Smart meters need smart policy

Lee Greenberg writes in the 2010.04.17 National Post (a Canadian conservative daily paper):
“A $2-billion program aimed at shifting home-energy use to off-peak hours is about to fail, says the province's chief environmental watchdog. Gord Miller, Environmental Commissioner of Ontario, says millions of so-called smart meters will be useless unless the government changes course and sets a sufficiently low hydro rate to convince people to do their laundry and dishes at night and on weekends.”
Miller’s concern centers on the fact that the difference in on-peak and off-peak is only a factor of 1.9. Coupled with the fact that the weekday off-peak is between 9pm and 7am, there would appear to be too little motivation for a household to hold laundry and vacuuming until late in the day (or early next).

A 2007 study in Ottawa found households saving $1.44 a month through time-of-use pricing that differed by a factor of three! A $1.44 buys a small coffee at Tim Horton’s.

So is Ontario installing $580 million in smart meters so that each household can get save the equivalent of a free small coffee? Once a month? Can't be.

The social and economic performance of smart metering is a critical matter. We are fast approaching a time of smart metering for road use. A smart meter would meter time-distance-and-place of driving (anonymity guaranteed by performing and keeping all calculations inside the car) to calculate a replacement for fuel taxes – hardly a choice, given the move to the all-electric vehicle.

While road-use-metering, when it arrives, will be principally motivated by the loss of the fuel tax, it is also intended to manage demand for road space – exactly as the electric meter is intended to manage demand for power.

Couldn’t be simpler.

Cars increasing, fuel tax decreasing. Now what?
Or could it? If Ontario cannot figure out how to set the clock or price differentials for electricity metering, how can it figure out the time and place differentials for mileage-based road use fees?

If I can only save $1.44 per month by shifting my time of travel, I won’t. If I save $1.44 a day (to say nothing of a month) by taking the bus instead of my car, I will not. I had better be saving $5 per day, if you want my behavior to shift.

The policy that sets the rate differences between peak and off-peak travel, or between a pre-Gore SUV and a post-Gore EV, or between urban streets and highways and rural roads is called a pricemap.

Since the Province of Ontario has not until recently permitted its Ministry of Transportation to even discuss road use charging, it is easy it understand that there has been no discussion of starting the work needed to design this pricemap.  Even the more forward-thinking Dutch flopped around this pricemap design business for some time.

Worse, if we cannot set the pricemap correctly for our critical power supply, how will we do that for our even more critical road supply?

In other news: Germany is having the same tolling discussion Toronto is and Ontario should be!


Bibliography for Chicago Parking Privatization

In 2007, Donald Shoup summarized the problem with underpriced parking in a New York Times opinion piece: http://www.nytimes.com/2007/03/29/opinion/29shoup.html

In 2009, the City of Chicago addressed this problem while attacking a financial crisis. It leased its 36,000 on-street parking meters for a 75-year term. One outcome was that underpriced parking was dramatically reduced. On average, hourly on-street parking fees will be doubled in four stages from 2009-2013. The number of metered spots will increase and the hours of metering are being extended. Altogether, the total revenue from on-street parking will more than triple. This money will go to a private company who paid the City of Chicago $1.15B.

Selection Process and Timeline

Use of Proceeds

Value - An Introduction by William Blair

Value - Analysis by William Blair

Value - Analysis by William Blair Exhibit 1 and 2

Value - Analysis by William Blair Exhibit 3

Some of the commentators to analyze this transaction have been very critical, and there are lessons we can take from this. At the bottom of this post there are several further analytical links.

Here was Chicago’s response to the IVIIPO law suit.

Here is Chicago’s response to the American Transportation Alliance (ATA) report.Here is the ATA’s retraction.Chicago’s Meter FAQs

Chicago brochure re the shift to privatized parking

Full Chicago resource re privatization of parking meters.

Should Toronto do this?


Toll Roads: The Conservative View

In today's National Post, a welcomed explanation for the sanity of tolling roads -- provided other taxes are rolled back...


Bonus 2010.04.13 Audio from Metro Morning (takes a few seconds to load):
from CBC site: "Matt Galloway spoke with Mississauga Mayor Hazel McCallion, and with Richard Soberman. He is a civil engineer, transportation planner and consultant in Toronto."

Soberman explains well why most comments to toll this road or that is just "shooting from the hip". He talks about uniform tolling region-wide and ensuring where the money goes.  This is not what Sarah Thomson wants to hear.  Unfortunately, he suggested increasing the gas tax which is NOT a sustainable solution.

Mayor Hazel McCallion has spoken up a lot recently about road tolls.


No more RUC trials, please

There is no value in further US VMT charging trials, except to delay the inevitable. These trials should end after completion of the University of Iowa’s National Evaluation of a Mileage based Road User Charge. There is far greater promise in unleashing private operators to commence profitable, non-tolling services, then using these for toll assessment and collection as fuel distributors are currently used to collect fuel-taxes.

The past decade of road use charging (RUC) has delivered a cornucopia of conferences, papers, trials, newsprint, books, and promises. What we have to show for this, besides incremental deforestation, is four national truck tolling systems and three urban congestion-zones that are the basis for a tired success-litany recited by transport economists and congestion-pricing hacks, and we have shuffled several billion dollars at an average cost of 30%. Worldwide we now toll perhaps an additional 1% of vehicle miles traveled (VMT) beyond what we would have tolled without any of this. Sadly, had we invested that money in a couple thousand lane miles and tolled every inch of them we might be farther ahead today.

Now that the Dutch government has collapsed, its admired ABvM program suspended, and the UK’s stillborn Congestion TIF shut down, it is time to rethink our approach. The only person of any stature who has said anything that has come true since the commencement of Stockholm’s permanent congestion program was President Obama’s Press Secretary when he pronounced there would be no VMT charging on Obama’s watch.

Government role

The problem with RUC programs, whether VMT in the US or time-distance-place (TDP) in the EU, is that governments approach them like science projects. Government should stay away from system design and technology deployment and focus on policy matters: sustainable funding, equitable access, privacy protection and standardization. Had the Dutch done this instead of picking technologies, running tests and designing trials, government transition would not have derailed transport policy programming.

Sustainable funding. Cars dominate our travel preference, vehicles are becoming more efficient, and we are beginning to electrify our automobiles. The migration from fuel tax to pay-by-use is fairer and likely inevitable. Whether we use odometer, GPS, cellular triangulation or swearing on a bible is not the core issue. Key is uninterrupted funding to keep our transportation system running, safe and expanding. Only government can restore sustainable funding.

Equitable access. Any pay-by-use scheme carries the potential of variable fees – more for congested times and places and less for smaller, cleaner vehicles. How prices are set, exemptions granted, and collection enforced influences who will use roads and when. This shifts traffic flows, alters settlement patterns, changes transit demand and may change property values. We require an evolutionary transition over an extended period, fair entitlement to mobility, greater choice, an opportunity to arrange graceful changes in family, work and school arrangements, and assurance that benefits exceed costs to drivers. Only government can set and enforce such policies.

Privacy Protection. Privacy and information commissioners in several countries treat very seriously location data used to calculate road use charges. The International Working Group on Data Protection in Telecommunications has published a guideline (The Sofia Memorandum) that includes a provision for all location data to remain under driver control. But there is no certification process, or promise to follow this guideline. The fear-based clamor in the popular press is deafening, as is the silence about privacy from transportation departments and ministries. Government is strongly motivated to protect privacy. This promotes acceptance. We will not have acceptance for RUC programs for commuter vehicles without transparent action on the matter of privacy. Only government can do this.

Standardization. Standards must be established and promoted. The international bodies ISO and CEN have established many standards for road use charging equipment and methods. Without these, travel across jurisdictional boundaries will be problematic. Government needs to enforce the use of standards.

Shifting focus

Since the 60s RUC has evolved from demand management theory for transport economists, to a livability paradigm adopted by urbanologists, and most recently to distance-based charging for sustainable transportation funding. With fuel taxation failing due to engine efficiency, recession-induced VMT reduction, political inability to raise fuel taxes, and the specter of the electric vehicle, some countries, particularly the United States, feel the tourniquet of unsustainable transportation finance.

Until recently, one government pre-occupation has been reliable technology and methods to meter use and collect charges. The majority thinking has been centered on GNSS metering for its flexibility and extensibility, focusing on accuracy, cost and privacy. Cost assumed that in-vehicle equipment would be dedicated to tolling, hence provisioning accurate, tamper-proof GNSS telematics is expensive for passenger vehicles, making it bitter medicine for government to swallow.

The past few years have seen an increasing interest in non-tolling services such as PAYD insurance, navigation, parking or other traveler services. These would take some of the sting out of the cost and use of GNSS telematics units, adding sugar to the meds.

But we are still left with a large and complex deployment problem. Some continue to think more and larger trials can diminish this uncertainty.

There are several reasons to run RUC trials: Does the technology work? Will drivers accept it? Will it work as a demand management tool? Can we roll it out on a massive scale? Can it be made tamper resistant? A hundred questions cloud the horizon.

Numerous trials have been executed. Some deployed a few hundred vehicles. The largest in the US incorporated 2,700; Holland was poised for 60,000. It is a blessing in disguise that the Dutch are forced to rethink their program. Perhaps the US can also abandon its delay-by-trial tactic and move directly to deployment.

Trials are expensive. An online search for the three US trials indicates that each of the 2700 Iowa trial participants cost $6110, the 450 Puget Sound vehicles studied were $5510 each, and each of the 300 Oregon drivers cost $9800. The weighted average tab to the US tax-payer was $6,350 for each of 3450 volunteers. Compare this to the 3-year cost of $955 to equip each of 120,000 trucks in Slovakia for nationwide RUC.

The cost to meter a vehicle for three years is about $1000 with current technology. Add another $500 for billing and collection and $1000 for the study itself. If you pay drivers to participate, it is easy to justify well over $3000 per vehicle over a three-year trial. A one-year trial might cost a few hundred dollars less.

Trials seldom promote innovation. Each of the trials I am familiar with was designed before equipment acquisition and became closed to technological innovation once commenced. Lessons learned were proprietary to trial participants. The recently extended DfT (UK) equipment trials may be an exception: they were intended and apparently managed to explore technology innovation. Unfortunately the DfT maintains an information blackout, likely because of low public acceptance of RUC in the UK, in spite of the fact that this work was at tax-payer expense.

When government dominates trial participation, how fast are innovations turned to exploitable product, exports and jobs? Bonn promoted the German truck tolling system partially to help revive a moribund hi-tech industry, but that was in the context of an operational system. So far the only publicly available lessons regarding the most promising technology have been provided in Germany and Slovakia – both operational systems.

Trials are unnecessary. We already know GNSS technology works (Germany and Slovakia prove that). The solution to the urban canyon problem is less well known, but short technical trials have shown that this is addressable in more than one way. We know road pricing changes behaviour as shown in Puget Sound, Stockholm, Germany, London and Singapore. We know volunteer participants appreciate the need and fairness of RUC. We know almost all drivers prefer privacy protection. We know how to distribute, manage and bill massive numbers of handsets, the mobile equivalent to in-vehicle telematics devices. There is no RUC-via-telematics mystery that a trial can address.

Time for deployment

The remaining problems are cost, trust, and equitable access. Evolutionary deployment is the best way to address these. Here is how to get started.

Save $3000-$6000 per vehicle by creating a permanent, self-sustaining market for non-tolling, pay-by-use programs that require road-use metering telematics. Enable PAYD insurance by changing state legislation. Offer a $100 subsidy to insurers per file switched to per-mile-pay. Enable parking-by-telematics by subsidizing megaregions to reform parking management. Reduce underpriced parking, infrastructure costs and enforcement costs in a single stroke. Subsidize driver rewards for not driving during peak hours. Subsidize parking discounts for smaller vehicles and eCars.

Invite telematics payment-service bids from network managers such as Cisco, Telcordia or Alcatel-Lucent and from Telcos such as Sprint, Orange or Vodaphone, or from large integrators such as IBM or Logica. Offer a multi-year, protected market to the winners for parking, insurance, and behavioral rewards in several megaregions. Design service contracts for three million vehicles in a two-year ramp-up, and do not cap them. Unleash full competition after three years. Regulate privacy and guarantee equitable access by enforcing fair but market-structured spatial and temporal pricing rules (pricemap) for roads and parking.

Let these operators add service bundles for infotainment, safety, “Onstar-lite”, traveler services, mobile high-speed internet, and early aftermarket Intellidrive or connected car features. Let them handle existing tolls on behalf of subscribers, as well. In exchange for temporary market protection for insurance, parking and reward distribution, demand that they meter for road-use using a simple revenue neutral pricemap while rebating fuel-taxes at 125%. Treat owners of eCars to an equivalent rebate. Pay these operators 3% of the road-use charges collected expecting them to generate sustainable profit from the other services. (Fuel-tax rebates can gradually be reduced as fleet electrification targets are met, but throughout the evolutionary shift it should always be a little better to pay-by-use than to pay fuel taxes.)

Arrange for service operators to specialize in commercial vehicles offering logistics services instead of connected car components – or both! Arrange for others to specialize in shared vehicle applications: car-share, rentals, lease management, jitneys, etc. Incent others to specialize in private commuter vehicles. Do not directly subsidize telematics development or purchase telematics units. Incent service operators to collect charges at 3% by fostering taxable market programs that require the same systems as RUC. Do not bribe drivers to participate. Incent market builders who can attract customers to voluntarily swap road-use fees for fuel taxes.

Persuasive systems require privacy protection, convenience, time and money savings. Pervasive systems allow governments to observe their reliability as enforceable collection agents. A decade-long, evolutionary approach can generate revenue (parking and service taxation), spawn new markets (jobs, exports), address congestion (parking and insurance reform) while building trust and an installed base of metering and enforcement system operators to replace fuel distributors as tax collection nodes.