Improving the Performance of Sydney s Road Network

Transcription

1 Improving the Performance of Sydney s Road Network A Paper for the National Roads and Motorists Association February 2015 HoustonKemp.com

2 Paper Authors Adrian Kemp Mark Wolstenholme (NRMA) Contact Us Level 40, 161 Castlereagh Street Sydney NSW 2000 Phone: Disclaimer This report is for the exclusive use of the HoustonKemp client named herein. There are no third party beneficiaries with respect to this report, and HoustonKemp does not accept any liability to any third party. Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been independently verified, unless otherwise expressly indicated. Public information and industry and statistical data are from sources we deem to be reliable; however, we make no representation as to the accuracy or completeness of such information. The opinions expressed in this report are valid only for the purpose stated herein and as of the date of this report. No obligations is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof. All decisions in connection with the implementation or use of advice or recommendations contained in this report are the sole responsibility of the client. HoustonKemp.com

3 Contents Executive Summary It is now possible to develop comprehensive measures of road network performance iii iii Roads and Maritime Services should be accountable for achieving explicit road performance objectives, set by the community iii An index to measure Sydney s road performance should be published weekly Developing a toll road network pricing strategy can improve road network performance iii iv 1. Introduction 1 2. Measuring Road Network Performance RMS current road performance reporting How well is Sydney s road network performing? How should road network performance be measured? There is a need for better information and reporting on road network performance to improve outcomes for users 5 3. Simple Steps to Improve Road Network Performance Step 1: Snapshot of current road network performance Step 2: Give Roads and Maritime Services a clear road performance objective Step 3: Report on road performance against the benchmark and objectives Step 4: Require business cases to evaluate road treatments on the basis of effective cost per unit of improved performance Summary Developing a Toll Road Strategy to Improve Road Network Performance Sydney s current road tolling arrangements Improving the effectiveness of tolls to improve road network performance Institutional and governance arrangements Implementation 15 HoustonKemp.com i

4 Figures Figure 1: RMS's Roads Report Screenshot, 1 September 2013 to 1 February Figure 2: Average journey time for representative journeys is a helpful metric of road performance, and it varies based on time of day 4 Figure 3: Simple Steps to Improve Road Network Performance 7 Figure 4: Sydney s Motorway Network 12 Figure 5: Proposed arrangements between road users, toll road pricing agency and toll road providers 15 Tables Table 1: Current tolls by motorway 12 HoustonKemp.com ii

5 Executive Summary Worsening traffic congestion in our cities imposes costs directly on our economy and affects its liveability. Yet we have a very limited understanding about how road congestion is changing in Sydney, and more importantly, how it is impacting on the primary purpose of the road network to promote the timely and reliable movement of people and goods at every time of the day. It is now possible to develop comprehensive measures of road network performance Historically there has been limited data to track the performance of the road network. Unlike water use or electricity use, road use has not been easy to measure because it needs to be undertaken at almost every point across the expansive road network. However, cost effective and wide adoption of GPS technology and improvements in traffic counting technology means that it is now feasible to measure road use and traffic speed, and to do so almost in realtime. Roads and Maritime Services should be accountable for achieving explicit road performance objectives, set by the community Given the technology to measure road use, there is now scope to define as a community what road performance objectives are desirable and affordable, to give clear objectives to Roads and Maritime Services (RMS) about the performance objectives, and to make those responsible accountable for delivering on the objectives. We expect this approach to drive innovation in the identification and implementation of solutions to achieve improved road performance outcomes. An index to measure Sydney s road performance should be published weekly We believe that the way forward is to: Develop an index for Sydney s road performance based on representative journey times and predictability in journey time, to be published weekly; Use all available information to develop a snapshot of historic and future trends in road network performance, to provide insights on the changing pattern of road use and on what road treatments and investments have been effective at improving road performance; Develop clear road performance objectives for RMS, to guide future expenditures to improve road network performance; Conduct an independent annual audit of road performance say by the Independent Pricing and Regulatory Tribunal or the Auditor General to track progress in the achievement of the objectives; and Focus project evaluations on the contribution to the achievement of the road performance objectives. This approach provides a clear metric of road performance and assigns responsibility for achieving the objective. This will create a strong incentive for improvements in the performance of the road network HoustonKemp.com iii

6 Developing a toll road network pricing strategy can improve road network performance In addition to focusing road treatments and expenditures on improving road network performance, we believe there is a need to rethink the approach to setting road tolls, so as to focus on improving road network performance. Currently, most of Sydney s road tolls have been set so as to recover the costs incurred to construct and maintain each toll road over the term of the specific toll road contract. This approach is inconsistent with promoting use of the toll road, and the overall performance of the toll road network as a whole. We believe that tolls should be determined across the entire toll road network, with the pricing objective being to promote efficient use of the toll road network subject to the need to recover sufficient revenue so as to fund prevailing toll road provider commitments. Practically this would mean that tolls should be set so that the cost per distance travelled on the toll road is equal across the entire road network. This will more closely align with the cost of operating and maintaining the road network. Over time, consideration should be given to introducing time-of-day tolling so as to provide road users with the flexibility to lower toll road costs by changing when toll roads are used, where possible. Indeed this would likely have the added benefit of promoting use of the road at off-peak times when tolls would be lower than current levels, reducing traffic on other alternative non-tolled routes, and reducing the impact on adjacent residents and businesses. We believe that the best approach to implementing a network pricing strategy is to establish a new road toll setting function, perhaps with the Independent Pricing and Regulatory Tribunal to promote efficient use of the road network. Where possible any new toll road arrangements should be within this new tolling function, and over time we believe it should be possible to renegotiate current toll road contracts to separate the pricing and funding functions, allowing the network price to be independently set while the toll road provider is funded directly from the revenues collected across the entire network. HoustonKemp.com iv

7 1. Introduction Urban congestion is a significant problem in our cities, as our road network struggles to meet the needs of a continuing growing population and economy. The avoidable cost of congestion in Australia s capital cities has been forecast to be upwards of $20 billion by However, this figure does not adequately account for those costs that are difficult to quantify. These include the angst and problems arising from the unpredictability of journey time or the lost productivity arising from needing to compensate for the increasing unpredictability of journey time. Given that road congestion is a problem that is experienced daily by most people, it is surprising that we do not have a good understanding of either how congestion is changing over time in our cities, its geographic or time-of-day dimension, or indeed how well proposed or implemented road treatments contribute to improving road network performance. We believe that this lack of understanding is contributing to worsening road network performance, as those responsible for roads are not accountable against a road network performance objective. We believe that there are two factors that are contributing to our inability to cost effectively improve road network performance, namely: a lack of systematic measurement and reporting of road network performance; combined with no clear community objective as to what road network performance outcome is desired, achievable and affordable. Once we have a clear road performance objective combined with an understanding about how it is changing over time, we can then consider and evaluate measures to improve road network performance. This will also facilitate a debate about alternative, non-investment tools for improving road network performance. In this paper we discuss the importance of, in the first instance, simply measuring and so monitoring and reporting on the performance of our urban road networks so we can better understand how performance is changing over time. This provides the information base for evaluating the effectiveness of treatments to the road network designed to improve road network performance. We then describe the importance of realigning investment decision making and existing tolling arrangements so as to promote improved performance of our road networks. Even small improvements can be expected to deliver significant benefits to the productivity of our urban environment, and more importantly the wellbeing of road users. The remainder of this paper is structured as follows: Section 2 outlines a fresh approach to measuring road network performance; Section 3 sets out a number of simple steps that governments could practically implement to promote improved road performance; and Section 4 explores how a toll roads network pricing strategy helps to improve the performance of the toll road network. 1 Bureau of Transport and Regional Economics, 2007, Estimating urban traffic and congestion cost trends for Australian cities, Working Paper 71, p.xv. HoustonKemp.com 1

8 2. Measuring Road Network Performance Key points: A road network s value arises from its ability to facilitate the timely and reliable movement of people and goods across the network. Measures of road network performance should be linked to its value to users. A lack of systematic measurement and reporting of data makes understanding road network performance, and evaluating the impact of road investments or treatments at improving network performance, difficult. We believe that a simple index of journey times across representative journeys can be developed and published weekly. Sydney s road network comprises an extensive network of tolled motorways, main connecting roads and local roads. It has evolved over time as increasing road use has been met by a program of road construction that has sought to manage morning and evening peak periods, particularly along major urban routes in bound to the main urban centres, including the central business district and Parramatta. This section proposes a fresh approach to measuring and reporting on road network performance that more closely aligns with the value to the community of the road network. We start by briefly describing the current approach to reporting road network performance, as undertaken by Roads and Maritime Services (RMS) and also comment on the process by which the effectiveness of road treatments to improving network performance are evaluated. 2.1 RMS current road performance reporting RMS (and its predecessor the Roads and Traffic Authority) has had a strong focus on providing information on the performance of the road network. RMS has an extensive array of data sources including in-road sensors, surveys of travel time, and GPS data. It follows that there is extensive information available for major road segments across the Sydney, Newcastle and Wollongong road networks including: average speed for a fifteen minute period; vehicle counts (vehicles/hour); and travel time (minutes). RMS s historic network performance reports have focused on providing this information for particular road segments. Its most recent innovation has been to develop an interactive web-based tool to allow for consideration of performance of specific road segments or aggregations of the network 2. As part of this initiative, RMS is now reporting performance data on a more frequent basis. Figure 1 provides a screenshot of the historic count and average speed across key NSW roads, as provided in RMS s Roads Report, for the period 1 September 2013 to 1 February See HoustonKemp.com 2

9 Figure 1: RMS's Roads Report Screenshot, 1 September 2013 to 1 February How well is Sydney s road network performing? Despite the availability of information, it is difficult to obtain a clear understanding of the performance of the road network as relevant to road users travelling from one point in the network to another. It is also apparent that information warning motorists in real time of congestion ahead via electronic message signs is often lacking. We have interrogated the data available on the RMS s Roads Report, and note that: year-on-year comparisons of morning peak average speeds across the key roads network have worsened for every month for the period September to February during 2014/15 compared to the equivalent months in 2013/14; the average decline in average speed was approximately 1.1 per cent; and the worst performing month was January 2015, which had a 2.7 per cent decline in average speed compared to January We acknowledge that year-on-year changes in average speed can reflect factors beyond the control of RMS. It is for this reason that longer term trends in road network performance over time are needed, to allow for deeper insights on performance to be gained. Importantly, the current approach to reporting on road performance focuses principally on average speed by road segment. While this is helpful information, it provides little guidance as to how well the network is delivering on point-to-point journey times, and the predictability of those times. We explore how to link road network performance to factors of direct relevance to road users in the sections below. HoustonKemp.com 3

10 2.3 How should road network performance be measured? Sydney s extensive road network facilitates the movement of people and goods from one point to another, and so underpins the functioning of the city. Its value in the economy is therefore considerable, because its absence would mean that much of the economic contribution of the city might not otherwise be achievable. The intrinsic (maximum) value of the road network to the economy arising from its design is reduced by its performance at facilitating the movement of people and goods, particularly where the reduced performance directly affects the economic contribution arising from the movement of people and goods. The attributes of performance that are likely to most closely be linked to road value are: journey time, measured relative to the time that might otherwise be expected given the infrastructure s design and capabilities that a user can expect in the absence of other users; and predictability of journey time, measured as the variability in journey time for a particular journey (sometimes referred to as reliability). Journey time differs from simply measuring average speed across a particular road segment, because it accounts for changes in speed across a road segment that might be partially offset by changes in speed along subsequent road segments, as part of an overall journey. In other words, road users are less interested in speed along a particular road segment, but rather the time taken to travel from one point in the network to another, at a particular time of day. It is for this reason that we believe that the performance of the road network should be measured with reference to journey time (ie, the total time in minutes for a particular journey), and the predictability of journey time (ie, the variability of journey time). The performance of the network could then be measured by considering journey time across a number of representative journeys across the entire network. Tracking the change in the simple average of journey time for the representative journeys over time, would provide a helpful aggregate metric of the performance of the overall road network at quickly and predictably transporting people and goods via the road network across those points. The performance attributes of journey time and predictability are illustrated diagrammatically in Figure 1. Figure 2: Average journey time for representative journeys is a helpful metric of road performance, and it varies based on time of day HoustonKemp.com 4

11 Journey time and its predictability is influenced by: the physical road infrastructure (ie, supply-side factors), including (but not limited to): > the number of lanes; > the interconnectedness of the network and mechanisms to facilitate traffic flow including traffic intersections, traffic lights, roundabouts, stop signs, etc; > the physical characteristics of the road infrastructure, eg, roughness, design etc; and > the undertaking of road works that temporarily restrict the availability of road infrastructure; factors that affect road use, (ie, demand side factors), including: > journey demand on road segments, and at a particular time period; > accidents and illegal parking, which temporarily affect the availability of road infrastructure; > the mix of vehicle types (eg, the proportion of heavy vehicles); and > weather, which in turn affects the safe speed for road use and can contribute to accidents. In simple terms, it is the interaction of these supply and demand factors that affects travel time and reliability and so road network performance. For example, investing in more lanes for a congested road will improve travel time and reliability (and so road performance) for a road segment. Similarly lower vehicle demand can have a similar effect on road performance. The attributes of road performance can also be defined over a number of dimensions, namely: location, ie, for a segment of road, a particular journey, or across a particular geographic area; and time-of-day, ie, for a particular period of time, eg, 5 minute period, hour, day, week, month, quarter or year. Finally, road network performance is often confused with the concept of road congestion. Whereas road network performance is measured by both journey time and predictability, road congestion can be defined as a circumstance where travel speed along a segment of road is less than the designated speed limit. Travel speed (and so congestion) along a road segment will influence journey time and so the two concepts are related. However, the value of the road network is derived principally from the latter, rather than travel speed per se. It follows that travel speed might be a helpful indicator of journey time and so performance, but is not in and of itself linked to the value derived from a road. In addition, it provides little insight as to the predictability of journey time because reductions in one segment might be made up by higher speeds in another segment, thereby not affecting overall journey time. In summary, the value of a road network and so its performance is principally linked to journey time and the predictability of journey time, across the road network and at each point in time. 2.4 There is a need for better information and reporting on road network performance to improve outcomes for users As we set out above, road network performance is affected by supply side factors including both road investments (eg, to increase capacity, construct new routes, remove restrictions arising from bridge load limitations, etc) and road treatments (eg, changing traffic signal sequencing, intelligent traffic control, etc). In principle, any road investments and road treatment options that are contemplated should be evaluated against its contribution to improving network performance (as measured by journey time and/or improved predictability). To do so would require detailed information on current road network performance, and sophisticated analysis of the implications for that performance arising from any proposed investment or road treatment. In practice, road investments are evaluated using standard economic evaluation techniques, which consider the implications of road investments for traffic flow through improved travel time, amongst other factors. This analysis typically uses synthetic data and tariff models, and so does not adequately take into account: changes in the observed pattern of journeys over time, which can influence journey time and its predictability; and HoustonKemp.com 5

12 journey time from a point-to-point perspective, as it typically focuses on traffic flows on major routes and so ignores time taken to enter or exit those major routes. We expect that emerging data on traffic flows at a sufficiently granular level across the road network will allow for more detailed analysis of the implications road network performance, following investments. HoustonKemp.com 6

13 3. Simple Steps to Improve Road Network Performance Key points: A clear road network performance objective is needed to allow the performance of Roads and Maritime Services (RMS) to be adequately monitored. The starting point is to undertake a comprehensive assessment of historic and current performance, against which road investments and treatments can be evaluated, and so the overall performance of RMS can be assessed. Annual reporting of performance against the benchmarks is crucial to strongly align expenditure decisions to network performance outcomes. Road investments and treatments should be evaluated by reference to its contribution to road network performance improvements. We believe that more closely aligning road performance measurement and reporting to the value of the road network is critical to improving road performance. In this section we consider what is needed for RMS to move to a road treatment and investment prioritisation approach that more clearly prioritises investments that lead to improvements in road network performance. Figure 3 provides a diagrammatic representation of the steps needed to provide improved incentives for performance improvement across Sydney s road network. Figure 3: Simple Steps to Improve Road Network Performance 1 Snapshot of Current Road Performance 2 Develop Clear Road Performance Objective for RMS 3 Annual Reporting of Road Performance 4 Focus Project Evaluation on Performance Outcomes 3.1 Step 1: Snapshot of current road network performance The starting point to improve road network performance is to develop a clear understanding of current performance against which any observed changes or trends in performance can be compared. We believe that there are a number of ways this should be done, specifically: identifying representative journeys across the entire network, which allows for consideration of the performance of the network at all times of the day and night, and in addition to focusing on routes into and out of the CBD during the morning and afternoon peaks. This proposed approach is distinct from the current RMS approach of simply reporting average speed and flows along major road segments. By HoustonKemp.com 7

14 focusing on representative journeys, we more closely link performance reporting with whole of journey outcomes for road users. We anticipate that these would include, say (amongst many others): 3 > northern beaches to the central business district; > inner west through to the airport > Parramatta to the CBD; and > M5 through to Port Botany and parallel routes such as Stoney Creek and Canterbury roads; collect historic data on the smallest road segment and time period available across each representative journey (with a minimum being 15 minute time periods), focusing on: > average journey time over the time interval, and the associated daily variability in average journey time; 4 and > trends in daily, weekly, monthly, etc outcomes in journey time; analyse the historic trends to identify the principal drivers for observed changes in journey time and variability. We anticipate that this will include the explicit identification of general demand trends, with variations from the trend being explained by local demand factors (eg, accidents) or road treatments; develop indicators of road performance, eg, a journey time index, based on the information collected; and identify and analyse those controllable factors to determine by how much road performance was affected by those treatments. Importantly, the focus of this benchmarking is on understanding all factors that impact on journey time and so road performance. This can include operational approaches to improve response times to accidents during peak periods (see Box 1), as well as other operational factors (eg, traffic signal timing), which can impact on journey time. Box 1: Improving response times for major accidents The NSW Government imposed a 4 hour target for clearing major traffic incidents, as a way of driving innovation and efficiency to address one cause of traffic congestion. By establishing this performance target, NSW Police began placing patrol vehicles on the side of motorways, which had the effect not just of reducing Police response times, but of reducing all types of crashes (ie, fatalities, injuries, and non-injury crashes). 5 In addition, NSW Police started sending more crash investigators to major crash scenes in order to speed up investigations and the reopening of the road. This example highlights the importance of both setting performance targets, and measuring performance against those targets in a systematic manner. Overall, this will lead to a comprehensive assessment of historic and current road network performance targeted on how it impacts on road users directly. We believe that RMS currently both collects and has access to sufficient data to be able to undertake the detailed assessment as set out above. That said, there are emerging data sets on road use 6 collected through the greater adoption of in-vehicle GPS technology, which will allow for a more granular 3 In principle, the number of selected journeys need not be limited. What is relevant is to have a sufficient sample of journeys that allows for a helpful representation of the entire road network. 4 In practice this could be approximated by combining data on average speed with the length of the road segment, to measure journey time. 5 See, _its_impact_on_driver_behaviour.pdf. 6 For example, see HoustonKemp.com 8

15 understanding of road network performance in the future. This information will also provide a better understanding of the representative nature of journeys that are considered as part of the benchmarking report. Finally, a key output from this first step is the development of an index for Sydney s road performance based on representative journey times and the predictability of journey time. Once developed this performance index could be published weekly. 3.2 Step 2: Give Roads and Maritime Services a clear road performance objective RMS has recently developed a system to allow for more systematic public reporting of average speed and flows along many major routes across the Sydney road network. 7 This initiative is a good first step to improving transparency about road network performance. This information provides a helpful starting point for a debate about what road network performance is desired by the community. We acknowledge that as part of the debate it is important to understand that there are considerable trade-offs between the costs involved in addressing identified performance concerns, and so over time it will be important for such a trade-off to be well supported by objective information. Once an improved understanding of community road network performance outcomes has been developed, these can be translated into more formal objectives for RMS. Such an objective will provide a clear direction to RMS to undertake its investment program so as to deliver on the proposed objectives. At its highest level, road network performance objective could be: To promote the timely and reliable movement of people and goods across each segment of the road network, and at every time of the day. More formally the objective can be framed with reference to particular journeys, or times of day, and both in terms of journey time or predictability. For example, for the Sydney road network, the journey time target along Victoria road between the Gladesville Bridge and the Anzac Bridge at 8am heading towards the city might be, say 30 minutes, being 10 minutes below the unconstrained capability, with a 90 per cent confidence that on any given day journey time will be say plus or minus 2 minutes. 3.3 Step 3: Report on road performance against the benchmark and objectives Having developed the initial benchmark and developed performance objectives, road network performance should be audited annually against the objective, ideally by an independent agency (eg, the Independent Pricing and Regulatory Tribunal (IPART) or the Auditor General) In practical terms this would involve: for every identified representative journey, reporting on the change in the average journey time and variability of journey time across the period over the preceding 12 months; describing any observed variations, arising from factors either beyond the control of RMS, or as a consequence of specific investments or treatments. Ideally, this could be reported for representative journeys, or within geographic segments of the road network; and evaluating specific treatments so as to provide evidence of the implications of those treatments on road performance. Importantly, observed changes in road network performance are likely to be incremental over a number of years reflecting general growth in road network demand over time. It will therefore be important for any analysis of road network performance to consider both how performance outcomes might vary relative to a trend, as well as in absolute terms. 7 See, HoustonKemp.com 9

16 The process of annual reporting against a performance objective is crucial to ensuring that RMS focuses its internal systems and processes in a manner designed to achieve performance outcomes that reflect the value of the network to our community and economy. The absence of such performance objectives and reporting means that there is little opportunity to adequately assess the performance of RMS over time. We believe that the current approach adopted by RMS of reporting average speeds and variability across specific road segments is insufficient to provide strong incentives for improved road performance, aligned with the outcomes desired by road users. It is for this reason that we are proposing the development and implementation of a clear road network performance objective, against which actual performance can be appropriately assessed. Relevantly, many other network infrastructure organisations have a clear network performance objective, against which proposed expenditures are assessed. For electricity networks it is an obligation about maintaining network reliability, and so minimising electricity outages to consumers. For water it is an obligation to maintain security of water supply and so limit the need for water restrictions to be imposed to balance supply and demand. These precedents both highlight the importance of having a performance objective, as well as, the universal use of them by similar network infrastructure organisations. We believe that the current lack of clear road performance objectives is leading to poor investment prioritisation and expenditure decisions by RMS, and stifling operational innovation, impacting directly on the road network performance experienced by users. 3.4 Step 4: Require business cases to evaluate road treatments on the basis of effective cost per unit of improved performance Finally, while reporting road network performance relative to trends, historic benchmarks and objectives is an important first step, ideally proposed road treatments and other investments will be evaluated against its anticipated contribution to improving performance over time. This would ensure that road investments or treatments are prioritised on the basis of its effective cost per unit of improved performance across the network. In principle, this would involve ranking and prioritising projects on the basis of its contribution to improved performance. Those project that are expected to have the lowest cost per contribution to improved performance would then be given the highest priority. This approach ensures that investments are undertaken in order to improve performance. We acknowledge that road agencies also invest in projects to achieve other objectives, for example to improve road user safety. We believe by evaluating every project on the basis of its implications for road performance, as measured through journey time, allows for an appropriate consideration as to the trade-offs between journey time and other objectives. 3.5 Summary In summary, road network performance improvements can be delivered through better prioritisation of road investments and treatments so as to maximise the contribution to road network performance improvements. We believe this requires as a first step, the development of a comprehensive evaluation of the historic and current performance of the road network. To this end we propose the creation of a road network performance index based on representative journey times and published weekly. When combined with annual audits of RMS performance against a clear road network performance objective, strong incentives are created to achieve performance improvements across the road network. HoustonKemp.com 10

17 4. Developing a Toll Road Strategy to Improve Road Network Performance Key points: Sydney s current toll road network is focused on funding each segment of road, rather than promoting efficient use of the toll road network. Splitting toll road pricing and funding will allow prices to be set so as to promote better use of toll roads. Initially, tolls should be set so that the cost per distance travelled is equal irrespective of which toll road is used. Over time, tolls should be varied so as to promote greater use of toll roads to the benefit of road users. An independent road tolling agency should be established, with responsibility for promoting efficient use of toll roads, while funding current toll road providers. An important part of Sydney s road network are its motorways (Figure 4), which charge a toll to motorists for their use. Road tolls have been used as a means of funding these major highway road investments, by transferring some of the risks associated with forecasting use of the toll road to private investors. This means that the associated tolls have been designed as a cost recovery tool, rather than as a way of promoting efficient use of the motorway network. In this section we set out a proposed reform to the road tolling arrangements by moving away from tolls to simply recover the cost of specific road segments, towards designing a network tolling strategy that promotes improvements in road network performance. We start by briefly describing the current road tolling arrangements, before setting out the governance and institutional arrangements, and associated transitional arrangements that would be needed to implement the proposed tolling reform. 4.1 Sydney s current road tolling arrangements Sydney has an extensive motorway network that has been funded through private sector investment and associated road user tolls - Figure 4. Table 1 sets out the current tolls charged for the use of each motorway segment. HoustonKemp.com 11

18 Table 1: Current tolls by motorway Motorway/Bridge/Tunnel Length (kms) Class A (Passenger vehicles/motorcycles) Class B (heavy vehicles) Harbour Bridge/Tunnel (southbound only) 1.18 $4 peak 8 $3 shoulder $2.5 off-peak $4 peak $3 shoulder $2.5 off-peak Eastern Distributor (northbound only) 6 $6.42 $12.84 M5 26 $4.41 $10.00 M7 40 $7.63 $9.31 M2 21 $6.36 $19.06 Lane Cove Tunnel 3.6 $3.13 $6.60 Cross City Tunnel 2.8 $5.15 $10.31 Figure 4: Sydney s Motorway Network 8 Peak is weekdays, 6.30am to 9.30am and 4pm to 7pm, Shoulder is weekdays 9.30am to 4pm and weekends 8am to 8pm, offpeak is 7pm to 6.30am weekdays and 8pm to 8am weekends. HoustonKemp.com 12

19 Current road tolls in Sydney vary considerably. They: reflect historic funding arrangements, having been mostly designed to provide a reasonable opportunity for a private investor to recover the cost of the road infrastructure; have little regard to the interactions between traffic flow along the tolled road and the rest of the road network; and are notionally a distance based road user charge, but current toll levels mean that the cost per kilometre of toll road varies widely across the road segments. Importantly from a road performance perspective, the tolls are not set so as to provide signals to road users about the costs imposed from using the toll road, and so do not promote efficient use of the road infrastructure. This means that: some users likely avoid the use of the toll road (particularly during uncongested periods), even though its use would improve the road user s journey time; and there is little innovation about the structure of tolls (eg, greater adoption of peak, off-peak rates), so as to contribute to improved journey time and predictability across the entire road network. 4.2 Improving the effectiveness of tolls to improve road network performance As explained earlier, current road tolls have been historically set so as to recover the costs of the particular road segment. Importantly, tolls are not set so as to promote efficient use of the road, subject to the constraint of needing to recover the total cost of roads. We believe that setting tolls across the tolled motorway so as to promote efficient use of roads, has the potential to contribute significantly to improved road network performance. Box 1 sets out the general economic principles of road infrastructure pricing to promote efficient use of road infrastructure. Box 1: The Economics of Road Infrastructure Pricing The central tenet of economics is to promote efficiency in the use and supply of goods and services, and in so doing maximise the overall economic benefit of our resources to society. Infrastructure prices that promote efficiency allow an infrastructure provider to: recover the cost of existing infrastructure while simultaneously encouraging the efficient use of that infrastructure; and signals to users the cost of new infrastructure capacity, so as to encourage efficient investment in roads. For efficient use of road infrastructure to be promoted, users should be charged all of the costs caused by the use of roads including incremental wear and tear and associated maintenance costs, and the costs arising from congestion. However, the economic characteristics of roads means that charging road users on the basis of costs caused by road use, will likely be insufficient to recover the total cost of providing roads, including the initial construction cost. It follows that these costs should be recovered, through say registration charges or other usage based charges in a manner that continues to promote efficient use of roads. In practical terms, considering the tolled motorways as an interconnected network, with the aim of improving motorway performance allows for consideration of how tolls might be structured so as to promote efficient use of the roads. In principle, this would involve: variable time-of-day tolls, whereby the toll rate is higher during peak periods and lower during shoulder and potentially free (or close to free) during off-peak periods; investigating the particular usage time-of-day profile for each segment of the motorway network, so as to establish the most appropriate times for peak, shoulder and off-peak periods; and HoustonKemp.com 13

20 ensuring that total toll revenue continued to equal the total amount needed to fund the entire tolled motorway road network. In addition, consideration could be given to other tolling innovations including differences in tolls according to the particular time of year. For example, tolls might be lower during holiday periods when traffic volumes are typically lower. Importantly, such a road tolling approach would provide greater flexibility to road users to choose when to make use of the motorway network and so improve overall road network performance. It is important to note that this proposal is in contrast to the way in which time of day tolling has operated on the Sydney Harbour Bridge and Tunnel since its introduction in In this instance motorists continue to pay a $1 premium for travelling at peak times (6.30am to 9.30am, and 4pm to 7pm weekdays). The original $3 toll price applies during shoulder periods (9.30am 4pm), and there is a reduced toll applying at night (7pm 6.30am weekdays and 8pm to 8am weekends). Whether this structure promotes efficient road performance given the current patterns of road use is unclear. 4.3 Institutional and governance arrangements To implement a network wide road tolling strategy in Sydney, there is a need to disconnect funding arrangements with pricing for road users. In some sense, this is already done through the application of the government s M5 cashback scheme, which effectively provides a rebate to NSW registered road users that make use of the M5 motorway. We believe that disconnecting funding from pricing could be achieved by shifting toll price setting to an independent toll road pricing agency (eg, the Independent Pricing and Regulatory Tribunal (IPART)), who would be given responsibility for: promoting efficient use of the road network through the collection of road tolls: while funding current toll road provider contractual obligations, as required. If taking on the pricing and funding obligations of the current toll road providers is legally difficult, then as a minimum the toll road pricing agency could be provided with a network tolling function for the WestConnex motorway, and other currently government provided tolled roads (eg, the Harbour bridge, etc). Over time, once the toll concession arrangements end, those roads can be incorporated within the network toll pricing system. We believe that placing the tolling role with an independent agency provides arms-length decisions from government on road tolls, to achieve its performance obligation. Indeed, the agency could also take on the role of monitoring the performance of RMS on the achievement of its own road performance objectives. Importantly, the agency s proposed toll road pricing function is designed to provide credibility to the setting of tolls, designed to improve overall road network performance. This is distinct from a typical pricing role to address concerns about a monopoly network infrastructure business (like Sydney Water) exercising market power. In the toll road circumstance there is no need for explicit monopoly pricing oversight because toll roads have relatively limited opportunity to inappropriately raise tolls because: the scope for road users to make use of alternative, non-tolled, routes; and any increases in prices, and so revenue above those levels needed to meet road funding levels will be relatively easily observable, allowing government to place the agency under pressure to return tolls to more appropriate levels. Figure 5 provides a schematic representation of the relationships between road users, toll road pricing agency, and current toll road providers. HoustonKemp.com 14

21 Figure 5: Proposed arrangements between road users, toll road pricing agency and toll road providers Toll Revenue Toll Road Pricing Agency Funds for Toll Road Provider Toll Road User Provision and use of toll road Toll Road Provider 4.4 Implementation We believe that implementation of the proposed new tolling arrangements would involve: establishing a new road tolling pricing agency, with an objective of promoting efficient use of the toll road network as a whole through the setting of tolls, subject to the need to fund toll road providers; putting in place initially a tolling arrangement that seeks to maximise toll road network performance, across each segment of toll road; and over time, shifting to a variable time-of-day tolling arrangement whereby road users (eg, trucks) are encouraged to make use of toll roads during off peak times, which can benefit residents living alongside alternative non-tolled routes. We believe that these steps will facilitate improvements in the performance of the toll road network, with associated benefits for road users. Importantly, this approach does not involve increasing the total revenue collected by tolls from current levels. Rather, by restructuring tolls, we believe that there is potential to provide greater choice to road users, while simultaneously improving road performance outcomes. HoustonKemp.com 15

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