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High-speed rail (HSR) obviously has become a hot topic in the United States since Congress passed the stimulus bill a year ago, including $8 billion for high-speed and intercity passenger rail in the legislation. But how does a state or high-speed authority go about actually implementing HSR?

That’s the question high-speed stakeholders long have been trying to answer — or get answers to. Industry conferences focusing on that very subject have been popping up in recent months. “Identifying Effective Business Models for Financing and Developing High Speed Rail in the U.S.A.,” which was held Feb. 23 and 24 at the Marriott Chicago Midway, was the latest such iteration.

The event — sponsored primarily by Siemens, as well as legal firm Freshfields Bruckhaus Deringer US L.L.P and Frances’s SNCF — brought together more than 50 high-speed stakeholders, including state DOT officials, freight-rail execs, engineering and supply side representatives, finance folks and international high-speed agency execs to discuss and learn about development and financing strategies.

I was only able to attend the conference’s first day, which included sessions on private-sector involvement in HSR, innovative financing mechanisms and a wrap-up of high-speed and higher speed efforts under way in California, the Midwest, New Hampshire and Georgia.

Following are some snippets from a few presenters.

Mark Bristol, Union Pacific Railroad’s general director of network and business development, spoke about UP’s view on creating partnerships with public entities seeking to operate higher-speed trains over freight tracks. His thoughts:

• Freight railroads can’t afford to give away capacity. There are challenges for us in hosting passenger-rail services. It’s not our core business, but it takes a lot of resources. We’re also concerned about service failure because our company reputation is at stake. Liability and tax issues are not at a point we feel comfortable with. And, we’re not comfortable not knowing if there will be ongoing funding for high-speed rail.

• We do have a successful partnership with the state of Illinois and have been working for more than 10 years to establish passenger rail between Chicago and St. Louis. Communication is one of the elements to a successful partnership. There needs to be a development of the relationship and fostering of trust. We don’t want to hear of a project for the first time through a newspaper.

• We believe the Chicago-to-St. Louis project will work. We’re confident enough to put our name on this project. The key is that it has a robust infrastructure plan — they’re constructing double track necessary for passenger reliability, adding sidings and third track for freight overtakes, building stations that allow freight trains to operate through on demand, and developing excellent maintenance and construction standards.

• Most passenger-rail projects don’t add capacity. They protect capacity, but don’t add capacity. In order to make as much money from a passenger train as we currently do on a freight train, they’d have to be making five to 10 times more for us than they do now.

DJ Mitchell, BNSF Railway Co.’s assistant vice president of passenger services, also discussed his railroad’s role in helping to develop HSR systems. Some of his points:

• Any passenger operation cannot negatively affect freight customers or BNSF’s ability to provide them with service.

• The most important issue is liability. We will not incur liability. An accident can cost an operation, whether public or private, hundreds of millions of dollars, and we are not in a position to put our franchise at risk. The bottom line is our insurance carriers will no longer insure us, which means we can’t operate, and that’s why it’s so important.

• From a passenger-rail point of view, capital is limited regardless of what the federal government tells you. Operating subsidies are even more limited — there are no passenger operations that make money. How does one make money and thus put equity or resources or assets into a deal and expect you’ll get something out of it? Do we want to invest right of way — let alone cash — in a passenger operation rather than a service expansion in the Powder River Basin, or expand grain elevators so we can make more grain moves to China? If you can tell us we’ll make the same amount of money on this as we make on grain moves to China, OK, but the public never has been willing or able to put that kind of money on the table and show a business case to us like that.

Bill Glavin, director of Texas DOT’s rail division, talked about the state’s vision (or lack thereof) for HSR, and how state officials are working to refine their passenger-rail plans.

• There is a disunity within the state of Texas, we don’t have a single, focal vision for high-speed rail and until we do, it’s unlikely that we’ll receive federal funds. The FRA doesn’t want to get into competing visions.  

• We’re kicking off workshops to develop a vision for passenger rail. We want to get it done in time to incorporate that into or state rail plan and then the national rail plan. We need to have interconnectivity to Mexico and other states, as well as with other passenger-rail networks — we can’t land in a field of crickets, we have to have public transit to get people to railroad station, and various venues and job locations. While we’re developing support for a unified rail plan, we’re also beginning to study the  most logical  corridors for high-speed and higher-speed rail.

Ira Smelkinson, executive director of Morgan Stanley’s Public Finance Group, talked about the use of public-private partnerships (PPPs) to finance HSR projects.

• There might be money for the right situation, but what does that right situation look like, where is the funding needed and when does it happen? There are a lot of competing projects for PPP funding, and how high-speed rail fits into that given other alternative investment opportunities will need to be monitored.

• Clearly, there is credit pressure on states and questions about how they prioritize their limited budget resources. This gives initial uncertainty as to where funds might come from.

Hervé Le Caignec, SNCF’s senior vice president of international business development, gave conference attendees some suggestions to develop PPPs with state agencies to finance HSR projects.

• Most PPP contracts lock partners into conditions decided at the time of the procurement. They need to understand what the high-speed rail market is, set the service, set the fares, determine station access, connectivity with other transport modes … all of this should be decided before PPP contract is awarded. A lot of these things may need to develop as the project develops and if you lock yourself into a long-term PPP contract too early, it can become very expensive because of changes in contracts, so it wouldn’t be beneficial to states.

• Should ridership risk be transferred to the private sector before the full high-speed rail system is complete? What are the key drivers of ridershp? Can they really be managed only by the private sector before the full high-speed rail system is completed? A lot of the drivers of ridershp are not under control of the company — it will depend on how the rest of the high-speed rail system develops. It’s very complicated and it’s manageable maybe relatively easily on an existing network that you want to expand, but when you’re starting from scratch, there’s a lot of uncertainty.

• It’s very difficult to assign ridership risk to the private sector in early stages. Ridership of the first phase will change when second or future phases are completed. States should keep ridership risk as individual segments are completed, and give the private partner all risks related to delivery and performance of construction and operation. Once all the systems are complete and there’s a benchmark on ridership, then the riderhsip risk could be transferred to the private sector. It’s easier to determine future ridership then.

— Angela Cotey