Evaluating the Potential Economic Efficiency of Project Delivery Options

Transcription

1 Paper No Evaluating the Potential Economic Efficiency of Project Delivery Options Patrick DeCorla-Souza 1 Public-Private Partnerships Program Manager Build America Bureau and Federal Highway Administration s Center for Innovative Finance Support U.S. Department of Transportation 0 New Jersey Ave, SE, Washington, DC Phone: 0--0 Patrick.decorla-souza@dot.gov Douglass B. Lee Economic Analysis Division Volpe National Transportation Systems Center Cambridge, MA Phone: 1-- doug.b.lee@dot.gov November, 01 Abstract Word Count: 1 Paper Word Count:, Tables: Figures: 0 Paper prepared for presentation at the TRB Annual Meeting 01 1 Disclaimer: The views expressed are those of the authors and not necessarily those of the U.S. Department of Transportation or the Federal Highway Administration. 1

2 Evaluating the Potential Economic Efficiency of Project Delivery Options Patrick DeCorla-Souza and Douglass B. Lee ABSTRACT This paper illustrates a comparison of the incremental costs and benefits of alternative highway project delivery options using the FHWA s P-VALUE analytic tool for much of the computation. The hypothetical example project consists of (1) upgrading an urban freeway with added express toll lanes, () possibly delivering the project via a P concession, () possibly transferring the revenue risk back to the public agency via availability payments (AP), and () possibly substituting a hybrid payment mechanism that compensates the operator with a fixed AP plus shadow tolls paid on the basis of person throughput. Under the hybrid payment mechanism, the concessionaire would continue to set toll rates to ensure efficient operations (as under a normal toll concession), but all toll revenue would go to the public agency, as in an availability payment concession. The multi-part payment strategy would potentially restore incentives for ensuring optimal utilization of the facility. The goal is to maximize economic efficiency, which is assessed using benefit-cost analysis. The evaluation explores the conditions under which the features considered would be incrementally beneficial.

3 INTRODUCTION Highway improvements can be funded through tolls on users; this avoids having to raise additional revenues from excise taxes or other taxes. Proposals have been made to create regionwide systems of priced freeway lanes that would maintain congestion-free traffic conditions throughout the network and provide a running way that allows introduction of high quality express bus service or Bus Rapid Transit (BRT) service. Variable tolls can maintain a high level of service, at least on express lanes where they are applied, and provide that service to public transit. One example is the express lane network included in the long-range plan of the Metropolitan Transportation Commission (MTC), the metropolitan planning organization (MPO) for the San Francisco Bay Area (1). 1.1 Public-Private Partnerships Procuring transportation facilities and services through public-private partnerships (Ps) involves transfer of design, build, finance, operation and maintenance (DBFOM) responsibilities to a private concessionaire through a single long-term contract. It has many advantages over the traditional publicly financed approach (). For example, projects are generally designed and constructed more quickly, capital demands on the public treasury are reduced relative to public funding, there is increased budget certainty for the public agency, project lifecycle costs can be optimized, and innovation is encouraged. Additionally, quality of service for users may be improved through efficient pricing and private sector management of operations. The Federal government, as well as several state and local governments, have shown increasing interest in private sector involvement in the provision of transportation infrastructure and services. However, reservations have been expressed about the potential for monopolistic pricing that could lead to overcharging and excess profits when priced lanes are operated by toll concessionaires under a P. 1. Monopoly Pricing Issues P applications of pricing on express lanes raise some special issues relating to private monopoly power. Efficient freeway operation may occasionally require relatively high charges in order to manage demand and keep traffic flowing at reasonable speeds during rush hours. This may be perceived by the public as price gouging, particularly if revenues and resulting profits go to the private sector. It may be important to ensure that the private sector partner does not set peak toll rates at a level to maximize revenue rather than maximizing social welfare as measured by the overall level of service to users of the entire facility. Monopoly in a market can be measured by the price elasticity of demand. In a perfectly competitive market, demand is elastic, and no provider can charge more than the prevailing market price. Where there is monopoly (e.g., a limited number of providers), efficient pricing must be imposed, at a level where price equals marginal social cost. The monopolist would prefer to set price where marginal cost equals marginal revenue to maximize its profits, leading to a higher price and a lower volume than the efficient volume. The magnitude of the difference depends upon the magnitude of the elasticity, which reflects the ease with which alternatives can

4 be found to avoid paying the monopolist s price. These include alternative routes, alternative modes, and ride sharing. 1. Alternative Public-Private Partnership Approaches By using a mechanism for payment to the concessionaire other than tolls, an operating criterion can be specified that maintains a given level of throughput, or level of service. To avoid the potential conflict between the social welfare goal of the public agency and the private sector s revenue maximization goal, an Availability Payment (AP) concession can be used to separate the toll operator from the revenue beneficiary. While the concessionaire would continue to collect tolls and be ordered to set toll rates so as to maintain a speed or level of service standard, all toll revenue would go to the public agency. The service standard can be adjusted to closely approximate the impacts of an efficient price. The concessionaire has no incentive to increase revenue since it would go to the public agency, and efficiency can be accomplished despite the monopoly condition. An approach similar to this has been used on the I- express lanes in southeast Florida. The only difference is that a public agency sets the toll rates and collects tolls on the I- express lanes, rather than the concessionaire. In this paper, we present an alternative way to address the conflict between goals of the public agency and the concessionaire. The concessionaire would be compensated with a two-part payment. The first part would be an availability payment sufficient to pay for debt service and operations and maintenance (O&M) costs. The second part would be dependent on personthroughput on the entire facility (not just the priced lanes). It would be a per person mile of travel (PMT) fee paid to the concessionaire by the agency. Such usage-based payments are often called shadow tolls. This approach is a new approach being proposed by the authors; there are no operating examples. Since monitoring per person use for multi-passenger cars is too difficult, car passengers could be ignored, i.e., passenger cars could be assumed to have a single occupant, except for HOV-s, which could be identified using switchable transponders and assumed to have occupants. Transit passengers would be counted based on fare collections. The concessionaire would be incentivized to increase person throughput to the extent that it has any ability to increase the share of transit vehicles and HOV- use. Shadow tolls would be paid for managed lane service only if those vehicles are served at speeds required by performance standards laid down in the P agreement. The shadow toll rate (i.e., per person payment) regime could be set in the Request for Proposals (RFP) and bidders could be asked to bid on the lowest availability payment amount they are willing to accept. The shadow tolls would only be paid for persons served during the rush hours, when pro-active management of traffic flow is needed. While real toll rates on managed lanes would rise as high as they need to be in order to manage demand effectively, the private partner would not profit from the resulting increase in revenue. The concessionaire would be incentivized to introduce innovations and manage the entire facility to prevent the loss of throughput that accompanies traffic flow breakdowns. It would likely develop marketing innovations and perform outreach activities to encourage HOV- use and

5 transit. For example, it could pay the local transit agency to provide improved services in the corridor; or it could offer toll discounts to HOV- vehicles to increase HOV- use while reimbursing the public agency (i.e., the recipient of real toll revenue) for its loss in real toll revenue. Given its profit maximizing focus, the concessionaire would adopt the modal incentives that are the most cost-efficient. 1. Evaluation Process Various types of studies may be undertaken to conduct a comprehensive evaluations of tollfunded projects and P approaches to deliver them, including evaluation of economic efficiency, impacts on low-income travelers, impacts on economic development and jobs, financial feasibility, and value for money (,,,, ). Companion papers (, ) illustrate the process for financial feasibility evaluation and value for money assessment respectively. Our analysis is limited the evaluation of economic efficiency, using the framework of benefit-cost analysis and the P-VALUE.0 analytical tool (). The Benefit-Cost Analysis (BCA) module of the tool assists the user in understanding the potential scale of societal net benefits that may be achieved by delivering a project as under alternative delivery methods, relative to the No Build. Since the tool cannot at present estimate benefits to transit and carpool passengers, these benefits are estimated outside the tool. The rest of this paper illustrates a process for comparing the incremental social costs and benefits of alternative project delivery concepts, for a hypothetical project..0 BACKGROUND FOR ILLUSTRATIVE PROJECT A freeway system upgrade is needed in Watopia, a major metropolitan area of the State of Pennorado. The system is in need of reconstruction, and many segments are heavily congested during rush hours. There are no High-Occupancy Vehicle (HOV) lanes, and transit service is minimal in all freeway corridors. The Pennorado Department of Transportation (Pennorado DOT) is unable to move forward with improvements to the freeway system due to limited tax revenues and the state s debt capacity constraints. The Director of Pennorado DOT proposes to implement a priced lanes network while reconstructing the freeway system in Watopia. He plans to obtain the needed new revenue through peak period tolls that will be imposed on a single new lane added in each direction. Thus the number of free lanes available for use after project implementation would be the same as before the implementation. Any type of barrier separation between priced and free lanes would be avoided instead, toll gantries would be placed at ½ to ¾ mile intervals to discourage weaving into and out of the priced lane by drivers seeking to avoid paying tolls. (This has worked successfully in practice, e.g., on I- in Minneapolis, MN and in the San Francisco Bay Area in California.) Where feasible at reasonable cost, access to the lanes and egress from the lanes during hours when the tolls are operational would be provided through direct access and exit ramps from freeway overpasses at convenient locations. This would avoid the need to weave through the regular lanes to access or exit the priced lane.

6 To accelerate project delivery, the Director proposes to use a P approach. Competitively procured P concessionaires would design, build, finance, operate and maintain optimally-sized segments over a 0-year term, including the period of reconstruction..0 PROJECT DELIVERY ALTERNATIVES The Director of Pennorado DOT would like to see a benefit-cost analysis that assesses the economic efficiency of P delivery under three alternative payment mechanisms to compensate the concessionaire: (1) real tolls using a toll concession; () availability payments using an availability payment (AP) concession with toll rates set by the concessionaire to meet contractual service standards, and () a hybrid AP/shadow toll payment based on person throughput as discussed earlier. He calls upon his Chief Economist to perform a benefit-cost study to answer the following key questions: Will P delivery provide more net social benefits compared to conventional delivery? Which P payment mechanism will provide the most net social benefits? The Chief Economist begins the process by first identifying the delivery method options that will need to be evaluated, as discussed below. Alternative 1, No Build: The No Build option is a 0-mile segment of a typical -lane freeway configuration, with typical traffic volumes. This is the base against which Build choices will be evaluated. It consists of a Band-Aid approach involving short-term asset life extensions as the freeway system s pavement condition deteriorates. This increases O&M costs significantly. Alternative, Reconstruct with one priced lane per direction: This alternative reconstructs the freeway, adding a lane. The left lane is a priced lane, operating only in rush hours.. There will be additional upfront investment costs and on-going costs for tolling operations, and additional costs for direct access ramps. The public agency constructs the facility under the conventional Design-Bid-Build procurement method and operates the facility after construction. It sets toll rates to maximize vehicle throughput on the facility while ensuring congestion-free traffic flow on the priced lanes. Consequently, traffic volumes on the priced lane are likely to be close to the optimally efficient volumes. The alternative is assumed to be conventionally procured in the same time frame as the P options, i.e., there are no funding or financing constraints. Alternative, P Toll Concession: The project scope is the same as for Alternative, i.e., it includes reconstruction with addition of a new congestion-priced lane, but the project will be delivered using a Toll Concession P, with tolls set by the concessionaire to maximize revenue. P efficiencies are assumed to reduce costs relative to conventional delivery, and the reconstruction is assumed to be completed sooner than under conventional delivery. Consequently, the operations phase will be longer increasing the period when user benefits will accrue. Alternative, Availability Payment (AP) P: The project scope is the same as for Alternatives and above, and P efficiencies will have the same effect on costs and schedule as under Alternative. The payment mechanism to repay the concessionaire, however, will be availability

7 payments, with the public agency keeping all toll revenues and requiring that the toll rates be set by the concessionaire so as to maintain a given level of service. Alternative, Availability Payment with Shadow Tolls (AP/Shadow Toll) P: The project will be the same as for Alternatives, and above, and P efficiencies will have the same effect on costs and schedule as under Alternatives and. The payment mechanism to repay the concessionaire will include availability payments, as in alternative, but the payments will include two components: a fixed amount based on debt service and O&M costs, and a variable amount based on transit ridership and vehicle throughput on the all four lanes of the facility (shadow tolls). This will provide an incentive to the concessionaire to maximize transit and vehicle use on the priced lane at the required speed, as well as maximize vehicle throughput on the priced lanes as well as free lanes, potentially introducing innovations in traffic management..0 EVALUATION OF ALTERNATIVES The above alternatives are evaluated incrementally, comparing each one against the previous (lower numbered) alternative. An illustrative -lane 0-mile freeway segment is considered in the analysis. The calculations are performed using P-VALUE.0. The algorithms for BCA applied to project evaluation are standard and are documented in the P-VALUE.0 Guide (), in particular the chapters relating to benefit-cost analysis. A 0-year analysis period is used to match the proposed P concession term. A real discount rate of % is used to estimate present values. Real rather than nominal dollars are used throughout the analysis period..1 Incremental Changes between Alternatives The incremental changes that occur from one alternative to the next are summarized in Table 1. Alternative (Conventional Delivery) compares the physical characteristics of the project to the existing facility, determining whether the project itself is worth building. The other three alternative all include some variation on a P delivery strategy. Alternative (Toll Concession) shifts all revenue risk to the private partner, who suppresses traffic by charging a monopoly price. These travel demand impacts are estimated using travel demand models, whose results are then input into P-VALUE. Alternative reduces costs due to the P delivery mechanism. The revenue risk is assumed to be unaffected by the transfer to the private partner. Private equity impacts are captured in P-VALUE s financial analysis, but are not relevant to the BCA. Alternative (AP Concession) removes the monopoly effect and increases throughput by maintaining a peak speed standard, while retaining the cost efficiencies of the P strategy. The AP payment method does not affect the cost impacts of P procurement. Finally, the hybrid payment mechanism for Alternative introduces an incentive for stimulating additional traffic and person throughput without reducing performance. Again, the traffic volume magnitudes are estimated using travel demand models, whose results are input into P VALUE. Traffic volume changes may affect toll revenues, but the financial impacts are ignored, as are any possible changes in facility O&M costs due to changes in traffic volumes. Due to limitations of P-VALUE.0 with regard to estimation of transit and carpool benefits, impacts of changes

8 in carpool and transit use are estimated outside the P-VALUE tool; they are discussed in Section. below.. P-VALUE Model Inputs Model inputs are presented in Table. As Table shows, investment and O&M costs would be lower for P than under conventional delivery. P efficiencies are assumed to reduce Build costs by about percent, with earlier completion leading to additional cost savings relative to No Build O&M cost. O&M costs for the Build alternatives include toll collection costs. Due to the degraded condition of the pavement and sub-surface structure under No Build, its O&M costs are assumed to be significantly higher than under the Build alternatives. Table also shows the traffic assumptions. Since the most significant impacts of the Build alternatives will occur in the peak periods, we consider only impacts during the peak hours (i.e., combined total of AM and PM peak hours) when the priced lanes are anticipated to be in operation. Table 1. Incremental Impacts of Alternatives Alternative 1 Base (No Conventional P Toll P Availability P Hybrid Build) Delivery (with Concession Payment (AP) AP/Shadow Toll Change from lower alternative Impacts relative to lower numbered alternative Assumptions Existing freeway Existing freeway Very high maintenance cost due to need for frequent shortterm asset life extensions to maintain service tolls) Rehab and expansion project with new express lane, funding from tolls, optimize throughput, O&M by owner User, agency, and emissions benefits minus costs as determined by standard project evaluation Traffic volumes, transit and carpool use are exogenous inputs; project is optimally designed DBFOM, revenue risk passed to concessionaire, tolls set to maximize revenue P cost efficiencies, earlier opening, lower traffic volume from pricing Revenue risk is fixed, P efficiencies include construction and O&M cost savings due to private management Concession Revenue risk retained by owner, tolls optimize throughput, fixed single AP payment Eliminating (perception of) monopoly results in higher traffic volume than Toll Concession Highway O&M not affected by traffic volume increase, revenue risk not affected by assignment, AP causes adherence to performance requirements. Concession AP uses two-part formula based on fixed payment plus shadow tolls More traffic and person throughput than AP Concession due to marketing, finetuned pricing and innovations in traffic management Highway O&M not affected by traffic volume increase

9 Table. Key Inputs to P-VALUE.0 for Project Delivery Alternatives Alternative 1 No Build Conventional Delivery P Toll Concession Availability Payment P Hybrid AP/Shadow Toll P Configuration: Number of free lanes/ direction Number of toll lanes/ direction Total lanes Costs: Design-Build phase costs ($M) $0 $1,0 $1,000 $1,000 $1,000 Annualized O&M costs ($M) $0 $ $0 $0 $0 Schedule: Construction start date NA Construction period (years) NA Project end date Delivery type Design-bidbuild P P P Traffic characteristics: Peak period vehicle volume/per lane per hour Free lanes,000,000,000,000,000 Toll lanes 0 1,00 1,000 1,00 1,00 Peak period traffic Total (all lanes, hours, directions),000,00,000,00 0,000 Free lanes ( hours, directions),000,000,000,000,000 Toll lanes ( hours, directions) 0 1,00 1,000 1,00 1,000 Traffic volumes are assumed to be representative of the entire 0-mile segment. They would in reality be higher at some locations (causing queuing if traffic exceeds capacity) and lower at other locations. Free lanes are assumed to be filled to their capacity (i.e.,,000 vehicles per lane per hour) under both the No Build and the Build alternatives. Traffic in priced lanes is assumed to move at level of service A (LOS A) with the revenue maximization objective under a P toll concession; at LOS B with toll rates set to optimize vehicle throughput with the conventional and Availability Payment P delivery options; and at LOS C with the AP/Shadow Toll concession under which the concessionaire has an incentive to squeeze through the maximum possible vehicle throughput at acceptable speeds. In order to provide conservative estimates of benefits, identical traffic volumes are assumed for all years of the 0-year analysis period, i.e., the annual rate of traffic growth is assumed to be zero for free lanes as well as toll lanes.

10 Off-Model Evaluation of Transit and Carpooling Impacts Benefits that could be achieved through carpool and transit service improvements are not included in P-VALUE estimates. Since improved carpool and transit services are proposed under the Build options, person throughput in the peak period will increase. Consequently, user benefits related to carpool and transit use are likely to increase, along with an increase in transit service costs. These impacts are evaluated using off-model analysis, as shown in Table. Table shows assumptions about changes in transit and carpool passenger trip performance, costs, and demand relative to the No Build. Transit and carpool passengers are expected to save 1 minutes per trip relative to No Build. This approximates the difference between the travel time to use a typical 1-mile freeway segment at 0mph under No Build (i.e., 0-minutes) vs. the travel time to use the segment at 0mph under the Build alternatives (i.e., 1 minutes). The cost to provide transit service is assumed to be $.00 per trip, with a third of the cost covered by fares. New express bus ridership is assumed to be relatively high in this corridor due to its radial orientation relative to the Central Business District; it is similar to ridership forecasts for the planned I- express lanes in Northern Virginia. The significant increase in carpool use stems from informal carpools ( slugs ) that are expected to form at transit park-and-ride facilities to avail of toll exemptions or to share toll charges among carpoolers. Performance and costs per trip are the same for all Build Alternatives. However, due to the P payment mechanism incentives under Alternative, the concessionaire is incentivized to increase person throughput. Therefore transit and carpool passenger volumes are higher than under Alternatives, and. This results in higher annual transit and carpool benefits, calculated based on consumer surplus theory and the rule of half. But there are also higher costs to provide additional transit service. This results in a present value of net benefits of $ million over the 0-year analysis period (see bottom row in the table). Due to the additional year of operations under P, the present values of net benefits over the analysis period for Alternatives and ($0 million) are higher than for Alternative ($ million).. Evaluation Results from P-VALUE.0 Table presents P-VALUE estimates of highway costs and benefits for each of the four Build delivery method alternatives (Alternatives through ) in comparison with the No Build (Alternative 1). Emissions and fuel cost savings are negative because the increased traffic on the facility outweighs reductions on other regional facilities. It reflects higher traffic on the facility, some of which is diverted from other regional facilities on which emissions and fuel consumption are reduced due to reduced traffic and lower congestion levels. The impacts of the P payment alternatives may be assessed by comparing net benefits under each of the three P options with net benefits under conventional delivery in the same time frame (i.e., Alternative ). Benefits of all three P options are higher than those for conventional delivery (see sixth row from the bottom of the table). The P toll concession option (Alternative ) produces $ million in additional benefits relative to conventional delivery (Alternative ), calculated by comparing their total benefits. Even though fewer vehicles are carried in the priced lane (reducing priced lane user benefits compared to Alternative ), overall benefits are higher

11 primarily due to the extra year of operations under the P option due to earlier completion of construction. Note that net benefits (fourth row from bottom) are much higher because P efficiencies result in a large decrease in costs. Table : Transit and Carpool Cost and Benefit Estimates for Illustrative Project Alternative Number Conventional Delivery Toll Concession P Availability Payment P Hybrid AP/Shadow Toll P Assumptions Assumed changes per passenger trip (relative to No Build): Time saved (minutes) Fuel saved (gallons) Non-fuel vehicle operation costs saved $.0 $.0 $.0 $.0 Assumed costs per transit passenger trip: Transit fare $.00 $.00 $.00 $.00 Subsidy (capital plus operating) $.00 $.00 $.00 $.00 New users per day (relative to No Build): Transit 0,000 0,000 0,000,000 Carpools,000,000,000 1,000 Total 0,000 0,000 0,000,000 Benefit Calculations Transit benefits Value of time saved (at $1/hr.) Value of fuel saved (at $.0 per gal.) Value of non-fuel costs saved Total benefit per passenger trip Transit fare paid Net benefit per trip Annual benefits (for 0 days, in million $) $1. $1. $1. $.0 Carpool passenger benefits Value of time saved (at $1/hr.) Value of non-fuel costs saved Value of fuel saved (at $.0 per gal.) Total benefit per passenger trip Annual benefits (for 0 days, in million $) $1. $1. $1. $1. Public Costs for transit service Annual costs (for 0 days, in million $) $0.00 $0.00 $0.00 $.00 Net societal benefit (Benefits less costs) Annual transit and carpool net benefits ($M) $. $. $. $. Present value of transit and carpool net benefits ($M) $ $0 $0 $

12 Table. Costs and Benefits of Alternatives (present value, million $) Alternative Conventional Delivery Toll Concession P Availability Payment P Hybrid AP/Shadow Toll P No Build Highway Costs (from P- VALUE): O&M No Build cost savings $1, $1, $1, $1, Real construction costs ($1,0) ($) ($) ($) Real operations costs ($1,) ($) ($1) ($1) ($1) Total costs ($1,) ($) $ $ $ Change from prior alternative ($) $1 $0 $0 Highway Benefits (from P- VALUE): Travel time cost $ $0 $0 $0 Delays due to incidents $0 $ Non-fuel costs $ $ Fuel costs ($1) (0) ($) (1) Accident costs $ $1 Emissions cost ($) () ($) (0) Total highway benefits $1 $ $ $ Change from prior alternative $1 $ $ $ Net highway benefits $ $1,00 $1,00 $1,0 Change from prior alternative $ $ $ $ Present value of transit and carpool net benefits (Table ) $ $0 $0 $ Total net benefits $1 $1, $1, $1,11 The AP concession (Alternative ) further increases net benefits by $ million relative to the toll concession (see third row from bottom). Traffic volumes on the priced lanes are higher than under Alternative, but the same as under Alternative. While priced lane benefits per user are slightly lower than under Alternative due to slightly lower speeds, there are more users. Consequently total benefits are higher than under Alternative. Finally, the hybrid AP/Shadow Toll option (Alternative ) further increases net benefits relative to the AP concession by $ million. Traffic volumes on the priced lanes are higher than under Alternative. Therefore, priced lane benefits per user are lower, but there are more users. Total benefits are therefore higher than under Alternative. The net benefits of the project relative to No Build (assuming conventional delivery) are $ million before considering P procurement and payment options. Having ensured that the project is worthwhile, selecting a P Toll Concession delivery method adds $ million and brings the 1

13 total to $1,00 million. Modifying the P strategy to remove the effect of monopoly pricing and increase throughput using an AP concession adds another $ million, and adding the shadow toll incentive to further increase traffic volume creates incremental net benefits of another $ million. Since HOV and transit costs and benefits are not included in the above P-VALUE evaluation, the off-model estimates of the present value of net transit and carpool benefits calculated in Table are added in at the bottom of Table (see second last row). The last row of Table summarizes all net benefits. It shows that total project benefits from conventional delivery are $1 million. A P toll concession adds $ million to these benefits ($1, million vs. $1 million). An AP concession would provide an additional $ million in net benefits, and the hybrid AP/Shadow Toll concession option would add $1 million in net benefits. Incremental benefits of the hybrid AP/Shadow Toll P (Alternative ) show significant change from the incremental highway benefits of $ million estimated by P-VALUE, due to the increase in person throughput relative to the AP Concession. If any of these incremental calculations resulted in negative incremental benefits, then the BCA evaluation would go back to the last alternative that added positive benefits. In this way, evaluation of complex alternatives can be sequenced so as to ensure that each of the project and procurement decisions are made on solid grounds, without the confusion of bundling them all together..0 SUMMARY AND CONCLUSIONS An illustrative economic efficiency evaluation of highway project delivery options has been presented in this paper. The evaluation considers a hypothetical project involving reconstruction of a freeway with addition of a single priced lane in each direction, and a hybrid Availability Payment/Shadow Toll P approach which provides financial incentives to the concessionaire to maximize public welfare. The hybrid approach could address public concerns relating to higher toll rates that are possible due to the revenue maximization goal in a toll concession. At the same time, it can align the interests of P concessionaires with those of the public agency and harness the creativity of the private sector to maximize person throughput and freeway efficiency. The results of the analysis suggest that the hybrid P approach could generate significant additional net social benefits relative to more commonly used P payment alternatives, as well as relative to the conventional delivery alternative. The evaluation also demonstrates that P- VALUE.0 is capable of being used for a high-level screening analysis of conceptual project delivery alternatives. However, since P-VALUE.0 is not able to address benefits of modal shifts to carpools and transit, these benefits need to be assessed externally. ACKNOWLEDGEMENTS The views expressed are those of the authors and not necessarily those of the US DOT, the Build America Bureau or the Federal Highway Administration (FHWA). The authors would like to acknowledge valuable comments received on an earlier version of the paper from the TRB Revenue and Finance Committee. 1

14 REFERENCES 1. Metropolitan Transportation Commission. Transportation 0 Plan for the San Francisco Bay Area. April 00. Available at: 00/transportation-0. FHWA. Public Private Partnership Concessions for Highway Projects: A Primer. Undated. Available at: FHWA. Benefit-Cost Analysis for Public-Private Partnerships: A Framework. January 01. Available at: FHWA. Guidebook for State, Regional, and Local Governments on Addressing Potential Equity Impacts of Road Pricing. April 01. Available at: Transportation Research Board. Guidebook for Assessing the Social and Economic Effects of Transportation Projects. NCHRP Report, 001. Available at: FHWA. Guidebook on Financing of Highway Public-Private Partnerships Projects. March 01. Available at: FHWA. Guidebook on Value for Money Analysis for Public-Private Partnerships. December 01. Available at: DeCorla-Souza, Patrick and Morteza Farajian. TRB paper Evaluation of a Non- Traditional Approach to Fund, Finance and Manage Metropolitan Freeways. Prepared for presentation at the TRB Annual Meeting in January 01.. DeCorla-Souza, Patrick and William D. Ankner. TRB paper Optimizing Person Throughput on Managed Lanes in an Era of Rapid Technological Change. Prepared for presentation at the TRB Annual Meeting in January 01.. FHWA. P-VALUE Guide. January 01. Available at: 1