CLARIFICATION:Wilbur Smith Assoc wasn’t sacked

Also in TR#46 Feb 00 p19 under the head “San Joaquin Hills Drops Forecast” we reported that the TCA was reducing its SJHTR earning projections to “82% of those in the 1997 WSA study as ‘ramp-up’ seems to have been completed.” We added that part of the revenue shortfall is due to the board’s failure to raise the mainline toll by 25c to the assumed $2.25.

Ed Regan of WSA was upset by these items, and he says some of his clients thought it suggested his company had messed up, and therefore unfairly damaged WSA’s reputation. Neither he, nor anyone associated with WSA, has demanded any retraction nor talked about any law suit, so everything that follows is quite freely offered – to keep the record straight.

First we should not have implied there was direct competition between WSA and Halcrow Fox for work with the 407-ETR company. WSA was traffic and revenue (T&R) adviser to the Ontario government’s privatization office in connection with the sale of 407 and signed an agreement not to work for the successful new owner for several years when it took that job, so it could not have worked for 407-ETR. WSA has never worked for CINTRA, the Madrid-based principals at 407-ETR, so they are not a dissatisfied former client of WSA. We didn’t say that, but WSA says some drew that conclusion.

It remains a fact that a senior 407-ETR officer expressed strongly derogatory opinions about WSA’s skills as a forecaster, as we reported. It wasn’t said ‘not for publication’ or even ‘not for attribution’ so we reported that as newsworthy in itself. That doesn’t mean we think it is right.

It is also a fact that a number of people connected with 407 criticized the WSA traffic forecasts as low. The four months delay in starting tolling on 407 was because the toll collection system was designed for smaller traffic volumes – based on the WSA forecasts – and when 300k veh/day were using the toll road in the toll-free period the prospect loomed of the image processing being overwhelmed by greater than forecast traffic when tolling started. So the decision was made to reconfigure the mainframe computers to run in parallel rather than having one essentially as a backup – a major time-consuming and costly change. WSA was blamed by some for that, perhaps unfairly, but it was blamed.

As it turned out, once tolling started traffic dropped dramatically (by 60%) so they would have gotten away with the early computer configuration for a year perhaps. WSA’s forecasts were low by about 20%. That wasn’t very badly low, given the difficulty of forecasting in a city without any experience of tolls for a completely new road, using new toll technology.

As WSA supporters in Toronto say, it was better to be a bit low than to have erred the other way, and contributed to debt service difficulties.

TCA’s SJ Hills, F&E

In Southern California WSA has rather consistently over-predicted traffic on the San Joaquin Hills toll road, and this has been seized on by various critics and reporters there to suggest WSA is incompetent and the road is a failure. The first set of forecasts did not anticipate a very prolonged recession and period of no-growth in the area, associated with defense cutbacks. The second set of forecasts, associated with refinancing seem to have been high by about 15%.

The road is not a failure, as some critics say. It attracts 75k veh/day and is generating the revenues to service debt and pay its expenses, even though it is having to scramble to maintain the 1.3 coverage of debt service that its bond covenants require. In AM peak hours, Regan points out, the competing I-405 with 5-lanes northbound is carrying just over 10k vehs and the SJH with 3-lanes northbound carries 6k vehs.

The region would be in one heck of a congestion mess if the SJH had not been built and if all 16k vehs were trying to travel the I-405 and local streets.

WSA projections for the TCA’s sister toll road, the Foothill & Eastern (F&E) have been extremely accurate, just a smidgen low. The F&E is an extremely successful toll road.

It is a fact that WSA has taken a real beating in the local papers, unfairly harsh in our view and overfocused on the problem road, the SJH, to the neglect of the right-on-target F&E. But reporting that criticism is not to endorse it. It is just to say that TCA has a local political problem.

Toll road board members say they have been satisfied with WSA’s forecasts and they too think the press there has been too harsh on the forecaster. Aggregating the SJH and F&E, total toll revenues in the TCA system are about 95% of WSA’s forecasts made in 1997. That’s well within the margin of error that clients of forecasters have to expect.

In our opinion if they get it within 10% on a new road they’re doing quite well. 20% errors should not be regarded as shocking. It’s the 50% and greater mistakes that make you wonder about the value of forecasts.

Roads like other big lumpy investments have to be financed with the understanding that forecasts could well be 20% or so off. Sensitivity, or what-if, analyses help indicate the range of uncertainty, and maybe they need to be highlighted more.

Another point. A road is longlived. It may be a financial failure to start with, and yet come good. The Dulles Greenway certainly was a serious failure in its first three years 1995-97. They defaulted on all their early debt obligations. They got terrible forecasts – not from WSA. They were 60% off and their initial debt was wrongly structured. But 1998 saw the Greenway turning around and now going into their 6th year they are paying their operating costs, servicing their refinanced debt and appear to have an excellent future. And they are serving 50k happy motorists a day. What was at first clearly a painful failure is now a success. (Contact Ed Regan WSA 203 865 2191)