Value Pricing and Demand Management

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Value Pricing and Demand Management

• Adeel Z. Lari
• Director, Office of Research Services
• Minnesota Department of Transportation
• National Energy, Environment and Transportation
  Summit
• New York, New York
• May 15-17, 2002

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Demand Management An Overview

• Implications and Considerations
• A New Approach
• Variablization
• Value pricing in the U.S.
• The future of value pricing

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What is Value Pricing?

• Using market prices to reduce congestion and
  enhance mobility.
• U.S. Department of Transportation, Federal
  Highway Administration

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Why Value Pricing

• 2.7 trillion VMT in 2001
• 42,000 highway deaths
• 3.4 trillion VMT projected by 2020
• gt50,000 deaths

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Why Value Pricing?

• Energy Wasted
• 6.8 billion gallons of fuel wasted annually in
  urban congestion
• Emissions
• 54 million tons of CO
• 10 million tons of NOx
• Congestion causes 4.5 billion hours of extra
  travel time annually
• Congestion costs exceed 78 billion annually

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Why Price Roads?

• Adding capacity is expensive
• Under-pricing induces wasteful demand

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Types of Value Pricing Projects in the U.S.

• Higher peak period tolls
• HOV to HOT conversions
• New priced lanes
• Parking pricing
• Variablizationof fixed costs of auto use
• A New Approach

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Higher Peak Period Tolls

• Motivation
• Manage congestion
• Raise revenues
• Examples
• N. J. Turnpike and Garden State Parkway
• New Yorks Hudson river crossings
• Ft. Myers bridges

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HOV to HOT Conversion

• Motivation
• Manage congestion on over-utilized HOV lanes
• Use capacity on under-utilized HOV lanes
• Examples
• I-15, San Diego
• I-10 and US 290, Houston

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Pricing New Lanes

• Motivation
• Pay for new capacity cost
• Provide premium service
• Manage demand
• Example
• SR 91, Orange County, CA

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Parking Pricing

• Types
• Peak surcharges
• Cash-out
• On-street parking meters
• Examples
• Seattle
• California
• Aspen, CO

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Variablization of Fixed Costs

• Converting fixed cost to variable costs
• Insurance
• Registration fees, sales taxes
• Lease costs
• Parking costs
• Car sharing
• Expected outcomes
• Reduced demand
• Rational decisions
• Improved efficiencies

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Variablization of Costs

• Mn/DOT and FHWA partnership under federal Value
  Pricing Program
• Fixed costs versus variable costs
• Current transportation pricing policies are
  skewed toward fixed costs
• Variablization will give users stronger price
  signals

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A New Approach

• National Pooled Fund Study
• 15 States and FHWA
• Fuel tax is becoming outmoded
• Recognizes the need to look at next generation of
  road use fees
• Policy and institutional issues
• Technology

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Intelligent Transportation Systems (ITS) Solutions

• Ramp Metering
• Smart Roads
• Smart Cars

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Issues to be Addressed

• Political
• Public resistance
• Credibility re use of revenues
• Equity concerns
• Interest group opposition
• Double taxation
• Concerns about adding capacity

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Essential Elements of Value Pricing Vision

• The public must understand there are no Free
  Roads
• The high cost of inaction must be understood
• Tangible benefits must be tied to costs
• Champions
• Coalitions must be formed