OC Transpo struggles with the cost of success
As drivers flee gas prices, transit system tries to keep up with surge of new riders
Riding transit is the thing to do in Ottawa as fuel prices soar and more drivers leave their cars at home. The downside is that, while it revels in the highest transit ridership in history, the city faces huge cost increases to cover fuel costs and the growth of transit operations.
City politicians know the city is being hit hard by this new energy age.
Kanata North Councillor Marianne Wilkinson this week served notice that she wants the City of Ottawa to consider cutting less-used bus routes, look into using rail corridors to move commuters, allow more employees to work from home, get more police out of cars and walking patrols, as well as ask firefighters not to drive fire trucks to pick up groceries.
Alta Vista Councillor Peter Hume says fuel economics and environmental issues “are changing much more rapidly than governments are used to,” and “we have to be nimble.” The price of energy could prompt the city to do things like shuttle staff around the city, rather than having individuals driving on their own, get more staff on bicycles, buy a lot more hybrid vehicles for the transit fleet and generally take more risks on new technologies and ways of working.
Transit is a key to the city’s response to the new energy reality.
Transit demand is way up. Ridership grew by another 4.7 per cent in Ottawa in May, compared with a year ago, propelling the city closer to the 100-million-a-year rider mark now expected to be surpassed this year. While OC Transpo is gearing down slightly for the quieter summer months, the company is concerned that its planned three-per-cent increase in transit capacity for the autumn could be swamped by a substantially bigger increase in demand for service. The city is a year ahead of its growth projections for transit and hurrying to catch up.
“We’re certainly seeing a trend. Every month we’re up five per cent over the previous year,” said Ottawa transit director Alain Mercier. “We could face five per cent (in the fall). Could there be more? I’m not sure. We’re all sort of peering into this crystal ball across the country.”
Transit ridership is up across Canada over the last five years and last year jumped 3.1 per cent, according to the Canadian Urban Transit Association.
In Ottawa, part of the trend is an increase in the number of riders who used to drive to work daily but now take the bus one or two days a week. There’s also a big increase in the number of rural bus-pass holders — meaning the people hit hardest by rising gas prices are turning to transit.
More transit riders is the Holy Grail of city government. Bus riders make for less-congested roads, and morecompact planning. In the long run, transit is cheaper for the city than building roads, but it also creates its own problems. This past winter in Ottawa, when ridership climbed with the price of oil and snowstorms hammered the city, the transit company had a series of bus breakdowns and driver shortages that saw a flood of complaints into city hall. Some buses weren’t showing up, others were so packed that people were left standing at bus stops. The transit company’s reliability levels fell to 98.5 per cent. That might still sound high, but it made for a lot of people waiting in the cold and a major public mea culpa from the city.
Mr. Mercier says commuters are fairly understanding about the system’s being heavily used, with standing room only on many routes, but he says the company gets into problems when the service is unreliable or inconsistent, which it has been.
With more hiring and a push to get vehicles repaired, Transpo’s service reliability is back up to 99.5 per cent and Mr. Mercier says it will be at 100 per cent by the busy fall season.
The challenge for the city is in paying for, and managing, a much busier transit system.
The same fuel-price increases that are prompting people to leave the car keys at home are hammering the city’s transit and fleet budgets. Each onecent increase in the price of fuel translates into a $400,000 increase in costs for the city.
“Fuel costs are really causing us some major problems,” says Mr. Mercier.
In fact, the oil market is forcing municipalities like Ottawa to face financial risks that they don’t want to take.
The City of Ottawa buys 39 million litres of diesel a year for its transit fleet through Suncor Energy. The city has two ways to buy the fuel: at a floating price set once a month, or by locking in the price for up to 12 months.
Philip Andrews, manager of supply management in the city’s financial services branch, says the choices are hard. Mr. Andrews and his colleagues research price and supply trends daily, reading reports by energy-market experts in an attempt to understand where the market is going. He looks back to the fall and sees that it would have been a good time to lock in the price, a move that would have saved $5 million or $6 million. But he notes that some credible energy analysts were predicting $50-a-barrel oil last fall, not the $135 a barrel fetches today.
The city’s financial managers have occasionally locked in the price of diesel fuel, an option the city required in the last fuel-supply contract won by Suncor Energy due to the growing volatility of prices. But timing the market can be a humbling experience. Overall, by locking prices in over the last two years or so, the city paid $314,000 more than it would have just paying the floating price.
“When they offer you the lock-in, you look and wonder,” says Mr. Andrews.
Recently Mr. Andrews was impressed one day by a comprehensive energy forecast from respected economist Jeff Rubin, of CIBC, who predicted steadily increasing prices for oil, which suggests locking in would be a good strategy. But when Mr. Andrews went home that night, he saw that famous hedge investor George Soros, one of the most astute investors in the world, was characterizing the oil boom as a completely speculative bubble, which could burst at any time. If Mr. Soros is right, locking in the price for a year could cost Ottawa taxpayers many millions of dollars.
“We’re risk-averse,” says Mr. Andrews. “It’s risky to lock in when it’s so high. There’s never been this volatility.”
One option the city is considering is pooling its buying power with municipalities in Quebec, but Mr. Andrews notes that this has its own risks: a much smaller number of companies would be capable of competing for a huge fuel contract, so there wouldn’t be the same competition for the cities’ business.
Last fall, Ottawa expected to be paying 93 cents a litre for diesel, but is paying about $1.24 this month. While it’s early in the year, transit’s $326-million operating budget could easily be overspent. Transit users pay for almost half of the cost of operating Transpo; the rest is covered out of property taxes.
Michael Roschlau, president of the Canadian Urban Transit Association, says that in the near term, cities such as Ottawa may have to bring in policies such as very cheap off-peak transit fares as a way to encourage people to use transit outside rush hours. He says longer-term, bigger solutions are a much larger question that must involve substantial help from the federal and provincial governments.
Yesterday, mayors of Eastern Ontario who gathered at Ottawa City Hall were warned by both the federal and provincial governments that they shouldn’t be counting on other governments to save the day.
Ontario Municipal Affairs Minister Jim Watson specifically mentioned that Ottawa is seeing a surge in transit ridership that is directly tied to the explosion in gasoline prices and which he acknowledged is hard for the city to handle. While Ontario has pledged to help pay for big improvements to transit in the years to come, he warned that Ontario isn’t in a position to hand over a lot more money in the next couple of years, given the slowing of the economy.
For the head of Ottawa’s transit committee, Councillor Alex Cullen, this age of rising fuel costs and bursting demand for transit translates into “tonnes of complaints about packed buses” together with the satisfaction of having record ridership. But he says the city moves slowly, even in response to such big changes.
The city is facing a 4.9-per-cent tax increase for 2009. To get more buses on the road and more operators to drive them, Mr. Cullen will have to battle through the budget process against other priorities including parks, public health and public security. Then it takes at least a year to have a new bus delivered. He makes no promises of swift action.
“We’re expanding as fast as we can,” says Mr. Cullen. SUMMIT:
POLITICIANS MEET IN OTTAWA TO TALK PUBLIC TRANSIT SYSTEMS,