Utility Pricing

September 2020

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1 Introduction

There are a number of models used to determine the appropriate charge to be levied for publicly-provided parking in downtown locations. A common approach is to consider the parking as infrastructure. It is public provision and uncharged at the point of use (1). Where a charge is made it may be set to recover the costs of operation and maintenance of the infrastructure. Other models of cost recovery may additionally include capital depreciation and opportunity costs (2).

Many local authorities in the UK set their public parking tariffs based on a political appreciation of the status of the town in the context of neighbors. Major cities that have a strong retail or economic offer act as the “price setters for parking” within their functional economic area. While prices are controlled to some extent by out of town competition, these economic centres set the prevailing tariffs based on an appreciation of what is politically acceptable. Other jurisdictions with a lower order offer set their tariff proportionately (3).

Parking tariffs have also been set not to recover costs per se, but as a policy tool in support of managing demand and reducing car use. North Yorkshire County Council stipulate that their on-street parking charges must be set at a level that does not undermine the viability of bus travel as an alternative mode (4). Nottingham City Council introduced a specific levy to reduce marginal provision of parking at the workplace and raise additional revenue to subsidize the provision of other modes (5). In recent years, some boroughs in London have required users to provide vehicle registration details which has been used to apply additional levies to the parking charge for those parking vehicles with higher emissions or diesel engines. Hounslow approved similar measures in July 2020 (6). Cambridge established higher tariffs applicable for those arriving in some central car parks during the morning and evening peak hours (7).

Other approaches set the charge to provide a pre-determined level of service, or performance, for users. Demand for the supply available is controlled to ensure drivers can be assured that they can find a vacant parking spot when required. One method of achieving this by applying controls on, and progressively reducing length of stay until those able to use the spaces provided are less than the capacity available (8). This approach is often considered to be suitable in commercial areas as the limited stay generates higher turnover perceived to be favourable to retail business. Price presents another method of reducing demand to match supply (9). The application of performance pricing has consisted of setting the hourly rate of parking charge based on historical demand to achieve a target occupancy (10) (11).

Barter summarises a number of these options for setting parking fees and variations (12). However, with all these methods, while the actual parking rate is varied based on a number of factors, it remains a general principle of application that the overall charge applied is related to the duration of stay.

 

2 THE FUNDAMENTAL BENEFITS OF A PARKING SPACE – UTILITY

The value of parking can be determined from the value that a car offers a user. A surface, vehicular-based transportation system consists of three essential elements: vehicles, rights of way and terminal facilities (13). Parking provides the required space (‘terminal facilities’) to store a vehicle at the start and end of each journey. There is a small subset of journeys that are completed without needing to leave the vehicle, such as drive-thru services. These are excluded from this argument. Also, it is recognized that the final leg of any journey is typically completed on foot, but again for the purposes here, that leg of the journey is not significant to the argument being developed. The point presented is that if parking is not available for the car user, regardless of the quality of the highway or vehicle, that journey cannot be completed by car.

In essence car parking is an enabler. It enables those that have a car who wish to access the destination by that car can do so. By using the car to travel, the user can take advantage of the time saving and other comfort and utility benefits provided by that car. They can only do this because they have somewhere to leave that car at the destination while they don’t require it. If there is nowhere to legitimately and safely leave the vehicle while its users undertake the purpose of their trip, then if the car is used it must be parked in a more distant location not as close to the destination as required. In those situations, the trip is likely to take longer, it may be less comfortable and more inconvenient.

In economic terms therefore a parking lot at the destination has social value as it saves people time by allowing them to travel more quickly to and from their destination. In financial terms, people are often prepared to pay for parking because they recognise the benefit, or utility, it provides them, through saving time or improving their own comfort. With a new highway scheme, the social benefits are measured largely be assessing the time that users will save. Using the same approach, the social benefit of a parking spot may be defined based on the time difference and saving made by those able to drive by private car to the destination rather than using another mode, in whole or part, that may take considerably longer.

 

3 PARKING SOCIAL Costs – DIS-UTILITY

The construction of a new highway to by-pass congestion may have negative impacts on the environment. Similarly, the provision of parking may also have negative social impacts. While parking can underpin economic well-being it also affects the form and design of a city. Parking promotes car use and car access into those areas in which it is provided. Attracting and serving vehicles within the town centre necessitates the use of land for roadways, disrupts the provision of urban spaces, generates pollution, noise and personal risk to pedestrians and cyclists. Serving car users may improve their accessibility and save those users time, but those savings may come at the cost of reducing the amenity of others. Car accessibility may make the town centre less attractive both as a destination and as somewhere that people wish to spend extended amounts of time.

 

4 UTILITY PRICING

To summarize the preceding paragraphs:

• the value of the parking is derived from the time and comfort savings it affords while travelling to and from the destination.
• Costs are incurred on others while the vehicle is travelling to or from the car park.

What is key though is that while the vehicle is parked, the vehicle provides little if any benefit to the user. While a vehicle is parked in an area that has been designated for car parking it ordinarily imposes no significant costs to society. Any opportunity cost of the parking is a consequence of the decision to dedicate that space for parking, not by the use of that space by a user. There is an exception to this principle, and that applies at those times when the parking facility is full. At this point the parked vehicle does impose costs on society because for that time there is no parking available for other users. The parked vehicle in a lot that is full curtails the opportunity for others to use their motor vehicle and thus enjoy the benefits that entails (14).

If a parking tariff is to be an effective tool in delivering the objectives of the local authority that tariff should reflect the benefits and costs that arise from the parking event. The current ubiquitous model of charging for duration of stay is largely inappropriate. It is a legacy system. For a user, whose time-critical site work has been interrupted by the failure of a piece of equipment, the benefit of the availability of parking in the city centre (be that on or off street) is the speed with which they can drive to a supplier, buy a replacement piece of equipment, and return to their site. The actual length of time that the user is parked provides no value to them as a user. The value is exclusively tied up in the speed with which they can access the supplier and the availability of a parking space close to their destination is fundamental to that. Yet under most parking regimes, this short stay which has been of significant value to the user, is either uncharged or, even where there is a time-rate operational, incurs a minimal fee for a stay of maybe 15 minutes. What is significant is that there are two trips by the motor vehicle, in and out, regardless of whether the vehicle is parked for 15 minutes or 6 hours.

4.1 Utility Pricing Matrix

Rather than parking charges being intrinsically a function of time spent parked, the utility pricing concept would see the parking charges specified so that they capture the utility value of parking. ‘Utility pricing’ is based on accounting for, and charging for, the cumulative social impacts of the parking event. To determine the utility charge, the time of arrival at the car park and time of departure are key components. Arrival time and departure time are presented as the two axes in a matrix, with the charge applied determined by the cell referenced related to the time of arrival and departure.

FIGURE 1: SEVERANCE MATRIX

Figure 1 presents the charges applied for those that drive in or out of a car park in a busy town centre between 9.30am and 4pm. In this case, the motor vehicle journey to and from the car park means that those streets used to access the car park are trafficked and not available to the same extent for pedestrian or perhaps commercial use as a street market. At a more subtle level, the motor journeys create ‘severance’ in that they reduce the ease by which pedestrians can cross the road. As streets become more heavily trafficked, so the freedom by which pedestrians can cross the street diminishes; as streets take more motor traffic, pedestrians are required to walk to formal crossing places and wait for the signal to cross. This has a quantifiable time cost on those users. The motor vehicle journey on those streets also reduces the amenity or attractiveness of the overall space to other users, and this also has a social cost.

The cost of severance is perhaps most prevalent during commercial hours when there is a high level of pedestrian activity, but may be of little significance outside these hours. This situation is reflected in the Severance Charge cost matrix shown. A trip made into the car park before 07:00 and leaving after 16:00 is deemed to have no impact on severance, and the charge applied is 0. A trip that enters at 10:30, during the commercial hours, but leaves after 16:00, when commercial activity is reduced, is subject to a £1 charge for the inward impact. A trip that enters and leaves during commercial hours, is charged £2, being comprised of £1 for both legs. The charges to be applied for a forthcoming term are all pre-determined and published in advance. This allows time for adequate debate and assessment of an appropriate charge to be set and ensures that there need be no surprises to users.

4.2 Other Utility Charges

In addition to the Severance Charges, further matrices would apply to reflect and represent the social cost or policies of the local community. These may include a Congestion Charge. A matrix of costs related to congestion generated by the vehicle while it uses the road network on its journey to or from the car park. Figure 2 presents an illustrative matrix for this consideration. Journeys that arrive during the morning peak, and are assumed to have driven on the wider network at that time, are charged £3. Those that finish their parking session and are assumed to drive out onto the local network in the evening peak are charged £2.

FIGURE 2: CONGESTION CHARGE MATRIX

An Occupation Charge is derived not because of the costs caused by access or egress to the car park, but to reflect the social cost caused by the occupation of the car park. Cars pose a disutility to society when they are parked and the car park is or becomes full. At the point that the car park becomes full all those parked vehicles are stopping somebody else deriving the benefit of being able to use that car park. Similar to the way that performance pricing has been applied in various cities, this charge is applied for those times that historically the car park is expected to be at or close to capacity. It is the only charge of those presented here that links the cost of the parking event to duration of stay, and only to that time of stay at which the car park is expected to be full.

FIGURE 3: OCCUPATION CHARGE MATRIX

Figure 3 presents an illustrative charge matrix for a car park that has previously been recorded as being full from 9.30am to 1.30pm. During this period, an additional performance pricing charge of £1 an hour is applied. At any other time, when that car park is not full, drivers are not charged; at those times they are not imposing any social disutility costs on others.

4.3 Summation of Charges

The total utility charge applied is calculated by adding all elements together – in the illustration presented this consists of a severance charge, congestion charge and occupancy charge. Table 1 summarises the component charges.

Parking event beginning at 11:15 and finishing at 12:15 on a workday	Charge
Severance	£2
Congestion	–
Occupation	£1
Total Charge	£3

TABLE 1: UTILTY CHARGE COMPONENTS

Figure 4 represents the range of charges applicable for different times of entry and exit. The highlighted cell shows the calculated charge for a parking event beginning at 11:15 and finishing at 12:15 on a workday.

FIGURE 4: UTILTY CHARGE TOTAL

4.4 Further Matrix Layers

A town or city may wish to add more layers to reflect local policies and needs. In a town where air quality is particularly bad in July and August a pollution charge matrix may be applied. This would introduce additional charges in those summer months for arrivals or departures occurring between 10am and 6pm. These charges would be in addition to the others applied throughout the year. Another matrix may relate to noise, applying a unit charge for entry or exit to the car park during the early hours of the night.

4.5 Additional Charge Regimes

Vehicle registration marks (license plates) may also be added to the utility charge process to apply surcharges or alternative charge regimes. The vehicle registration is used to identify aspects of vehicle type such as size, fuel type and emissions and select an alternative set of utility matrices for that class of vehicle.

Different matrices may apply on non-commercial days. On a Sunday or National Holiday, or on market days, the impact of parking events at set times may be quite different. The system is geared for selecting the appropriate matrix for the time, day and date of the event, by vehicle type.

4.6 Transparency

A utility pricing approach would make the charges applied for parking, and driving, transparent and integral to the over-arching objectives of the local authority. Every one of the matrices used would have a rationale behind it, could be justified against policy and where appropriate ratified by the local government prior to implementation. On receiving a bill or charge at exit, any user that wished to know how the utility charge applied had been determined, could be provided a breakdown of the bill.

In essence, utility pricing of parking would be similar to a telephone bill. This is made up of all sorts of complex components based on fixed service costs, time of calls, destination of call and other promotional variations applied from time to time. Most subscribers take their bill at the end of the month and accept the summary charge. Those that wish to understand how the final charge has been calculated can drill down into the cost of data, duration of the calls and what tariff applied to each.

The key point is that the charges applied with utility pricing would be established and published in advance, having been agreed politically for the year ahead. Drivers could know before they make the journey what parking any location was going to cost based on the times of travel.

 

5 APPLICATION OF UTILTY CHARGING

The final section of this paper considers whether the concept and implementation of utility pricing is realistic based on current technology and public acceptance.

5.1 Revenue Capture Methods

The utility charge applied to users would be calculated based on entry and exit times. It is thus calculated and charged at the end of the parking event. It is reliant on, and subject to, the emerging use of technologies and/or payment methods that use or can derive the start and end time of a parking session. This change in approach to how parking revenue is captured is an enabler to changing the philosophy by which the charge is determined. Car parks that already use tickets or link or other electronic tokens (such as credit and debit cards used for payment) to control access in and out of the car park collect the entry and exit times required for utility pricing. Increased use of Automatic Number/License Plate Recognition at car park entries/exit will also provide the data required to apply utility pricing.

5.2 Public Acceptability

  Acceptance of a new approach to pricing is eased if the outcome charges derived are similar to what people are accustomed to and expect. The charges set out in the illustration in this paper do this. Using the three charge matrices presented above, long stay office workers could expect to pay £9 for a daytime long stay. They would arrive and depart during peak times for congestion but not pay a severance charge because their times of activity would be outside the times of significant commercial activity. They would however pay a £4 occupation charge because their car would be occupying a parking space throughout the period that the car park could be expected to be full.

In contrast, somebody who goes shopping and only comes into town for an hour would pay £3. This would be made up of £1 for the hour that they parked during the busy time, while the other £2 represents the severance cost due to the disruption they were causing to the shopping street by driving into the town centre.

These charges are not inconsistent with those currently applied for a town centre car park, both in terms of absolute charge applied and relative difference between a short and long stay. To assist acceptance, values used within the charge matrices adopted for initial implementation could be engineered to ensure most parking trips were charged at a similar rate to that in place under the established time-based regime.

5.3 Public Familiarity

Application of alternative parking tariffs based on time of arrival already exists in most countries. Many commercial car parks offer “Early Bird” arrangements and lower tariffs in the evening or at weekend. The higher tariff introduced to the Cambridge car parks is a specific charge linked to network congestion. Within many London boroughs alternative emissions-based parking charge rates are used subject to the vehicle engine size and fuel type. Differential pricing, and composite pricing is already in use.

 

6 CONCLUSION

Current practice is to charge parking predominantly based on duration of stay. It is common for the parking charge in downtown areas to be a direct function of the time the spot is occupied. This paper has proposed that the value and costs of parking are contained within the journey to and from that parking, not the parking itself. Therefore, when setting a parking tariff, account should be made of the benefits and costs of that journey. Duration of stay charges are warranted and additive when parked vehicles prevent other users from realizing the access and egress benefits. The technologies to apply utility pricing are available. Pricing based on time of entry and exit, and by characteristics of the parked vehicle are already in use in various forms. Utility pricing offers a new method to price parking that links the charge applied to the social costs incurred.

REFERENCES

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