City Council Agenda May 21, 2013/Page 1

File No.: 130-C3

CITY COUNCIL AGENDA REPORT

Subject: CAPITAL REGION BOARD UPDATE – SMART FARE SYSTEM

Recommendation(s):

1. That Council receives the Regional Smart Fare System update as information.

2. That Administration update the existing unfunded 2015 Capital Business Case – “Transit Smart Card” and recommend to bring it forward as a funded Business Case as part of the 2014 budget deliberations.

3. That Administration be directed to advise the City of Edmonton and Strathcona

County that Council supports the Smart Card Fare System, and participation in the program will depend on approval of the Business Case in the 2014 budget.

Report Summary: On February 22, 2012, the Capital Region Board (CRB) Regional Transit Committee recommended that Edmonton, St. Albert and Strathcona County make application for GreenTRIP Funding for a Regional Smart Fare System. A proposed Smart Card fare collection system has been included as a project in Transit’s 10 year Capital Plan for a number of years. Given the importance of regional cooperation and integration for such a project, initiation of this project has been delayed pending regional consensus on how to proceed. Through the Regional Transit Committee of the CRB, a report investigating a “Regional Fare System and Implementation Plan” was completed with recommendations on regional fare policy and technical implementation systems. Further, Edmonton City Council passed a motion on October 3, 2012 directing their Administration to proceed with the development of a business case for an account-based, open-payment Smart Fare System and to explore opportunities for participation by regional partners, both operationally and financially, in this project including developing a joint GreenTRIP application.

City Council Agenda May 21, 2013/Page 2

File No.: 130-C3

Legislative History: (Budget PM-13) Given the latest decision by Edmonton, add to the unfunded Business case List $600,000 for Smart Card Capital for 2015. Report: Replacing StAT’s obsolete manual fare boxes with a “Smart” technology solution has been identified as a priority in Transit’s capital plan for a number of years. The need to “monitor/ implement new fare collection technologies” was indentified in the 2005 – 2020 Transit Long Term Department Plan. The need to upgrade StAT’s fare collection system was reiterated in the recently approved 2013 – 2027 Transit Long Term Department Plan where the need to invest in “Smart Card” or “Open Payment” fare technology in conjunction with our regional partners was outlined. Similarly at the Regional Transit Committee (RTC) of the Capital Region Board, the need for new regionally implemented fare payment technology to support a regional fare policy was identified in the “Capital Region Intermunicipal Transit Network Plan” as a quick win opportunity. Subsequently the RTC has worked with consultants to develop the “Regional Fare System and Implementation Plan.” Further to this work, Edmonton City Council passed a motion on October 3, 2012 directing their Administration to proceed with development of a business case for an account-based, open-payment Smart Fare System. In developing the business case for this project the City of Edmonton has identified the following benefits and costs for an account-based, open-payment Smart Fare System. Tangible benefits include:

• Reduced fare media production costs; • Reduced sales and distribution costs; • Reduced outlet commission costs; • Reduced cash handling costs; • Reduced research and accounting costs; and • Reduced fare evasion costs.

Intangible benefits include:

• Reduced fare disputes; • Better data to support service planning and marketing; • Better customer experience; • Resolves intermunicipal transfer issues at LRT stations and at TUC Transit

Centres/ Park and Rides. Operational costs include:

• Cellular communication fees; • Transaction fees; • Maintenance costs; • Back office/ central system costs.

City Council Agenda May 21, 2013/Page 3

File No.: 130-C3

When considered as a whole, the account based/ open payment system is expected to result in a net reduction in costs with the potential to generate new revenue streams and resolve intermunicipal revenue distribution issues raised by the construction of the new Campbell Rd. Transit Centre and LRT transfers. Link to Council or Corporate Objectives: Economic Development - Smart City Centre of Excellence The Smart Fare System project is supportive of the “Smart City” project by building on the existing AVL technology to improve the transit experience for our customers and to increase the quality and quantity transit ridership and revenue information. Governance –Partnerships and Relationships The Smart Fare System project is an example of working with other governments (City of Edmonton, County of Strathcona) and agencies (Capital Region Board) to advocate for funds from the Province of Alberta to allow the parties to implement a mutually beneficial innovation, the Smart Fare System. Financial Implications: St. Albert’s share of the Smart Fare System is based on the size of StAT’s fleet, including the on-board hardware and a proportionate share of the back end development and is estimated to be $1,800,000. Upon 2014 budget approval and with a successful GreenTRIP application, the Province of Alberta would cover two thirds of this cost. The City of St. Albert would then have to provide the remaining $600,000 when the project is implemented in 2014/15. As the development of a Request for Proposal for this project is only now beginning, the specifics of how a Smart Fare System might affect StAT’s net cost for collecting revenue, total revenue collected and service operation have yet to be determined. The 2015 Capital Project Charter for a Smart Fare System will be updated with this information as it becomes available. Legal Implications: There are no legal implications of particular note at this time. Attachments: 1. City of Edmonton Agenda Report – Smart Fare System and Joint GreenTRIP

Application – dated October 31, 2012 Report Date April 30, 2013 Originating Department Transit Prepared by: Bob McDonald Approved by Glenn Tompolski City Manager Review Patrick Draper

ROUTING – City Council | DELEGATION – C. Stolte/R. Boutilier WRITTEN BY – P. Waisman | October 31, 2012 – Transportation Services 2012TS9202 Page 1 of 3

Smart Fare System and Joint Green TRIP Application

Recommendation: That the Mayor send a letter, on behalf of City Council, to the Capital Region Board recommending a partnership in the development of and payment of associated costs of a regional smart fare system.

Report Summary

This report is recommending a partnership with other public transit municipalities in the Capital Region to initiate this project.

Previous Council/Committee Action

At the October 3, 2012, City Council meeting, the following motion was passed.

That Capital Profile 13-66-1294 –Transit Smart Fare System (Smart Card), as set out in Attachment 3 of the September 18, 2012, Transportation Services report 2012TS8097, be included as part of the fall supplementary capital budget adjustment.

At the September 18, 2012, Transportation and Infrastructure Committee meeting, the following motion was passed: That Administration prepare a report

to Council, through Committee, as soon as possible, including:

• a possible regional business case for the smart fare system and a joint Green TRIP application

• opportunities identified for partner financing through the region, innovative procurement and Green TRIP funding, and

• clear recommendations based on the business case, as to how to proceed expeditiously with implementation of the smart fare system.

Report

Public transit members of the Capital Region Board are in agreement that a Regional account-based, open-payment Smart Fare System be implemented expeditiously and funding be obtained through a joint application to the Provincial Green TRIP Program. Business Case The current Edmonton Transit System Business Case outlines the positive net benefits that will be achieved with the implementation of either an Edmonton Transit System or Regional Smart Fare System; with the flexibility to add other civic services in the future. (Attachment 1) Tangible benefits include: • reduced fare media production costs

of $5.6 million over ten years • reduced sales and distribution costs

of $8.3 million over ten years • reduced outlet commission costs of

$8.6 million over ten years • reduced cash handling costs of $4.3

million over ten years • reduced Administration research and

accounting costs of $6.5 million over ten years, and

• reduced fare evasion costs of $25.8 million over ten years

6. 2

Attachment 1

Smart Fare System and Joint Green TRIP Application

Page 2 of 3

Intangible benefits include: • reduced fare disputes and operator

assaults • better data to support service

planning and marketing efforts • improved customer experience; for

example, no need to purchase monthly product, no line-ups, can use card already in their possession, regional access, faster boardings, protection from financial loss, payment options better aligned with their travel needs

Offsetting the operational cost savings are new costs associated with running a Smart Fare System. These include: • cellular communication fees of $2.4

million over ten years • a net increase in transaction fees of

$12.1 million over ten years • a net increase in maintenance costs

of $18.4 million over ten years • back office/central system costs of

$13.7 million over ten years Overall, an account-based open-payment smart fare system is expected to result in net cost savings to Edmonton Transit System of $12.5 million over ten years. This does not include any cost savings or benefits that might be attributable to the intangible benefits; nor does it include new revenue streams or the implementation of a new fare policy made possible with the Smart Fare System. Edmonton Transit System estimates that there is potential to generate approximately $12 million in new revenue streams over ten years and approximately $50 million in additional “fare policy” revenues over ten years with the new system. Potential “fare policy” revenues are conditional on City

Council approval of a new fare policy that would improve Edmonton Transit’s R/C ratio by 3%. Implementation Approach and Financing To achieve economies of scale and ensure integration across the Region, the Smart Fare System would be procured under a single contract using the cost sharing agreement in place for the Capital Region Board. Under this agreement, the cost share is 70% for Edmonton. Capital costs for a Regional system are estimated to be $30 million based on a first draft report prepared for the Capital Region Board with assumptions similar to that for the Edmonton Transit System Business case. The Regional Smart Fare System is eligible for Green TRIP funding which would require $10 million to be funded directly by the Capital Region Board partnership. Edmonton’s share at 70% amounts to $7 million. Profile The attached capital profile provides a potential cash-flow over a three-year period beginning in 2013. However, the timeline may be adjusted to a more expedious schedule when the project is implemented by the Capital Region Board through partnership.

Corporate Outcomes

The Way Ahead: • Shifting Edmonton’s Transportation

Mode • Increase Transit Ridership • Ensure Transit Sustainability through

appropriate Cost Recovery Ratio

Attachment 1

Smart Fare System and Joint Green TRIP Application

Page 3 of 3

Budget/Financial Implications

The estimated capital cost of $30 million is expected to be cost shared between the City and the Regional partners together with the Province as outlined in Attachment 2. The City’s share of 70% is based on the Regional cost sharing, with the regional partners contributing 30%. The provincial funding is expected to be through Green TRIP funding which provides two thirds of eligible costs. An option to financing the capital on a cash basis as described in the previous paragraph would be to finance the capital using a P3 model. Under a P3 scenario the P3 concessionaire would receive capital repayments from the region over the life of the contract. This option is more expensive over the long-term and would have additional costs associated with setting up and administrating the P3 contract. Chicago is the only transit agency to date that has awarded a P3 contract that includes the financing of a Smart Fare System. The cash purchasing option using Green TRIP funding is a more economical approach for the City of Edmonton. Ongoing operating costs of the new system are expected to be partially offset by the reduction and elimination of current transit fare administration costs. This incremental increase in costs is expected to be offset by higher revenues achieved through reduced fare evasion and new transit fare opportunities.

Justification of Recommendation Regional benefits include fare integration within the Capital Region with potential infrastructure and operational economies of scale.

Attachments 1. Business Case - ETS Smart Fare

Collection Equipment 2. Capital Profile – 13-66-1294

Others Reviewing this Report • L. Rosen, Chief Financial Officer and

Treasurer

Attachment 1

Presented by:

Smart Fare System

Regional Collaboration

Bob McDonald Director Transit

May 21, 2013

2 2

Smart Fare System

Existing Fare Collection • Diamond Fare Boxes

– Manual – 25 years old – No data – Outdated security

measures

3 3

Smart Fare System

Smart Card versus Smart Fare System • Proprietary stored value card

– Unique card solely the responsibility of the issuer;

• Account Based Open Payment System – Uses existing payment options such as credit

card, debit card, Smart phone.

4 4

Smart Fare System

5 5

Smart Fare System

Benefits: • Reduced fare media production,

distribution, sales and accounting costs; • Better data and customer experience; • Resolves intermunicipal fare integration. Costs: • Transaction fees; • Hardware and system maintenance.

6 6

Smart Fare System

Regional Implications • Support in principle will1557 encourage

ongoing regional cooperation on transit issues with the Capital Region Board (CRB);

• Edmonton’s GreenTRIP application can proceed in parallel with CRB Regional Transit Governance Study;

7 7

Smart Fare System

Next Steps Sept 2013 – Smart Card Capital Charter be

revised from unfunded to funded: 2014 – “Subject to budget approval” apply

for Green Trip Funding 2014 – RFP development with CoE and

Strathcona; 2014/2015 – RFP award & implementation