Highway 407 Revisited – smart tollroad extension

In the late 1990s, World Highways published a supplement on construction of Canada’s Highway 407, the world’s first all-electronic toll road. But how successful has it been? David Arminas reports from Toronto The head office for 407 ETR Concession Company is a low-rise building next to exit 59, just north of Toronto, Canada’s economic powerhouse. The building may be non-descript but inside is the advanced technical heart of Highway 407 ETR – Express Toll Route. It houses the latest toll monitoring techno
June 7, 2016
Construction of Highway 407
1. BridgeMaster inspects an overpass 2. Some of the 68km of concrete panels get a little attention 3. Night-time gantry maintenance 3. The highway features up to date tolling technology
In the late 1990s, World Highways published a supplement on construction of Canada’s Highway 407, the world’s first all-electronic toll road. But how successful has it been? David Arminas reports from Toronto

The head office for 407 ETR Concession Company is a low-rise building next to exit 59, just north of Toronto, Canada’s economic powerhouse. The building may be non-descript but inside is the advanced technical heart of Highway 407 ETR – Express Toll Route. It houses the latest toll monitoring technology, a call centre to handle customer issue and kiosks where drivers can pay their toll bills in person.

3260 World Highways was ushered into the boardroom with its massive oak table, still the same table as when the organisation was created to take over the highway in 1999. Expensive boardrooms don’t impress drivers. But a good road surface and good customer service do, insists Kevin Sack, vice president of marketing and government relations.

The physical asset is now 108km long but it started life as a 68km concrete toll motorway in 1997. The extra kilometres are asphalt. It was originally a major design-build-finance contract for the central Canadian province of Ontario. But in 1999 a cash-strapped Ontario government quickly moved to make it a public-private partnership in an effort to shore up a sagging provincial treasury ahead of a crucial provincial election (see box, 407 ETR Deal).

“It was a global tender and in order to garner international interest there needed to be such a lengthy lease,” explains Sack.

“In 1999 the government decided to privatise it and that meant that the taxpayers of the province of Ontario received $3.1 billion, immediately doubling what the province had spent just to build the central section. Under that agreement, extensions east and west of the central [68km] section were to be built immediately, 40km in total. That was done ahead of time and under budget by 2001.”

Since 2001, more than 220 extra lane-kilometres have been added to widen the highway and accommodate growing traffic. The cost to extend and widen the highway has been about $1.6 billion to date - over and above the $3.1 billion to lease the Highway Concession. As soon as a traffic volume threshold is met, a contractual requirement kicks in to widen the highway, give or take some negotiation with the province, he says.
The so-called sell-off of Highway 407, to the north of Toronto, was controversial. It was, and remains, part of a critical motorway network, linking to highways that run to many parts of Ontario and to highways that can take drivers into the United States via the Niagara Region and the city of Buffalo in New York state and to Detroit, in Michigan. It pushes eastward to the border with the province of Quebec and the city of Montreal. The vast majority of Canada’s trade with the US passes along this route’s many 400-series motorways.

Economic critics saw the 99-year lease to a global consortium as the privatisation of a strategic infrastructure asset that should remain under public control. Drivers, too, were not happy about paying tolls for using a motorway, especially when tolls are set by the private operating company and not the province.

Also, for the highway operator, would traffic volumes live up to expectations? To this day, ETR does not publish its traffic forecasts, says Sack. However, it does publish an annual financial statement as well as an Annual Information Form, often more than 70 pages, giving traffic data and volumes.

Toronto, on the north shore of Lake Ontario, is in Canada’s most industrialised province and is home to a more than a third of the country’s 36 million people. The greater Toronto area has a population of around six million  and is also Canada’s national business and financial centre. The 407 ETR stretches right through this and connects with many other major free motorways.

Since the beginning of the concession in 1999, average workday trips have steadily increased from more than 237,000 to just under 400,000 by the end of 2015, according to the latest Information Form. The company recorded a record 121.3 million trips in 2015, up 2.6% on 2014. Total vehicle-kilometres travelled (VKTs) in 2015 at 2,517 million were 3.3% higher than the 2,437 million in 2014 – also a new record.

The Form suggests that the increase in VKTs in 2015 was due mainly to a 2.1% increase in average workday trips to 399,613 when compared to 391,523 in 2014. The increase in trips and VKTs was mainly attributable to economic growth, lower fuel prices as well as more congestion, construction activities and collisions on alternate routes.
The Information Form also shows that last year revenue surpassed the $1 billion mark for the first time, compared to $887.6 million for 2014 – a 13.3% rise. The company reported net income of $311.2 million for 2015, compared with net income of $222.9 million for 2014 – around a 40% hike. It appears that 407 ETR is in the right place at the right time. “Toronto region is the eighth largest metropolitan area in North America, home to 2.7 million people and roads are notoriously congested during rush hour, meaning the value of 407 ETR remains intact,” says Sack. “The average trip is nearly 21km, up from 11km before the east and west extensions made the highway 108km long.”

As for any business that relies on volume of customers, 407 ETR is about ‘bums on seats’, especially if they have transponders in cars. But it has to make economic sense for a driver.

“So a transponder costs $23.50 a year as opposed a camera charge of $4.05 every time you come drive under a gantry with no transponder,” he says.

“If customers make more than six trips a year, it makes financial sense to get a transponder. For us it’s about increased accuracy of licence plate readings as well as more accuracy in billing.”

Transponders in circulation rose 6.1% from almost 1,202,400 in 2014 to 1,275,900 last year. In 2015, transponder trips represented almost 83% of total trips, up 1% from 2014. The company did not incur a congestion payment for 2015.

“You can buy them online or drop into the 407 ETR office. We’ve distributed them everywhere, such as at fall fairs and in shopping malls. But around 90% are picked up online and we ship it out within five to seven days.” Also, 407 ETR sponsors traffic reports on two major radio stations and alerts listeners to available discounts for using the road for a short period.

In the name of efficiency and speed, management is making a big push to end paper billing by mail and also introduce direct debit payment, explains Sack. “We have 1.1 million paper bills, down from two million through consolidating bills to a household and moving customers onto internet billing.

With so many customers, complaints and unpaid bills could be a nightmare, but they aren’t. “We are not in the business of collecting interest and fees on bills, so we really push pre-authorise payment. We’ll say to people, pre-authorise your payments and we’ll give you 50km free on the highway.”

For the more stubborn customer who refuses to pay their bill, ETR can go down the controversial “plate denial” route. Management notifies the Ontario government’s Registrar of Motor Vehicles that money is owed to the toll operator. When that customer goes to renew their car’s licence plates that year, he will be refused until he or she has paid ETR.

“Unbillables” are for vehicles without a transponder, where the owner of the plate cannot be billed for the trip because the plate could not be read by the overhead photographic equipment. Also, plates for which 407 ETR cannot bill include emergency, police, military and diplomatic vehicles, as well as trips made by 407 ETR staff patrollers. Back in 2000, 8.2% of all trips taken on the road were unbillable. Over the past several years, this has decreased to 1.45%, which also includes trips by customers whose licence plates can’t be read. The highway’s laser scanners are separate from photo recognition equipment. Laser curtains identify only the type of vehicle passing through the gantry, not the licence plate.

Cantoll, a subsidiary of 407 International, owns and develops the back-office computer systems for operating 407 ETR’s tolling and billing, and which also will provide these services under contract for 407 EAST.
Last year, under a new five-year agreement, 407 ETR took delivery of the latest upgraded transponders from 259 Kapsch TrafficCom, which in 2010 bought the previous supplier, MARK IV IVHS, reportedly the largest supplier of toll collection systems in North America. OSI Optoelectronics is the primary supplier of the laser scanner vehicle detection units, mounted on the highway’s original gantries.

“There’s an upstream gantry and a downstream gantry," explains Steve Spencer, director of marketing at 407 ETR. The system drops a series of “breadcrumbs” so if a vehicle is swerving all over the place, we can follow it. “A laser curtain is projected down onto the roadway by the vehicle detector and classifier system. Think of it as a vehicle driving through a waterfall. The laser perfectly maps the outline of a vehicle. Now we know the vehicle’s transponder number, who has that transponder and the size, height, width and any obvious vehicle details.”

But it is often small innovations that save thousands of dollars, says Spencer. “Some of our cameras have tiny LED lights in the case which provide enough heat to stop lenses fogging up in extreme cold. We also have a fully functional gantry at the head office site where we test equipment before deployment on the road.”

Roadside equipment cabinets, custom designed by 407 ETR, are climate controlled because of extreme temperatures, ranging from over 30oC in summer to minus 30oC in winter. A monitoring unit in the cabinet will send a message to the office if anything on the gantry is showing an error message or there is a system failure. This is then automatically immediately forwarded for someone to take a look.

407 ETR revenue breakdown


Tolls                      915.9
Fees                        66.4
Contract                  19.9
Total Revenues  1,002.2

Tolls                      808.5
Fees                        71.1
Contract                    8.0
Total Revenues     887.6

The company’s revenues, up nearly 13% on 2014, come from:

- Tolls (camera charges for non-transponder trips)

- Fees – (monthly fees to drivers)

- Contract revenues

• Toll revenues increased 13.3% to $915.9 million due mostly to a toll rate change in February 2015, coupled with an increase in trips and VKTs.

• Fees include transponder lease fees, account fees relating to the maintenance and billing of non-transponder customer accounts, late payment charges and enforcement fees for past due accounts sent to the Registrar for Licence Plate Denial. Account fees are driven by the number of non-transponder customers that travel on the Highway and are subject to seasonal fluctuation. Enforcement fees and late payment charges are applied to customers with overdue accounts.

• Contract revenues include the implementation of the roadside tolling technology and back-office systems to extend 407 ETR’s tolling system for use by the soon-to-be open Highway 407 East Project, an extension to Highway 407 but run by the Ontario government.
A long-term upgrade programme to the camera system began in 2010 with complementary metal-oxide-semiconductor – CMOS – technology. By the end of last year, 141 tolling sites of the 198 potential sites had been upgraded. In 2012, 407 ETR introduced Seeker vehicle tracking system technology to six tolling sites, with further deployments until the end of last year bringing the total number of systems on single, two- and three-lane sites to 130 out of 198 total potential sites.

If no transponder is detected, two cameras take pictures of the vehicle, especially around the licence plate, to ensure at least one full image of the vehicle and plate.

“There are options and we may decide to take transponder and plate images of all heavy goods vehicles for some reason. We would do this if we suspected that someone has been fiddling around with their transponder,” says Spencer.

A less-than-clear image can be put through to a Video Exception Processing Unit where the human eye scans an image to make certain of fuzzy or unclear details. “But over 80% of our information is read automatically in the camera. It’s a small number that goes over to manual processing.

“We can also wild card a missing plate digit. If we can read five or six digits of a plate, we can put an asterisk into the number and then search the database for similar plates, pull up those images and see the make and model of car to see it matches the mystery one, and then successfully bill that customer.”

In 2009, 407 ETR picked up an award from 2793 IBTTA - International Bridge, Tunnel and Turnpike Association – for its Vehicle Fingerprinting, also referred to as Vehicle Data Tag. VDT dramatically reduced the number of plates requiring manual verification and the number of staff performing this function.

The year before, the Canadian Council for Public-Private Partnerships – an independent membership organisation of public and the private sector agencies and organisations – awarded 407 ETR a Silver award for service delivery.

Despite the savings in time, fuel, vehicle wear-and-tear – not to mention a reduction in driver stress – a customer may often measure the effectiveness of 407 ETR through the efficiency of the call centre. Between 4% and 5% of customers who receive a bill will call the centre over some issue. More than 625,000 calls are handled annually and around 80% are answered within 30 seconds.

For the second year running, the independent Service Quality Management Group, in Vancouver, awarded the centre “World Class Call Certification”, one of only 20 such centres out of 500 or so that the organisation benchmarks globally. 407 ETR has also won awards for its high number of “first call resolution” statistics.

The 99-year deal

Highway 407 was constructed and operated initially by the Ontario government. A design-build contract was awarded in 1994 to Canadian Highways International Corporation (CHIC). The toll highway was operated by a subsidiary of CHIC and financed by the Ontario Financing Authority through direct provincial borrowing.

It was also overseen by the province’s Ontario Transportation Capital Corporation (OTCC).

Founded in 1993, CHIC is composed of four leading Ontario-based project management, engineering

and construction companies: AGRA Monenco, Armbro Construction, BFC Construction Corporation and Dufferin Construction, a division of St. Lawrence Cement. Financing for the highway was to be paid by user tolls lasting 35 years, after which it would return to the provincial system as a toll-free 400-series highway.

When the first cars rolled along the toll road in October 1997, it was operated by the province and CHIC. However, the debt-laden provincial government was fast approaching an election sometime in 1999. In

April that year, just before calling an election for June, the government announced the “privatisation” of Highway 407.

It was sold to a consortium led by Spanish firm 930 Cintra Concesiones de Infraestructuras de Transporte and the Canadian company SNC-Lavalin, based in Montreal.

The company, 407 International, is jointly owned by Cintra (43.23%), subsidiaries of the Canada Pension Plan Investment Board (40%) and SNC-Lavalin (16.77%). Under the deal, 407 ETR Concession operates the highway for 99 years with unlimited control over the highway and its toll. The selling price was Canadian $3.1 billion – at the time, the largest selling price for a public asset in Canadian history. It was also a time when the Canadian dollar was hovering around the 67 cents US mark, making the price around US$2.2 billion.

The ETR lease is for the highway corridor, including the existing 69km of four to six lanes, all tolling equipment, as well as the protected corridor for future expansion. Also, 407 ETR Concession is responsible for all maintenance, expansion, police enforcement and liability for the 99 years.

In 2001, 407 ETR expanded the highway, at its own expense as per contract - 24km to the west and 15km to the east to make it today’s 108km tolled highway.

From 407 ETR to 407 East

Despite the apparent financial and physical success of 407 ETR, the agreement has at times been a bumpy ride, both politically for the government as well as for 407 ETR’s customer relations.

Lessons were learned, according to the provincial government. Ontario steered clear of another public-private partnership for the separate and ongoing 407 East project.

Despite public issues over how 407 ETR handles driver complaints, the highway has been a success, or at least the idea of major tolled highways has become more acceptable to the driving public. A spokesperson for the Ontario Ministry of Transportation told World Highways that “important lessons” have been learned from more than a decade of tolled highway driving.

Foremost is that the province needs to retain public ownership of the tolled highway and the length of an operating contract must be significantly less than 99 years. It also became apparent, according to the government, that toll rates must be regulated by the province and not be at the discretion of the toll concessionaire, albeit within certain criteria that would allow for increases, such as traffic volumes that could trigger toll rises. Importantly, customer service expectations must be set out from the start.

Highway infrastructure around Greater Toronto - Canada’s largest metropolitan area – is under increasing pressure from mounting traffic volumes. So in May 2012 the government announced the Highway 407 East Project – to be built in two phases - that would extend the 407 toll road system, but under a different contract. Ontario will own and control Highway 407, which includes Highway 412. Both will be electronic toll highways, with the province setting toll rates and receiving toll revenue.

Infrastructure Ontario and the Ministry of Transportation also announced that 407 EAST Development Group General Partnership (407 EDG) as the consortium to design, build, finance and maintain Highway 407 East Phase 1 Project. The 407 EDG is a partnership between Ferrovial-Agroman Canada and SNC-Lavalin Construction.

Phase one will be four to six lanes wide and provide around 148 new kilometre-lanes of road. There will be up to 11 interchanges including two highway-to-highway interchanges, 31 major water-crossing structures and 16 road crossings.

Then in March last year, the government announced that Blackbird Infrastructure 407 General Partnership had signed a fixed-priced contract to design, build, finance and maintain the Highway 407 East Phase 2 Project. The team includes developers 2813 Holcim (Canada) and Cintra Infraestructuras, constructors Dufferin Construction and 2717 Ferrovial Agroman Canada, designers Urban Systems, AIA Engineers and 1493 Louis Berger Group, as well as maintaners Holcim (Canada) and Cintra Infraestructuras.

Phase one of this major two-phase eastern extension will open sometime in the first half of this year. Phase two is set for opening in 2020.

How does 407 East differ from the current 407 ETR toll road?

Highway 407 EAST is the first publicly-owned and publicly-controlled set of tolled highways in Ontario. Although connected to the existing 407 ETR, Highway 407 is a separate entity owned and operated by Ontario. However, 407 ETR will run the tolling operation for 407 EAST, both phases.

Because the ETR system is “tried and tested”, it reduces the risk of introducing a new system,  explains Mike Miller, chief customer operations officer for 407 ETR. “We’ve completed 52-days of simulated but live-like traffic, over $20 million of revenue across 18 billing cycles.” Drivers will use the same transponder and receive one bill for both toll roads and see their different tolling rates. There will be one customer website and one telephone number for service.

ETR’s tolling system is ready to go, but the East Development Group, contracting consortium for Phase One of 407 EAST, has had to delay opening of the highway until the first half of this year, thanks to construction delays. The consortium won’t get paid until the highway is open.

For more information on companies in this article

Related Images