JIHAD: V-pricing

In the 1991 ISTEA legislation the Feds roadpricing initiative was called a Congestion Pricing Pilot Program. In the bills that had to be reconciled recently to produce the successor TEA21 legislation the Senate had a Value Pricing program and the House of Reps a Variable Pricing program. We thought the proper American political compromise would be to draw on the wisdom, and respect the interests, of both sides and call it, the Valuable Pricing program.

But it wasn’t to be. This semantic issue became a matter, not of normal give and take and democratic American compromise but of holy war, a Jihad. As some of us moderates saw it the Value-Pricers approached this renaming issue with a truly fundamentalist take-no-prisoners zealotry. Anyway they proved irresistible in the House-Senate conference. Despite the backing of this newsletter for their Variable Pricing name, the hardy House wordsmiths were simply flattened by the crusading Senate semanticists. We Variable-Pricers were simply wiped out, let’s face it. It was no contest. (This time!)

Chief advocate of Value Pricing of course was the elegant and eloquent Ayatollah K. Orski, a dangerous demagogue some think, whose extraordinary work in converting the hithertoo irredeemably pagan Institute of Transp Engineers to the road pricing faith clearly put him on a crusading roll. We had noone to match him. His influence was suddenly being felt everywhere and in retrospect it is hardly a surprise that Value Pricing triumphed in all its purity, and is now enshrined officially in TEA21. (To soften the blow of defeat we’ll just call it V-pricing, for a while.)

The lolly stupid

What noone much noticed amid all this fierce terminological combat was that the Fed Hwys Office of Policy that handles this stuff almost managed to sneak quietly away with two huge caboodles of lolly — not just $48m as authorized in the provisions describing the program but another $51m elsewhere in the legislation so that for a while it looked as though there was $99m going out the door. Now, they say, the TEA21 legislation as passed after through-the-night negotiating sessions is full of mistakes (easily conceded) and that the double dip for Value Pricing is one of these mistakes. A draft Corrections bill was stalled for weeks over disagreements about what were mistakes and what weren’t. Scores of pork road projects are mentioned multiple times in the law as congressmen fell over one another to pile more money on popular roads.

If the pork traders can have multiple bites at the taxpayer cherry, why not also the sole principled provision in however many thousand clauses of TEA21, we thought?

As it went to the White House and was signed by Pres. Bill one provision of TEA21 (Sec1216a) provided 6 annual lots of $8m/yr (1998 through 2003) while the other provision (Sec 104) provided zero this year, $7m next year and $11m in each subsequent year. So the total fed$s available for Value Pricing went $8m, $15m, $19m, $19m, $19m, $19m.

But as we go to press we record yet another defeat. The powers that be decided after all we weren’t really meant to have our two bites at the cherry and that V-pricing is only to get the one set of appropriations: the $7m in FY99, then 4x$11m.

The previous ISTEA pricing program provided $25m/yr but because projects were slow to gain support at the state and local level, authorizations were rescinded and only $31m was spent over the last 6 years, most of the unspent money being used for regular transp projects. This time around the money may be spent on up to 15 pricing projects, and any of them may be on interstate facilities. A separate provision allows up to three states to impose tolls on an interstate facility.

Atmosphere transformed

Whereas there was limited support for V-pricing for about the first 4 years of the last 6 year program by now the outlook is excellent for a number of projects in the current 6 years. Interest is intense now that several projects (91-X, I-15 San Diego, Katy etc) have established a track record and are, by and large, a success. Traffic and revenue studies are now almost routinely examining variable price scenarios. The investor-proposed Midtown/Downtown tunnels project in Norfolk VA depends heavily on time-variable tolls. The first toll road in the US, the Westpark in Houston TX, is in study (see p9) based on variable tolls (following Toronto’s 407-ETR, the first in N. America). The Parsons Brinck report for Sonoma-101 HOT lanes is another milestone, powerfully putting the case for dynamic pricing and describing a major multiple interchange project that is financially self-supporting (see p1). Managed lanes being designed for the I-635 LBJ Fwy in Dallas, I-15 in San Diego, the Katy and elsewhere. A network of truck toll lanes has been proposed for the Los Angeles area alongside unrestricted lanes of the I-5, I-710, and CA-60 fwys (see TRnl#23 Jan 98 p1) All these projects being in close proximity and hence in strong competition with unpriced lanes will almost have to have variable pricing, or they will run virtually empty off-peak and lose the ability to maximize revenues on peak. Politicians such as Gov Whitman and John Haley, her transp commissioner in New Jersey (p10) are getting ahead of their highway agencies in urging variable tolls, a sure sign they now judge the public will reward those who propose such innovation.

Perhaps as important as all of this is the solution that toll buy-in offers to the difficulty of getting value out of HOV lanes with car-pooling alone. The HOV program is in serious political crisis especially in the northeast where environmentalists have gone from being helpful supporters to being fierce critics and opponents. As the Orski task force of the Inst Transp Engineers so forcefully spelled out (see TRnl#23 Jan 98 p1, full report ITE Journal Jun 98 p30) the toll buy-in that can convert a HOV lane to a HOT lane gives highway managers a powerful tool to make better use of lanes criticized as being “empty.” And at the other end of the spectrum when an HOV2 lane becomes overcrowded it offers a way to deal with the huge discontinuity between HOV2 and HOV3, when managers are faced with going from the frying pan of overutilization into the fire of “empty lane syndrome” if they only have the crude per-person regulatory requirements to deploy.

But perhaps the greatest promise is the possibility, being trialed on I-15 in San Diego of using dynamic pricing to optimize traffic flows, and for the first time to actually manage traffic in routine motorway operations. We have so-called Advanced Traffic Management Centers in many metropolitan areas where so-called traffic managers sit watching monitors displaying video pictures of traffic at various sites and they can call up maps on their displays showing speeds at different points, and they can talk to one another. But they have only the feeblest of tools actually to influence the traffic — maybe some variable message signs, the odd ramp meter timing, maybe the timing of signals nearby, but all quite minor or crude in their impact. These centers are really just crisis coordination managers on duty to call in the emergency services and perhaps advise motorists via those overhead signs of alternate routes when there is a major smash. They are for now Big Incident Response Coordinators, not real day by day traffic managers.

New traffic management tool

Variable pricing of a roadway gives traffic managers a powerful new tool to really manage a highway level-of-service, minute by minute in routine daily conditions by upping the price and deterring some trips when a facility is becoming overloaded, or attracting extra trips when they can be accomodated by lowering the price. Efficient use and the appropriate level of investment requires the flexible pricing of such a scarce and expensive-to-provide resource as urban roadspace in rush-hours, so that commuters face something like the costs they impose on their fellow travelers by driving onto a crowded roadway. It is a way the social or external costs not capable of being reflected in a flatrate toll or fuel tax, can be internalized or applied directly to the cost of each trip. We now have the available technology to allow managers to price flexibly so they can designate a facility an express facility and provide the motorist some guarantee of a certain service — an open road and free flowing conditions. By their choices of level-of-service/price combinations motorists will register their valuations in a more efficient clearing market with all the benefits that has in giving consumers and road managers the right signals and incentives to adjust their behavior for the benefit of both themselves and of others. It is the way we run most of a modern economy.

Managed lanes

It may have been Matthew McGregor of TxDOT who is running the planning process (MIS/EIS) for the great I-635 LBJ Fwy across the north of the Dallas area who came up with the term “managed lanes” which is a very powerful idea (TRnl#16 Jun 97 p1). The term has also been applied by the I-15 MIS project leader at Caltrans, Robert Robinson to one of the alternates for the widening and lengthening of the central lanes in I-15 in San Diego (TRnl#25 Mar 98 p1). There “managed lanes” would be extended to about 33km from the present 13km and widened from 2-lanes to 3-lanes and equipped with a moveable median barrier the length of the roadway. He wants to leave open at this point whether they will be managed by price, by class of vehicle admitted, by ramp metering, variable speeds... but in both cases active management is envisaged. A variable toll based on use of pre-entry changeable message signs indicating the current toll rate and the electronic toll technology to collect tolls at highway speed without need for onsite toll “plaza” are a now proven means for management to deliver on a level-of-service and to really manage traffic. 91-X and I-15 San Diego show it works.

Terminology wars

When you think about it ‘congestion pricing’ is a strange name. You can’t after all price a condition such as congestion. You can only price the use of a road by motorists who either choose to pay the toll to use the road, or who choose not to use it. And if the price is set to discourage that margin of extra traffic which makes an otherwise busy but free flowing road overloaded or congested, then once you price the congested traffic it is no longer congested... so the term ‘congestion pricing’ is rather nonsensical. Of course a lot of names are very strange when you think too hard about them, but we keep using them because we still know what they mean. Congestion-sensitive pricing would better capture the idea, but it’s a mouthful.

The Inst Transp Engineers task force on HOT lanes led by Ken Orski suggested that ‘congestion pricing’ be the term reserved for situations where an entire facility is priced and that ‘value pricing’ be used in situations where there is a choice, such as where there are toll lanes or HOT lanes within an otherwise unpriced facility. ‘Value pricing’ is the term Calif Private Transp Company, the owners of 91-Express adopted to market their toll lanes.

The Ayatollah vs FHWA

Ken Orski argues (http://www.nawgits.com /ko_valpric.html) that the change in terminology TEA21 vs ISTEA represents a change in substance as well, that we are not just engaged in a semantic argument about the best name for the same thing. Orski says:

“The new Congressional initiative abandons the pursuit of congestion pricing in favor of a new concept, that of Value Pricing. Value Pricing, while superficially sharing some common features with congestion pricing, differs fundamentally in its underlying purpose and intent. Traditional congestion pricing takes the form of peak period charges imposed on users of heavily traveled roads. The charges are intended as a deterrent to driving on congested roads or as an incentive to shift to off-peak hours, to less busy roads, or to other modes of travel. Value Pricing, on the other hand, charges motorists for the use of uncongested roads. Those who pay, obtain tangible value for their money (hence “value pricing”) in the form of a faster, more reliable and less stressful trip.”

John Berg, FHWA’s manager of V-pricing programs writes in the latest issue of PRICING NOTES that the term ‘value pricing’ should not be appropriated only for HOT lanes.

“In our view the terms ‘congestion pricing,’ ‘value pricing,’ and ‘variable pricing’ can be used interchangeably, and all terms are about choices. These choices might be about the use of particular lanes, or they might be about the time of travel, route, mode, or trip frequency. Congestion pricing encourages people to search out these alternatives to find what choice best meets their needs, and to make that decision on the basis of the costs involved. The objective of congestion pricing is not to reduce the demand for mobility, but to serve it more efficiently, and at lower cost.”

So the semantic wars will go on, part substance, part not.

Most likely the different models of pricing will sustain or spawn different names. We like ‘variable pricing’ as a term to capture all kinds of toll rates which may be varied one time of day to another, regardless of rationale or circumstances. It just describes a tool. ‘Value pricing’ sounds more of a packaging or marketing term, and a good one in circumstances where there is a clearly perceived comparison, where motorists can see by looking at the ride you get in the toll lanes versus the congestion or unpredictability of unpriced lanes that they get a certain ‘value’ for the toll. It is perfect for 91-X and other HOT lanes but may also be applicable in some cases where an independent facility is fully priced but can be seen to offer distinct value by way of a clearly more direct, or faster route.

Mode fascists

Orski and some other ‘value pricers’ apparently wish to draw a sharp distinction according to objectives. Value pricing is what managers do who want to serve motorists better, they say. By contrast others would use pricing to penalize and discourage car use generally, rather than to alleviate congestion. By pricing congestion they would like to extract money from motorists not to help them or their roads but to subsidize what such planners deem to be morally superior alternate modes that cannot stand on their own financial feet. They would make motoring so expensive to motorists that they cease being motorists. These groups are usually distinguished by their opposition to any capacity enhancement of the road system. The fact that motorists may be prepared to pay the full cost of enhanced capacity in tolls carries no weight with them. The Surface Transp Policy Project in Wash DC, Tristate Transp Campaign (TSTC) in NYC and some other enviro and transit groups in the US, and apparently the governments of many European countries may be attracted to pricing simply to make motoring more expensive — ‘punitive pricing.’ In effect they would use monopoly control over the supply of roadway to limit choices, not enhance them. Such groups, in our opinion, show a contempt for ordinary people’s transp choices that is quite authoritarian in character. That’s clearly an assertion of political philosophy.

To the extent that motorists think pricing is in the hands of such ‘mode-fascists’ who want to force them to walk to a train station, because they see inherent virtue in mass transit, then motorists are likely to vigorously resist it. This makes the arguments over pricing quite complicated.

Pricing is like gunpowder — powerful stuff that will attract all types, with very different objectives in mind. And who manages it, and for what end, matters.

It seems quite likely that two types of roadpricers will agree on the need for pricing and then be at one another’s throats over how to implement it.

One argument for pricing in the context of road privatization is that it makes it less likely the pricing will be manipulated by anti-road ideologues who really don’t have the motorists’ interests at heart. Business likes to keep customers, and if it finds it has more than it can handle, its normal reaction is to try and find ways to enhance capacity. What is extraordinary is that many motorists organizations (AAA, NMA etc), car companies and roadbuilders don’t seem to have cottoned onto that yet, and remain obstinately anti-toll and anti-pricing. Maybe it is simply that the Washington reps of such organizations have their own personal interests in a Washington DC system the opposite of the interests of their membership.

Roads stopped

There are of course places where anti-roads political groups and no-extra-roads thinking are for the moment ascendant — NY/NJ, n.CA, MD, OR, for example. Motorists in those places may still be better off with pricing and some toll/service options than without them. Indeed their demonstrated willingness to pay a serious price for better service could help undermine political resistance to new capacity. The hold of the anti-road groups on transp policy and priorities may be more tenuous than they think. If TEA21 demonstrated anything it was that a lot of road projects are very popular indeed out there in the districts. People want better roads, the politicians were saying. (Contacts Ken Orski 202 775 0311, Tom Keane PRICING NOTES, Fed Hwy Admin 202 366 9242)