June 26, 2007

TOLLROADSnews

Interoperability charges were a major part of the controversy about whether NTTA or Cintra offers better value with their proposals for tolling SH121. Interoperability charges are NOT toll collection costs as several of our readers seemed to think. They are the extra costs of handling a "foreign" transaction.

We asked TxDOT and NTTA for a succinct statement of the issue.

A TxDOT official responded, the text slightly edited:

"Interoperability is the ability for transponders of one toll road operator to be utilized on another toll operator’s facility. The operator who manages the users account will pay the charges due to the facility operator minus some handling fee. In the northeast U.S. where E-ZPass is very prominent this fee is 3-4%. In Texas, largely based on NTTA's insistence, the fee being negotiated currently is 8%. A 100% increase over E-ZPass for reasons TxDOT cannot understand. At this time this agreement is still pending.

"In the CDA (concession contract), Cintra is required to use NTTA collection services for the first 5 years at rates pre-set by an agreement that was included in the bidding documents. The agreement is a direct result of the NTTA / TxDOT protocol agreement ratified in August 2006 by the NTTA board and the Texas Transportation Commission. Costs in this agreement for the first 5 years are 5.75 cents per transaction plus 3.75% of the transaction value for transponder collections. For a $1.00 transaction this is 9.5c. TxDOT considers this relatively expensive, but agreed to the charges based on NTTA assertions that this was  NTTA’s incremental cost to provide collections.

"Based on the protocol and concession contract (CDA), Cintra may, after 5 years choose any toll collection system they see fit. In preparing their bid for the project, Cintra chose to model costs as they would independently collect tolls after Year 5, but in doing so based on the large number of transponders NTTA has in the region assumed that almost all transponder transactions would be interoperable transactions with NTTA and thus they included their costs of operating systems and processing transactions plus an 8% fee to be paid to NTTA for these interoperable transactions. While no statewide interoperability agreement has been completed to date, the three main parties (TxDOT, NTTA and HCTRA) have a draft agreement that includes this 8% fee.

"Based on interoperability rates charged on toll roads operating under the E-Z-Pass system in the northeastern U.S. that average 3-4%, TxDOT feels 8% is excessive, but has to date been rebuffed at suggestions to lower this cost in the initial agreement.  

"Based on this variance from the 3-4% industry standard up to 8% modeled, Cintra is claiming they are paying a dividend to the region. Should Cintra pay 8% to NTTA and only half is actual cost, the remainder is system revenues for NTTA.

"Further, Cintra, as modeled, has set this aside as a cost and has agreed to pay it out in full over the term. They are not seeking some means to lower this cost and pocket the extra as profit. This means that should, over time, interoperability charges in the agreement be reduced, Cintra would turn over the remainder of the 8% as part of annual payments. The value of this variance in interoperability fee equates to somewhere between $500-$700 million in net present value (NPV) dependent on actual traffic and revenues. TxDOT agrees and feels this is clearly value to the region and should be included as part of the value of Cintra’s proposal. Based on industry information and details in the financial models, PwC also agreed this item should be considered a regional benefit.

"However, due to change in law created by SB792, NTTA is now mandated to collect tolls for the entire 50 year term of the concession contract (CDA). For that matter all toll roads in its service area must now use NTTA. There will be no competition to keep down toll collection costs.   

"This change in the law will require a renegotiation with Cintra to extend NTTA toll collection costs across the full 50 year term and then eliminate both Cintra’s proposed collection costs and the 8% interoperability fee currently modeled. Once completed, presuming NTTA provides reasonable costs for toll collections, some amount of money would be left over. Cintra has clearly stated that this would be money to TxDOT for regional use.

"During the RTC meetings June 14 and June 18 the issue became very confusing and was not presented clearly. NTTA indicated in the meeting that there would now be no interoperability costs and hence no benefit, completely missing the point that it was already modeled and would therefore still be paid by Cintra to someone. This led many RTC members to think this would simply become extra profits for Cintra.

"NTTA further indicated that interoperability would have considerable costs and this rate would barely cover costs, though TxDOT has a hard time agreeing with this assessment. The basis of an interoperable transaction is that one entity is provided a complete transaction record and then simply forwards the requested funds to the other entity. TxDOT clearly understands a 2.25% fee to cover credit card merchant fees and some incremental amount above that to cover some handling costs, but an additional 5.75% is a considerable cost for what is already a complete transaction record that only has to be posted to an account."

[ends TxDOT comment]

We asked NTTA for an explanation of their position. They are still welcome to comment at similar length.

Thursday meeting of TTC

Thursday, there is a big meeting of the Texas Transportation Commission at which they decide whether to stick with Cintra which was chosen in an authorized procurement process or whether to accept the late NTTA proposal for SH121

TOLLROADSnews 2007-06-26