The Drive-Through Revolution

Most revolutions have some common elements: they generally are motivated by a desire to improve life for a majority of the citizens, they disrupt life to some degree, and they are often more difficult and complex to accomplish than those who started them could ever have envisioned. And so it is with all-electronic tolling (AET), often known as “cashless tolling.”

The concept is deceptively simple: collect tolls without making customers stop at the toll booths which, for centuries but especially in the last 30 years, has led to untold numbers of wasted minutes and hours as vehicles queue up to hand over cash to toll collectors. Not to mention the air pollution caused by all those vehicles idling in line. It’s important to make a distinction between AET/cashless tolling and open road tolling (ORT). ORT, in industry parlance, refers to a toll collection point where a customer who has an electronic toll transponder (or “tag”) can pay a toll without stopping, but only if the customer has the tag. A customer without the tag still has the ability, in fact the requirement, to pay using cash.

Under AET, the customer cannot use cash. If he has an electronic toll tag, the tag is read by overhead equipment as the customer passes the tolling point, and the appropriate toll is deducted from the customer’s account. If the customer does not have a toll tag, he cannot pay with cash and the vehicle’s license plate is photographed with the intention of sending a bill to the vehicle’s owner for the amount of the toll. And that’s where things can really get complicated, but more on that later.

The concept of AET is truly revolutionary in several respects. From the customer’s viewpoint, it avoids the need to ever again wait in line to pay a toll and it reduces the delays and hazards caused by other drivers slowing down to access and use cash lanes. The customer generally has a choice of obtaining a toll tag and funding an account that is debited each time a toll facility is used or, for a higher toll rate, using the facility without a tag and paying after the trip either by receiving a bill in the mail and mailing back payment or paying online or with a mobile application. What could be easier?

From the technologist’s standpoint, AET uses the most advanced toll technology, which continues to evolve rapidly, to read the license plate, notify the customer of an amount due, and generate a paper or online bill.

And from the transportation systems viewpoint, AET offers ways to manage traffic using pricing to discourage motorists from using a congested road during the busiest times. Drivers are charged more during peak traffic hours and are thus incentivized to use toll facilities at less congested, less expensive times of day. Some degree of congestion management can be done without AET, as shown by the Port Authority of New York and New Jersey when, in 2001, it introduced new toll rates with higher tolls in the peak periods. Fears of motorists pulling over to the side of the road to wait for the toll rate to drop proved unfounded; usage of the facility grew noticeably in the 5:00 to 6:00 a.m. time period, just before the rate increased at 6:00 a.m., thus indicating that some motorists were choosing to leave home earlier and pay a lower rate. At the same time, the percent of traffic using the facilities in the peak period actually declined, thus this “spreading of the peak” also benefitted those who chose to travel in the most expensive time period, as they experienced some reduction in congestion. A later toll increase in 2008 led to an even greater percentage of vehicles moving to the 5:00 to 6:00 a.m. time period, and a further decline in the percentage of traffic in the peak period.

But these were baby steps compared with the flexibility that AET offers. Rather than being limited to just a very few different rates/time periods per day, the elimination of cash payment means that theoretically the toll rate could change minute by minute. To date, the applications of more frequent changes of toll rates have been limited, but their number is growing rapidly.

The applications are most frequently seen with high occupancy toll (HOT) lanes. These are lanes adjacent to non-tolled lanes, configured such that the motorist has the ability to understand his options: take the tolled lanes and arrive at a certain exit in a specified number of minutes as the toll rate indicated, or take the non-tolled lanes and possibly experience more congestion and a longer trip time. The faster trip is attractive, but so is the ability for the user to know that he can rely on the predicted travel time. The toll rate on the HOT lanes can rise as often as every five to 10 minutes as traffic volume grows, and the rate is generally set at a level which will keep traffic moving at a pre-determined speed using algorithms based on the knowledge that, as the toll rate rises, fewer people will choose to enter the HOT lanes. Once known as “Lexus lanes” due to the presumption that only the wealthy would use the tolled lanes, they have now gained widespread acceptance, as motorists perceive them as offering a choice; an option for a faster trip when they really need it and the ability to use the non-tolled lanes when they don’t.

Not in widespread use today, but a likely option for the future, is the ability to link transit usage with toll rates. For example, if a customer uses transit nine days out of 10, and pays for it using a “smart card” that records his transit trips and deducts the fare, then perhaps on the tenth day he can use the HOT lanes at a reduced rate. This is feasible because the technology can “link” the information that the customer used transit on nine days with the rate that the same registered customer will pay for his HOT lane use on day 10. The 15 most congested cities in the US all offer public transit options, and collectively they have almost 70 variably priced projects open or under consideration.

The availability of AET technology was the driver behind the congestion pricing plans of London, Stockholm, and Hong Kong, and the failed attempt in New York City in 2008 to institute a congestion pricing zone in Manhattan. These systems establish tolling points on each roadway leading into the city center, with the primary purpose of discouraging traffic from entering the heart of the city. A customer is typically charged once per day, with the ability to pay in a variety of ways, but never at the tolling point itself.

It all sounds very logical and relatively simple—an ideal revolutionary concept. But again, as with all revolutions, there are pitfalls and hidden issues. When customers were forced to pay cash at a traditional staffed toll booth, evading the toll was not impossible, but not very easy either. Once electronic toll collection was introduced, coupled with the option to still pay cash, customers had more of an ability to evade tolls. Enforcement depended in large part on identifying a violator by photographing his license plate, getting the vehicle owner’s name and address, and sending him a bill, generally coupled with a surcharge or fine. While some toll agencies chose to keep gates at their toll plazas, so that a motorist whose toll tag was not correctly read would not be able to proceed, others chose to emphasize mobility over revenue, and allowed a customer without a tag, or with an unfunded or defective tag, to proceed, relying on the photographic system to identify the customer.

The decision to go to cashless tolling is not one taken lightly. In 2009, revenues from all toll facilities in the US totaled over $9.3 billion and in 10 states, seven of which are in the northeast where tolling is well-established, toll receipts accounted for over 10 percent of their total highway funding, including all state and federal funds. In two states, it accounted for over 20 percent.

Over time, as violations grew, many toll agencies began to use collection agencies and law firms  to pursue the most egregious violators. Some also began to publicly embarrass violators by publishing a “Wall of Shame.” Industry data is not readily available, but anecdotal information indicates that net violations for toll agencies with a robust violations pursuit process average below two percent of revenue, assuming the video equipment is capable of capturing most of the violators’ license plate images. In some cases, fines, depending on the level of fees and the success in their collection, can make up for the uncollectible toll revenue.

Among mature toll agencies, somewhere between 60 and 80 percent of customers have toll tags, thus the toll agency’s exposure is primarily with the remaining customers who pay cash. When these mature agencies consider ending cash collection, their assumption is that unless the toll rate is restructured, the cash customers will become video toll customers. The agency then faces the need to correctly read the license plates of perhaps 20 to 40 percent of its customers, get correct names and addresses of each, incur the expense to bill each one, and then wait for the revenue for several weeks to a month depending on billing cycles. And that assumes that each step works well and that the customer pays the bill when he receives it. In fact, reading the license plates, which is typically done by an optical character reader (OCR) with human back up if needed, is a challenging first step. The OCR must identify and distinguish multiple plate designs from each US state in addition to plates from other countries, particularly Canada. Florida alone offers over 120 different types of license plates, including vanity plates, which are often difficult for OCR systems to read. Further, some states issue the same plate number for a personal vehicle and a commercial vehicle, and the accuracy of matching current addresses to plates varies by state Department of Motor Vehicles (DMV). The problems abound.

Even if the plate is read correctly, and the bill is sent to the correct address, many states limit the extent to which customers can be penalized for non-payment of tolls and fines/fees. Increasingly, states are passing legislation to permit holds on vehicle registrations if toll amounts are outstanding, but there is still a patchwork of legislation, most of it less than ideal from the toll agencies’ perspective. And an individual’s motor vehicle registration renewal date might be years away. Thus, a decision for an existing toll agency to move to AET or cashless toll collection requires an intensive financial risk analysis that evaluates the savings (largely labor and cashhandling costs) as well as the costs (primarily billing and DMV expenses) and, importantly, the risks associated with the estimated non-collectible or lost revenue. And there are subtleties within this financial analysis: must the toll agency return to the DMV, at a cost, for a name and address each time a license plate is seen on its facility, or may it create a “virtual” toll account and keep the motorists’ information on file for the next time he uses the facility? Privacy issues and policies can quickly become a hot button with the public.

For a new toll facility, AET is almost a foregone conclusion, as it is considered a sufficiently mature technology, and offers many benefits.

The situation is different for existing toll facilities considering conversion to AET. For facilities that charge a toll to all customers, as opposed to HOT lanes where roadway users have the ability to use the non-tolled lanes, anecdotal evidence indicates that violation and revenue loss rates in the early months have approached 10 percent or more. While these toll agencies have been aggressive about reducing losses, the perception of capturing 90 percent of anticipated revenue where yesterday there was no revenue source is quite different from the situation at an existing toll road that converts to AET, where a 10 percent loss represents a significant drop in revenue from yesterday’s pre-AET condition.

Whether a toll agency is new or established, implementing AET requires it to make numerous business decisions that it previously had not faced. With electronic toll tags and cash, someone without a tag who does not pay cash is immediately a violator. However, with AET someone who does not have a tag is a video customer. Should this motorist pay a higher toll? Should he pay a surcharge? They may amount to the same cost, but create different perceptions in the public’s view. If a surcharge is imposed, should it be set at a rate to recover the toll agency’s additional costs (acquiring DMV information, bill creation and mailing, etc.), or should it be set higher, to reflect the agency’s greater risk of recovering the revenue? Or should the video customer rate be set yet higher to encourage as many customers as possible to open a toll tag account?

Some states impose significant limitations on the maximum level of fines and fees that can be imposed on a toll customer or violator. And when does the customer become a violator?

Typically the agency will wait for two billing cycles before declaring the non-payer to be a violator, who is then subject to additional fines and penalties. Once declared a violator, the applicable state’s legislation becomes critical. It determines whether or not the toll agency’s pursuit process can be strong enough to discourage violations. As previously noted, an increasing number of states permit a hold on registration renewal, but the practice is still controversial. And many state legislatures are still struggling to keep up with the changing options that new toll collection technology and AET offer

The Future of Revolution

The adoption of AET is complicated enough for one agency, but in areas of the country where motorists are frequently the customer of multiple agencies, the decision-making process must include all of the agencies. In the northeastern US, a customer can, within several hours, cross over toll facilities operated by five different agencies, each with its own policies and toll rates, in three different states, each with its own legislation regarding violations. Motorists typically don’t realize which agency operates which toll facilities, and the potential for a customer to receive five different bills, each with its own due date, surcharges, and policies for declaring the customer a violator, all for one trip of a few hours, represents the ultimate collections nightmare for a toll agency and for its customers.

So what does the future hold for AET? The toll industry has recognized that, while policies and procedures should continue to be defined locally, there is a need to more easily obtain reliable information from DMVs and to exchange customer information among toll agencies in different states. As the federal gas tax, which funds much of state and local transportation infrastructure investment and maintenance, continues to decline in value—it has not been increased since 1993—tolling is becoming an increasingly accepted approach, at least for funding the construction of new road capacity.

As cashless technology matures, established toll agencies are undergoing conversion, and it is inconceivable that any new toll agency would use a collection method other than cashless AET. For AET to work, significant continuing efforts to share information and establish interstate procedures will be required, but the outcome of the revolution is inevitable, and cashless tolling is the clear winner. Tolling agencies of the world unite: you have nothing to lose but your change!



Image Header Source: WSDOT(Creative Commons)