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Least Cost Transport Planning





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By David Mozer

Leveling The Playing Field

When politicians have a choice of several congestion reducing strategies (mass transit, tele-commuting, changing zoning codes to increase proximity of destinations), and each shows benefits above costs, including all externalities, how can they determine which strategy will have the least cost to the taxpayer?

Least Cost Planning (LCP) is an analytical framework that leads to 'smart spending'. The process has been developed in the electric power industry where it radically changed the course of action. LCP provides planners a consistent framework in which alternative resource strategies are evaluated by a common measure. Contrary to traditional cost-benefit analysis, where the economy of a project was evaluated internally and essentially voted 'up' or 'down', LCP allows specific alternative tactics (not just projects) to be compared, ranked, mixed and phased. The goal of LCP is to minimize the total societal cost of meeting service needs. The societal cost includes all of the costs associated with constructing and operating a resource over its entire life, including environment costs such as the health effects of air, noise and water pollution, any waste disposal and demolition cost. Societal costs include all money spent by producers, consumers, other parties, and ultimately taxpayers.

Traditionally transport has been thought of as mobility, but for the most part the trip is not the end. Measuring mobility leads us astray. For example, if a person can drive ten miles to a food store or walk two blocks to a comparable food store and to have their needs met: Which trip represents more mobility? Which trip frees the transportation infrastructure for other uses, conserves fuel and preserves environmental quality. The goal is to satisfy service needs using the least resources, not mobility.

In fact, there is no intrinsic demand for transport. What people need is education, health care, food, employment, recreation and other goods and services. The aim of transport is access -- the ability to carry out the transfer of information, goods, services and human interactions. Value is derived from the access to the activities and services, not the transport to them. The quantity of access -- the number of times each year people, information, goods, or services must be brought together in order to carry out the desired activity -- is not per se the problem, it is the amount of scarce resources (taxes, energy, land) consumed to achieve it. This explicitly opens up the transport planning framework to investment in alternatives that substitute for conventional transport, such as siting that increases proximity, bicycling, walking, subsidizing conservation and even tele-communications (virtual access).

The first step in applying LCP to transport is to devise a unit of measurement. [Electricity strategies are compared using cost per watt.] An access which requires a trip of 5 km is not the same as one with a 1 km trip. To capture these distinctions we can measure 'trip-mile per access'. With this a 5 km trip will be different from a 1 km trip and distinguished from a 'tele-communication access'. But we still have the problem that a 5 km single occupancy vehicle (SOV) trip looks the same as 5 km bike trip. And, we need to compare 5 km bike trip with a 1 km SOV trip. This requires calculating the 'costs per mile per trip-miles per access'. Again costs will be total societal costs.

Comparing Programs and Projects

When applied to specific programs and projects the product can be graphed as a 'supply curve'. The supply curve estimates the cumulative amount of access value that can be generated or saved by the strategies considered, as a function of cost. Note that the costs in a supply curve are 'stand-alone' costs. That is, they represent the cost of the alternative in isolation as opposed to its cost as part of an integrated system. A particular resource might have characteristics that interact with other characteristics of the system to alter overall system costs. For example, a resource with low capital costs but very high operating costs, that can be shut down easily when cheaper resources are available or if demand does not grow as rapidly as expected, might have a lower overall system cost than would be indicated by its stand alone costs. Stand alone costs are only an indicator to planners in the development of 'resources portfolios' -- mixes of measures that can be combined to meet service needs. The ultimate figure of merit, however, is the overall system cost that is derived from analysis of system performance.

There are many strategies -- supply side and demand side - that can meet access needs. Some approaches increase the amount of service provided: These include expanded rail systems, additional buses, highways and roads. Other measures have the potential to improve the efficiency of the system, such as high occupancy vehicle lanes, carpool and vanpool programs, transit malls, and programs to reduce traffic at peak times. Still other strategies substitute modes, like bike and walking path programs. And still others reduce trips and trip-miles outright i.e. tele-commuting and constructing residential buildings close to where people work.

The direct cost of each of these measures should be able to be characterized on a supply curve based on the leveled life- cycle cost per mile per trip-miles per access provided, versus the total 'supply' of access provided. The key point is that all strategies -- supply, system management, demand management, efficiency and substitution -- are evaluated using a consistent planning framework.

Externalities of Transport Economics

LCP for electricity has for the most part been able to focus almost entirely on direct dollar or market costs. The consumer is generally assumed to be indifferent to how, for example, the comfort of his building is achieved, whether by supplying more electricity or by weatherizing and using that electricity more efficiently. In applying LCP to transportation, decision makers will have to account for many indirect and non-market costs as well. People are generally not indifferent on how they achieve their access. Because of social needs a "virtual access" may not be perfectly substitutable for an actual access. In transport, many of the most important costs may not be direct market costs. There are questions about perceived value. Value of: time, independence, low density living, natural environment, exercise, comfort and community. In fact, it may be difficult or impossible to reduce all these costs and benefits to a single unit of cost. To complicate the analysis, values are not the same across all people and across time -- and values can be altered over time with information. What is essential is that as many of the relevant costs and benefits be accounted for and displayed as comprehensively and as comprehensibly as possible.

Table 1: Relative Estimated Transport Strategy Costs
(table omitted *)

Developing A Portfolio

Even after numbers are calculated, leeway has to be given for uncertainty, and strategies evaluated for risk. The supply curve helps identify portfolios of strategies that satisfy ranges of demand forecasted over time. Probability distribution will demarcate those factors that are uncertain, such as future fuel prices, strategy performance including consumer acceptance, environmental regulations, and demand for access. Once models are designed and number calculated it will take decision analysis computers to synthesis the best combination and quantity of strategies to meet service needs at the lowest total system cost and risk. It may be that the portfolio with the lowest expected present value cost may have unacceptably high levels of risk. A more prudent course may have somewhat higher expected costs.

Selecting a portfolio is not the last step. It is also necessary to examine the barriers, often legal, sometimes attitudinal, to its implementation. The playing field must be further "leveled" so that supply and demand side strategies can compete equally for resources: Is money as equally available for subsidies as for new lanes? Do free bus passes get the same tax treatment as free parking? Etceteras! Addressing barriers and policy inequities is an essential and critical part of a successful restructuring of transportation. It requires securing the cooperation of politicians, participation of the public, as well as a wide range of jurisdictions and institutions.

Without question transport planning is more difficult and value-laden than electricity planning. Nonetheless, the least cost planning framework can help decision-makers find lower cost, more risk resistant, more environmentally sound and more acceptable solutions to the multiple problems of congestion, air quality, energy consumption and severe capital constraints that characterize transportation.

Copyright © 1993 International Bicycle Fund. All rights reserved.

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* Unabridged Version: For a copy of the unabridged article, including the matrix showing 'Relative Estimated Transport Strategy Costs', please write to IBF -- a suggest donation of at least US$5 is requested to help support the program. 

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