For the last few weeks the group has been reviewing the newly revised California High Speed Rail Business plan. This week we finish it off with talking about where the project went off track, how the authority is going to rectify its mismanagement, and their ridership forecasts. Let's just say all of it is kind of scary.

From the beginning of Chapter 6, it’s funny with the consultants speak. CHSR talks about their "New Stage Gate to Approach to Project Delivery", which is really just boring consultant speak for “We really screwed up” and "This is how we are going to fix it".

As projects move through Stage Gate, designs are advanced and scopes are defined at increasing levels of three-dimensional detail. For example, the guideway will be defined by its geographical boundaries (north, south, east, west) and its vertical characteristics (elevated, surface, tunnel). This informs critical pre-construction activities (right-of-way needs, utility relocation requirements, third party agreements and environmental permits) so that these elements are configured concurrently before construction contracts are awarded. This reduces the risk of needing to reconfigure designs during construction which can trigger inefficient and costly delays (CHSR 2020, Page 113)

Stage 3:

The Authority will assess what delivery method is most appropriate for the project, including design-build, design-bid-build or another alternative delivery method and develop a project delivery/ procurement plan for the project or specific project elements. Completing Stage 3 positions the Authority to begin planning and preparing for pre-construction activities, also referred to as early works. (CHSR 2020,Page 116)

Stage 5:

In Stage 5, the focus is on construction procurements. The Request for Qualifications (RFQ) and Request for Proposals (RFP) are developed and issued; proposals and bids are evaluated; and a contractor will be recommended to the Board of Directors. Upon Board approval, the contract will be awarded and Notices to Proceed (NTP) will be issued. (CHSR 2020, Page 117)

We are still curious of what exactly happened, when looking at the original plan and comparing it to the newly revised plan; you get the impression that the Authority just went out and hired general contractors and consultants to put it all together. It might have been a result of the political push to get shovels in the ground as soon as possible, but reading news articles it appears that there was no overall project plan or organization. Just throw money around and hope that something gets done.

However, that is what led to major costs with roadways being moved and delays due to moving utilities (let alone trying to work with the class I railroads). Obviously the Authority didn’t know what they were doing, and didn’t care (or have the capability) to learn and adapt.

Instead it was just build and get it done.

Lessons Learned:

Authority moved into construction on the 119- mile Central Valley Segment before completing pre-construction activities, including right-of-way acquisition, utility relocations and third-party agreements. These activities were conducted out of the correct sequence, as shown in Exhibit 6.3, which created many cost and schedule risks that we have endeavored to manage over the last two years. (CHSR 2020, Page 118)

Of course, it appears that the authority has learned somewhat of a lesson and is being kept more accountable. After all, what I thought was ironic is the statements:

This new way generally illustrates the “design-build” approach. (CHSR 2020, Page 114)

What? That is new to them? Every civil engineering project uses this project (with “operate-maintain-own” sometimes being added). What are they just learning this now . However, if this is a new revelation I am scared to ask what they were doing before.

Of course, the next challenge is funding, and the last several pages of chapter 6 are dedicated to the need for a predictable funding stream. The Authority is stating that now that they have figured out how to plan and build, and securing stable funding is needed. However, the question is how do their earn the public's trust to get that stable funding. After all, if you give a brother or sister $10,000 for them to buy car, but they go out partying and crash the car, would you give them more money to buy another car? You would want assurances that this time they would use it responsibly, right?

So we will see what happens with this in 2021.

Chapter 7: Forecasts for California High Speed Rail:

What is ironic about the forecasts is that there is no statistics about the Merced down to Bakersfield...nothing what so ever. This is scary, because it is like the authority is planning on empty trains running for years in the central valley? What it comes to Merced down to Bakersfield this is all that the business plan states:

Interim service between Merced and Bakersfield is expected to build the market and demand for high-speed rail service. It is anticipated this will generate higher beginning ridership results once the line connects to the larger Bay Area population and employment.

Rather the whole focus is either on Silicon Valley to the Central Valley, or San Francisco to Anaheim (Called Stage 1). (CHSR 2020, Page 130)

Well, sure hope the plans to get to Silicon Valley work out. Cause that seems to be the only plan they have.

Once they do get Silicon Valley, here are the ridership forecasts. As always, there are no details about the criteria and methods used in the calculations. The only explanation is that a Monte Carlo forecast was used (which is essentially a probably estimate).

These next forecasts are based upon the idea that Silicon Valley to Central Valley Line will be operating by 2031 and the whole San Fran to Anaheim (Phase 1) System will be operational by 2033.

So we have to wait over ten years to find out what really happens.

Although an interesting spin on the forecasts. The consultants also did include a green house gas emissions forecast. I don't believe the numbers, but it is intriguing to read.

From the Captain

Checking your Bags will be $25, and please pay for high speed rail

Ever wonder why airlines charge for bags? Or a season pass to Six Flags is just a little more than a 1 day ticket? Or cell phone service starts at $35.

Its called ancillary revenue. The idea is spend a small amount on purchasing a service which you may spend a significant amount of time analyzing and comparing. However, then there are other charges which you don’t comparison shop on. This would be how Spirit Airlines offers a $29 no frills fare; but then when you add in seat selection, ticket purchase, and checked bags (all after you bought the ticket) you realize that the $29 fare is closer to $100.

Now I am not a fan of Spirit’s pricing, but we do this everywhere. You buy an airline ticket and you pay for parking (which at O’Hare may be more than your ticket), go to the movies and you buy popcorn, go to Six Flags and you buy food and games (to carry around the giant stuffed animal). It is revenue that is spent around another service that can be more profitable than the original service; as with our Spirit Airlines example.

With Chapter 7 of the California High Speed Rail plan, they are just planning on ancillary revenues being 2% of ticket revenue (also called farebox revenue), which they attribute to food concessions, some parking, and telecommunications. Wow, they are missing the flight on this one.

Back in fall of 2019 we ran the numbers on a theoretical Minneapolis to Chicago 200 mph bullet train. We got very different numbers. Our plan was just to break even on the passenger ticket sales. Rather the true profit is in the ancillary revenue around the stations. This includes everything from real estate value capture, to hotel ownership, to promoting parking and ride sharing revenue.

We don’t have the experience or resources to estimate what the revenues would be the California Phase 1 High Speed Rail. However, we have done the calculations for a Milwaukee to Chicago, with 18 trains daily between the cities (it would be an extension of the a Minneapolis to Chicago system and the reason for so many trains), and our number tell a completely different story than California.

Using the California Model to calculate our Milwaukee to Chicago example, here is what revenue and ancillary revenues would look like. It only adds up to $215 million in theoretical annual revenue.

Under our WiHST model, we include parking, ride sharing, real estate value capture, and office leasing. This what our modeling looks like, and who wouldn't like an additional 59 million every year?

Essentially we are making the argument that California is severely underestimating (or ignoring) not only a huge potential ancillary revenue opportunity, but undervaluing the whole project. After all, instead of $4.2 million per year that the authority's consultants model calculate, we calculate ancillary revenue could account for over $63 million a year at one station alone. This is huge!

So while California High Speed Rail doesn’t seem to model this, the good news is Brightline and their owners (Florida East Coast Industries and Fortress Investments) appear to get it. After all, this is likely the reason for Miami Central Station, and even the building of the LA-Las Vegas Brightline West project are so real estate focused.

So perhaps the California Authority will fly on Spirit Airlines and figure out the value of the real estate and ancillary revenue surrounding the station, or they will just stick with their old ways and think that money is in the ticket sales and go the way of Pan Am, Braniff, and Eastern Airways. We will see.

California's Adventure - Chapter 6; WT? Happened & How to Fix it

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California High Speed Rail: Chap 6: WTF, & How to Fix It

Chapter 7: Forecasts for California High Speed Rail:

From the Captain

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