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Economic Pre-Feasibility Study for A: Howse Pass Highway

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Economic Pre-Feasibility Study for A: Howse Pass Highway Economic Pre-Feasibility Study For a: Howse Pass Highway Final Report October 12, 2005 Prepared by: Dr. Khalid Bekka Vice-President, HDR | HLB Decision Economics Inc. 8403 Colesville Road, Suite 910, Silver Spring, MD, www.hlbde.com Bruce Schollie, MBA, CMC President, Schollie Research & Consulting 4603 - 50th Street, Red Deer, AB, www.schollie.com Town of Rocky Mountain House EXECUTIVE SUMMARY This report presents the results of an economic pre-feasibility study to determine the costs and benefits associated with constructing a new highway in an area of Alberta and British Columbia known as the Howse Pass. The objective of this study is to perform a high-level assessment that will help determine whether the investment is worthy of advancement to the next stage of study. The idea of a Howse Pass Highway has been studied and promoted over the past 50 years but a cost-benefit analysis has never been conducted. The highway would link Alberta’s Highway 11 to the Trans-Canada Highway near Donald, British Columbia. This would relieve congestion on, and provide an alternate route to the 2 main existing east-west highways; Highway 1 and 16. The new highway would also reduce the travel distance from Central Alberta to Vancouver by 95 kilometers. Traffic diverted to the Howse Pass Highway would traverse the ecologically-sensitive Banff National Park for a mere 34 kilometers compared to 126 ‘National Park’ kilometers on the Highway 1 route and 76 ‘National Park’ kilometers on the Highway 16 route. In May 2005, Clearwater County, in partnership with Alberta Economic Development, the Town of Rocky Mountain House, and Lacombe County hired Schollie Research and Consulting and HDR | HLB Decision Economics to conduct an independent analysis of the costs and benefits associated with constructing a highway over the Howse Pass. The methodology for this study is summarized below: 1. Review past research and studies on the pros and cons of the Howse Pass Highway; 2. Research and analyze traffic volumes, patterns and flows, economic, and demographic data for the study area; 3. Develop a Cost-Benefit Analysis (CBA) model in a risk analysis framework, allowing for the estimation of costs and benefits associated with Howse Pass Highway construction. Include the following categories of costs and benefits in the CBA: Ø Direct cost of Howse Pass crossing construction; Ø Cost of roadway maintenance; Ø Cost of road overpass/underpass crossing construction; Ø Travel time cost savings; Ø Accident cost savings; Ø Vehicle operating cost savings; and Ø Vehicle emission cost savings. 4. Conduct a Risk Analysis Process (RAP) workshop session with project stakeholders; 5. As needed, modify model structure and update probability distributions of all assumptions based on expert panelists’ inputs; and 6. Run Monte Carlo simulation, apply appropriate discount rate, and calculate the cost/benefit ratio of the Howse Pass construction. HDR |HLB DECISION ECONOMICS INC. EXECUTIVE SUMMARY · i SCHOLLIE RESEARCH & CONSULTING Results of the cost-benefit analysis demonstrate that the net present value of the Howse Pass Highway project over twenty years, using a 10% discount rate, exceeds $210 million dollars. In terms of benefit cost ratio, the analysis shows that for each dollar spent on this project, there is $2.14 in benefits. These results translate to a rate of return of 21.2%. For a public infrastructure investment, these results are highly significant and highlight the worthiness of the project. The assessment of uncertainty in the forecasts lends further weight to the Howse Pass Highway as a worthy investment from an economic perspective. Based on the assignment of probabilities to all of the various technical assumptions entailed in the forecasting process, the table below indicates the Howse Pass Highway project offers the public over a 90% assurance of generating more benefits than costs. Summary of Results Using Risk Analysis Most Likely 90% Probability of 10% Probability of In Millions of 2005 Dollars Outcome Exceeding Exceeding Total Benefits $394.5 $275.5 $522.7 Total Project Costs $184.1 $159.8 $210.4 Net Benefits (NPV) $210.4 $89.2 $339.5 Benefit/Cost Ratio 2.14 1.45 2.92 Internal Rate of Return 21.2% 14.8% 27.3% The economic pre-feasibility study answers the worthiness question but it relies on existing documentations, secondary data, and conservative estimates. Now that the findings of the pre-feasibility show that the project benefits may out weight its costs, it is recommended that a closer look should be given to this project as it may result in substantial economic benefits to the region. The following next steps are recommended: 1. Conduct a survey of key shippers and freight forwarders in the region to assess their likelihood and willingness to use the Howse Pass Highway as a shipping route if it is available. The survey should be based on a scientific sample representing key industries within specific urban areas in both Alberta and British Columbia; 2. Estimate traffic demand based on the survey findings and other potential changes in traffic characteristics in the region; 3. Conduct an economic and financial feasibility study of the Howse Pass Highway based on the newly developed traffic demand forecast to determine the worthiness of the project based on primary data and scrutinized assumptions. This study can also include an assessment of whether the Howse Pass Highway can be financially feasible as a toll road; 4. If successful, the study should lead to meetings with different stakeholders to brief them on the findings and gather their concerns and issues, including the national park officials as well as environmentalist groups. This step will identify the measures to be taken to change the existing policy(ies) on highway in national parks for this specific project (given its economic importance) and identify mitigation measures to address stakeholders concerns. HDR |HLB DECISION ECONOMICS INC. EXECUTIVE SUMMARY · ii SCHOLLIE RESEARCH & CONSULTING TABLE OF CONTENTS Executive Summary........................................................................................................................................ i List of Figures................................................................................................................................................iv List of Tables.................................................................................................................................................iv 1. Introduction...........................................................................................................................................1 1.1 Study Objective and Methodology Overview.....................................................................................1 1.2 History and Description of the Howse Pass area.................................................................................2 1.3 The Case for the Howse Pass Highway..............................................................................................3 1.4 Past Efforts to Advance the Howse Pass Highway Concept................................................................5 1.5 Plan of the Report..............................................................................................................................5 2. HLB Methodology................................................................................................................................6 3. Study Findings.......................................................................................................................................8 3.1 Benefits Estimates..............................................................................................................................8 3.2 Project Worthiness............................................................................................................................9 3.3 Risk Analysis...................................................................................................................................10 4. Concluding Remarks and Recommendations ........................................................................................12 4.1 Concluding Remarks........................................................................................................................12 4.2 Recommendations ...........................................................................................................................12 Appendix A - Cost Benefit Model Inputs.....................................................................................................14 A.1 Costs of Construction for the Howse Pass Highway.........................................................................14 A.2 Benefits of Howse Pass Highway Construction................................................................................15 A.2.1 Travel Time Cost Savings ..........................................................................................................15 A.2.2 Accident Cost Savings...............................................................................................................15 A.2.3 Vehicle Operating Cost Savings .................................................................................................16 A.2.4 Vehicle Emission Cost Savings...................................................................................................17 A.3 Key Assumptions............................................................................................................................19
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