HISTORY:Potential for variable pricing studied in 1995

Dated November 1995 the 73-page study is titled "Potential for Variable Pricing of Toll Facilities." The report concluded that "peak period variable pricing could be an effective demand management tool to regulate congestion levels of toll facilities."

It advised that off-peak discounts while politically the most acceptable measure would by themselves be ineffectual in significantly improving road operations and would usually produce revenue losses. Rush hour surcharges would be needed to move traffic out of the peakhours but the amount required would vary between toll facilities.

The report said the peak-hour surcharges would generally benefit both toll patrons and toll agencies. Toll patrons would be beneficiaries of higher tolls in rush hours since often the value of time savings would exceed the tolls needed to achieve the improved highway level of service (see graph.) Such peak-period surcharges would usually produce higher toll revenues for the toll agencies, it concluded.

"Congestion pricing (CP) makes sound economic sense and is in keeping with an international trend towards enhancing use of existing capacity..." But it said the traditional philosophy of the various government owned toll agencies has been to keep toll rates to the lowest possible level needed to service debt and to maintain operations. The management of demand implicit in variable toll rates is "contrary to a patron-service philosophy."

The report has a quite detailed account of early CP, notably the pioneering French toll "modulation" by SANEF on A1 in 1992, the A26/A1 SANEF/SAPR program of 1993-94 and the Singapore area pricing, a shortlived off-peak discount on the Hardy pike in Houston TX in 1990, and the Norwegian toll rings.

In the US urban pikes in 1995 had toll rates in the range 3.3c and 7.2c/km and the flat rates "reflect some compromise between the rate that could be charged during peak periods, when demand tends to be less elastic, and the maximum rates that offpeak demand could support." It examined the reaction of traffic to various toll rate increases to get an indication of the price elasticity of demand — which ranged between -0.05 for the Verrazano Narrows Bridge NYC and -0.34 for Richmond VA pikes with most in the range -0.1 and -0.2, but the report states that price elasticities in the US have generally varied between -0.1 and -0.35. (A -0.15 price elasticity means traffic is reduced 0.15 times the amount of the toll increase, so a doubled toll would be expected to reduce traffic volume 15%.)

The report does some modeling of future year traffic on four actual US toll facilities to forecast the results of differing toll rates in peak and off-peak. It did not name but described in general terms the facilities which by our guess were (A) Dallas North TX (B) Sam Houston TX (C) Powhite VA (D) an Illinois tollway, Chicago.

On the Dallas North a 50% toll surcharge would increase average am-peak speeds from 43km/hr to 64km and a doubling of the peak toll to 78km/hr.

The IL expected, absent expansion, to be at 29km/hr in a 2015 peak with current flat-rate tolls would achieve 52km/hr with a doubled toll . A 2.5x peak toll would cut travel time to less than half.

The Houston pike shows substantial benefits from just a 50% increase in tolls. Higher tolls in its case produce smaller improvements in service.

The study emphasizes that most patrons on most congested facilities will benefit from higher rush hour tolls because it can be demonstrated that they will get more value in time savings than the extra toll they pay. The shaded area in the graph frfom 13c to 18c/min represents typical values of travel time savings. Where the lines are below the shaded area motorists are typically paying less in toll/time saved than they value those time savings. Only on the Houston pike (B) doesn’t a peak-hour surcharge in the toll beyond 50% add customer value.

The WSA report says that in conditions of congestion a decision by toll oeprators not to increase tolls to allow freer flow will be a net cost or burden (they use the jargon "disbenefit") to a majority of users.

As for the toll operator the impacts on revenue of variable pricing depend on the mix of surcharges and discounts. The peak-hour surcharges alone provide great revenue potential but this is offset in most cases if off-peak discounts approach 50%.

The report concludes that "peak-period variable pricing could be used as an effective demand management tool" to reduce congestion on toll facilities, that "toll facility patrons would actually benefit from the imposition of peak-period toll increases" and that they would produce revenue increases. Off-peak discounts would have to be limited to prevent revenue gains being more than offset however.

It says there are operational difficulties but these are "not necessarily impossible to overcome." Electronic tolling and other advances in technology make toll rate flexibility more feasible. It will be easiest politically to implement on new or additional lanes, but a deliberate process of discussion of the issues may allow it to be applied on existing facilities, WSA says. (Contact Ed Regan WSA 203 865 2191)

CLARIFICATION

Wilbur Smith all in favor of analysing variable toll rates

In a bit of a tease we last issue (TRnl#25 Mar 97 p7) labelled as "WSA boilerplate" an analysis of flat rate tolls by Wilbur Smith Associates for the Butler Regional Highway, a new pike about to start construction in the northern part of Cincinnati OH. They may emulate highway 407 in both cashless tolling and variable toll rates. A Butler Co official had pointed out that the new toll road would offer patrons much better value in rush hours than out of rush, when existing parallel routes flow quite nicely. We observed that this seemed a classic case for variable rate tolls to reflect the varied value of the ride on the pike, and to make fuller use of the facility out of rush hours.

Senior VP at WSA, Norman Wuestefeld tells us his company thinks variable rate tolls are "a very good idea" in many circumstances and usually deserve study. He says WSA already does a lot of analysis of variable toll rates, and has absolutely no argument or prejudice against such analysis.

"But the client dictates the toll strategy," he told us.

"The toll industry traditonally has not liked the idea. They have had an ethic of public service which suggested that you should try and maximize the traffic you catered for. In accord with that you shouldn't do anything to penalize peak hour users with higher tolls. Indeed you gave your most loyal and regular customers a discount, even though they tended to be your peak hour traffic. So the idea of higher tolls rates in rush hours is a 180 degree turn from established toll philosophy."

Wuestefeld says he remembers on the Connecticut Turnpike buying books of toll tickets that cost 8c each allowing him through the toll plaza that charged 25c for cash. The discount tickets were most heavily used in the rush hours.

But attitudes are changing, Wuestefeld says, and toll industry people increasingly appreciate the possibilities of improving both traffic flows and toll revenues with variable tolls rates. The WSA official told us that the performance of highway 407 in Toronto, for which WSA did traffic and revenue studies of variable toll rates, is being watched with great interest around the world.

"The idea (of variable rate tolls) is definitely beginning to take hold and we are all in favor of examining it. If 407 is a success then that is going to have a big impact." (N. Wuestefeld, WSA 203 865 2191)