Last Friday saw what seemed like a belated announcement – that the Public Transport Operating Model (PTOM) had acquired all its necessary approvals and will be implemented in the relatively near future. PTOM is the system under which bus and ferry services will be contracted by regional councils (or Auckland Transport). The announcement was welcomed by Auckland Transport and NZTA, although questioned by the Green Party as missing the big transport questions faced at the moment: booming public transport use and stagnating traffic volumes (while funding priorities are the complete opposite to these trends).

The contracting of bus and ferry services has been an ongoing argument in New Zealand for pretty much the last 20 years. The current/previous system effectively prohibited the logical planning of public transport networks, by splitting individual services into either commercial (run without a subsidy and over which the transport agency had almost no control) or contracted (operated with a subsidy and therefore much more control). The cabinet paper on PTOM describes the problem with this system:

At the moment, public transport services are delivered through a mixture of commercial and contracted services. It is up to operators to identify what services they wish to provide on a commercial basis (ie without public subsidy). A commercial service can be a single timetabled service running from one point to another (for example the 10.48 am from Smithville to the city). Regional councils then determine what other services are necessary to the urban public transport network. These services are then ‘contracted around’ the commercial services to fill service gaps.

The practice of registering single timetabled services as commercial has hampered regional councils’ ability to provide an integrated public transport network and achieve network efficiencies, as these services are not under contract with the regional council and do not have to conform to service standards or fare standards. The presence of commercial registrations has also arguably contributed to poor tender outcomes (on average just over one bid per tender in Auckland and Wellington) and higher prices than in regions where competition is more robust. This has led to increased tensions between regional councils and operators.

The 2008 Public Transport Management Act (PTMA) sought to resolve this problem, but the operators moaned and the new government reviewed the legislation before it could even be given effect to. The result of the review is PTOM – which is described in quite a bit of detail in this earlier blog post.

From reading through the most recent cabinet paper on PTOM many of the most important gains from the PTMA seem like they’ve been retained, although there are a few little nasty parts of PTOM which may hold back our ability to truly achieve the kind of improvement to our public transport system that is so desperately needed. Before I get into those details, let’s start with outlining what we really need from the contracting system:

  • The ability to plan an integrated network (therefore, the ability of the public transport agency to define the routes and timetables of every single service)
  • The ability to implement integrated ticketing and integrated fares (therefore, the ability to ensure operators accept the integrated ticket and fare system)
  • The ability to share risks and rewards from higher or lower patronage between the public transport agency and the private operator. This provides an incentive for both parties to grow patronage while also ensuring an ability for ‘cross-subsidy’ from the more commercial to the less commercial routes and means no more ‘cherry picking’ of the most commercial routes by operators.
  • The ability to measure performance standards and include matters like punctuality (measured properly, not this rubbish) in contracts.

So what’s the good news about PTOM in achieving these goals? Well a few paragraphs from the executive summary of the PTOM cabinet paper answer a few of the questions above:

The introduction of PTOM represents a fundamental shift in the delivery of urban bus and ferry services. Under PTOM public transport services, that form part of the region’s urban public transport network, will be grouped together into units and provided under contract with the regional council to enable stronger network co-ordination and a basis for joint investment. This replaces the existing practice ofoperators being able to register single timetabled services on a route as commercial, and regional councils having to ‘contract around’ these services with subsidised services — a practice that led to poor tender outcomes and network development.

 Units will be operated on an exclusive basis for the duration of their contract, and where appropriate procured through a mixture of competitive tendering and direct negotiation based on unit performance. Sufficient units will have to be put out to tender to ensure confidence in costs. Operators will still be able to set up new public transport services outside of the existing urban public transport network. These services will be exempt from contract and will not have exclusive operating rights (ie other operators will be able to set up competing services).

Both legislative and administrative changes will be required to implement PTOM. PTOM encompasses a range of planning, funding and procuring tools that have been developed with the needs of the three largest public transport markets (Auckland, Wellington and Christchurch) in mind. Many of these tools may be utilised by smaller markets, but not all will be mandated through legislation. I recommend that amendments to legislation be kept simple and limited essentially to the introduction of the unit concept and the requirement for all public transport services to be under contract with the regional council unless exempt.

Properly implemented, PTOM will introduce competition to the system by incentivising operators to compete for exclusive operating rights and directly negotiated contracts. Contractual arrangements allow regional councils to prevent exploitation of these provisions through regulating fare setting and use of cost benchmarking.

The rest of the cabinet paper further answers the questions I set earlier in the post. By combining all services along a particular route (or group of routes) into a single unit, it’s possible to plan a logical network (at least within units), the ‘cherry picking’ issue is resolved, units will be operated on a risk/reward sharing basis – giving all parties an incentive to generate more patronage. All units (except exempt services, which I will get onto soon) will be contracted – meaning that even commercial units will need to provide for the timetable and route structure decided upon by the public transport agency. All units (once again, except for exempt services) will need to accept integrated ticketing and be included in integrated fares networks – should the PT agency want them to be.

So that’s the good news, and largely ticks all the boxes above. Units will be incentivised to become more commercial, by having  fares cover an increasing proportion of their operating costs, because the more commercial a unit is, the more likely it will be contracted through direct negotiation rather than by open tender. Operators dislike open tenders because it introduces significant risk of losing the tender for that area.

Theoretically, the system sets up a framework to get better value for money from our spend on public transport services. Now I have little doubt the government has done this because they want to reduce spending on public transport, so it’s possible to throw even more money at their pointless and stupid Roads of National (Party) Significance – but improving cost-effectiveness of PT services by enabling better network planning has significant benefits regardless of this. With patronage increasing so fast in Auckland, a most cost-effective contracting system means that for any additional funding (and PT funding will not decrease in Auckland while patronage is growing so quickly) we should be able to get more extra service for the same amount of money. All we need is a different government in 2014 (something that’s looking increasingly likely) to boost funding for public transport and we have the ability to create a vastly better system.

That’s the good news, so what are the catches? Well as PTOM is meant to be a giant compromise between all parties, there are a couple catches to be aware of.

  • Exempt services. A number of PT services will be exempt from PTOM and while some of these are rational (like inter-city services) others make less sense, except as part of a fairly messy compromise. Bus routes that are currently fully commercial at all times will be exempt (this includes the Airbus in Auckland), while perhaps more significantly ferry services that are fully commercial will similarly be fully exempt. This includes the Waiheke Ferry – which means that there will continue to be little, if any, control over how that ferry operates in terms of its fares. It may also include the Devonport Ferry, if that runs on a fully commercial basis at the moment.
  • An aspect of the transitional arrangements which seems to allow for a proportion of units to be rolled over to the existing operator for an incredibly long 12 year contract without open tendering. This is seen as a concession to reflect the existing investment in commercial services – but sounds pretty bizarre. I just hope the roll-over of these contracts allows for full network planning to occur and also allows for some assurance that a competitive price is achieved.

Overall, it seems like PTOM is a step in the right direction – although that will largely be dependent upon whether we really do achieve the efficiencies the system is designed to achieve, how the units are structured in terms of their interaction with one another, whether the ‘catches’ listed above turn out to be particularly problematic and whether any of the efficiencies gained are spent on further improving the system to reflect rapidly increasing patronage, or whether they are siphoned off to be flushed down the toilet on another pointless RoNS project. So to an extent, we will have to wait and see.

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  1. hmmm, I wonder if when they bring in the legislative changes they need to enact this it will be possible for the public to submit and try and reduce that 12 year roll over to a shorter time period?

    Also, with the fully commercial service thing, that wouldn’t apply to routes such as the Northern Express would it (because I thought that most of the peak hour services on that line were fully commercial these days)?

    1. The aim is that providers have to do a whole timetable so can’t cherry pick the profitable ones to make all the money off and leave the rest to the council to pay for, the new plan is for them to also have to run the off-peak commercially, or none of them commercially.

  2. That twelve year thing is an initial measure to ease the transition. It’s designed to match the lifetime of a bus so that operators can have confidence to invest in new rolling stock. No business is going to go out and buy a bunch of brand new buses without some guarantee they actually be able to use the ivestment.

    1. Have assurance of obtained a route for a period long enough to pay for a bus will presumably allow operators to purchase busses designed for particular routes (ie double decker busses) which they would not normally buy incase they lost the route and would find hard to use in ‘generic’ service.
      Especially in they case of double decker busses which might be too tall for general roads.

  3. It’s an improvement. Because NZ persists with mixed-market models for ideological reasons, it’s still a long step from full management which would allow a high degree of control and responsiveness to the actual needs of users rather than compromises with the wishes and needs of operators. Nevertheless, even limited progress is worth celebrating.

    1. I was working in the old Urban Transport Council in 1989, when the current regime was brought into place. The main ‘ideology’ at the time, from central government’s point of view, was to save money; a goal in which local councils seemed to acquiesce fairly happily. Cast in this light, not much has changed.

      You also observed:
      Because NZ persists with mixed-market models for ideological reasons, it’s still a long step from full management which would allow a high degree of control and responsiveness to the actual needs of users rather than compromises with the wishes and needs of operators

      I am not so optimistic about ‘full management’. The pre-1989 regime was not especially marked, anywhere, by “concern for the actual needs of users”, and the sort of regime we all want to see will cost a lot of public money; even for the bus side of things.

      1. What do you think of the PTOM structure Ross – being someone who seems to know a fair amount about this kind of thing?

  4. Good question! I’ve since had a closer look at the post about the redesigned bus network, because the PTOM probably wouldn’t make much difference without it.

    First, if you look at the way Infratil are now talking about it, they seem to have been able to get something they can at least live with (p5 onward of the following):

    Second, transfer-based systems, in any mode, work only where you have high frequencies and reliable timetables. I know that from where I now live (Scotland), frequency on a main route can be as good as one bus every five minutes. It makes every bit of difference to how people use the buses.

    Third, the bus companies have (in my judgement) avoided transfer-based systems for two reasons: (a) because of reliability issues – so they figure, correctly, that the travelling public would prefer less frequent but more direct services.(B), because moving to a ‘free’ transfer regime would not make them as much additional money (in new trips) as what they would lose for not being able to charge for the extra trip in the way they do at the moment. Put more positively, people will use a transfer regime, if these reliability/frequency issues can be fixed.

    So yes, PTOM can work, but integrated ticketing will only make a difference to demand if the services are properly physically integrated first, which is what they are trying to do for Auckland. If reliability issues mean that the timetables can’t be relied on, no integrated ticket system on God’s good earth will make a difference. Some arguments I’ve seen for integrated ticketing have, I suspect, been putting the ticketing cart before the service horse.

    I’m interested to see what they come up with for Wellington, where there are only two bus operators, which most of the time keep out of each other’s way.

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