Traffic and revenue (T&R) studies are used to forecast traffic on toll facilities under various toll rate structures and macroeconomic scenarios. T&R studies are important in determining how to structure toll rates, in deciding whether to transfer, retain, or share revenue risk, and in understanding what to expect from private sector bids. T&R forecasting involves subjective estimates of the future behavior of people and businesses with respect to housing and business location decisions and choices of transportation. There is tremendous uncertainty associated with these forecasts, and a good study will be transparent about pointing out the uncertainties.
The traffic and revenue history of a project also has a significant impact on the revenue risk assessment and the corresponding return required by an investor. Traffic demand risk can vary significantly based on whether the proposed project is a new construction project (i.e., a greenfield project), an expansion of an existing facility, a conversion of an existing facility from unrestricted public access to a tolled facility, or an existing toll facility with a proven history of traffic demand. Restrictions on changes in toll rates and performance standards can also impact the return that would be required by an investor in the project.
Quantitative risk analysis using Monte Carlo simulation (see Chapter 5) may be used to assess overall toll revenue risk, which is a function of a variety of individual risks such as population and economic growth rates, pricing structure, costs of alternative travel options and price of fuel. The output of the analysis would be a probability distribution of the likely revenues for different confidence intervals, and the risk of revenue falling below a specified level can be assessed.
For toll-based projects, toll revenues reduce the net costs to government in pursuing the project through a conventional procurement. These revenues are deducted from the total costs in the PSC. Similarly, toll revenues are also used to develop the Shadow Bid. However, there may be differences in the ability of the private and public sectors to maximize toll revenue yield over the term of the agreement due to differences in their abilities to effectively collect and efficiently price toll charges across all vehicle classifications within any toll caps that may apply. (This difference in ability to maximize toll revenue may partly be due to political constraints that public agencies are faced with in regard to toll increases.) If this is so, forecasts of toll revenue can be different for the PSC relative to the Shadow Bid.
