How much is the Dulles Toll Road worth?

September 7, 2005
By Peter Samuel
Mainline toll plaza has two lane constrained highspeed ET lanes - not ORT
Mainline toll plaza has two lane constrained highspeed ET lanes - not ORT
Wilbur Smith's traffic and revenue report
Wilbur Smith's traffic and revenue report
Plot of destinations of DTR motorists shows dispersed trip ends in Herndon-Reston area and out on the Greenway
Plot of destinations of DTR motorists shows dispersed trip ends in Herndon-Reston area and out on the Greenway
Revenue maximizing toll is $2.50 at mainline plaza vs 75c now!
Revenue maximizing toll is $2.50 at mainline plaza vs 75c now!
DTR trip origins plotted
DTR trip origins plotted
DTR is thick
DTR is thick
At present toll rates traffic and revenues 2005-2030
At present toll rates traffic and revenues 2005-2030
At 25c/mi traffic & revenue 2005-2030
At 25c/mi traffic & revenue 2005-2030

What's the Dulles Toll Road (DTR) worth? Let's compare three toll facilities in play.

Dulles Corridor Mobility Consortium has offered to do slightly over a billion dollars (say $1,050m) of financing for Dulles Rail in return for 50 years of the tolls of the DTR. The Dulles Greenway (DGwy) has just been priced at $615m in a sale. Early this year the Chicago Skyway (CSkwy) sold for $1,830m. It's a coincidence but all three facilities presently have comparable annual toll revenues:

DTR: $37.7m

DGwy: $40.8m

CSkwy:$41.2m

They are comparable too in the time savings they offer over free alternatives: 15 to 25mins. Many motorists on DTR and DGwy can choose the Leesburg Pike (VA7) as their alternate free route, but they face an unending procession of traffic signals. Motorists using the CSkwy have no realistic surface arterial but they do have free expressway (Dan Ryan, Bishop Ford, Kingery, Borman) but it's a longer trip by approximately the same time.

In other ways the three pikes are very different.

DTR and DGwy carry almost entirely commuters and local traffic. They are both almost entirely intraurban local highways with little heavy trucking (<2%) whereas the CSkwy while commuter-stretched in peak hours carries moderate volumes of longdistance heavy truck traffic (6%) - nothing like the tollroads of IN, OH, IL but significant, especially when the higher toll rates they pay are factored in.

All three are radial highways, heading for the central business district but the CSkwy is closer in and more central area oriented. Inbound only a minority of DGwy/DTR traffic goes inside the Beltway, most disperses there or before - one of several fatal flaws in the whimsical notion that a DC-oriented rail line could get people out of their cars in the Dulles corridor. (Another is that beyond Tysons Corner workplaces and housing are both heavily dispersed away from the proposed rail line making rail inconvenient because of the need for feeder shuttles to start and finish most trips.)

The CSkwy is much shorter.

Lengths:

DTR: 12mi (19km)

DGwy: 14mi (22km)

CSkwy: 7.5mi (12.5km)

They have very different traffic capacities in terms of main travel lanes:

DTR: 2x4 lanes

DGwy 2x2 lanes (widening to 2x3)

CSkwy: 2x3 lanes (steep grades for trucks, no shoulders)

Traffic volumes as measured by average daily traffic are very different:

DTR: 329k

DGwy: 61k

CSkwy: 47k

This exaggerates. When toll people talk average daily traffic in the US they mean toll transactions per day, so in part that number is just a function of how the tolling is set up. Most trips on the DTR involve two toll transactions, one at the mainline toll plaza (MTP) and one on a little ramp plaza. By contrast on the DGwy and CSkwy trips involve just one toll transaction. There are only a couple of fairly unimportant ramps on the CSkwy and no ramp tolls. The CSkwy mainline plaza is central and does all the transactions. The DGwy mainline plaza is at the action end of this pike and there are a bunch of ramp plazas but they don't do much business, though that is starting to change with more development along the way. On the DTR the ramp plazas do huge business - two-thirds of the transactions and a bit over half the revenue.

Traffic in terms of average annual daily traffic at various points down the road are DTR 90k to 160k, DGWy 25k to 50k (data awful - a guess), CSkwy 40k all the way.

Electronic tolling as a percent of transactions is very different:

DTR: 52%

DGWy: 72%

CSkwy: 30% (only new and rising rapidly)

Investments needed

In terms of improvements needed the CSkwy has to finish the modernization started by the city - less than $100m worth - and then evict the absurd McDonald's franchise in the middle of the toll plaza to allow highway speed open road tolling. Beyond that they need to do a deal with Indiana to improve service on the adjacent Indiana Toll Road whose primitive stop-to-pay barrier plazas drive traffic south to the free expressways that should be traveling on the ITR-CSkwy combo-road. Then they are pretty set.

The DGway has major improvements in train except for the mainline toll plaza and toll system which was poorly designed from the start and now becoming a major handicap on the service they can provide.

The DTR's low-lying fruit by way of improvements are at the mainline toll plaza. A widening the ramps and building a couple of new ones - as identified by Dulles Corridor Mobility Consortium. They also need to rebuild the interchange with Fairfax County Parkway, a virtual expressway. Beyond that traffic volumes and tolls will dictate.

All three are located in auto-oriented corridors with no prospect for serious diversion to transit, though bus transit needs to be supported.

They are different in income. The CSkwy is located on the old-industry side of Chicago with slightly below-average incomes and low growth. The Dulles corridor has above-average incomes, especially the Fairfax County suburbs of Reston and Herndon along the DTR. Half the users of the DTR have household incomes over $100k! (WSA fig 3.11). Willingness to pay tolls for time saved ranks DTR, DGwy, CSkwy.

Paradoxically toll rates are exactly the other way around - significantly lower in the Dulles Corridor, especially lower on the DTR. In fact toll rates per mile are inversely related to income level and willingness to pay - a neat reflection of the way toll politics works in constraining prices to the articulate and well-connected while being closer to the market for the unorganized.

Tolls at the mainline toll plaza rate for cars:

DTR: $1.25 for 12mi = 10.4c/mi

DGwy: $2.40 for 14mi = 17.1c/mi

CSkwy: $2.50 for 7.8mi = 32c/mi

DTR has so much more scope for higher tolls

That's the key issue in the value of the DTR, and it has been studied by Wilbur Smith Associates, traffic and revenue consultants. (Dulles Toll Road Rate Adjustment Review, for VDOT, Feb 8 2005) They found, unsurprisingly, that the toll rates on the DTR are way out of whack in terms of what the traffic would bear, though being consultants, they don't speak plainly like that. Their text tiptoes ever so gingerly around the issue, but it's all there in the tables and charts.

The CSkwy is probably close to a market toll rate in that above 35c or 40c/mi they would probably lose revenue. The DGwy has some leeway to raise revenues with higher tolls and will get more revenue - perhaps 30c/mi - but nothing of the order of the potential of the DTR.

WSA calculate the revenue maximizing or market toll rates for the DTR as about $2.50 at the mainline plaza and $1.50 at the ramps: $4.00 for 12mi=33c/mi. That's over three times the tolls being charged now, and it was just back May 22 this year that toll rates were increased about 60% on tolls which had been in force since the facility opened two decades ago - frozen in time like some historic relic oblivious to the changing economy and soaring prices and incomes around it.

Although the optimum toll rate is $2.50 at the mainline plaza WSA are conservative and plump for $1.50. That reduces the average toll to 25c/mi.

Of course at 25c/mi the DTR would carry less traffic than at the present sub-market toll rates. WSA has a shot at measuring how much less. It is plainly a rough shot at an estimate because they were given a limited budget and tight deadlines. It is based on crude assumptions, but it gives an order of magnitude.

They think in 2005 at 25c/mi the DTR would do only 256k tolls/day vs 408k now, about 37% less, though toll revenues would be $102m at 25c/mi vs $45m at 10.4c/mi. Projecting ahead to 2030 traffic (tolls/day) would be 369k at 25c/mi and 475k at 10.4c/mi, and toll revenues would be $152m vs $53m.

Given the heavily fixed nature of costs in a road, profitability escalates faster than revenue with higher tolls at least until capacity gives out. A 25c/mi DTR is probably about 4 or 5 times as profitable as a 10c/mi DTR.

A DTR with such a low toll as 10c/mi represents a huge challenge. It immediately needs extra capacity at the ramps and toll points and within ten years perhaps 5th travel lanes and further interchange upgrades. At a market toll all this is more manageable, especially if variable toll rates by time of day are used to spread some of the lower value trips out of the peak of the peak hours.

The DTR worth however much freedom tollster has to set tolls

Dulles Corridor Mobility Consortium's offer of $1,050m assumed essentially the status quo on tolls. If at the other extreme the DTR were set up like the Ambassador Bridge Detroit-Windsor, M6Toll in the UK, 407ETR or 125South CA - without price controls - it would by this reasoning be worth several billion.

Diversion the elephant

The elephant in the political stable is diversion. To simplify, at 25c/mi much of the traffic no longer on the DTR would go to VA7. Suddenly hiking tolls on the DTR to market levels would approximately double traffic on the parallel signalized arterial (2x3 lanes and primitive intersections) creating gridlock.

The key to making a viable proposal for the DTR - that should be in the $1.5b to $2.0b range - is to focus on how to manage the transition to a more market based situation where the DTR eventually yields the productivity it should, but accepting that it's so out of whack at the moment it's not realistic to go straight there. A plan for the DTR has to include a plan for VA7 as well. In the region's longterm plans they already provide for its eventual upgrade to expressway standard. It is mostly access controlled already, just not grade separated. And of course given the dysfunctional tax financing system these longterm plans are built around, there is no money to do any grade separations, or any prospect of the funding.

In return for steadily increasing freedom to charge what the traffic will bear on the DTR, during which the DTR charges too little and accepts too much traffic, the investor-tollster on the DTR should be offering support for easing congestion on VA7. Otherwise it isn't politically tenable.

There's a huge potential asset in the DTR but realizing its value depends on political as much as on financial creativity. 2005-09-08


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