Tuesday, December 4, 2012

Yes, the NEC makes a profit


Noel Braymer recently wrote an article for RailPAC in which he argued that far from being profitable, as the surpluses in train operations appears to show, the NEC is actually a net drain for Amtrak, citing $575 million in capital costs for the Northeast Corridor against $180 million in surpluses for the Northeast Corridor’s train operations (Acela and Regional). This leads to a suggestion that the NEC should be handed off to an independent third party owner who would charge sufficiently high fees (while also increasing traffic on the lines) to recover the full costs of the corridor. Unfortunately, this does not seem to be in accord with the facts insofar as I can find them.

Partially because I can’t seem to find a document that matches with his $575 million cost for the Northeast Corridor and partially because I like the breakdown better, I’ll be using the numbers for Fiscal Year 2012. Scrolling down to page A-4.6, we have a breakdown of all of Amtrak’s capital spending in the engineering and mechanical departments. At first glance, the engineering budget, which is the one we’re interested in for the Northeast Corridor, shows $518 million either spent or projected to be spent through the remainder of the fiscal year. However, not all of this properly belongs to the category of routine maintenance, which is the relevant criteria to judge the Northeast Corridor on.

Categorically, the entirety of electric traction, track, and communications should fall under this accounting, though this does include costs for Philadelphia-Harrisburg and potentially track owned in Michigan. I do not count the New Jersey HSR Improvements, Life Safety construction, or special projects as a routine cost of the Northeast Corridor and, in fact, these are often funded by other sources, such as Federal grants or by other agencies (such as the new Sunnyside Yard is by MTA). Nor do I count station spending as being properly assigned to the Northeast Corridor. $50 million, half of the total spending this year, is Federal grants for reconstruction in accordance with the Americans with Disabilities Act. The remainder is split between hundreds of Amtrak stations nationwide and would not transfer to a third party were the Northeast Corridor to be spun off.

This brings us to a total of cost for the Northeast Corridor of $310.4 million. Against this is a surplus of $300 million for the Acela and Northeast Regional through August; assuming costs in line with revenue for the remainder of the fiscal year, I estimate a total surplus of $319 million for the year. Update: The September 2012 report shows a total surplus of only $281.9 million for Northeast Corridor trains for the year; I do not know why why costs for September were $110.9 million against revenues of $91.4 million; about 50% higher than would have been expected for a simple 1/12th fraction. Presumably there are end of year costs counted only in September rather than spread throughout the year.

Rather than being a net drain on Amtrak, the Northeast Corridor pays for itself, even excluding track access fees (see above update). If we consider track fees, equally charged per train mile as a simple “fair share” model would suggest, the Northeast Corridor comes out even further ahead. With Amtrak only producing 51% of the train miles on the Northeast Corridor (Table 7, page 12), the maximum charge which ought to be levied is $158.3 million (according nicely with the $164 million said to be paid in fees by other NEC users), leaving a plentiful sum from the operations which is more than enough to pay for the mechanical costs of the trains as well; the more so when the train miles from long distance and state supported services are discounted.

If, of course, Amtrak is not reimbursed according to a fair share formula, that certainly has the potential to drag the potential profitability of the corridor down; but all that suggests is that all users must pay equitably for the corridor, not that the corridor should be spun off into the hands of a third party agency. At the same time, I am not suggesting that the Northeast Corridor is sufficiently profitable as to pay for necessary upgrades or even potentially all of the backlogged maintenance necessary to return to a state of good repair. While that may now be true, the profitability of the Northeast Corridor over and above infrastructure maintenance is a fairly recent phenomenon and not one I’d care to currently mortgage the corridor on without seeing the trend continue for a few more years.

Quite frankly, I don't see the proposal of an independently owned Northeast Corridor as being a good idea even in the abstract. There is a degree of compelling logic to spinning off the Northeast Corridor and Amtrak's Northeast Corridor operations as a complete entity; there is not for spinning off simply the infrastructure by its lonesome. If Amtrak pays its fair share, which would be the legal case in 2015 even if it isn't now, their costs would not change. If they pay only the incremental costs of running over the lines, to the great annoyance of all the commuter agencies then stuck with the remainder of the bill, you simply have a government agency being subsidized by other government agencies. Meanwhile, the suggestion that such an agency would increase revenues by increasing freight traffic along the line is a suggestion that is actively detrimental to good passenger rail, which must minimize the amount of freight traffic that it interacts with.

4 comments:

  1. It's worth noting that the various agencies that share the corridor cannot agree on a fair allocation model. Train-miles, unit-miles, passenger-miles, seat-miles, passenger-mph-miles, etc. - all have been fought over endlessly. The allocation of costs is very hard to determine in a fair way. Also, the NEC underwrites the operations of the state commuters (read NJ), and DC seems to have no appetite to making the states pay their full share, so any talk of a spinoff ignores this reality.

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    1. Thank you for that. If you don't mind, how does the NEC underwrite the operation of state commuters such as NJ at present?

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    2. Sorry for the long delay. The current allocation models under-represent what many at Amtrak beleive to be the true costs of operating the commuter trains along the corridor. The electricity consumed, the cost of maintaining the catenary and right of way, and dispatching are all three areas where Amtrak absorbs a share of the costs well beyond what any outside arbiter would assess as the fair share. This is done for political reasons, and has been fought over periodically for years, but shows no sign of changing.

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    3. No problem at all for the delay and thank you again.

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