Tuesday, 6 August 2019

ACCC/AER Regulatory Conference presentation on road reform

Last Thursday I presented to the annual ACCC/AER Regulatory Conference in Brisbane, Australia.  The ACCC is the Australian Competition and Consumer Commission, which is Australia's anti-trust authority and consumer protection agency, the AER is the Australian Energy Regulator (which regulates the wholesale gas and electricity markets).  The presentation was about road reform, more specifically about whether roads could be transformed into regulated utilities, similar to energy and telecommunications networks.

The differences between roads and other networks are palpable, not least because roads are often funded directly by government, rather than from revenues collected from road users.  Even if road users pay taxes or fees related to road use (such as fuel tax), the relationship between what is charged and what is spent on the network is often weak.  Rarely are the road managers involved in setting the rates charged by those using the network they manage, nor is there much input from those who pay into what is spent on the network.

In some cases, road networks are managed by a very traditional government agency, which is primarily incentivised to lobby for more money, has budgets determined entirely by a political process, and is dominated by a culture of engineering and bureaucracy.  This is a vast contrast from utility networks, which are increasingly subject to competition, but more importantly bill their customers directly and decide themselves how to spend that money on maintaining, renewing and expanding network capacity.  Some use price to incentivise changes in demand, such as more off-peak utilisation.

In part this is historical, but it is also because roads are ubiquitous and such a dominant part of modern infrastructure.  Roads usually provide access to land, not just for motor vehicles, but for pedestrians and bicycles.  Roads range from having purely arterial to purely access functions, and some roads are not for motor vehicles at all.  They are also corridors for other utilities, such as pipelines and cables, and provide locations for street furniture ranging from postboxes to street lights to seating.  Yet none of that means that roads should just be treated as a public good that "everyone" pays for, not least because wear and tear is a function of the use of motor vehicles, particularly heavy vehicles.  Furthermore, there are often challenges around congestion, safety and route security and resilience due to external factors ranging from weather to earthquakes and flooding.  It isn't "everyone" generating demand for road capacity at peaks, or bridges that can withhold higher axle weights.  Roads are used by businesses to deliver goods, provide services and attract customers.

Road reform internationally

The result of a system that resembles that of other elements of government is that roads are often suffering from a lack of funding for basic maintenance let alone new capital spending, but also the political system tends to prioritise high profile, politically noticeable projects over mundane but essential maintenance.  The political system may be reluctant to increase charges on road users.  Rarely are politically rationed services seen as being exemplary in service to the public.  However, the big impacts of having an unreformed system are seen in systematic congestion (because prices mean demand exceeds supply), poor standards of maintenance in parts of the network and network gaps (such as mass restricted bridges) that hinder the efficiency of users.  Furthermore, the responses to these problems are often ad-hoc, or to focus on increasing the attractiveness or reducing the price to users of alternatives, rather than the problems of a network that isn't managed for users, paid for by users and priced to reflect cost.
So my presentation is here it runs through where others have embarked on major structural reform, with case studies of Austria, England (not the UK) and New Zealand.

In the context of road pricing, Austria's motorway network funds itself, through heavy vehicle charges based on distance and light vehicle charges based on buying access by a number of days.  England still has non-hypothecated charges on ownership and fuel, but will soon be hypothecating Vehicle Excise Duty (equivalent to registration fees elsewhere) to fund Highways England.  New Zealand has mass/distance road user charges for heavy vehicles and light diesel vehicles, fuel tax for petrol and LPG powered vehicles only and registration fees, all of which are hypothecated to fully fund state highways and on average, half fund local roads (and public transport subsidies).




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