Tuesday, April 27, 2010

AAR study: Chlorine Institute’s PTC business benefits claims “overblown”

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The Association of American Railroads today released “Assessment of the Commercial Benefits of Positive Train Control,” a 93-page report, in response to a Chlorine Institute petition filed with the Federal Railroad Administration last month that, says AAR, “claimed railroads would see substantial business benefits from implementing PTC.”

oliver-wyman-ptc-report-6.jpgThe report, prepared by Oliver Wyman, Inc., “clearly dispels assertions that there will be substantial business benefits to railroads that implement PTC technology under federal regulations,” AAR said. “The report also allows that the costs associated with implementing PTC could hinder the railroads’ ability to fund other safety technologies that might have greater commercial benefits to railroads and their customers. . . . Oliver Wyman found that the purported benefits cited by the Chlorine Institute’s analysis can be achieved by technologies other than PTC or by more technologically advanced PTC systems than those the railroads will implement.”

The Oliver Wyman study, said AAR, “concluded that the upper limit of business benefits from PTC is $413.2 million over 20 years, using a 7% discount rate. The FRA assessed the potential safety benefits of PTC as $440 million over 20 years, using a 7% discount rate. Taking the two into account, the maximum safety and business benefits from the PTC mandate is $853 million over 20 years. Given that the FRA has assessed the cost of PTC installation to be $9.55 billion over 20 years, the best-case scenario would put the cost-benefit ratio at 11:1.” AAR added that FRA’s regulatory impact analysis “did not assume any business benefits from PTC.”

The Chlorine Institute analysis “ignores the tremendous strides that the U.S. railroad industry has made in the past three decades in terms of productivity and efficiency—improvements driven in large part by the industry’s continuous pursuit of state-of-the-art operational processes and technology,” the Oliver Wyman study reported.

In its opening summary, the study states that, “At its core, the PTC mandate focuses strictly on improving the safety of train operations. The benefits being ascribed to PTC, however, are largely non-safety related and based on the assumption that the railroads and shippers will realize collateral benefits by implementing complementary technologies as part of PTC. . . . In some cases, the implementation of PTC likely will be of no benefit or even have an adverse impact on railroads’ ability to fund technologies that would be of greater value in terms of increasing the quality and reliability of service to their customers.”

The study goes on to explain what PTC’s claimed business benefits are: “Outside of safety benefits, two key assumptions made in earlier analyses by third parties underlie the majority of projected commercial and operational railroad benefits from PTC: that it will increase rail line capacity and network velocity. Benefits ranging from reduced capital investments in new track, to reductions in customer safety stock levels, are all tied to predictions related to these factors, which are expected to be realized through two primary means: 1) implementation of a new level of dispatching, known as ‘precision’ or ‘optimized’ dispatching (primarily in single-track territory), which would greatly reduce train delays and allow more trains to move over each rail line; and 2) improved over-the-road train performance through improved train control information/signaling, supporting reduced spacing between trains, which ultimately would reduce train delays. The largest benefits calculated to date for PTC derive from the assumption that precision dispatching can be used in conjunction with PTC to achieve greater line capacity on U.S. rail routes. Oliver Wyman, however, has found no direct relationship between the use of precision dispatching and the implementation of PTC. If PTC is implemented, it is unlikely to have a significant influence on the implementation or performance of such dispatching systems, and therefore should get little or no credit for capacity improvements stemming from precision dispatching.”

To access the full AAR/Oliver Wyman study, CLICK HERE.