3.13 The role of the Civil Aviation Authority as economic regulator of NATS is governed by the provisions of the Transport Act 2000 and by the need to follow a defensible and transparent decision-making process. When the PPP was concluded in July 2001 the Department, in consultation with the Authority, set price caps for the five years ending in 2005/2006. This widely-used approach to regulation enables both regulated companies and their customers to plan with relative certainty. To reopen the price caps within this five year "control period" is therefore an unusual action which can only be taken in the light of exceptional circumstances, whether as defined in the Company's licence or more generally. The Transport Act, in common with similar legislation, does not explicitly provide for a mid-term review nor define what would constitute an exceptional circumstance, but places a duty on the regulator to act in a way which does not make it unduly difficult for NATS to finance its licensed activities.
3.14 In October 2002, having evaluated submissions by NATS with the help of their own financial advisers from the Royal Bank of Scotland, the Authority came to a provisional conclusion that there were grounds for an exceptional contribution by customers. They then had to allow time for a further period of consultation with interested parties, primarily customers, some of whom objected to the contribution. Responding to concerns expressed by many of NATS' customers during consultation, in December 2002 the Authority linked the price increases to a strengthened regime of financial incentives on NATS to minimise flight delays. The late introduction of these penalties meant that further time was spent in negotiations and in work to confirm that NATS' new financial structure would remain robust. Once this work, and formal consultation, had been completed, the Authority confirmed its decisions on charges in March 2003. The Authority acknowledged to us the long duration of the process, but said that they could have reached a provisional conclusion much faster if NATS had not previously put forward a number of proposals which, in the Authority's view, were not sufficiently realistic.