Rebuilding California’s Infrastructure (Energy & Transportation)
Part 5 of 6 Part Series
This is Part Five of “Rebuilding California’s Infrastructure,” to access the other five sections, click on the links below. To access the entire six-part study in a single, printable PDF document, DOWNLOAD HERE.
Part Five: Energy and Transportation
Part Six: Financing Models and Policy Recommendations
ENERGY AND TRANSPORTATION
In this chapter, we survey infrastructure development opportunities in energy and transportation. Although current state policy leans heavily toward wind and solar power generation, we also see value in nuclear and hybrid gas/solar plants. On the transportation side, we find that expensive investments in high speed rail and new commuter light rail lines in Southern California may not be cost effective. Instead, targeted investments in freight rail, improvements to existing passenger rail systems and the creation of more High Occupancy Toll lanes will better facilitate the movement of goods and people around the State.
ENERGY
In 2000 and 2001, California suffered an electricity crisis characterized by rolling blackouts and sudden spikes in energy prices. Explanations for the electricity shortage are numerous, with many observers focusing on price manipulation by Enron energy traders. However, as James Sweeney points out in his review of the emergency, California’s energy supplies were tight and the state was heavily dependent on electricity imports from elsewhere in the West. In the months leading up to the crisis, the Pacific Northwest suffered a lack of rainfall, reducing its hydroelectric power generation, while Southwestern states saw increased demand for electric power. These circumstances made less power available for importation, setting the stage for price manipulation and shortages.
In 1999, the last full year before the crisis, California imported 20% of its electricity from other states. In 2015, the latest year for which figures are available, imports accounted for 34% of the state’s power use. Although in-state electricity production has increased slightly since 1999, it has not kept up with increased demand.
In recent years, California’s electricity usage has been relatively flat – testimony to the success of conservation efforts. Total energy user per capita in California is lower than in 47 states; only New York and Rhode Island use less. But as population increases and usage of chargeable devices such as electric cars and smartphones becomes more widespread, demand for electricity can be expected to rise in the future. To keep up with greater needs, replace aging plants and reduce reliance on uncertain imports from out-of-state, California will need more electric power.
Given concerns over climate change and other environmental impacts, it would be attractive to assume that California could meet all of its needs exclusively with new wind and solar power installations. Unfortunately, these green energy sources have limitations and environmental impacts of their own.
Wind turbines kill hundreds of thousands of birds across the US each year, and the number could reach 1.4 million if the nation meets an Obama administration goal of producing 20% of its electricity from wind.
Solar farms require relatively large amounts of land per megawatt generated. Photovoltaic solar plants require 66,000 square meters per megawatt generated – more than six times the amount of land required by a nuclear plant. Natural gas, biomass and coal plants have even smaller footprints.
Further, some solar power plants use fossil fuels. For example, the Ivanpah plant in the Mojave Desert consists of 352,000 mirrors that collect sunlight needed to heat the facility’s three boilers, but relies on natural gas to preheat water going into the boilers and to run the plant when the sun is not shining. The natural gas burned at Ivanpah produced 46,000 metric tons of Carbon Dioxide in 2014, almost twice the rate at which a facility is required to participate in California’s cap-and-trade program. Had the natural gas used at Ivanpah been burned at a traditional power plant it would have produced enough electricity for 17,000 homes, or about one quarter of Ivanpah’s 2014 output. Despite the fact that Ivanpah burns substantial amounts of natural gas, it received $1.6 billion of loan guarantees from the Department of Energy under its Title XVII clean energy program.
The Ivanpah plant caught on fire in May 2016 when mirrors in the tower did not track the sun properly and did not focus sunlight onto the correct part of the tower. The plant resumed operation by June 2016. The Ivanpah plant also runs into some other issues. 6,190 birds died at the plant in 2015.
While Ivanpah was not positioned as a hybrid natural gas/solar facility, it effectively operates as one. A more cost-effective alternative is to build plants explicitly designed for hybrid operation. These facilities can maintain constant output throughout the day and under all weather conditions.
Relative to coal and oil, natural gas produces less greenhouse gases. According to the US Energy Information Administration (EIA), natural gas produces 26% less CO2 than gasoline and 43% less CO2 than coal to produce the same amount of energy. Further, abundant supplies of natural gas are available domestically. According to EIA, the nation had technically recoverable natural gas reserves equal to 84 years of consumption at current rates. Given its relative cleanliness and abundance, Joe Romm of the Center for American Progress characterized natural gas “as a plausible transition fuel for the next two to three decades as we aggressively ramp up wind, solar PV, concentrated solar thermal, biomass, geothermal, and other ultra-low-carbon energy sources.”
Hybrid plants that supplement natural gas production with solar power date to 2010. In that year, Florida Power & Light brought the Martin Next Generation Clean Energy Center online. The plant has a total capacity of 1,225 megawatts (MW) of which 75 MW comes from solar. In New Mexico, Western Energy Partners is building a 750 MW hybrid plant expected to come online in 2019.
If and when solar panels become substantially more efficient, these hybrid plants could be upgraded so that they produce a greater portion of their electrical output from renewable energy. The speed at which solar will improve is a matter of speculation and debate. The optimistic view was captured by futurist Ray Kurzweil, who recently said:
Solar panels are coming down dramatically in cost per watt. And as a result of that, the total amount of solar energy is growing, not linearly, but exponentially. It’s doubling every 2 years and has been for 20 years. And again, it’s a very smooth curve. There’s all these arguments, subsidies and political battles and companies going bankrupt, they’re raising billions of dollars, but behind all that chaos is this very smooth progression.
On the other hand, environmentalist Michael Shellenberger told us that solar technology improvements have been linear rather than exponential and that recent cost declines were largely attributable to aggressive pricing by Chinese manufacturers of solar panels. The last solar cell efficiency table published by the National Renewable Energy Laboratory supports Shellenberger’s view: maximum efficiencies reported for various solar technologies are rising gradually over time – and not accelerating.
Improvements in Solar Cell Efficiency Over Time
A recent report from Lawrence Berkeley labs provides mixed signals: showing a steady decline in median prices for large scale photovoltaic projects through 2014, but a flattening of capacity-weighted average prices. In 2014, per-kWh costs for some larger PV projects were higher than similar projects coming online in 2013.
Since the future direction of solar prices is uncertain and given the large footprint of today’s solar plants, California would be well served by a diversified energy policy. Insofar as California is using solar, policymakers should consider shifting additional solar power generation to cheaper photovoltaic solar panels (Ivanpah uses more expensive concentrated solar power ). Aside from wind, solar and hybrid projects incorporating natural gas, the state should consider maintaining and expanding its investment in nuclear power.
Currently, the state has only one nuclear facility: Diablo Canyon in San Luis Obispo County. Diablo Canyon’s two reactors produce about 8% of California’s in-state generated electricity. But the reactors may be forced to close in 2024 and 2025, if their federal licenses are not renewed. While the decision to file a renewal application belongs to PG&E, the plant’s future may also be influenced by the state. Lt. Gov. Gavin Newsom, in his capacity as Chair of the State Lands Commission, is asking PG&E to conduct additional environmental reviews before the Commission approves an extension to a lease of state-owned tidelands required by Diablo Canyon. Newsom has also predicted that the plant won’t remain open another ten years. In June 2015, facing political pressure, PG&E announced that it would close the Diablo Canyon nuclear facility in 2025.
In January 2016, a group of scientists, conservationists and philanthropists called on PG&E and state leaders to keep the facility open. In an open letter, the group, Save Diablo Canyon, said:
Closing Diablo Canyon would make it far harder to meet the state’s climate goals. Already, the percentage of electricity California generates from clean energy declined from 53 percent in 2011 to 38 percent in 2014. Without Diablo, California’s clean electricity generation would decline to 26 percent while electricity from natural gas would rise to 70 percent.
Signers of the letter included former Whole Earth Catalogue Founder, Stewart Brand; NASA climate scientist James Hansen; Santa Clara University conservation biologist Michelle Marvier; 1976 Nobel Prize winner Burton Richter; President Emeritus of the Missouri Botanical Center; Pulitzer-Prize winning historian Richard Rhodes; University of Wisconsin Nelson Center for the Environment Director, Paul Robbins; and environmentalist Michael Shellenberger, quoted above.
Shellenberger, a Time Magazine Hero of the Environment and spokesperson for the coalition, also told us that he would not oppose expanding Diablo Canyon and/or building additional nuclear facilities in California. Because nuclear power plants produce such high quantities of clean energy, the state could achieve its aggressive climate goals by preserving Diablo Canyon, and building a small number of additional nuclear facilities.
Nuclear accidents, although widely publicized, are rare. Further, fatalities directly caused by these accidents have been limited. For example, the International Atomic Energy Association confirmed that there were no deaths attributable to radiation in the immediate aftermath of the 2011 Fukushima accident. A substantial number of deaths in Fukushima resulted from a large scale evacuation ordered by the government following the meltdown, but scientists quoted by The New York Times concluded that this evacuation was unnecessary. As Michael Shellenberger told us, the government should have instead told residents to shelter in place.
Diablo Canyon stores spent fuel rods – the most radioactive form of nuclear waste – on site. According to PG&E, the volume of this waste is minimal and that the methods of handling it are safe. On the other hand, Mother’s for Peace, a group opposed to Diablo Canyon, reports that, by 2025, the facility will have generated 4,310 spent fuel assemblies, each containing 225 twelve-foot rods. The group reports that these rods will remain hazardous for 300 years, and that their storage casks could be breached in the event of a terrorist attack.
Currently there is no central location for storing radioactive nuclear waste. In 2002, the US Department of Energy determined that Yucca Mountain, 100 miles northwest of Las Vegas, would be a suitable site for permanently storing spent fuel rods. The site was approved by President George W. Bush and the Congress, but eight years later, the Obama Administration killed efforts to prepare Yucca Mountain for this use. GAO concluded that the decision to halt the Yucca Mountain project was due to “social and political opposition to a permanent repository, not technical issues.”
Ideally, either a future federal administration or the state government would identify a relatively safe location – away from populated areas – to permanently store radioactive nuclear waste before construction of additional nuclear power plants in California was completed.
NATURAL GAS PIPELINES
In this section, we consider natural gas pipelines and their effectiveness in meeting California’s energy needs.
Proposals to add natural gas pipeline capacity are likely to face stiff political opposition due to concerns about climate change and safety. As we explained above, natural gas produces less greenhouse gas than other fossil fuels and renewables will be insufficient to meet California’s energy needs for some time.
Natural gas is usually transported by pipeline. In order to be transported by truck or rail, it must be cooled to a temperature of -160° Celsius, at which point the fuel assumes a liquid form. Transport of Liquefied Natural Gas by train is a relatively new development. The Federal Railroad Administration approved the first application to carry LNG on an American railroad in late 2015. Truck transportation of LNG is necessary for outlying areas not served by pipelines, but is considerably more expensive than pipeline transport and thus not likely to be scalable.
With respect to safety, a couple of high profile disasters in recent memory are likely to play a role in any discussion about new pipeline projects.
On September 9, 2010, a natural gas pipeline under San Bruno (San Mateo County) exploded, killing eight people, injuring 58 others and destroying 38 homes. The section of pipe that failed was installed in 1956 before federal law mandated pressure testing to ensure the integrity of new segments. Subsequent investigations found that the pipeline’s owner Pacific Gas & Electric often had inadequate practices with respect to pipeline construction, inspection and recordkeeping.
In late 2015 and early 2016, over 97,000 metric tons of methane leaked from a natural gas storage facility in Porter Ranch (Los Angeles County). The leak, which lasted 112 days, caused the evacuation of 6,000 residents. Because methane is a highly potent greenhouse gas, the leak is believed to have had serious climate change implications. While this incident did not involve a pipeline, it could serve as a basis for opposition to natural gas storage and transportation projects generally.
According to the California Public Utilities Commission (CPUC), there were 57 pipeline incidents across the state in 2015 of which two were categorized as level 4 – causing injury or death. Nationally, the federal Pipeline and Hazardous Material Safety Administration (PHMSA) reported 29 serious incidents in 2015. Since 2010, the number of these incidents has ranged from 24 to 34, with the number of deaths ranging from 9 to 19.
While it would be ideal to have an energy distribution system that caused no deaths or injuries, the natural gas pipeline system should be regarded as quite safe overall given the size of the national system. The nation has nearly 320,000 miles of gas transmission pipelines and over 2 million miles of gas distribution pipelines.
Southern California Gas has proposed to build a 63-mile gas pipeline between the cities of Adelanto and Moreno Valley in the inland empire. The pipeline, together with four pressure limiting stations and an upgrade to the Adelanto Compressor Station, is estimated to cost $621 million. The new pipeline is intended to increase the reliability of supply for customers in the southern portion of the utility’s service area. Construction of this system is expected to begin in September 2018 and take one year. The actual construction phase will thus be much shorter than the permitting and approval process, which is estimated to contribute $16 million to the overall cost of the project.
Nationally, the INGAA Foundation estimates that the required investment in natural gas pipeline infrastructure at $4 billion annually in constant dollars through 2035. Other natural gas infrastructure should require about $10 billion of additional annual investment. While the report does not break down required investment to the state level, we do know that California represents about 9% of the nation’s natural gas consumption, suggesting that annual pipeline spending may be in vicinity of $400 million.
Investment at this level should be within the financial capability of the natural gas industry. According to American Gas Association data, Southern California Gas Company had $2.9 billion in revenues in 2014, while Pacific Gas and Electric had $2.1 billion in gas-related revenues during the same year. These companies should be able to finance several hundred million dollars of infrastructure investment each year from retained earnings and by issuing bonds or taking commercial bank loans.
From a public policy standpoint, it may not be necessary to make major changes to ensure that the necessary level of investment can be obtained. That said, policy changes that reduce the cost and increase the speed of the permitting process would ensure that energy companies can make the needed investments in a more cost effective manner. After discussing freight rail, we will consider oil pipelines as an alternative to oil trains.
FREIGHT RAIL
Three of the nation’s largest ports are located in California. In 2013, Los Angeles ranked first for the volume of goods handled, Long Beach was second and Oakland was sixth. San Diego and Port Hueneme (Ventura County) also ranked among the top 30. With the rise of Asian manufacturing, California ports have played an increasingly important role in the nations’ goods movement system.
In June 2016, the Panama Canal Authority implemented a major expansion of the Central American waterway. The project doubles the canal’s capacity and allows much larger ships to use the waterway. As a result, shipping goods from Asia through the Canal to Eastern and Gulf ports will become a more cost-effective alternative to docking at ports in California and then shipping containers eastward via truck or freight rail. The $5.4 billion expansion was completed in June.
Researchers at IMS Worldwide have estimated the location of a “cost equivalence line”. Points east of the line can be more cost effectively served by east coast ports, while those on the other side of the line are better served by goods shipped from west coast ports. In 2013, the line was about 700 miles inland from the east coast. In other words, even for places as far east as Illinois and Mississippi, it was cheaper to bring in goods via West Coast ports.
Transportation Cost Equivalence Line
Now with the Panama Canal expansion completed, this line will move to the West. How far it will move is yet to be determined. Researchers at CBRE suggested that the shift will not be that dramatic, but there will no certainty until a few years after the Canal expansion opens.
Although the desirability of retaining California’s share of national shipping volume can be criticized by economists, we assume that this goal is attractive to state policymakers.
California can limit the westward movement of the cost equivalence line, and thus the loss of shipping traffic at our major ports, by investing in transportation infrastructure. While more and better highways would benefit trucking, freight rail infrastructure upgrades may be a better option.
During periods of high energy prices, freight rail can have substantial cost advantages over trucking, especially over longer distances. Also, because rail is more fuel efficient, it produces much lower emissions per ton-mile of cargo shipped. According to Congressional Budget Office analysis, shipping by truck produces social costs eight times greater than shipping the same volume by freight rail.
In April 2016, the Southern California Association of Governments (SCAG) adopted a 25-year Regional Transportation Plan which calls for over $246 billion in transportation capital improvements. Because SCAG’s region includes the nation’s two largest seaports, this plan is especially relevant to California’s freight infrastructure development. An appendix to the plan lists numerous projects that would enhance the Southern California region’s freight rail capacity and reliability. These initiatives – which are estimated to cost $11 billion in all – include capacity expansions, grade separations, installation of positive train control systems (to prevent accidents) and improved dock connections.
Shipping becomes more efficient when containers can be offloaded directly from ships to railcars. In Southern California, about 27% of cargo is transferred on dock. This proportion would increase to 35% if the goods movement plan is implemented. The plan also expands “near dock” transfers in which containers are trucked a short distance (five miles or less) from the dock to a railyard.
Other regions that host major ports have identified potential freight rail upgrades. The Alameda County Goods Movement Plan which includes the Port of Oakland lists a number of potential investments that would speed freight rail movement, including construction of a new rail bridge and double tracking (which eliminates delays caused when a single track is used by trains going in both directions). The port does not currently have any on dock rail terminals, but does have two near dock facilities.
The Port of San Diego is also considering improved on dock rail facilities, but the timing, nature and cost of the upgrades have not been specified. Further inland, the Port of Stockton also has freight connections. A number of upgrades for this port are recommended in the San Joaquin Valley Interregional Goods Movement Plan.
Because US freight railroads are privately owned, a substantial proportion of infrastructure funding can and does come from the private sector. In 2013, railroad companies in the US invested $13 billion in track and equipment.
OIL TRAINS VS. PIPELINES
One variety of freight has proved controversial in recent years is oil. In the aftermath of a number of oil train explosions, objections to rail transportation of petroleum have increased.
In 2013, an oil train accident in Lac-Mégantic, Quebec, Canada killed 47 people, destroyed the downtown core and resulted in the release of 1.5 gallons of petroleum. In early 2015, trains carrying oil from North Dakota’s Bakken formation derailed in Mount Carbon, West Virginia and Galena, Illinois. Although neither incident caused fatalities, they both resulted in large releases of oil due to the failure of tank cars.
These incidents have triggered opposition to new oil train projects. For example, the Benicia City Council has deferred action on Valero Oil’s proposal to construct a new rail line to its refinery. A similar proposal by Phillips 66 in San Luis Obispo has also met with opposition.
Two types of infrastructure investments can address safety issues arising from oil trains: (1) build stronger tank cars that are less likely to spill oil or catch fire during a derailment, or (2) add pipelines as an alternative to rail transport.
In July 2015, the federal government imposed stricter standards for tank cars. All new cars must have thicker shells, shields along the front and back, electronic breaking systems and other improvements. Older cars must be retired or retrofitted to meet the new standards by 2020. California cities could approve new rail extensions for oil trains, while requiring oil companies to adhere to the new standards earlier. Such an approach would balance safety concerns with the need to maintain a stable oil supply in California.
Another alternative is to move oil via pipelines rather than trains. Earlier, we saw that pipelines are the best solution for moving natural gas. Although oil does not need to be liquefied, movement of oil by pipeline is still much less expensive than rail transport. In 2014, the nation’s 67,000 miles of crude oil pipelines carried 9.29 billion barrels of unrefined petroleum products.
The recent battle over the Keystone XL pipeline at the federal level suggests that there would be strong environmentalist opposition to new pipelines in California. And there is some reason for concern. While pipeline spills are less frequent than spills arising from train derailments, the amount of oil released during a pipeline rupture can be much larger. A 2010 pipeline spill in Michigan involved 850,000 gallons of oil, contaminated a local creek and will cost $1.2 billion to remediate. One reason for the high cost is that the spill involved diluted bitumen from the Alberta tar sands, which has more serious environmental impacts than the conventional crude oil that normally flows through California pipelines.
PASSENGER RAIL
The case for investment in passenger rail is mixed. In the Southern California, mass transit ridership has declined despite the availability of new rail lines. For example, the Los Angeles County Metropolitan transportation Authority has seen a 10% drop in boardings since 2006 despite a $9 billion investment in light rail and subway lines.
By contrast, the Bay Area Rapid Transit (BART) system is experiencing record ridership and bumping up against capacity limitations. Between FY 2010 and FY 2015, average weekday exits rose from 101 million to 126 million. BART’s most congested section, the tube between San Francisco and Oakland is operating near capacity during rush hours, causing frequent delays. An influential Bay Area think-tank, SPUR has proposed the creation of a second cross-bay tube and suggested the possibility of using a Public-Private partnership to build the project. According to BART officials quoted by the San Francisco Chronicle, the cost of such a project may be around $12 billion.
Meanwhile, the BART system is also struggling with aging cars, tracks and other components. The November 2016 ballot contained a $3.5 billion bond measure to fund system maintenance projects. The bond contains $1.225 billion to replace electrical systems, $625 million to replace worn rails, $570 million to fix leaking tunnel structures, and $400 million to upgrade the central control computer system and run trains closer together.
Another rail system in the Bay Area that has experienced substantial ridership growth is Caltrain which provides service between San Jose and San Francisco. Between 2010 and 2015, average weekday ridership grew from 34,120 to 58,245, with most rush hour trains now exceeding their seated capacity.
The system is currently implementing a $1.7 billion modification plan that includes electrifying the entire line and improved signaling. These improvements will speed trains and thus increase the system’s seated capacity.
Caltrain’s longer term capital plan is linked to the buildout of California High Speed Rail (HSR), since the San Jose to San Francisco portion of the proposed intercity bullet train would run along Caltrain’s right of way. Under this so-called blended system, HSR trains would generally run on Caltrain tracks, but may use passing tracks at certain points to allow the faster HSR trains to overtake Caltrain vehicles making more frequent local stops.
It does not appear that the blended system proposal calls for the elimination of Caltrain’s forty grade crossings, at which the tracks intersect with roads. Grade crossings are associated with frequent fatal accidents and they can impose significant delays on motorists waiting for trains to pass. If HSR service does eventually begin on an electrified Caltrain system, maximum train frequencies would rise to as many as ten per hour, substantially increasing gate downtime and accompanying delays for local drivers and pedestrians. Safety and mobility along Caltrain’s right of way could be improved by replacing all grade crossings with underpasses or overpasses. The Palo Alto City Council has offered a proposal along these lines, suggesting that revenue from a Santa Clara County transportation sales tax measure be used to replace grade crossings in that city. The Palo Alto proposal lists two grade costing replacement projects estimated to cost a total of $700 million. Replacing all 40 grade crossings system-wide could thus be expected to require several billion dollars.
A third major Bay Area transit system, the San Francisco Municipal Railroad (SF Muni) has seen much slower ridership growth. According to data provided to the authors by SF Muni in response to a Public Records Act request, passenger volume rose from 216 million in FY 2010 and to 219 million in FY 2015. Like many other mass transit systems serving compact geographic areas, SF Muni is facing headwinds from the growth of ride sharing services and bicycle commuting.
Randall O’Toole, a Cato Institute Senior Fellow, argues that the impending introduction of self-driving vehicles will render commuter and light rail transportation unnecessary in most parts of the country. O’Toole contends that self-driving cars will greatly increase the effective capacity of highways during rush hours because autonomous vehicles can react more smoothly to changing speeds of cars ahead of them. By not overreacting to slowing traffic, driverless vehicles will minimize chain reaction slowdowns that often cause traffic jams. In cities, shared autonomous vehicles will give people who cannot or do not want to drive a low cost alternative to buses and passenger rail.
O’Toole’s predictions appear to be borne out by strategic actions being taken by ride-sharing companies and auto manufacturers. In January 2016, Lyft and General Motors announced a partnership to build a fleet of self-driving cars, although General Motors had made clear that these cars will not be on the market in the near future. More recently, Uber began tests of self-driving rideshare vehicles in Pittsburgh and announced plans to work with several manufacturers on autonomous vehicle technology. The intention in both cases appears to be to use self-driving cars to provide taxi services.
In a computer simulation, Daniel Fagnant and his collaborators found that a network of self-driving taxis in Austin, Texas could substantially reduce the number of cars in the downtown area as well as the need for parking spaces. The researchers estimate that each autonomous vehicle could replace as many as nine cars downtown. Parking spaces could be converted to other land uses, including extra driving lanes in congested areas.
Another growing alternative to mass transit in urban areas is bicycling. The US Census reported that the proportion of commutes by bicycle in the nation’s largest cities rose from 0.6% to 1.0% between 2000 and 2012. There are indications that the trend toward biking has accelerated more recently in some California cities. In San Francisco, bike trips rose 8.5% between 2014 and 2015. In San Diego, bike traffic on two major Uptown thoroughfares increased 346% between 2012 and 2014, with the change largely attributed to the installation of buffered bike lanes. Although bicycle commuting is most often marketed by activists and local governments as an alternative to driving, biking is also replacing mass transit use especially for shorter trips.
A recent Los Angeles Times op-ed attributed declining transit ridership to increased bicycling and greater use of ride-sharing services among other factors. But, rather than celebrate these trends, the author suggested increased housing density near transit lines and other measures to entice commuters onto rail and bus systems. Perhaps a better alternative is to curtail investment in expensive mass transit infrastructure and instead implement policies to encourage bicycling,ride-sharing and jitneys.
HIGH SPEED RAIL
Earlier, we discussed the linkage between Caltrain and California High Speed Rail (HSR) capital plans. Given the fact that Caltrain is operating above its seated capacity and that the main highway between San Jose and San Francisco is heavily congested, an investment in accelerating passenger rail transport along this route appears reasonable. It is less obvious, however, that the rest of the HSR system can be cost justified.
The High Speed Rail Authority’s (HSRA) latest business plan shows a greater than 99% chance that the system will break even by 2040. In that year, the plan projects annual ridership of between 33.2 million and 56.8 million and fare box revenue of between $1.9 billion and $3.1 billion (in current dollars).
However, independent observers have expressed skepticism of HSRA’s past estimates. For example, the Reason Foundation argued that HSRA’s ridership projections are inflated because of unrealistic travel time assumptions, implausible expectations about the number of passengers from outside the HSR corridor that will travel to an HSR station, and improper estimates of automobile travel costs that riders will use when choosing between car and rail alternatives. After adjusting for these factors, Reason projects that ridership will only be a small fraction of the HSRA estimates.
Ridership statistics for an existing US high speed train service support Reason’s analysis. The Acela Express carried 3.5 million passengers during FY 2015. When slower trains are included, a total of 11.7 million passengers travelled Amtrak’s Northeast corridor between Boston and Washington, in a region more densely populated than that served by the planned High Speed Rail line. Northeast corridor ridership levels are a small fraction of those projected for HSR.
Long term ridership forecasts may also be impacted by unpredictable business and technology developments. In early 2016, a startup company named Sleepbus inaugurated overnight bus service between Los Angeles and San Francisco for $48. Passengers are provided with a bunk bed for the duration of the seven-hour ride. The service is proving attractive to millennials who welcome the opportunity to save on lodging expenses by sleeping on the bus. This advantage would seem resistant to a faster, but costlier alternative such as high speed rail. HSRA’s business plan assumes a fare of $86 between Los Angeles and San Francisco.
Meanwhile, a larger startup is trying to implement Elon Musk’s vision of travel by hyperloop. If Hyperloop Tech is successful, passengers will be able to travel in relatively small vehicles suspended electromagnetically within a tube. The technology is theoretically capable of speeds exceeding 700 miles per hours with very frequent departures. Hyperloop Tech has raised $37 million, employs a staff of 72 and plans to complete a working prototype in the near future. More recently, the firm has experienced turmoil, but the potential of its technology remains.
HIGH OCCUPANCY TOLL LANES
While self-driving cars will reduce congestion over the long term, specific highway choke points can be addressed sooner with additional lanes. In certain cases, new lanes can be financed with toll revenue, thereby opening the door to private infrastructure investment.
California has over two decades of experience with High Occupancy Toll (HOT) lanes that are shared by vehicles with multiple passengers and single-occupant cars paying a variable toll to enter the lane. Tolls are collected electronically by means of FasTrak transponders in each car. Drivers who use HOT lanes as both sole occupants and carpoolers at different times can use a “switchable FasTrak” device to indicate how many people are in the car for any given trip.
The nation’s first HOT lanes were built in the median of California State Route 91 in Orange County, and began operation in December 1995. These lanes continue to operate today, serving over 37,000 paying riders each day and generating $42 million in toll revenue during the year ended June 30, 2016. The lanes were built and originally operated by a privately-owned corporation, the California Private Transportation Company (CPTC), which borrowed $126 million and provided $19 million in equity to finance construction.
Unfortunately, an issue with CPTC’s contract undermined the public-private partnership. A non-compete clause prevented the Orange County Transportation Authority from adding other highway capacity within 1.5 miles of SR-91. Continued growth in the area led to increased congestion. In 2002, the Authority bought out CPTC’s contract for $207.5 million and took over operation of the lanes.
While the SR-91 express lanes proved very profitable for CPTC, another corporation found private highway operation to be a losing proposition. In 2007, California Transportation Ventures (CTV) opened a 9.3-mile extension to the South Bay Expressway (SR-125) in San Diego. The project required $130 million in equity and $480 million in debt financing. Litigation with construction contractors and disappointing toll revenues forced CTV into bankruptcy in 2010; the San Diego Association of Governments (SANDAG), assumed operational control the following year. In 2013, SANDAG reported higher than expected toll revenues and that the road was on a firm financial footing, suggesting that over the long-run, the extension was cost-justified.
SR-125 is one of several successful toll roads in Southern California. In Orange County, two Joint Powers Authorities operate four toll roads. Both of these authorities received operating revenue in excess of both operating and non-operating expense in Fiscal Year 2016.
Since the inauguration of the SR-91 express lanes, additional HOT lanes have opened in Alameda, Los Angeles, San Diego and Santa Clara Counties. All of these arteries were built and are operated by government agencies. Although enabling legislation for privately-built HOT lanes remains on the books, local transportation authorities have not used the PPP option.
High levels of congestion on several stretches of freeway in the Southern California and the San Francisco Bay Areas suggest that more opportunities for HOT lane construction are available. According to the American Highway Users Alliance, 13 of the nation’s 30 worst traffic bottlenecks are in California. The Alliance estimates that these bottlenecks cost motorists an estimated 48 million lost hours annually.
The reintroduction of private capital into HOT-lane and toll road finance could reduce the number of lost hours. The size of the potential revenue opportunity, which CalTrans has estimated to be $2.3 billion over a ten year period should be compelling. Private contractors and governing agencies will have to fashion agreements that enable profitable operation while maximizing public benefit.
CONCLUSION
California needs additional power plants to reduce its dependency on imported electricity and keep up with population growth. Wind and solar can only make a limited contribution to the state’s power generation needs. These sources should be supplemented by the construction of new hybrid natural gas/solar plants and, assuming a waste storage solution is in place, new nuclear power plants.
Centrally generated energy resources need to be transported. Although energy pipelines and oil trains engender strong opposition, the overall safety record of pipelines looks good when one considers the enormous number of miles of pipelines we have in the US versus the relatively small number of incidents that have occurred.
Investments in freight rail can solidify California’s leadership in goods movement despite the expansion of the Panama Canal. Freight rail is cost effective and environmentally friendly, and much of the investment in freight rail is already undertaken by private companies. Although they will continue to face environmental objections, oil tanker cars built to newer federal standards would be a good choice for transporting crude to California refineries.
The case for passenger rail investment is nuanced. Systems that serve heavily populated areas where road-based alternatives are congested and costly to expand may be attractive candidates for investment. The BART system which takes traffic off Bay Area bridges is a good example. But systems that replace shorter trips that have multiple route choices may not generate sufficient ridership gains given competition from bicycles, ride sharing services and autonomous vehicles (in the years ahead). Beyond the Bay Area, high speed rail development appears dubious from a cost-benefit perspective. In some cases, the addition of HOT lanes to existing freeways may prove to be more cost-effective than adding new passenger rail capacity.
Finally, it is worth noting that investments in freight and passenger rail often overlap. When passenger and freight trains share the same rights of way, signaling improvements, grade crossing replacements and additional tracks benefit both uses. This is reflected in San Diego Forward’s 2015 Regional Plan which included $4.6 billion in rail enhancements that would benefit both types of traffic.
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FOOTNOTES
James L. Sweeney (Summer 2002). The California Electric Crisis: Lessons for the Future. The Bridge, Vol. 32, No. 2. 24-31.
California Energy Commission. California Electrical Energy Generation. Accessed August 8, 2016.
US Energy Information Administration. Rankings: Total Energy Consumed per Capita, 2013 (million Btu). Accessed August 8, 2016.
Bird-Smart Wind Energy: Protecting Birds from Poorly Sited Wind Turbines (n.d.). American Bird Conservancy.
Massachusetts Institute of Technology (2006). The Future of Geothermal Energy.
Natural Gas: Smallest Footprint of All Energy Sources (n.d.). Natural Gas Supply Association.
David Danelski (October 21, 2015). It’s not easy being green: Ivanpah solar plant near Nevada burns a lot of natural gas, making it a greenhouse gas emitter under state law. Orange County Register.
Ivanpah. Energy.Gov: Loan Programs Office. Accessed March 4, 2016.
Joseph Bebon (May 25, 2016). Update: NRG Confirms Cause of Fire at Ivanpah Solar Plant. Solar Industry.
Phil Taylor (July 29, 2016). Sharp rise in estimated bird deaths at Calif. ‘power tower’.
US Energy Information Administration (June 18, 2015). Frequently Asked Questions: How much carbon dioxide is produced when different fuels are burned?
US Energy Information Administration (November 18, 2015). Frequently Asked Questions: How much natural gas does the United States have, and how long will it last?.
Joe Romm (June 3, 2009). Climate action game changer, Part 1: Is there a lot more natural gas than previously thought? Center for American Progress web-site.
Herman K. Trabish (April 9, 2015). $1B, 750 MW hybrid natural gas-solar facility to be built in New Mexico. Utility Drive.
Max Miller (2011). Ray Kurzweil: Solar Will Power the World in 16 Years. The Big Think.
Chinese solar panel dumping led to the imposition of steep US tariffs in 2014. See Diane Cardwell (December 16, 2014). U.S. Imposes Steep Tariffs on Chinese Solar Panels, The New York Times.
National Renewable Energy Laboratory (2015). Best Research-Cell Efficiencies. (A discussion of this chart is available here.
Mark Bolinger and Joachim Seel (September 2015). Utility-Scale Solar 2014. Lawrence Berkeley National Laboratory.
Sarah Zhang (May 23, 2016). A Huge Solar Plant Caught on Fire, and That’s the Least of Its Problems. Wired..
David R. Baker (November 14, 2015). Nuclear power’s last stand in California: Will Diablo Canyon die? San Francisco Chronicle.
David R, Baker (January 3, 2016). Can Gavin Newsom close California’s last nuclear plant? San Francisco Chronicle.
David Sneed (June 21, 2016). PG&E Agrees to Close Diablo Canyon in 2025. The San Luis Obispo Tribune.
Save Diablo Canyon (2016). Open Letter.
George Johnson (September 21, 2015). When Radiation Isn’t the Real Risk. New York Times.
PG&E Corporate Affairs. Diablo Canyon Power Plant: Safely storing used nuclear fuel. Accessed March 23, 2016.
Klaus Schumann and Fred Frank (2014). High-Level Radioactive Waste at Diablo Canyon. Mothers for Peace.
Government Accountability Office (April 2011). Commercial Nuclear Waste: Effects of a Termination of the Yucca Mountain Repository Program and Lessons Learned.
Matt Buxton (October 13, 2015). Alaska Railroad OK’d for LNG Transport. Newsminer.
Lonnie Shekhtman (September 26, 2014). Companies providing ‘virtual pipeline’ for natural gas.
Rebecca Bowe and Lisa Pickoff-White (September 8, 2015). Five Years After Deadly San Bruno Explosion: Are We Safer? The California Report.
Alejandro Davila Fragoso (February 26, 2016). The Massive Methane Blowout in Aliso Canyon Was the Largest in U.S. History. Climate Progress.
California Public Utilities Division (February 2016). Safety and Enforcement Division: Monthly Performance Report.
PHMSA (2016). Pipeline Serious Incident 20 Year Trend.
Pipeline 101 (2013). Why do we need pipelines?
Southern California Gas Company (November 2014). North-South Project: Updated Report.
Southern California Gas (2016). North-South Project.
CPUC (2016). Southern California Gas Company and San Diego Gas & Electric North-South Project
North-South Project: Updated Report. Attachment XIV.
The INGAA Foundation (March 18, 2014). North American Midstream Infrastructure through 2035: Capitalizing on Our Energy Abundance.
Patrick Burnson (May 1, 2014). Top 30 US Ports: Digging Deep. Logistics Management.
Rick Jervis (June 27, 2016). Bigger ships: Panama celebrates opening its expanded canal. USA Today.
Panama Canal Expansion: Contractor’s Cost Overruns Case Dismissed. Reuters.
CBRE (2016). Seaports and Logistics: 2016 North America Annual Report. An earlier CBRE report showed the cost-equivalence line much farther to the East. See CBRE (2014). Transportation Cost Equivalence Line: East Coast vs. West Coast Ports.
Chris Nelder (October 22, 2012). Rising Energy Costs May Usher in U.S. Freight Rail Revival. Scientific American.
C. Jake Haulk (1997). Inland Waterways as Vital National Infrastructure. Allegheny Institute for Public Policy.
Congressional Budget Office (December 11, 2014). Social-Cost Pricing in Freight Transportation.
Southern California Association of Governments (April 2016). The 2016-2040 Regional Transportation Plan/Sustainable Communities Strategy.
Southern California Association of Governments (April 2016). Goods Movement Appendix to the RTP/SCS.
Alameda County Transportation Commission (February 2016). Alameda County Goods Movement Plan.
California Department of Transportation (May 2013). 2013 California State Rail Plan.
San Diego Unified Port District (December 2015). Tenth Avenue Terminal Redevelopment Plan Draft Environmental Impact Report. Provided to us via email.
San Joaquin Council of Governments, et. al. (August 2013). The San Joaquin Valley Interregional Goods Movement Plan.
American Association of Railroads (2014). Total Annual Spending: 2013 Data.
Transportation Safety Board of Canada (2014). Lac-Mégantic runaway train and derailment investigation summary.
Federal Rail Administration (October 2015). Accient Findings Report for Derailment of CSX Transportation, Inc.’s Unit Crude Oil Train K08014.
Associated Press (March 9, 2015). Galena train-derailment recovery nearly complete. Quad-City Times.
Tony Bizjak (April 19, 2016). Benicia City Council delays decision on oil trains. Sacramento Bee.
Cynthia Lambert (February 4, 2016). Hundreds condemn Phillips 66 oil-by-rail proposal in first day of two-day hearing. The Tribune.
Ari Phillips (May 4, 2015). The U.S. Is Getting Serious About Oil Train Explosions. Here’s How It Plans to Stop Them. Think Progress.
Association of Oil Pipelines (2014). About Pipelines. Page quotes rates provided by Argus Media.
Association of Oil Pipelines (November 2015). U.S. Liquids Pipeline Usage and Mileage Report.
Emily Atkin (February 18, 2015). Data: Oil Trains Spill More Often, But Pipeline Spill Bigger. ThinkProgress.
John Frittelli, et. al. (December 4, 2014). U.S. Rail Transportation of Crude Oil: Background and Issues for Congress. Congressional Research Service.
Laura J. Nelson and Dan Weikel (January 27, 2016). Billions spent, but fewer people are using public transportation in Southern California. Los Angeles Times.
Bay Area Rapid Transit (2016). Ridership Reports.
Ratna Amin and Brian Stolke (February 10, 2016). Designing the Bay Area’s Second Transbay Rail Crossing. SPUR White Paper.
Michael Cabanatuan (January 31, 2015). Prospects for 2nd BART tube gain momentum, but wait could be long. San Francisco Chronicle.
Dan Brekke (June 9, 2016). $3.5 Billion BART Bond Measure Headed to November Ballot. KQED News.
Caltrain (2015). Caltrain 2015 Annual Passenger Count Key Findings.
Caltrain (2016). Caltrain Modernization Capital Projects.
LTK Engineering Services (2012). Caltrain/California HSR Blended System Analysis.
US Department of Transportation (2015). Federal Railroad Administration Ramps up Campaign to Enhance Safety at Nation’s Grade Crossings.
Caltrain (May 2013). Caltrain / HSR Blended System: Grade Crossing and Traffic Analysis.
City of Palo Alto (August 17, 2015). City Council Staff Report: VTA Call for Projects.
Randall O’Toole (September 18, 2014). Policy Implications of Autonomous Vehicles. Cato Institute Policy Analysis Number 758.
Davey Alba (January 5, 2016). The Lyft-GM Deal and Why You Probably Won’t Buy a Self-Driving Car. Wired.
John Rosevear (August 4, 2016). Why Did General Motors Delay Its Self-Driving Cars?
Max Chafkin (August 18, 2016). Uber’s first self0driving fleet arrives in Pittsburg this month. Bloomberg News
Daniel J. Fagnant, Kara M. Kockelman, and Prateek Bansal (2015). Operations of Shared Autonomous Vehicle Fleet for Austin, Texas, Market. Transportation Research Record. Volume 2536: Pages 98-106.
Brian McKenzie (May 2014). Modes Less Traveled—Bicycling and Walking to
Work in the United States: 2008–2012. US Census.
Joe Fitzgerald Rodriguez (April 15, 2016). Annual bike count shows commutes in SF up nearly 9 percent. San Francisco Examiner.
Bike San Diego (April 2, 2015). In Uptown: Bike Traffic On Fourth and Fifth Avenues up by an Average of 346% Since 2012.
Ethan N. Elkind (February 1, 2016). How to Boost L.A.’s sinking transit ridership. Los Angeles Times.
Matthew Artz (December 17, 2015). Bay Area’s worst commutes: Highway 101 in South Bay at No. 3. The Mercury News.
California High Speed Rail (February 18, 2016). Draft 2016 Business Plan.
Joseph Vranich and Wendell Cox (April 2015). California High Speed Rail: An Updated Due Diligence Report. Reason Foundation Policy Study 415.
Amtrak FY15 Ridership and Revenue (November 2015).
According to Wikipedia, the Northeast Megalopolis is the most urbanized region of the US with a population density of 931 people per square mile.
Tess Townsend (April 19, 2016). How this startup is disrupting long-distance transportation right now. Wired.
Cambridge Systematics (2014). California High Speed Rail 2014 Business Plan: Ridership and Revenue Forecasting.
Hyperloop Tech (December 7, 2015). Propulsion Open Air Test
Benjamin Wallace (October 18, 2016). A Kink in the Hyperloop. New York Magazine.
The Toll Roads of California (2016). FasTrak Throughout California.
Robert Poole and C. Kenneth Orski (2000). HOT Lanes: A Better Way to Attack Urban Highway Congestion. Regulation, Volume 23 Number 1.
91 Express Lanes (2016). Traffic Revenue. Orange County Transportation Authority.
US Department of Transportation (2014). SR-91 Express Lanes, Orange County, CA.
Corridor Watch (2007). State Route 91 (California).
US Department of Transportation (2014). SR-91 Express Lanes.
US Department of Transportation (2014). South Bay Expressway (SR-125), San Diego, CA.
San Diego Association of Governments (2013). SANDAG exceeds goals for operating toll road.
Foothill/Eastern Transportation Corridor Agency and San Joaquin Hill Transportation Corridor Agency 2016 audited financial statements available at https://www.thetollroads.com/about/investor/financial-reports.
American Highway Users Alliance (2015). Unclogging America’s Arteries 2015.
California Transportation Commission (2012). Toll Roads/High Occupancy Toll Lanes.
This was illustrated by the severe traffic congestion experiences in San Francisco’s East Bay suburbs during the 2013 BART strike. See, for example, Carolyn Jones, et.al. (October 21, 2013). Traffic is worst yet on Day 4 of BART strike. San Francisco Chronicle.
San Diego Forward (2015). Regional Transportation Plan Appendix A.
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ABOUT THE AUTHORS
Marc Joffe is the Director of Policy Research at the California Policy Center. In 2011, Joffe founded Public Sector Credit Solutions to educate policymakers, investors and citizens about government credit risk. His research has been published by the California State Treasurer’s Office, the Mercatus Center at George Mason University, the Reason Foundation, the Haas Institute for a Fair and Inclusive Society at UC Berkeley and the Macdonald-Laurier Institute among others. He is also a regular contributor to The Fiscal Times. Prior to starting PSCS, Marc was a Senior Director at Moody’s Analytics. He has an MBA from New York University and an MPA from San Francisco State University.
Jill Eicher Jill Eicher is a researcher focusing on innovative financing models for public-sector agencies. Most recently, she was a Visiting Scholar at Stanford University’s Global Projects Center, working on the development of a cooperative investment model for public pension funds to deploy capital into U.S. infrastructure. She co-founded the Fiduciary Infrastructure Initiative, a research-driven venture focused on the applicability of international pension cooperatives making direct infrastructure investments as models for the U.S. A graduate of Wellesley College, Eicher did post-graduate work in mathematics and was issued a patent for her method for assessing investment risk.
Ed Ring is the Vice President of Policy Research at the California Policy Center. His work has been cited in the Los Angeles Times, Sacramento Bee, Wall Street Journal, Forbes, and other national and regional publications. Previously, as a CFO primarily for start-up companies in the Silicon Valley, he has done financial accounting for over 20 years, and brings this experience to his analysis and commentary on issues of public sector finance. From 1995 to 2009 he was the editor of EcoWorld, a website covering environmental issues from a free-market perspective. Between 2007 and 2010 he launched in partnership with AlwaysOn Media the highly successful “GoingGreen” clean technology investor conferences, held annually in San Francisco and Boston. He has an MBA in Finance from the University of Southern California, and a BA in Political Science from UC Davis.
Kevin Dayton is a policy analyst for the California Policy Center, a prolific writer, and the author of frequent postings about generally unreported California state and local policy issues on the California Policy Center’s Prosperity Forum and Union Watch. Major policy reports written by Kevin Dayton include For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction. Dayton spent more than 17 years in various federal, state, and local policy positions for Associated Builders and Contractors (ABC), including ABC of California State Government Affairs Director from 2005 to 2012. He was also a legislative assistant in the U.S. House of Representatives for Congressman Gary A. Franks (R-Connecticut) from 1992 through 1994. Dayton is a 1992 graduate of Yale University, where he majored in History.
ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.
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