Lane rental scheme in England: utilities should embrace the new commodity

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30 August 2011, Gas, Electricity

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Nobody will deny that road works are necessary for utilities to provide and maintain infrastructure. However, they come at a cost. Congestion caused by road works costs the UK economy GBP4bn per year, while the damage caused to roads by utility companies comes to GBP50m per year. In London alone, 36% of congestion is due to road works.

The UK has a long tradition of using market-based mechanisms to drive efficiency and change companies' behavior. As such, utilities have significant experience in adapting to these schemes, which range from tradable carbon permits to Renewables Obligation Certificates, the Climate Change Levy, and others. These market-based mechanisms incentivize companies to become more efficient at least cost.

The introduction of a time-dependent lane rental scheme makes perfect economic sense. In order to minimize costs, utilities will choose times that are less disruptive and hence less costly, reducing the overall time spent on road works. Of course, local authorities and highway agencies have the power to charge substantial fees if works overrun, but this encourages utilities to apply for more time than may actually be needed.

Utilities need not be unduly worried. The consultation paper stipulates that the respective authorities must use the lane rental scheme only as a last resort, after cheaper methods, including permitting, have been exhausted. The authorities also have to justify the road rental with a solid cost benefit analysis to ensure that the scheme is targeted towards the most disruptive road works, and is not merely an unavoidable tax. Such cost benefit analysis needs to take into consideration the socioeconomic benefits of avoided congestion, such as the prevention of premature deaths, avoided health costs, or lost productive time. This cost benefit analysis will bring about valuable insights.

In fact, local authorities, highway authorities, and utilities need to co-operate in innovative ways to reduce disruption by road works. Such co-operation efforts will possibly require even bolder measures. Tradable lane rental permits, for example, could drive serious efficiency gains at least cost for companies and encourage new market entrants specializing in road works project planning. The lane rental scheme would reward utilities with the most efficient maintenance project management, which may lead to unexpected business opportunities and less disruption.

Source: Datamonitor

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