flexibility and design options analysis of a streetcar system in madison, wi paul grogan esd.71...
TRANSCRIPT
Flexibility and Design Options Analysis of a Streetcar System in Madison, WI
Paul Grogan
ESD.71 Application Portfolio
Massachusetts Institute of Technology
December 2, 2008
Paul Grogan, Dec. 2008Slide 1
Problem Statement• “Pedestrian Accelerator” proposed in Madison, WI
– Add sustainable commuting options
– Encourage economic development along route
• Modeled after similar success stories
– Portland, Oregon
– Little Rock, Arkansas
– Tampa, Florida
• Initial feasibility study finished October 2007
Paul Grogan, Dec. 2008Slide 2
Park Street Route (Purple)
Central Loop Route (Blue)
East Isthmus Route (Yellow)University of
Wisconsin Campus
Commercial Area
Residential Area
State Capital
Industrial Area
Student Residential Area
Convention Center
Residential Area
Commercial Area
Paul Grogan, Dec. 2008Slide 3
1 mi
Ridership Uncertainties• Expected initial ridership from feasibility study
– 2,828 daily riders throughout entire area
• Expected growth rate from feasibility study
– 0.6% per year increase without considering economic growth
– 1.5% per year increase considering economic growth
Paul Grogan, Dec. 2008Slide 4
RouteConstruction
CostPopulation Use Factor
Expected Ridership
Low Ridership(-20%)
High Ridership(+50%)
East Isthmus – Campus $82.6m 40% 1,131 905 1,697
Park Street $93.9m 45% 1,272 1,018 1,909
Central Loop $61.2m 30% 848 679 1,272
Route Design and Options• Option A: Large Scale, Fixed Design
– Implement all three routes at same time
– Save on construction costs ($237.7 million $200.7 million)
• Option B: Phased, Flexible Design
– Implement Central Loop route initially
– Decide whether to expand to East Isthmus – Campus or Park
Street expansion route after ten years
• Uncertainty includes initial ridership level and average ridership growth rate between years 10 and 40
Paul Grogan, Dec. 2008Slide 5
Paul Grogan, Dec. 2008Slide 6
Decision Tree Analysis of Route Flexibility and Expansion
• Strategy: build flexible route, do not expand
• Both design options have very negative net present values
– Ridership levels cannot support large initial investment
– Is NPV an appropriate valuation metric for a public service?
Paul Grogan, Dec. 2008Slide 7
Measure Fixed Flexible Expected NPV $ (181m) $ (55m)Maximum NPV $ (160m) $ (49m)Minimum NPV $ (200m) $ (61m)Initial CAPEX $ 201m $ 61mENPV / CAPEX $ (0.90) $ (0.90)ENPV / Rider $ (1,070) $ (827)
Decision Tree Analysis with Additional Ridership Levels
• Thought experiment: boost ridership levels 400% higher than expected to repay initial capital expenses
• Flexibility limits downside risk, but also limits upside potential (traditional result)
Paul Grogan, Dec. 2008Slide 8
Measure Fixed FlexibleExpected NPV $ 19m $ 26mMaximum NPV $ 129m $ 102mMinimum NPV $ (68m) $ (21m)Initial CAPEX $ 201m $ 61mENPV / CAPEX $ 0.09 $ 0.43ENPV / Rider $ 8 $ 27
Lattice Analysis Setup• Ridership growth model fitted to
Madison Metro Bus system ridership
from 1971 – 2007
• Low R-squared value (0.1337)
• Period in 1980’s of ridership increase
may be similar to late 2000’s
• Lattice analysis variables
• Ridership distribution after six years
Variable ValueV 0.52%σ 15.77%U 117.1%D 85.4%P 51.6%
Paul Grogan, Dec. 2008Slide 9
Lattice Analysis of Closing Option• Analyzing closing option in Central Loop route• Closing option is valued at $67,476
Paul Grogan, Dec. 2008Slide 10
Year 0 1 2 3 4 5 6
Expected Future NPV
----Decision
$728,108-
$1,154,294-
$1,526,719-
$1,776,965-
$1,834,112-
$1,624,138-
$1,052,779-
$180,640-
$478,653-
$751,209-
$918,785-
$898,597-
$621,415-
$(90,356)CLOSE
$69,498-
$252,706-
$369,287-
$306,718-
$(156,258)CLOSE
$(90,356)CLOSE
$(13,200)CLOSE
$77,134-
$(212,547)CLOSE
$(156,258)CLOSE
$(90,356)-
$(260,625)CLOSE
$(212,547)-
$(301,690)-
Path Enumeration and Valuation
Add PV cash flow from the first state in the path from a
lattice not accounting for option execution
Execute decision after current state?
Add PV one-time cost of executing option
(e.g. capital expense or penalty)
Add PV cash flows from remaining states in path from a
lattice accounting for option execution
Add PV cash flow from next state in path from a lattice not
accounting for option execution
Yes
No
In this analysis, the one-time cost is
assumed to be zero
In this analysis, the lattice accounting for option execution
is simply zero cash flows
Paul Grogan, Dec. 2008Slide 11
Lattice Valuation• Option is executed (close operations) in 34 of 64 paths
(50.1% chance overall)
– Good chance that revenue can’t cover operational costs
• Flexibility limits downside risk but does not affect upside (traditional result)
Paul Grogan, Dec. 2008Slide 12
Measure Fixed FlexibleExpected NPV $ 660,632 $ 728,108Maximum NPV $ 2,859,137 $ 2,859,137Minimum NPV $ (756,570) $ (17,393)
Conclusions• Expected ridership levels are not high enough to support
a streetcar system of the studied scale• Under expected ridership levels, a closing option is used a
very large percentage of the time (~50%)• Under higher ridership levels, a flexible, phased design
produces significantly higher net present value• Including a closing option increases net present value but
does not take into account the construction cost losses
Paul Grogan, Dec. 2008Slide 13