Tuesday, March 30, 2010

The [High Speed] French Connection

Today I attended the Midwest High Speed Rail Association's annual meeting in Chicago. The most interesting talk was from Monsieur Guillaume Gernin, of the Société National de Chemins de Fer Français (SNCF, the French national railway company). I want to tell you about it because high speed rail (HSR) is a key component of sustainable transportation and development. When properly integrated with other modes of transportation (local and regional transit, air, road, pedestrian, and bike), HSR enables people to move rapidly and seamlessly with little or no expenditure of fossil fuels or emission of greenhouse gasses. It can radically change development patterns and reduce sprawl by clustering residential and business development around stations and reducing people's need to own multiple private vehicles.

A little background: on December 11, 2008 (my birthday!) the Federal Railroad Administration (FRA) issued a "Request for Expressions of Interest in Designing, Building, and Operating a High Speed Rail System" along one or more of eleven designated HSR corridors. This was part of the Obama administration's effort to bring HSR to America.

SNCF is a shareholder-owned company, though the major shareholder is the French government. In addition to operating some of the fastest HSR services around, SNCF has multiple subsidiaries and joint ventures in many parts of the world, including some in North America - and they'd like to expand their operations here. With that in mind, they submitted four Expressions of Interest in response to the FRA's request - detailed proposals for HSR in four areas: Texas, Florida, California, and the Midwest. You can get the entire 256 page Midwest PDF document here; the entire set is linked here.)

What makes this especially interesting is that SNCF has such extensive experience running HSR in France and designing systems for other countries. Their first HSR, between Paris and Lyon, began in 1981. Theirs was the first HSR in Europe, though Japan's Shinkansen predates it by 17 years. In other words, they have credibility.

They also make a profit on their HSR operations. It's extremely popular in France (as is HSR throughout Europe), giving all of SNCF about $1.75 billion USD profit margin in 2007, according to Wikipedia - though M. Gernin says other SNCF operations in France lose money.

Sounds good, but what would it cost? SNCF estimates the construction and equipment for the entire Midwest at $68.5 billion in 2009 US dollars. Compare that with the $8 billion appropriated under ARRA, and it seems pretty overwhelming.

But SNCF estimates operating revenues would pay back the initial costs in about 15 years. And consider the construction cost of the US Interstate Highway System, about $1.3 trillion, unadjusted for inflation. None of that has been paid back - though of course having the system has brought immense economic value...and changed development to the sprawl patterns we're living in today.

So recouping the investment in 15 years is pretty astonishing. It would be unbelievable, except for the wide and deep experience of SNCF. Their submission of the Expression of Interest was a business decision, based on the expectation of long-term profitability.

SNCF doesn't expect to go it alone. They expect to operate in partnership with government: 54% of the initial capital would come from government sources, and the rest from the private sector through joint venture partners and investors. After these are paid back, they stipulate that no operating or maintenance subsidy would be needed, based on their experience elsewhere. Wow.

The Midwest system SNCF proposes would operate from a hub in Chicago to end-points in Minneapolis, St. Louis, Detroit, Cincinnati, and Cleveland. Naturally, they don't expect to build the entire system at once. They suggest starting with O'Hare Airport - Milwaukee - Madison - St. Paul - Minneapolis and O'Hare - Fort Wayne - Toledo - Detroit, but of course that could change.

What would the system consist of? Dedicated double-track, much of it elevated. Trains would be standardized electric double-deckers. (M. Gernin said that when they started building HSR in France, "we had no idea we'd be so successful" and trains quickly became crowded; hence double-deck equipment from the start.)

How to achieve profitability? Their business model in France is based on the yield management system pioneered by US airlines. The system is based on the idea that the earlier people pay, the lower their price should be, and that popular times and dates cost more than less popular ones. Another factor in their financial success has been to provide connectivity with other modes of travel, especially air, and interoperability between high-speed and standard rail lines, so that high-speed trains can continue at lower speeds beyond the end of the dedicated tracks, and take passengers to a larger number of destinations.

Other factors critical to success: "de-risking" the process by public-private partnership, which reduces the risk both to taxpayers and investors; and including the company that will actually operate the trains in the earliest stages of the process, to insure there are no surprises or unworkable decisions made during the planning.

Sound too good to be true? Well, it does to me, frankly. Although SNCF has a history of successful HSR building and operation, US governments have a history of suspicion of foreign companies and of haggling projects to death. Just because SNCF made it work in Taiwan, Korea, Belgium, and Holland doesn't mean we can let them make it work here.

Guess I'm just feeling cynical. I sure hope I'm wrong!

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