Faster arrival, at a price

GETTING THERE

January 01, 2007|By MICHAEL DRESSER

Would you pay $16.85 to shave 17 minutes off a 7 1/4 -hour journey? If your answer to that question is yes, Ed Rendell has a toll road for sale or rent. It's the Pennsylvania Turnpike, and that's how much time it would save you to go from Cleveland to Philadelphia on the main route compared with a cheaper alternate route.

Rendell, the governor of Pennsylvania, has in effect put the turnpike up for auction -- reserving the right to pull it off the market if the offers are unattractive or the political waters get too hot. The potential suckers are lining up, too. Four dozen of them -- including some titans of multinational business -- have expressed interest.

So how do you value a toll road? As a big financial player looking to capitalize on public infrastructure, you would look at the tolls you could charge over the length of the contract -- minus the upfront payment to the toll authority and operating expenses. One of the keys to the value of the asset would be how much the private operator could raise tolls over the century or so of a long-term lease.

But motorists also have a good way to determine the value of a toll road: How much time they save compared with the next-best free -- or at least cheaper -- route.

In the past, it would have been a complicated research task to make that evaluation. Today, thanks to the Internet, it's a relative breeze. My premise, incidentally, is that for most people, time is more of a factor in choosing a travel route than distance.

According to Mapquest (www.mapquest.com), whose time estimates I've found reasonably accurate in the absence of congestion, it would take you 6 hours and 56 minutes to go from Cleveland to Philadelphia on the main branch of the Pennsylvania Turnpike. The combined cost of tolls on the eastbound Ohio and Pennsylvania turnpikes: $22.55. That's $20 to Valley Forge in Pennsylvania and $2.55 in Ohio.

But if you take the Ohio Turnpike ($1.70) to free Interstate 80 to the Northeast Extension ($4 to Norristown) of the Pennsylvania Turnpike, your total toll is $5.70. Estimated time: 7 hours, 13 minutes. So for a 17-minute advantage, you would pay $16.85 extra. That's almost $1 a minute.

(It's not quite as extreme in the westbound direction, where Pennsylvania only socks you $17.)

The turnpike looks like a better deal for travelers from Baltimore to points west. For instance, Mapquest estimates the turnpike stretch between Breezewood, Pa., and Pittsburgh will save 29 minutes for $6.50 -- roughly 22 1/2 cents per minute saved.

(Most U.S. toll roads have their tolls posted online. The Pennsylvania Turnpike has an especially easy-to-use calculator. Mapquest offers the option of plotting both the best route and the best toll-free route.)

This methodology can be applied to virtually any toll road, and you'd better believe the companies jumping into the privatization game are making these same calculations on a much more sophisticated level. For there are two limiters on what they can charge in tolls: their contracts with the government involved and what the market will bear.

As tolls increase to provide the payoff the companies will need to justify their billions of dollars of upfront payments, motorists can be expected to become more price-sensitive in choosing their routes. When tolls are low, it's a no-brainer to jump on the turnpike. But the more the tolls go up, the more attractive a slightly longer drive on a freeway will look.

Start doing some of these calculations and you can see where the real values lie in the nation's infrastructure.

One hint: Don't look on Delaware's stretch of I-95. The turnpike there costs $3 for savings of at best about 12 minutes -- or 25 cents per minute saved. But when you consider that the tollbooth backups there often negate any time savings, you can see why a turnpike investor might want to look elsewhere.

A similar analysis shows the valuation problem with the New Jersey Turnpike: In south Jersey, it is essentially worthless to a well-informed traveler because Interstate 295 provides an attractive free alternative to paying $2.15 to get to the Interstate 195 exit near Trenton. All the turnpike's time-saving value lies in the northern half of the state. There it can save roughly 40 minutes over the next-best route to its terminus near Fort Lee, N.J., for $4.45 -- a terrific value at 10 1/2 cents per minute saved.

Other good values include the Ohio Turnpike, which costs roughly 13 cents per minute saved on the trip between Pennsylvania and Indiana. Even better is the Indiana Toll Road, which now costs about 8 cents per minute saved twixt Ohio and Chicago. That upside potential for future toll increases might explain why the Indiana road became the first major state road to be leased to private investors.

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