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33 were incurred in FY 2008 were (1) losses on accounts receiv- the following year, the Swedish parliament enacted the Con- able and provision for bad debts, (2) invoice forms and postage, gestion Charging Act, which authorized a cordon charge pilot (3) maintenance and operation of IT systems connected with program; the program ran from January 2006 to July 2006. The toll collection, (4) removal of old tollbooths, (5) tollbooth oper- Stockholm cordon charge system had the following objectives: ations, and (6) other operational activities. Losses on accounts (1) reduce the number of vehicles passing into and out of receivable represented the single largest operating cost item, the congestion zone during peak periods by 10% to 15%, representing 17% of total operating costs. Additionally, losses (2) improve traffic flow along the busiest streets, (3) reduce on accounts receivable were equivalent to 2% of revenues in vehicle emissions, and (4) improve the urban environment FY 2008. (TRANSEK AB, 2006). The pilot program was developed Gross margin has averaged about 89.4% from FY 2003 to and administered by the City of Stockholm, the Swedish Road FY 2008. Fjellinjen's operating margin during this period has Administration, and Stockholm Transport. Following the averaged 59.4% during this period, ranging from 32% in FY implementation of the pilot program, the winning parties in 2006 to 72% in FY 2003. Lower operating margins are a result the 2006 general election in Sweden announced that the Stock- of the depreciation costs associated with the acquisition of toll- holm congestion tax would be made permanent. Parliament collection rights from the national Public Road Administra- approved the congestion tax in June 2007, and the congestion tion, particularly the "Oslo Package 3." Moreover, there were tax came into effect on August 1, 2007. additional depreciation costs associated with the implementa- tion of the ETC system, video imaging equipment, and the installation of new tollbooths. Fjellinjen's financial results Operations of the Stockholm System from FY 2003 to FY 2008 are summarized in Table 11. The development of the congestion charge system in Stockholm was modeled from the Oslo system. Oslo has 2.4.4 Stockholm population and demographic characteristics similar to those of Stockholm. The initial capital costs to operate the pilot Overview of the Stockholm System program were estimated to be 1.82 billion Swedish Krona In June 2003, the Stockholm City Council adopted a pro- (SEK), or roughly $266 million ($1 U.S. = 6.842 SEK as of posal to carry out a pilot program for cordon charging. During December 31, 2006) (TRANSEK AB, 2006). Capital costs Table 11. Financial performance of Fjellinjen AS, 20032008 (NOK million). Fiscal Year 2003 2004 2005 2006 2007 2008 Average Operating revenues Subscription revenues 746.6 800.8 849.8 876.2 910.9 1176.2 Video invoicing -- -- -- -- -- 385.2 Manual payment 316.3 370.3 346.3 332.7 330.0 23.1 Surcharges 19.7 21.6 23.7 39.4 39.6 50.1 Remuneration to issuer -- -- -- -- 4.3 5.8 Subtotal 1,082.6 1,192.7 1,219.8 1,248.3 1,284.7 1,640.4 1,278.1 Operating costs Payroll 12.2 12.0 14.1 15.3 17.4 19.9 Toll operating costs 96.9 107.6 111.2 118.3 126.7 164.5 Subtotal operating costs 109.1 119.6 125.3 133.6 144.1 184.4 136.0 Non-operating costs Depreciation 200.7 250.7 300.6 400.5 730.1 414.6 Write-down of intangible assets -- -- -- -- -- 0.6 Subtotal non-operating costs 200.7 250.7 300.6 400.5 730.1 415.2 Net income 772.8 822.4 793.8 714.2 410.6 1040.8 759.1 Financing activities Interest received 11.7 6.8 11.1 9.8 7.2 5.9 Interest paid 60.8 27.8 12.9 9.0 3.0 0.4 Income before contributions to roads 723.7 801.4 792.0 715.0 414.8 1046.4 748.9 projects Benchmarks Operating costs/revenues 10.1% 10.0% 10.3% 10.7% 11.2% 11.2% 10.6% Gross margin 89.9% 90.0% 89.7% 89.3% 88.8% 88.8% 89.4% Operating margin 71.4% 69.0% 65.1% 57.2% 32.0% 63.5% 59.4% Source: Fjellinjen AS

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34 include system development, equipment installation, staff Due to the decline in traffic, it was estimated that the num- education and training, testing, and public outreach activi- ber of traffic accidents decreased by 3.6%. ties. Initial capital expenditures also included the (planned) decommissioning of the congestion charge system, which The costbenefit analysis also estimated that the initial capi- could be deferred or decreased if the pilot program were to tal costs for the congestion pricing system could be repaid with- be extended. in approximately 4 years. This estimate also took into account Initial charges were set at SEK 10 to 15 ($1.25 to $2.50) per the value of shorter and more reliable travel times, the reduc- crossing. Payments could be made at kiosks and at conven- tion in vehicle emissions, revenues generated from congestion ience stores through 2008. During the pilot program, a charges and public transit services, safety improvements, the monthly or annual subscription account service was not cost of operating the congestion price system, and the expan- established. As a result, it was found that payment processing sion of transit services to accommodate greater demand. costs were relatively high due to the need to process individ- A follow-up study that was conducted by the City of Stock- ual transactions. The pilot program encountered difficulties holm Traffic Administration in 2009 found that: in recognizing exempted vehicles traveling to/from the Linding area of Stockholm, which were not required to pay Traffic in 2008 in the cordon area decreased by 18%, as the charge if they completed passage through the cordon area compared to 2005 levels; within 30 minutes. The number of registered alternative-fuel vehicles, which are exempt from congestion tolls, increased from 5% of the total vehicle fleet in 2006 to 14% in 2008; and Impact of the Stockholm System on Traffic To avoid driving in the inner city, traffic on ring (orbital) To evaluate the impacts of the pilot program, Stockholm roads increased between 5% and 10% in 2008 compared to commissioned a costbenefit analysis that examined the impact 2005 (City of Stockholm Traffic Administration, 2009). on congestion, public transit usage, and vehicle emissions (TRANSEK AB, 2006). The following were some of the key Financial Performance of the Stockholm System findings from this 2006 study: During the pilot program, it was estimated that the conges- VKT declined by 2.8%; tion charge system would generate roughly SEK 763 million Fuel tax revenues decreased by SEK 53 million ($7.7 million) ($111.5 million), with estimated operational costs of approx- (fuel prices in Sweden were roughly constant during this imately SEK 220 million ($32.2 million). As a result, costs period); would account for about 29% of revenues. The operating Public transit ridership increased by 4.5%; margin for the congestion charge system was estimated to be Road maintenance expenses decreased by SEK 1 million approximately 65%. During 2007 and 2008, actual revenues ($140,000); generated from the charge system were SEK 230 million Vehicle emissions of climate gases--carbon dioxide (CO2) ($31.6 million) and SEK 559 million ($71.3 million), respec- and Volatile Organic Compounds (VOCs)--in the county tively. However, no operational cost information was available of Stockholm were estimated to have declined by 2.7%; during this period. Table 12 summarizes the estimated finan- Vehicle emissions of climate gases in the central area within cial performance of Stockholm's congestion charge system Stockholm were estimated to have decreased by 14%; and during the pilot program. Table 12. Estimated financial performance of the Stockholm congestion price system, 2006 pilot program (SEK million). Fiscal Year 2006 Operating revenues 763.0 Operating costs* 220.0 Operating income 543.0 Depreciation 50.0 Net income 493.0 Operating costs/revenues 28.8% Gross margin 71.2% Operating margin 64.6% *Annual operating costs were estimated by the Swedish Road Administration based on a similar system in Norway Source: City of Stockholm, TRANSEK AB (2006)