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101 encryption. This may require the purchase of new or upgraded and the introduction of measures for reducing evasion can hardware and software to ensure that customers' sensitive result in higher revenues as well as higher costs. The magnitude financial data are not hacked, stolen, traded, and/or used for of the potential increase in revenues and costs will differ for illegal purposes. Along these lines, it is also necessary for toll each toll agency. In some cases, increased revenue generation agencies to monitor their customer accounts to ensure that may be less than the overall increase in costs. Toll agencies that there have not been any security breaches. There are also addi- have struggled to meet traffic forecasts, have relatively low rev- tional costs related to the maintenance and storage of cus- enue generation, and/or have high cost structures could see tomer account records. While these costs may end up being profitability impacted negatively. However, other toll agencies significant in some cases, they may pale in relation to the risks may find that the potential increase in revenues is greater than involved. A widespread breach in security and the attendant the increase in costs, further improving financial performance. negative publicity may create distrust and lead to a reduction These general conclusions require the caveat that this will in traffic and revenues. affect toll agencies in different ways. Toll systems have differ- ing governance structures, with some agencies having greater incentives and pressures to maximize profits. Toll agencies also Implementation and Enforcement have different cost structures for the operations and mainte- Costs per Transaction nance of physical infrastructure, which has not been factored To obtain a rough estimate of the impact to costs with into this analysis. Finally, toll agencies also have differing debt respect to a change in implementation and enforcement levels since some systems are highly leveraged while others have costs, a risk analysis was conducted for each general category few or no debt obligations. The impact of debt tax rates and using the per-transaction estimates for administrative, collec- depreciation schedules of the physical infrastructure have not tion, and enforcement costs that were calculated for each agency been factored into this analysis. in Chapter 4. The risk analysis entailed running 5,000 sepa- rate iterations to provide updated mean and standard deviation 5.4.3 VMT Fees values for each major cost category. Table 42 summarizes the results of these risk analyses, including the pre- and post-risk Scale analysis mean values, standard deviations, and the low- and Economies or diseconomies of scale and scope (e.g., the high-cost cases. number of vehicles, geographic coverage, and range of uses for Overall, the mean values for administrative, operations, and the system) may affect both cost and revenue in a VMT charg- enforcement costs were higher after the risk analysis. A possible ing system. The VMT systems considered all have a large cost interpretation is that the actual mean value of per-transaction associated with the OBU needed to determine the location of cost to administer, collect, and enforce toll systems may trend the vehicle and the distance traveled. There are conflicting issues toward the higher risk-adjusted mean as toll agencies imple- with respect to economies of scale related to such units. Large- ment and modify their respective collection and enforcement scale implementation is generally expected to reduce the cost strategies. These improvements will also have an impact on per unit to some extent. However, there is also substantial con- administrative costs. cern that implementation would have to occur over a period of time. Large-scale, short-term production would likely cause very high cost. This would also interact with implementation Profitability considerations, discussed later in this section. The main finding from these analyses is that the various Scale may also affect the cost of the system by affecting the strategies available for toll agencies with respect to the set- number of visitors or non-registered vehicles. Various jurisdic- ting and increasing of toll rates, the implementation of toll- tions at different levels of government have considered using collection systems, the administration of customer accounts, mileage-based systems. For practical purposes, it is unlikely Table 42. Per-transaction cost impact by general cost category. General Cost Mean (Pre- Mean (Post- Standard Low High Case Category Risk Analysis) Risk Analysis) Deviation Case Administrative $0.14 $0.16 $0.07 $0.09 $0.23 Operations $0.36 $0.46 $0.19 $0.26 $0.65 Enforcement $0.04 to $0.09 $0.12 $0.06 $0.06 $0.18 Total $0.54 to $0.59 $0.74 $0.32 $0.41 $1.06 Source: Jacobs Engineering Group, 2010

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102 that a GPS-based VMT system would be adopted at less than Sensitivity analysis would have to account for both the possi- the state level. However, states vary in terms of the number of bility that technological progress would be slower than antici- resident versus nonresident vehicles on their highways as well pated as well as the possibility of it being considerably faster. as total size. Users from another state would have to be able Another concern with the technology is the ability for the sys- to obtain a temporary unit, or participation would have to be tem to adapt to technological advances in the future. One argu- voluntary. Participation by in-state users may also be voluntary ment for the thin system OBU is that it would be easier for the for some period. Existing VMT charging systems and the stud- central office to coordinate updates than for them to be distrib- ies of proposed ones all find that the cost of serving occa- uted over many units. In addition, if there are multiple jurisdic- sional users is much higher than the cost of serving regular tions levying charges, the thin unit's simple functionality allows users, especially relative to the revenue generated. For example, for adaptation to new or changing mechanisms in the back one estimate of the cost of the German truck system finds office. If charges are generated within the OBU, the addition of that the 10% of miles charged by methods other than the GPS new charging jurisdictions may create large costs for adapting unit constitute more than 30% of the total administrative cost older units. (AASHTO, 2010). There are some considerations related to the accuracy of the The size of the area that is subject to the charges also deter- OBU. Actual systems used for revenue generation typically mines the likelihood that a driver will want to register the have minimum accuracy requirements, which affect the cost vehicle. An occasional user would be much less likely to install of the system. There are issues with the GPS due to blocked or the collection equipment than a regular user, and the wider the reflected signals, start-up signal acquisition, and battery issues area covered, the more likely each user is to be a regular user. if the unit uses power when the vehicle is off to maintain a Hence, multiple state systems are more likely to have smaller rapid start of the GPS. percentages of occasional users than a set of state systems. Even In addition, the cost estimates should be analyzed for the if the states have different systems, some agreement on inter- impact of large-scale deployment. For example, costs that are operability may make the use of an OBU feasible when outside now low due to excess system capacity may be much higher if of the home state. The benefit of having outside units capable of more capacity is needed. This is a concern for adding large using the system may be somewhat offset by the requirement numbers of new users to the cellular system. There may also be for the system to have interoperability, increasing the cost. The some considerations related to collecting revenue from vehicles Dutch studies noted that the cost of dealing with outside users that are operated in areas with limited cellular reception. and incorporating European interoperability requirements was relatively high. Revenue All revenue systems are subject to potential variation due to Technology various factors that can lead to forecast errors, such as elasticity The cost of each system discussed depends to some extent of demand, a recession, or alternatives available. This will be on the cost of the technology to implement it. Known costs particularly important for the start up of a new revenue system. should be carefully separated from estimated costs. Potential The adoption of the new system may be either faster or slower changes in cost due to technological progress or to the use of than anticipated. For example, if the system relies on equipment the technology for other purposes should be considered. This in new vehicles, then a significant recession may delay revenue also relates to the possibility of sharing costs for a system that generation. This would be less of a problem with a system that is interoperable over various revenue systems. In particular, replaces fuel taxes than for a new system that is intended to GPS is being used in a variety of devices, including cell phones, generate additional revenue. and it is anticipated that a system used for other purposes could The London system generated far less revenue than forecast, have revenue functions added at a much lower cost than that with net revenue about half the amount originally predicted of a standalone system. Further, if the system could be used (Leape, 2006). There have been problems with revenue fore- to collect a variety of charges, the cost of the basic unit could be casts for some toll roads. If price is varied by road classification, spread over the different functions. time, or geography, the revenue forecasting process is made The OBU will be a major cost of a VMT system, but there is more difficult. Such uncertainty would also affect the potential widespread expectation that this cost will continue to decline. to borrow against the expected future revenue. For example, the cost estimate for the proposed Dutch system Some consideration also has to be given to the mechanism declined from t180 per unit to a range of t85 to t140 in by which rates will be set and the incentives that a rate maker about 1 year (Ministry of Transport, 2009). In addition, most may have. One concern is that the rates that would optimally of the companies responding with cost estimates projected manage traffic may be quite different from the rates that lower cost per unit in the future due to technological advances. would maximize revenue; rate makers may opt for the latter

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103 even if the intent was rates that optimize use. Political consid- very large number of units in a short period of time. Hence, one erations related to acceptability may also influence the rate area of risk is the time frame for adoption of the system. On the structure and affect both revenue and cost of operation. For other hand, partial adoption limits the functionality of the sys- example, the London system has a variety of charge rates for tem. For example, congestion pricing to manage roads would different vehicles, and proposals for VMT systems often differ- not be effective with partial implementation. In addition, vol- entiate based on environmental characteristics of the vehicle or untary implementation creates risks associated with the rev- other features. More complex rate structures may also affect enue function. Drivers would have an incentive to choose the enforcement reliability and cost. system that minimizes their total cost, so if there are simulta- Collection will also have some risk. Depending on the neous systems in place there will be greater revenue risk. method of payment, the amount actually collected may vary The German experience with the actual implementation relative to the amount owed. There may also be disputes of untested technology was that the cost was higher than ini- related to the responsible party when a vehicle is sold or when tially estimated. In addition, delay in implementing the sys- rental vehicles change users. tem resulted in lower revenue than forecast. The Oregon experiment also resulted in higher cost per unit and delays in creating the units relative to initial estimates. Evasion and Enforcement Evasion estimates for existing systems are subject to great Privacy and Security uncertainty, so the estimates for proposed systems will be even more open to debate. There will also be trade-offs between Any system will have to have provisions to maintain privacy enforcement costs and levels of evasion, but they must be care- and security. Failure of such systems would result in additional fully evaluated. In the initial proposals for the Dutch system, costs and other consequences. The proposed Dutch system had much higher levels of enforcement where expected than were a high level of both privacy and security. Security issues arise planned in the later estimates. This reflects consideration that around the collection and storage of data, communication of the initial requirements were excessive, but there was little dis- information, and calculation of amounts owed. Different sys- cussion of the likely rate of evasion or of the trade-offs associ- tems address security in different ways, but each has cost impli- ated with different levels of enforcement. London had much cations, and breach of security must be considered a risk factor. higher rates of non-compliance than anticipated when first The proposed Dutch systems deal with privacy in two pos- implemented (Leape, 2006). sible ways. The first is the use of the thick OBU, which calcu- Another issue is the difference between actual evasion and lates all charges in the vehicle and only sends information on accidental misuse of the system. For example, outsiders enter- the amount owed to the central office. In this case the secu- ing a state at a remote location may have little knowledge of the rity of the data on board is necessary to preserve privacy, but system or how it works. Alternatively, a complicated pricing in general, there should also be some method to verify the system may create a backlash among users due to difficulty in data to allow for audit and enforcement. The second method understanding the pricing structure or in changing behavior in used is for a thin OBU to transmit all location data to a back response to price signals. Most analysts suggest keeping the sys- office where the charges are calculated. As noted previously, tem simple to start, but a simple system will not achieve some privacy is maintained by only sending an OBU number with of the road management functions. More complex systems the location data. The charge along with the OBU number is may also require more costly enforcement mechanisms. then sent to another office where the number is matched to an account for billing purposes. In this way, the location data is not directly matched with an account. Any system of privacy Implementation has the potential to be breached, and the consequences of such There are a variety of risks associated with implementa- breaches are another risk factor. The major concern expressed tion. First, there is always the possibility of unexpected prob- by the public over the possibility of having "big brother" mon- lems and delays, which raise cost and reduce revenue. There itor movement indicates that there could be a substantial cost is also the possibility of changes in political support for a new associated with any such breach even if no particular damage system as it is being phased in, which could lead to termina- was done. This relates to the cost of getting and maintaining tion of the project or other costly changes. public support for the VMT system. The timing of implementation offers a number of trade- offs as well as risk factors. For example, several of the compa- General Uncertainty nies providing estimates for the Dutch system warned that an all-at-once start-up would be extremely difficult and would The Dutch government insisted that cost estimates include likely raise the cost per unit because of the need to produce a a 15% contingency for all capital and operating expenses.