council and Network Rail, would need to consider a pricing strategy. However it is provisionally envisaged a target price is preferred, with an open and collaborative approach adopted by both parties. Durham County Council considers an emerging cost as the most appropriate form of funding agreement given the nature and complexity of the scheme. Therefore it is envisaged a contract between Network Rail and the appointed subcontractor s would be a target cost contract, following a review of the most appropriate procurement strategy for the project. Any pain/gain share agreement between Network Rail and the contractor would need to be considered at the appropriate stage of procurement as outlined in The Commercial Case. In terms of individual risks staying with Durham County Council or going to Network Rail, this would be considered before the design and construction package is tendered. Risks would be managed and mitigated as the project moves through the GRIP Process, with remaining risks to be transferred as part of a multi-risk disciplinary analysis. The foreseen risks which are adjudged to remain with Durham County Council are: Capital risks associated with unforeseeable events; Development and design costs, should the project not go forward to construction; Costs associated with the planning application, should the project not go forward to construction; and Underwriting of the revenue risks of the scheme, recognising that it is possible that the revenue shortfall of the scheme could be recovered in future years/franchise periods Optimism Bias It should be noted that a Quantified Risk Assessment (QRA) will be undertaken at the appropriate stage in the GRIP Process with a subsequent reduction in Optimism Bias once the QRA is complete. As such Costs have been adjusted for risk and optimism bias. This follows the advice contained within TAG Unit A5.3 Rail Appraisal 82 which suggests that no Quantified Risk Assessment contingency is required at GRIP stage 3, but optimism bias should be applied at 40% of the capital cost and 1% per annum for the operating costs. This has been applied to the costs and is summarised in the section above. 5.6 Funding Arrangements At present it is proposed that there will be three major sources of funding for Horden Peterlee station, namely: Department for Transport New Stations Fund 83 with an application for 4,374, of funding submitted in November 2016; North East Local Enterprise Partnership Local Growth Fund 84 with an award of 3,340,000; and Durham County Council, Capital Programme with an allocation of 2,839,489 built in to the Council s capital programme. 82 TAG Unit A5.3 Rail Appraisal, Transport Analysis Guidance (TAG), Department for Transport, December New Stations Fund, Network Rail - accessed July Transport and Digital Connectivity, North East Local Enterprise Partnership,

94 The table below provides a proposed breakdown of the funding profile for the scheme: Funding profile for proposed station at Horden Peterlee: Source 2016/ / / /20 Total Local Funding (DCC) Regional Funding (LGF) National Funding (NSF) Total Capital Costs Source: Network Rail and Durham County Council 2016/17 prices rounded m s. Although an award from the New Stations Fund is yet to be granted, and whilst this would represent the County Council s preferred funding scenario, there is the potential to seek a further award from the Local Enterprise Partnership for an additional award of the Local Growth Fund or likewise to seek a further allocation from the County Council s capital programme, if for any reason Horden Peterlee station is unsuccessful in its bid to the New Stations Fund. It should be noted that whilst the submission to the New Stations Fund was made in November 2016, the outcome of the bid should be known no later than April Conclusions The Financial Case outlined above has successfully established that the preferred option will result in a fundable and affordable deal. In order to do so the capital and revenue requirements for the spending proposal over the expected life span of the service have been laid out in a level of detail consistent with the stage of development the proposed project is at and as such the funding package outlined for the proposed scheme has been effectively shown to be secure, falling within appropriate spending limits. In summary, Overall capital costs for the proposed new station at Horden Peterlee are estimated at 10,553,669, this includes an optimism bias set at a rate of 40%. Durham County Council the spending authority for the scheme will provide 26% of the funding as part of the Council s capital programme, with the remaining funding covered by the Local Enterprise Partnership and sought from the Department for Transport s New Stations Fund. Operating costs for the scheme between 2020 and 2024 are estimated at 220,000, which accounts for additional costs, as well as long term charges, running and maintenance costs for the station, whilst passenger revenue will total 1,180,000 resulting in a 960,000 surplus. A Risk Assessment has been undertaken, which shows that of the top four risks identified all have levels of probability well below 50% in line with the relevant guidance appropriate to this stage of the project s development, though it is noted that optimism bias as outlined above rather than a Quantified Risk Assessment estimate is included in the total capital cost of the scheme, as is appropriate at GRIP stage 3. 93

95 6 Management Case 6.1 Introduction This section forms The Management Case for the scheme; The Management Case demonstrates that the preferred option is capable of being delivered successfully, in accordance with recognised best practice. This section of the business case will therefore demonstrate that the spending proposal is being implemented in accordance with a recognised Programme and Project Management (PPM) methodology, detailing the robust arrangements which are in place for communications and stakeholder management, contract management and the identification, management and mitigation of risk. The Management Case will also outline the arrangements for monitoring during implementation and the post implementation evaluation of the scheme whilst setting out a plan to ensure that the benefits identified in The Economic Case are realised. In summary this section will: Provide an initial assessment of the capacity and capability of the organisation to implement the preferred programme taking into account readiness and available resources; Clearly set out the programme for project delivery including key milestones and decision points (including approval milestones) whilst identifying timescales for related planning applications and approvals, track access periods and consultation periods; Provide a clear organisation chart identifying partners involved, their roles on the project and the lines of accountability; Show planned consultation periods, ensuring an appropriate level of stakeholder engagement has been carried out with affected parties; and Set out a clear monitoring and evaluation plan to assess the success of the scheme alongside a benefits realisation plan. The Management Case will, therefore, be structured around the following headings: Governance; Assurance; Programme Delivery; Risk Management Strategy; Communications and Stakeholder Management; Monitoring, Evaluation and Benefits Realisation; and Conclusions. 6.2 Governance Project Governance and Resourcing The coordination and management of the scheme will lie with the designated Durham County Council Project Manager for the scheme, whilst the design and development of the scheme will be coordinated by Durham County Council, it will be overseen by the relevant persons from the Network Rail Project Team. 94

96 As part of the ongoing development of the project a number of initial meetings have been held between Durham County Council and Network Rail, in order to structure the scheme and to establish the key requirements and objectives of the proposal. Durham County Council have completed the Client Requirements Document which has been submitted to Network Rail, with Network Rail consequently issuing a Development Services Agreement to guide the governance of the scheme and initiate its further development and subsequent implementation. The Stakeholder Group for the scheme will be outward facing considering the number of key stakeholders associated with the project, whilst the Project Delivery Group will have day to day involvement in the project. The Project Steering Group will be ultimately responsible for decisions on risk and budget, as such the Stakeholder Group and the Project Delivery Group will report upwards to the Project Steering Group. The below represents a resourcing plan agreed with Network Rail detailing the frequency of liaison and outlining the remit of both the County Council and Network Rail: Resource Plan: Group Remit Attendees Frequency Liaise with DFT Durham County Council Advise Funders Senior Officers Advise Rail North Receive highlight and Arriva Management exception reports from the Project Delivery Group. Project Steering Group Monitor scheme progress Owners of scheme budget Ultimate owners of risk High level stakeholder management Review risks with relevant stakeholders Review programme and Stakeholder monitor progress. Group Coordination and resolution of inputs from various stakeholders Plan individual and collective tasks Identify evolving risks to the programme and project and mitigating actions and owners. Project Delivery Review and agree Group programme Monitor delivery progress Coordination of interface between Network Rail (on line works) and Durham County Council (off line works) Source: Durham County Council Network Rail Project Sponsor Relevant Contractors Durham County Council Project Manager Durham County Council Officers Network Rail Project Sponsor Stakeholders Durham County Council Project Manager Durham County Council Officers Network Rail Contractors Durham County Council Project Manager Monthly Six weekly Fortnightly 95

97 6.2.2 Rail Industry Governance Investment in the rail industry is governed by Governance in Rail Investment Process (GRIP) 85. This is summarised as an eight-stage process, the stages are presented below: GRIP stage 1: Output Definition Defines the needs and requirements of the project; GRIP stage 2: Feasibility Defines the scope of the investment and confirms the project outputs can be delivered; GRIP stage 3: Option Selection Assesses and selects the most appropriate option that delivers the stakeholder s requirements; GRIP stage 4: Single Option Development Initiation of the development of the chosen option; GRIP stage 5: Detailed Design Produces a complete engineering design; GRIP stage 6: Construction, Test and Commission Delivers to the specification and test to confirm operation; GRIP stage 7: Handback Transfer asset responsibility to the operator and maintainer; and GRIP stage 8: Project Closeout Closeout in an orderly manner with all contractual accounts settled, assessment of benefits carried out. The Office for Rail Regulation (ORR) provides guidance 86 relating to Network Rail s role in facilitating, and where appropriate, delivering improvements proposed by operators, Government or other third parties. Whilst Network Rail s Investment in Stations document 87 clearly sets out the design and approval process which is required from Network Rail for building a new station. 6.3 Assurance As noted, the scheme will be subject to the Governance for Railway Investment Projects (GRIP) process. As the infrastructure manager of the national rail network, Network Rail play a key role in ensuring that all schemes are compatible and integrated with existing railway operations. The GRIP process details the management and control of projects that enhance the national rail network and therefore provides an element of project assurance. In order to minimise and mitigate the risks associated with delivering projects that enhance or renew the operational railway, projects are subject to formal stage gate reviews that are held at varying points within the GRIP lifecycle. The stage gate review process examines a project at critical stages in order to provide assurance that it can successfully progress to the next stage. The flow chart below details the stages and various reviews that the scheme will pass through in relation to the GRIP stages, including the various outputs and necessary actions at the end of each stage review: 85 Stakeholder Relations Code of Practice: Investing in the Network, Network Rail, Accessed April Investment framework consolidated policy and guidelines, ORR, October Investment in Stations: A guide for promoters and developers, Network Rail, December

98 GRIP Process: Source: Network Rail. The proposed project will be subject to at least four mandatory stage/gateway reviews during the project lifecycle. Two reviews have already taken place during the development phase, which has produced an agreed single option for the scheme and agreed the project scope ahead of the award of a detailed design and construction contract. The project will be subject to two other reviews at scheme hand-back and project close out. Following the gateway reviews, relevant reports will be submitted to the Project Steering Group by the Project Manager. The following represents further agreed assurance activity procedures for the project: Assurance Activity Procedure: Assurance Activity Assurance Details Responsibility Timescales Viability Check Value for Money Tracking benefits realisation Align with wider strategies Review business case Project Manager Financial Health Check Highlight and Exception reports Risks Source: Durham County Council Reconciliation of costs incurred and inclusion within reporting to Project Steering Group Review of documents including Project Initiation Document To the Project Steering Group Day to day management Monthly Review Quantified Risk Appraisal Project Manager/Project Steering Group Internal Audit Project Manager/Project Steering Group Project Manager Project Steering Group Facilitated by Network Rail Monthly and end of respective GRIP Stage Monthly Regular health check Monthly Appropriate GRIP Stage 97