Wednesday, September 12, 2007

It Tolls for Thee (a continuing series)

Virginia announces new highway construction. Largely paid for by investors:

Virginia has reached agreement with Transurban DRIVe and Fluor on most of the details of a 75-year toll concession to build 22.5km (14 miles) of 2+2 HOT lanes on the Capital Beltway between the Springfield Interchange at I-95 through the Tysons Corner/Dulles Toll Road area. The project has grown in scope and cost to $1.4b for the design-build portion and $1.7b including financing and planning.

Under the agreement now reached the state will provide $409m or 24% of the estimated project cost of $1.7b. Investors will have to come up with around $1,291m. Any cost over-runs will be borne by Transurban DRIVe/Fluor.

The details of the tolls being even more interesting:

- the HOT lanes will be free for vehicles carrying 3 or more persons, the rest will be tolled

- if free high occupancy vehicles go above 24% of traffic in the HOT lanes the concessionaire will be entitled to revenue from VDOT for the surplus amounting to 70% of the prevailing toll rates for the first 40 years of the concession or until the project rate of return exceeds a threshold level of 10%- there are no restrictions on VDOT's right to add free lanes alongside, although the concessionaire can seek compensation for lost toll revenues

.... - there are no caps on toll rates

In toll lanes alongside free lanes toll rates have to be free of concession caps so price can be set sufficiently high to prevent traffic overload. If they aren't set high enough overload will occur, traffic flow will break down, and the HOT lanes will become worthless, offering no advantage over the free lanes alongside.

The concession contract will require Transurban to maintain free flow traffic conditions by preventing overload although the profit motive will also drive that.

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