Pricing & value

EVs could also bring back some relative peace & quiet to our cities, but that opportunity is being thrown away by lazy-thinking bureaucrats pandering to small interest groups with a fixated position — blindly copying the EU's ridiculous rules for EVs to emit a constant & fairly useless, irritating omnidirectional droning noise, without robust evidence of safety benefits in comparison to alternative, more creative options.  For example, a more advanced, "win-win" solution for reduced noise and improved pedestrian safety would be for cars to emit a radio signal that can be received on a mobile phone, which could then provide blind/vision-impaired people with useful verbal information (via earphones) about where cars are and how fast they're approaching!

But anyway, since changes are unavoidable, governments need to inform the community now that new road-use charges are coming (writing this before 2018, when there was still some public support), so buyers of electric cars aren't shocked (excuse the pun!) when their low running costs are upset by road tolls replacing fuel excise (and to avoid large numbers of electric car owners developing the political power to resist such changes).  If the government signals these impending changes, then it can and should encourage the uptake of electric cars through purchasing incentives (eg. a stamp-duty 'feebate' that provides rebates funded by fees on heavily polluting vehicles, which seems more appropriate and pragmatic for transport than an emissions trading scheme).

Then, here's some of the rational travel pricing reforms we could expect (& some comments on related matters of project valuation):

Network access pricing

The pricing concepts in the documents referenced here (& attached below) build on ideas in my 2001 document, "Strategies for growth in public transport" (refer recommendation 2 and p.51-55), which proposes the "Sydney Overground".

The general proposition is to replicate the well-established pricing models of other utilities (such as electricity, water and phone networks, which like transport, have similar pricing & cost-recovery difficulties due to their high fixed costs).  i.e.  "pricing plans" that include a periodic (e.g. monthly), fixed "network access fee" (or "subscription payment"), plus further marginal charges for specific higher-cost consumption — particularly at peak times (when extra capacity is very expensive).

Different pricing plans can be offered with varying levels of access & marginal charges to suit different types of customers (different "market segments").  For example, frequent users may prefer a higher monthly access charge with lower marginal off-peak charges.  The attached documents, "Opal pricing reform" and "Rail pricing market segments" describe how this approach could be applied to public transport.  One important aspect is that morning & evening "peak pricing" windows should be quite tightly defined in order to effectively encourage customers to travel outside of peak periods — see Douglas Economics' report on rail peak pricing (also attached here), which was reflected in section 8.5.1 of Infrastructure NSW's recommended 2012 State Infrastructure Strategy (SIS).

Different product-pricing packages could also offer different levels of access to a varying frequency of service, for example with a "gold" travel pass allowing a customer to use any of the services running every few minutes across the network, but a "bronze" pass only allowing use of identified bronze buses operating 1-in-3 services.

Another option is to segment the market according to "ability to pay", i.e. depending on the customer's income or wealth.  Discounts for children are an example of this.

Further packages could deliver synergies to operators and customers from combining/bundling public transport with access to complementary services such as taxis/Uber (which I discuss here).

These pricing concepts, based on "market segmentation", aim to best meet the differing preferences of different groups of customers, whilst also maximising revenue.  In the deregulated mobile phone industry, competition encourages different operators to design the best pricing plans to suit demand, and some mobile operators are "virtual" ones, because they bulk-buy capacity from operators with real physical networks and then resell it through their own tailored pricing plans.

Similarly, competing public transport retailers could buy capacity from public transport operators (via a centralised wholesaler like Opal, or directly) and then resell this to individual customers using a variety of different innovative pricing plans suited to the different market segments they identify.  The attached "Competitive PT fare retailers" describes how this concept of competing fare retailers could be linked to NSW IPART's price-setting process.

Finally, the attached "Road pricing reform strategy" outlines how similar voluntary price plans for roads could provide a practical (politically feasible) strategy for road pricing reform — as pursued by Sydney-based "Clearways" (which got them shortlisted as one of five finalists for the 2017 Wolfson Economics Prize – the world's second-richest economics prize after the Nobel).

Impact of personal / household budget constraints on "willingness to pay" and transport projects' economic and financial viability

Pioneering new modelling by Professor David Hensher (Institute of Transport Studies, Sydney University) on consumers' "willingness-to-pay" multiple road tolls has revealed a drastic reduction in that willingness compared to traditional modelling assumptions.

Previous transport modelling has assumed that if someone is willing to pay, say, $3 to save 10 minutes of travel time, then they will continue to do this without limit for each and every trip.  However, this "willingness to pay" is typically estimated from a single hypothetical travel choice (from "stated preference" surveys).  The reality is that people have a weekly budget constraint, so they are less willing to pay this amount if it is for, say, two toll roads in a row, there and back every day, five days per week (e.g. commuters from North-West Sydney using the Lane Cove tunnel, Harbour Bridge and more).  Effectively the "value of time" ($/hour) is not constant.

So if the reality is that they are only willing to pay a lesser amount for further incremental benefits – potentially half or less than that previously assumed (according to Hensher's work) – then this drastically reduces the economic and financial viability of a project.

This effect is especially important when considering potential additional new links in Sydney's motorway network, such as WestConnex, since the prospective users are already paying tolls on existing motorways (hence this reinforces the need to consider alternative options).

Note that the same effect will also reduce the estimated economic viability of rail projects, which are typically justified by analysis that adds up a large number of separate service improvements such as travel time, comfort & reliability, each based on individual stated-preference choices.

Similarly, people also have a constrained "time budget", since there is a limited number of waking hours each day, which also results in non-linear value-of-time effects.  For example, increasing daily commute times become exponentially undesirable as each extra 15 minutes (say) is added, especially as commute times reach and exceed an hour, because this starts to seriously impact time available for sleeping, family & other basic needs.  Accordingly, there is evidence that "transformational" transport projects that significantly reduce commuting times to within this threshold one-hour (which is the maximum tolerable by most people and is therefore a common characteristic of all global economic "mega-regions"), have time savings that are valued at significantly more than the average $/hour that is typically used in standard project economic evaluations — as reflected in property price uplift when a region is made newly feasible for commuting to a major economic centre (and highlighted in my indicative economic valuation of fast trains to Wollongong in my Sydney-Metro-HST plan).

Conversely, it is likely that trivial time savings of only a minute or two for millions of car trips, which often add up to a significant amount in road project evaluations, are in reality valued by drivers at far below the average $/hour assumed, and thus materially overstate the project's value & economic viability.