Elizabeth River Crossings

Elizabeth River Crossings (ERC), officially Elizabeth River Crossings OpCo, LLC, is a limited liability company whose sole purpose is to "finance, deliver, operate and maintain" the Elizabeth River Tunnels Project which include the rehabilitation of the Downtown and existing Midtown Tunnels, the construction of a second, parallel Midtown Tunnel, as well as the MLK Freeway extension as part of a 58-year public-private partnership(PPP or P3) with the Virginia Department of Transportation. ERC also provides incident response for the West Norfolk and Berkley Bridges, although operations of these bridges remain with VDOT.

Company Background

In 2012, Elizabeth River Crossings, LLC was created by subsidiaries of Skanska AB and Macquarie Group as a vehicle to provide a proposal to the Commonwealth of Virginia's solicitation for bids to upgrade and build out the tunnels that cross the Elizabeth River. Skanska Infrastructure Development, Inc., provides the company with construction and development expertise while Macquarie Financial Holdings Limited provides private equity and funding for the project. Additional companies with an interest in the project include Kiewit Construction Company, Weeks Marine, Inc and Skanska's US engineering division, Skanska USA Civil Southeast, all which are participants in the actual construction and rehabilitation of the tunnels.

Sponsor Companies

Skanska

Skanska AB, is a multinational construction and development company based in Sweden, where it is among the top three construction companies in the domestic market and the largest one when accounting for all markets, with approximately twice the revenue of the closest competitor (2012).^[3] The company's head office is in Stockholm.^[1]

Macquarie

Macquarie Group Limited is a global investment banking and diversified financial services group, providing banking, financial advisory and investment and funds management services to institutional, corporate and retail clients and counterparties around the world. Headquartered in Sydney, Macquarie is the largest Australian investment bank and the top ranked mergers and acquisitions advisor in Australia. Both companies have history in public-private partnerships globally, with significant exposure and experience in various projects including the Dulles Greenway in Northern VA, the Autopista Central in Chile.

Spin-off

Shortly after their proposal was accepted by the VDOT, the original Elizabeth River Crossings, LLC spun was divided into two distinct companies: Elizabeth River Crossings HoldCo, LLC, which is the 50/50 venture between that leverages the capital investments and equity between Skanska and Macquarie, and Elizabeth River Crossings OpCo, LLC, which is the operating and management company for the venture, and the company that holds the rights of the Comprehensive Agreement executed by the State. ^[1][2]

Elizabeth River Tunnels Project

The Elizabeth River Tunnels Project is a series of transportation related projects taking place in the South Hampton Roads region. This includes the rehabilitation of the Downtown and existing Midtown Tunnels, the construction of the new parallel Midtown Tunnel, and the extension of the MLK Freeway/U.S. 58 to I-264. The project is being administered by Elizabeth River Crossings(ERC) along with VDOT as part of a 58-year public-private partnership concession that will cost approximately $2.1 billion (2012) to complete. Once completed, the projects are designed to significantly reduce or eliminate congestion along the surface streets and other arterial roads of in the immediate area.

After the lengthy review process required under the PPTA, then-Governor Bob McDonnell and VDOT executed the Comprehensive Agreement with ERC on December 5, 2011.^[3][2] Under the agreement, VDOT retains ownership and oversight of the tunnels, while ERC finances, builds, operates and maintains the facilities for a 58-year concession period. Funding is expected from tolls, private equity, contributions from the Commonwealth and a low-interest Federal Highway Administration loan.^[4] ERC is responsible for paying back all debt on the project, as well as assumes the entire risk of a decrease in toll revenue if traffic counts do not meet projections. However, if traffic exceeds projections and increases revenue, VDOT will receive a portion of the excess revenue, after all other costs and debt service has been paid for the period.

The deal reached financial close on April 13, 2012. The cost of the project, at financial close was $2.1 billion.^[5] ERC eventually received $300 million from VDOT, $663.75 mil from the Virginia Small Business Financing Authority^[6] and $422 million from the U.S. Department of Transportation, all of which went to pay down the toll rate.^[5] The 58-year concession period will end on April 13, 2070.

Controversies

Westbound Weekend Tunnel Closures

As part of the rehabilitation work on the westbound Downtown Tunnel (Norfolk to Portsmouth) full weekend closures were needed of the tunnel for approximately 25 consecutive weekends. These tunnels closures would begin at 8pm on Friday and finish at 5am on the following Monday morning. Traffic would be primarily detoured to the High Rise Bridge utilizing I-464.^[7] ERC stated that most of the work either required overhead work (such as installing the fireproofing on the ceiling), or work that would cross the centerline, such that a one-lane closure was not feasible.^[8] After allowing closures to occur for several weekends, Portsmouth City Council asked VDOT and ERC to take a look at the plan and explore the idea of turning the eastbound tunnel into a two way tunnel during the weekend closure.^[9] VDOT and ERC had ruled out bi-directional traffic in the eastbound tunnel prior to instituting the weekend closure as too dangerous, stating "that maintaining two lanes of eastbound traffic in the eastbound Downtown Tunnel while directing westbound traffic towards one of the four alternative routes (with the I-64 High Rise Bridge as the primary detour) is the best course of action, both for the Project and the traveling public." ^[10] However, as public outcry from Portsmouth residents continued, ERC eventually halted full weekend closures, instead converting to full nightly closures beginning at 8pm each night, and running until 5am the next morning.^[11][12] Eastbound tunnel closures, which began in July 2014, were not impacted.

Toll Processing Delays

In early 2014, ERC experienced toll processing delays as the result of "software changes and upgrades".^[13] This backlog led to the processing of toll charges well after they were incurred, with some reports of charges being processed and billed up to six months later, per some reports.^[14] Gov. McAuliffe said in a press conference a few months after the issues were discovered that he understands many of the Downtown and Midtown tunnel feel the billing issues with ERC are "outrageous" and told ERC to "Get your act together and fix it. You're being paid, do your job right."^[11] A September report in the Virginian Pilot revealed that the problem was still ongoing, and that in July, ERC officials asked VDOT to waive the 60-day processing limit it has imposed on collecting tolls via the EZPass system. David Caudill, the VDOT Tolling Administrator denied the request, and stated in a letter to ERC CEO Greg Woodsmall that he was “greatly concerned with ERC’s continued problems with properly managing toll transactions” and that it “reflects poorly on [ERC] and fosters continuing mistrust of the reliability of [their] operations," referring to a backlog of some nearly 350,000 transactions which stemmed from their earlier system glitches, problems which included sensors mistakenly reading cars as having a third axle (triggering a higher toll) and delays in posting tolls to E-ZPass accounts.^[15]

After hearing about the issues, Transportation Secretary Aubrey Lane lambasted ERC for the delays and the plans and attempts to continue collecting the tolls stating “This has been going on for eight months, and I’m not convinced they got it fixed yet.” ^[15] In a September 19 letter to ERC, Skanska and Macquarie officers, he demanded that the company formulate a "formal plan to address the deficiencies" in processing the transactions the transactions by October 1, or lose the support of VDOT in enforcing any non-EZ Pass related toll collection.^[16] ERC OpCo CEO Woodsmall and ERC HoldCo Chairman Karl Kuchel responded back to the Secretary in a joint letter stating :

• The first invoice for transactions will be sent out within 60 days of the transaction beginning October 1, 2014,
• Any transaction older than 60 days as of that date would be waived, and that
• Any transaction that are were greater than 60 days would be not be pursued.^[17]

ERC also released a Toll System Improvement Plan, that also listed several other steps to mitigate the issues, including utilizing a 10 day/10 trip/$20 rule to trigger invoices for non-EZPass customers. An invoice for a Pay by Plate customer would not be generated until 10 days have elapsed, 10 trips have been made or $20 in tolls have been incurred since the first toll on the invoice period.^[18] EZPass transaction ot affected—they will continue to be added and processed nightly by the softwareBy years end, ERC has cleared up all issues and backlogs, and issued $500,000 in refunds to customers who paid for tolls that were in excess of 60 days.^[19]

References