ML12030A237
| ML12030A237 | |
| Person / Time | |
|---|---|
| Site: | Indian Point  |
| Issue date: | 12/16/2011 |
| From: | Sheppard S State of NY, Office of the Attorney General |
| To: | Atomic Safety and Licensing Board Panel |
| SECY RAS | |
| Shared Package | |
| ML12030A233 | List: |
| References | |
| RAS 21819, 50-247-LR, 50-286-LR, ASLBP 07-858-03-LR-BD01 | |
| Download: ML12030A237 (42) | |
Text
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 1
UNITED STATES 1
NUCLEAR REGULATORY COMMISSION 2
BEFORE THE ATOMIC SAFETY AND LICENSING BOARD 3
x 4
In re:
Docket Nos. 50-247-LR; 50-286-LR 5
License Renewal Application Submitted by ASLBP No. 07-858-03-LR-BD01 6
Entergy Nuclear Indian Point 2, LLC, DPR-26, DPR-64 7
Entergy Nuclear Indian Point 3, LLC, and 8
Entergy Nuclear Operations, Inc.
December 16, 2011 9
x 10 PRE-FILED DIRECT TESTIMONY OF 11 STEPHEN C. SHEPPARD, Ph.D.
12 REGARDING CONTENTION 17B 13 On behalf of the State of New York (NYS or the State),
14 the Office of the Attorney General hereby submits the following 15 testimony by Stephen C. Sheppard, Ph.D. regarding Contention 16 NYS-17B.
17 Q.
Please state your full name.
18 A.
My name is Stephen Charles Sheppard.
19 Q.
By whom are you employed and what is your position?
20 A.
I am a Professor of Economics at Williams College, 21 Williamstown, Massachusetts.
22 NYSR00224 Submitted: January 30, 2012
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 2
Q.
Please summarize your educational and professional 1
qualifications.
2 A.
I am a qualified expert on land use economics and 3
property valuation. I hold a Ph.D. and a Masters Degree in 4
Economics and a Bachelors of Science in Economics. From 2007 5
to 2010 I was the Chair of the Economics Department at Williams 6
College, where I am now a Professor of Economics. Before I 7
joined the faculty at Williams, I was a Professor of Economics 8
at Oberlin College.
9 Since 1979, I have conducted research, written, lectured 10 and taught on economic and regulatory policies as they impact 11 housing, land use, house prices and land valuation. I teach or 12 have taught Advanced Microeconomic Theory; Economics of Land, 13 Location, and the Environment; Environmental Economics; Public 14 Economics; Urban Economics; Cities, Regions and the Economy; and 15 Economics of the Housing Market.
16 I have also published articles on these topics, including 17 many peer-reviewed and published papers. These include On the 18 Price of Land and the Value of Amenities, Cheshire, P., and 19 Sheppard, S., Economica, 62, 247-267 (1995); Estimating Demand 20 for Housing, Land, and Neighborhood Characteristics, Cheshire, 21 P., and Sheppard, S., Oxford Bulletin of Economics and 22 Statistics, 60, August 1998, 357-382; and The Rise, Fall and 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 3
rise Again of Industrial Location Theory, McCann, P., and 1
Sheppard, S., Regional Studies, 37, 6-7,649-663 (2003). In 2
2004, a co-author and I published Capitalising The Value Of Free 3
Schools: The Impact of Supply Characteristics and Uncertainty, 4
which dealt with the impact of schools and other neighborhood 5
conditions on housing values. This paper was awarded the Royal 6
Economic Society Prize for the best paper published in 2004 in 7
the Economic Journal.
8 In addition to writing on the topic, I conduct original 9
research on land use policies and economics. I have been an 10 academic consultant at the International Monetary Fund and an 11 academic visitor at the London School of Economics, and I have 12 consulted for many banks and private corporations, including the 13 World Bank and the Inter-American Development Bank. My 14 education and experience are described in more detail in my 15 curriculum vita (CV), which is Exh. NYS000208. A list of my 16 publications is also included in my CV.
17 Q.
I show you what has been marked as Exhibits NYS000226 18 to Exhibit NYS000230. Do you recognize those documents?
19 A.
Yes. They are copies of the declarations and reports 20 that I previously prepared for the State of New York in this 21 proceeding.
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 4
Q.
I show you what has been marked as Exhibit NYS000231.
1 Do you recognize that document?
2 A.
Yes. It is a copy of the final report, dated December 3
11, 2011 that I prepared for the State of New York in this 4
proceeding. That report, like its predecessors, reflects my 5
analysis and opinions.
6 Q.
What is the purpose of your testimony?
7 A.
The purpose of my testimony is to discuss my views on 8
Consolidated NYS-17B (NYS-17B), which asserts that the FSEIS 9
fails to address the impact of the continued operation of IP2 10 and IP3 for another 20 years on offsite land use, including real 11 estate values in the surrounding area in violation of 10 C.F.R. 12
§§ 51.71(a), 51.71(d), 51.95(c)(1), and 51.95(c)(4). In this 13 testimony I refer to the Final Supplemental Environmental Impact 14 Statement, NUREG-1437, Supp. 38 (Dec. 2010), which I will cite 15 as FSEIS at _. However, my testimony is equally applicable to 16 the license renewal application. I refer to the FSEIS because 17 it is simpler to do so but the same failures of analysis are 18 also present in the license renewal application.
19 Q.
Have you reviewed materials in preparation for your 20 testimony?
21 A.
Yes.
22 Q.
What is the source of those materials?
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 5
A.
Many are documents prepared by government agencies, 1
peer reviewed articles, or documents prepared by Entergy or the 2
utility industry.
3 Q.
I show you Exhibits NYS000232 through NYS000238, 4
Exhibit NYS000056, Exhibit NYS00132A-NYS00132D, and Exhibit 5
NYS00133A-NYS00133J, and ask if you recognize them: Measuring 6
the Externalities of Nuclear Power: A Hedonic Study, Prest, B.,
7 unpublished thesis, Williams College (2009) ("Prest Study"); S.
8 Folland and R. Hough, Externalities of Nuclear Plants: Further 9
Evidence, Journal of Regional Science, Vol. 40, No. 4 (2000) 10
("Further Evidence"); The Effects of Electric Utility Power 11 Plant Location on Area Property Values, Land Economics, Vol. 50, 12 No. 1 (February 1979) ("Land Economics"); D. Clark and L.
13 Nieves, An Interregional Hedonic Analysis of Noxious Facility 14 Impacts on Local Wages and Property Values, Journal of 15 Environmental Economics and Management, Vol. 27 (1994) 16
("Interregional Hedonic Analysis"); D. Clark, L. Michelbrink, T.
17 Allison, and W. Metz, Nuclear Power Plants and Residential 18 Housing Prices, Growth and Change, Vol. 28 (1997) ("Residential 19 Housing Prices"); 75 Fed. Reg. 81,032 (Dec. 23, 2010) ("75 Fed.
20 Reg. 81,032"); Preliminary Decommissioning Cost Analysis for the 21 Indian Point Energy Center, Unit 3, TLG Services, Inc. (December 22 2010) (Doc. E11-1583-006) (ML103550608) ("TLG Analysis"); Indian 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 6
Point Retirement Options, Replacement Generation, 1
Decommissioning / Spent Fuel Issues, and Local Economic / Rate 2
Impacts, prepared for the County of Westchester and the County 3
of Westchester Public Utility Service Agency, June 9, 2005 4
(2005 Levitan Report); Draft Supplemental Environmental Impact 5
Statement for License Renewal of Nuclear Plants Regarding Indian 6
Points Units 2 and 3, NUREG-1437 Supplement 38, Vol. 1, dated 7
December 2008 (ML083540594) (DSEIS); and Final Supplemental 8
Environmental Impact Statement for Indian Point Nuclear 9
Generating Units 2 and 3, NUREG-1437, Supplement 38, Vol. 1, 10 dated December 3, 2010 (ML103350455) (FSEIS).
11 A.
Yes. These are true and accurate copies of the 12 documents that I referred to, used and/or relied upon in 13 preparing my reports, declarations, and this testimony. In some 14 cases, where the document was extremely long and only a small 15 portion is relevant to my testimony, an excerpt of the document 16 is provided. If it is only an excerpt, that is noted on the 17 first page of the Exhibit.
18 Q.
How do these documents relate to the work that you do 19 as an expert in forming opinions such as those contained in this 20 testimony?
21 A.
Some of these documents represent the type of 22 information that persons within my field of expertise reasonably 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 7
rely upon in forming opinions of the type offered in this 1
testimony. Others represent the type of information that 2
persons within my field should not reasonably rely upon in 3
forming opinions relevant to this matter but which have been 4
relied upon or referred to by NRC Staff or Entergy.
5 Q.
Please summarize your testimony.
6 A.
In my professional judgment, the FSEIS is inadequate.
7 It fails to address the impact on the value of residential 8
services and house prices for residential properties within 5 9
kilometers of IPEC. My analysis shows that there is such an 10 impact and that, to a reasonable degree of scientific certainty, 11 that impact is adverse. Based on conservative assumptions, my 12 analysis suggests that denial of the license renewal application 13 and reclamation of the site for alternative uses would generate 14 a recovery in property values that could add more than 27% to 15 the value of residential property located within 5 kilometers.
16 This increase, which would total $1,070,074,312, would 17 significantly increase the wealth of many individuals living in 18 the community. The FSEIS contained no analysis of the impact of 19 license renewal on property values, which must be an integral 20 part of any discussion of the socioeconomics of land use.
21 Q. What do you mean when you say that residential property 22 values are an important part of land use?
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 8
A.
Economic theories of land use suggest, and hundreds of 1
careful scientific studies done over the past 50 or 60 years 2
verify, that the market value of land and the prices of 3
structures built on that land is a major determinant of land use 4
and the structure of cities and neighborhoods. Absent regulatory 5
restrictions, land is used for those purposes that generate the 6
greatest value for the land. Any external event or factor that 7
diminishes the market value of structures in a particular 8
location will diminish the value of land where those structures 9
are built. This will alter the incentives to develop the land 10 and build the structures. In other words, this will alter land 11 use.
12 Q.
How does the FSEIS address the impact of license 13 renewal, or non-renewal, on land use values in the area around 14 IPEC?
15 A.
The FSEIS does not specifically address the impact of 16 license renewal or non-renewal on land use values. Instead, the 17 FSEIS analyzes only population and tax revenue changes 18 resulting from license renewal. See FSEIS, NUREG-1437, at 4-45 19 (Dec. 2010). With respect to population, the FSEIS concludes 20 that there would be no noticeable population change to drive 21 changes in land use conditions in the vicinity of IP2 and IP3 22 that is attributable to the plant. Id. at 4-46. Accordingly, 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 9
the FSEIS further concludes, there would be no population-1 related land use impacts during the license renewal term beyond 2
those already being experienced. FSEIS, NUREG-1437, at 4-46 3
(Dec. 2010). With respect to tax revenue changes, the FSEIS 4
observes that since Entergy started making payments to local 5
jurisdictions, population levels and land use conditions in the 6
Town of Cortlandt, Village of Buchanan, and Westchester County 7
have not changed significantly, which might indicate that these 8
tax revenues have had little or no effect on land use activities 9
within the county. Id. The FSEIS concludes that there would 10 be no tax-revenue-related land use impacts during the license 11 renewal term beyond those currently being experienced. Id. at 12 4-46-47; see also id. at 4-68 (there would be no population and 13 tax-revenue-related land use impacts). My analysis shows that 14 in fact the facility has unacknowledged impacts on land use that 15 will continue if the facility is relicensed.
16 Q.
What conclusions are drawn in the FSEISs Cumulative 17 Socioeconomic Impact section?
18 A.
The FSEIS analyzes two potential impacts on off-site 19 land use: changes in population that might occur as a result of 20 license renewal and the impact of license renewal on tax 21 revenues. With respect to population related impacts, the FSEIS 22 concludes that because the applicant has no plans to add 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 10 nonoutage employees during the license renewal period, there 1
would be no noticeable population change to drive changes in 2
land use conditions in the vicinity of IP2 and IP3, and 3
therefore there would be no noticeable population change to 4
drive changes in land use conditions in the vicinity of IPEC.
5 FSEIS at 4-46. With respect to the impact from tax revenues, 6
the FSEIS concludes that there would be no increase in the 7
assessed value of IP2 and IP3 and that the annual payment-in-8 lieu-of-taxes and property taxes paid to the Town of Cortlandt, 9
the Hendrick Hudson Central School District, and the Village of 10 Buchanan would remain relatively unchanged throughout the 11 license renewal period, and therefore, there would be no tax 12 revenue-related land use impacts during the license renewal term 13 beyond those currently being experienced. Id. at 4 4-47.
14 Q.
What is your opinion about those conclusions?
15 A.
The land use impacts analysis is incomplete. And 16 because the land use impacts analysis is incomplete, the 17 conclusions drawn with respect to socioeconomic issues, and land 18 use in particular, are necessarily inaccurate. The analysis 19 also examines the wrong counterfactual, in my opinion, which 20 further skews the conclusion.
21 Q.
Lets start with the counterfactual to which you 22 refer. First, what is a counterfactual?
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 11 A.
It means something that is not true or not currently 1
the case. I use it, and it is used in my field, to refer to a 2
specific hypothetical alternative to the status quo.
3 Q.
What in your opinion is wrong with the counterfactual 4
as discussed in the land use analysis in the FSEIS?
5 A.
The analysis in the FSEIS does not compare a scenario 6
in which the facility is closed and decommissioned (a non-7 operating nuclear facility) with the status quo (an operating 8
nuclear facility). Instead, the analysis appears to use the 9
status quo (an operating nuclear facility) as the counterfactual 10 to compare with the proposed change of license renewal (an 11 operating nuclear facility). Not surprisingly, that analysis 12 argues there will be almost no land use impacts.
13 Q.
Okay, now let me ask you what you think is missing 14 from this analysis, as you testified earlier.
15 A.
Property values are an important component of any 16 discussion about land use. The FSEIS should have analyzed the 17 impact of the facility on property values in the vicinity of the 18 facility. A thorough analysis of the impacts of license renewal 19 must be based on a thorough understanding of the facilitys 20 current impacts.
21 Q.
How did you define the vicinity?
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 12 A.
I defined vicinity as the area within five kilometers 1
of the facility.
2 Q.
Why?
3 A.
My goal was to do a conservative analysis to avoid any 4
risk of overestimating or exaggerating the facilitys impacts on 5
property values. Properties within 5 kms. are well within the 6
facilitys ten-mile emergency planning zone, which includes a 7
siren system. Although the literature would support a greater 8
radius, five kilometers is conservative and sufficient to 9
provide a scientifically defensible sample. As will be seen, 10 the statistical relationships were clearly significant within 11 the five kilometer radius.
12 Q.
Is it possible to measure the impact on property 13 values of an electric generating facility?
14 A.
Yes.
15 Q.
Is there any difference, for purposes of your 16 analysis, between a coal-fired electric generating facility and 17 an electric generating facility that is nuclear powered?
18 A.
Not in the methodology used to measure the impact, 19 although the actual impact itself might be very different. It 20 is possible to measure the impact on property values of any 21 amenity or disamenity taking place at a fixed location. What 22 does matter is the object of the analysis, that is, what is 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 13 being impacted. In this case, I wanted to measure the impact of 1
the facility on residential property values because the impacts 2
on those values would serve as an indicator of impacts on land 3
values and hence on land use.
4 Q.
First, let me ask you what a disamenity is.
5 A.
A disamenity is any use of land or activity that might 6
adversely impact its neighbors.
7 Q.
What is the significance of the object of the 8
analysis?
9 A.
It is not always possible to measure the impact of a 10 particular disamenity or amenity because the sales of some types 11 of property take place infrequently or because the sales records 12 are not public. So it is not the type of amenity or disamenity 13 that matters so much as whether the sales records of the target 14 properties are available. The data provide information about 15 the disamenity.
16 Q.
Were the records available for the property types you 17 studied in this case?
18 Q.
Yes. In most communities, residential property is the 19 most frequently traded kind of real property. A system of real 20 property registration records those sales, their dates, and the 21 price. Those records are public.
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 14 Q.
Did you use those public records in your IPEC 1
analysis?
2 A.
I did. The method by which I obtained the necessary 3
data is set forth in my fifth report. In sum, a researcher whom 4
I supervised photocopied the public records maintained by the 5
assessors offices and the data were converted into digital 6
form, also under my supervision. I also made the decisions 7
regarding which data should be excluded because they were 8
potentially unreliable. In addition I used records that I 9
obtained from the Office of Real Property Services.
10 Q.
How did you measure the facilitys impact on 11 residential real property values?
12 A.
In a situation where the interest is in knowing the 13 impact of a single significant change in the community, where 14 the location and timing of that change are unambiguous, the 15 analysis requires thinking of housing as an asset whose rate of 16 return is or might be affected by the single significant change.
17 This approach is similar to so-called event studies that are 18 widely used to determine the impact of events that affect the 19 value of stocks and other financial instruments. I used this 20 approach to study the event of the construction and operation 21 of Units 2 and 3 on nearby residential properties.
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 15 Q.
Please tell me how you applied this approach to the 1
arrival of the facility.
2 A.
First it is important to understand the nature of real 3
property. Residential real property is a durable good that 4
provides its owner with important benefits, including shelter 5
for its occupants and their personal belongings. Those services 6
can be consumed by the owner or by someone to whom the owner 7
rents the property.
8 Q.
Are there benefits other than shelter?
9 A.
Yes. One other benefit is the asset value of the 10 property and its potential as a place to store that value. In 11 addition, real property is a source of capital gains. These two 12 benefits are closely related.
13 Q.
Please explain.
14 A. The value of residential property as an asset is the 15 present value of the stream of housing services less maintenance 16 expenses and taxes over the expected life of the property.
17 Q.
How is that calculated?
18 A.
Using simple (as opposed to continuous) discounting, 19 this relationship is summarized mathematically in the following 20 expression:
21 22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 16 1
( )
(1)
Where 2
price = The market price or value of the real property T = The expected maximum life of the property (could be effectively infinite) t = An index for the time period (year) where a value of 0 indicates the present and higher values represent the number of years in the future i = The interest rate, cost of capital, or discount factor representing the cost of delaying receipt of revenues or benefits by one year rt = The value of the housing services supplied (amount for which the property could be rented) during period t xt = The value of tax payments (including property tax payments) during period t mt = The value of required maintenance expenditures during period t 3
Q.
What does this formula tell us?
4 A. This formula, which I have numbered 1 in both this 5
testimony and in my December 2011 report, shows the relationship 6
between the price or market value of the residential property 7
and the values of the residential services, property taxes and 8
other relevant variables. It is well understood by economists 9
and has been empirically tested and validated in hundreds of 10 studies. It is widely accepted scientifically.
11 Q.
Does the formula depend on any assumptions?
12 A.
Yes. The formula assumes that residential property 13 will last a very long time (which, in turn, assumes that proper 14 maintenance will be performed). It also assumes that the value 15 of housing services, associated property taxes and maintenance 16
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 17 expenditures grow at a constant rate. With these assumptions, 1
the second formula simplifies first to:
2 3
( )
( )
( )
(2) then, in turn, to:
( )
( )
(3) 4 Q.
To what does r refer?
5 A.
The annual value of housing services.
6 Q.
To what does x refer?
7 A.
Annual Property taxes.
8 Q.
And to what does m refer?
9 A.
It refers to annual maintenance costs.
10 Q.
So what does (r-x-m) tell us?
11 A.
It expresses the value of housing services received 12 for one year minus the cost of property taxes and maintenance.
13 It will generally yield a positive value if the house is 14 occupied or rented. If the term it yields is negative it means 15 that the value of the housing services provided was not 16 sufficient to cover taxes and maintenance.
17 Q.
What would happen then?
18 A.
A properly functioning market would convert the 19 property to alternative uses or result in its abandonment.
20
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 18 Q.
How do you calculate r?
1 A.
If the property is rented, r is the market rent, 2
usually for a one year period. If that is the case, the term in 3
parentheses would be the landlords net income.
4 Q.
Does the formula tell us anything else?
5 A.
It implies that if buyers and sellers in the 6
marketplace become aware of a change that will reduce the value 7
of the housing services supplied by a property during some time 8
period (that is, a decline in r), the current price of housing 9
will drop. Likewise, the price of housing would rise if the 10 market becomes aware of a change that will reduce property 11 taxes.
12 Q.
What happens if a change in the marketplace will 13 generate both impacts?
14 A.
Assuming the change does not affect maintenance, 15 housing durability, or interest rates, the sign (positive or 16 adverse) and magnitude of the impact depend on the value of the 17 harm arising due to the increased localized effect or disamenity 18 relative to the value of the reduced taxes.
19 Q.
How much detail does one need about individual houses 20 in a given area to calculate the impact of an event?
21 A.
There are several ways to do this kind of calculation.
22 The hedonic approach requires a great deal of detail on the 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 19 characteristics of each property and its surrounding environs.
1 But, as I said earlier, one can also evaluate the impact of the 2
event on housing as an asset whose rate of return might be 3
affected by the event.
4 Q.
Is there a formula for that?
5 A.
Yes. The rate of return to the owner of a 6
residential property during time period j is simply the 7
percentage increase in the value of the property during the time 8
period:
9 (4)
Assuming there is no change in the base value of housing services, taxes or maintenance expenditures, this simplifies to:
(5)
Q.
So how do you use this formula in your analysis of the 10 neighborhood around Indian Point?
11 A.
Suppose we have a community where some change occurs 12 in time period j that might affect both the value of housing 13 services provided by residential property and also the taxes 14 that must be paid on those properties. We would reasonably 15 assume that the change that takes place has no impact on the 16 maintenance costs required, the mortgage interest or discount 17 rate, and the rate of inflation. In the context of the model 18 presented in equations (2) through (5) this means that the 19
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 20 values of m, i and remain fixed. Then at time period j the 1
base value of housing services changes from r to and the base 2
value of property tax payments changes from x to.
3 Q.
From this can we determine the impact?
4 A.
The magnitude and direction (positive or negative) of 5
the change can only be determined by analysis of the data. But 6
we do know that if the value of housing services is reduced, we 7
expect that. Similarly, if the required property taxes are 8
reduced by the change in the community then we would expect that 9
10 Q.
Your explanation has mentioned the price of 11 residential property and also the rate of return on residential 12 property. Can you explain how these are related and why it is 13 correct to analyze the rate of return to estimate the change in 14 the market value of property?
15 A.
Certainly. Suppose that we observe the sales price of 16 each house in every year, then we would expect to observe a 17 change in the housing price that would take place when the event 18 occurs, during time period j when the change in the community 19 takes place. At the beginning of this time period price would 20 be determined according to equation (3) and by the end of the 21 time period buyers and sellers in the community would become 22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 21 aware of the new values of housing services and of required 1
property taxes, so that the price would be:
2
( )
( )
(6)
The rate of return to the owner of this asset (residential 3
property) held during this period would be:
4
( ) ( )
( ) ( )
( ) ( )
(7)
This simplifies to:
5
( ) ( )
( )
(8)
We can rearrange this expression to give the new value of 6
housing services as a function of the rate of return:
7
( ) ( )
(9)
Or the new value of housing services net of the new level of 8
property taxes:
9
( ) ( )
(10)
As I noted before, the term ( ) is positive. This means 10 that equations (9) and (10) have several important implications 11 that can be summarized as follows:
12
- 1. The value of housing services received after the change in 13 the community is a positive linear function of the rate of 14 return on residential property as an asset held during the 15 period the change occurs.
16
- 2. The value of housing services net of taxes after the change 17 in the community is a positive linear function of the rate 18
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 22 of return on residential property as an asset held during 1
the period the change occurs.
2
- 3. If the rate of return on residential property as an asset 3
is lower during the period when the change in the community 4
occurs than during other time periods, then the value of 5
housing services has been reduced by the change and the 6
value of housing services net of required property tax 7
payments has also declined.
8
- 4. If the rate of return on residential property as an asset 9
is lower during the period when the change in the community 10 occurs than during other time periods, then the value 11 (price) of residential property will have declined.
12 Q.
So you are saying that there is a simple mathematical 13 relationship between the rate of return of owning a house and 14 the price of the house after the change in the community takes 15 place, and that relationship is given by the equation you have 16 numbered as (9)?
17 A.
Yes. Furthermore, this fact allows me to determine if 18 the change in the community has adversely affected property 19 values by a simple test on how the rate of return is affected 20 during the time period when the change takes place. If the 21 return during this time is lower than at other times, then the 22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 23 change has had an adverse impact on prices that is not 1
compensated for by any associated change in tax burdens.
2 Q.
When you have estimated the impact on the rate of 3
return to housing, will you be able to calculate the total 4
dollar value of impacts on property values?
5 A.
Yes. That will be a relatively straightforward 6
calculation.
7 Q.
Now can we figure out the impact of the arrival of 8
Indian Point on residential property values within 5 kilometers?
9 A.
Almost. I think that is all the necessary background.
10 Q.
Where did you get the actual data to plug into the 11 equations that you have explained?
12 A.
I obtained data about residential properties in the 13 general vicinity of Indian Point from the New York State Office 14 of Real Property Services (ORPS). I also obtained data from 15 published announcements of real estate transactions, including 16 sale/purchase dates and prices, from properties in the 17 municipalities of Peekskill, Cortlandt and Buchanan.
18 Q.
For what time period?
19 A.
A ten-year period - May 1999 to June 2009 plus a small 20 number of other properties sold outside this time period.
21 Because the data included not only the most recent sale but also 22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 24 earlier sales dates and values this gave me information on 1
property sales going back as early as 1945.
2 Q.
How large was the sample?
3 A.
Initially, it included about 1900 properties.
4 Q.
Did you obtain all the data you needed from the ORPS 5
records?
6 A.
No. After I had the initial sample, a researcher 7
visited the assessors offices in the Towns of Peekskill and 8
Cortlandt to photograph the property records on file for each of 9
the properties in the sample.
10 Q.
What happened to Buchanan?
11 A.
The Village of Buchanan is located in the Town of 12 Cortlandt; the Town of Cortlandt assessor had the Buchanan data.
13 Q.
Doesnt the data exist in digital form?
14 A.
No. You would think it would but it does not.
15 Q.
What did you do with the photographs?
16 A.
A paralegal and a secretary in the Office of the New 17 York Attorney General entered most of the information from the 18 property data cards into a computer.
19 Q.
Why only most?
20 A.
Not all of the information was legible.
21 Q.
Who supervised their work?
22 A.
I did.
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 25 Q.
What did that involve?
1 A.
I created a database using Microsoft Access, gave them 2
instructions and answered their questions on an as-needed basis.
3 They then provided the data to me in digital form.
4 Q.
What happened next?
5 A.
I reviewed the data and made decisions about which 6
observations should be included in the sample.
7 Q.
Why?
8 A.
Some of the transactions appeared not to have been 9
made at arms length.
10 Q.
How did you identify those transactions?
11 A.
I reviewed each record and eliminated any transaction 12 that appeared to be between family members, that occurred at a 13 symbolic or zero price, took place within 60 days of the 14 previous transfer, or contained a notation by the assessors 15 office that they were not made at arms length.
16 Q.
Were there other factors that led you to exclude 17 certain properties?
18 A.
Yes. I also excluded a small number of observations 19 because they were unusual in some other way. For instance, the 20 sales date was miscoded, or they were commercial properties 21 converted to residential use, or they were in some other way 22 obviously out of the ordinary.
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 26 Q.
Why did you do that?
1 A.
Because I wanted a sample that represented fair market 2
values reached after unconstrained negotiations between willing 3
buyers and willing sellers.
4 Q.
What was the next step?
5 A.
I geocoded the data to determine the precise latitude 6
and longitude of each property so that I would know which 7
properties were within 5 kilometers of the facility. My 8
December 2011 report includes a figure that shows the boundary 9
and the location of each property included in the sample.
10 Q.
What did you do with the data once you had determined 11 the sample?
12 A.
I reorganized it to provide one observation for each 13 repeat sale.
14 Q.
What does that mean?
15 A.
I created one record, if you will, of each successive 16 pair of arms length transactions. Each one represents the 17 length of time that a particular owner held the property.
18 Q.
What else do we know about each property?
19 A.
We know its distance from the facility, the purchase 20 and sale price, and the dates of each transaction.
21 Q.
Can you summarize the data for me?
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 27 A.
I can show you this chart, which is included in my 1
December 2011 report.
2 Variable Observations Mean Std.Dev Min Max Sale year 1554 1997.8 10.0 1959.2 2009.3 Prior sale year 1554 1989.6 13.3 1945.4 2008.2 Ownership period 1554 8.190 8.702 0.203 59.127 Sale price 1554 215551 163128.4 223.5 2354000 Previous price 1554 165532 431574.5 100 1.50E+07 Rho 1554 0.0920 0.1983
-0.9985 0.9847 IPEC sale indicator 1511 0.109 0.31 0
1 Distance (KM) 1554 3.50 0.89 1.22 4.99 Distance (meters) 1554 3503.50 891.10 1216.04 4994.76 Table 1: Descriptive statistics for sample observations 3
Q.
Can you describe them to me in different terms?
4 A.
Yes. The earliest sales occurred in mid-1945; the 5
latest in 2009. The average ownership period is just over 8 6
years. Some properties in the sample are as close as 1216 7
meters from the facility; on average, houses are just over 3500 8
meters.
9 Q.
What is the average sale price?
10 A.
A little over $215,000.
11 Q.
Your report refers to the average prior sales price -
12 what is that?
13 A.
For each property I required two dates and two prices.
14 The sales price refers to the later of the two transactions 15 prices, and the prior sales price refers to the earlier. The 16 ownership period is the amount of time that elapses between 17
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 28 two consecutive arms-length transactions. The average of the 1
prior sales price in the sample is $165,532.
2 Q.
What do the data allow you to calculate?
3 A.
They allow me to calculate the continuous rate of 4
return on each homeowners period of ownership.
5 Q.
What is the formula for that calculation?
6 A.
7
(
) (
)
(11) 8 Q.
What information does each of those terms represent?
9 A.
represent the two sales dates (purchase and 10 sale) while represent the two prices (purchase and sale).
11 Q.
Did any observations surprise you?
12 A.
A few. I was suspicious of transactions that exceeded 13 a rate of return of 100% per annum as well as those that had a 14 rate of return of less than -100% per annum. I excluded such 15 observations from my analysis.
16 Q.
Did removing those observations change the bottom 17 line?
18 A.
Had I left the suspicious observations in the sample, 19 it would have resulted in larger estimated property value 20 impacts but would have changed neither the sign nor the 21
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 29 statistical significance of the estimated relationship. In sum, 1
no and to the extent it had any impact, the exclusion lessened 2
the impact of Indian Point on property values.
3 Q.
I read in your December 2011 report that you 4
constructed an indicator variable. What is that?
5 A.
It is a way of identifying the residential property 6
asset ownership periods that would have been directly affected 7
by the construction and operation of Units 2 and 3. The 1974 8
construction of Unit 2 and the 1976 construction of Unit 3 9
created a treatment group that allows the measurement of the 10 change in property values as a result of the event that 11 occurred from 1974 to 1976. For our purposes the event was 12 the commencement of operation of the two units.
13 Q.
Are there ownership periods that are of particular 14 importance for purposes of your analysis?
15 A.
Three periods of ownership matter for purposes of this 16 analysis. For ownership periods that begin and end before 1974, 17 the property would have been affected only by the presence of 18 Unit 1, a much smaller unit that was shut down in 1974. This 19 analysis does not take Unit 1 into account. So for our 20 purposes, that group is part of the control group.
21 Q.
Whats the second group?
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 30 A.
That is the group whose ownership began and ended 1
after 1976. The existence of Indian Point would have been known 2
to those buyers who would have factored that information into 3
their purchase price. So Indian Point might have affected the 4
value of the property but the purchase price would have 5
reflected it. That group is also part of the control group.
6 Q.
What is the purpose of a control group?
7 A.
A control group is necessary for comparison purposes 8
and is required for measuring an impact. Only by comparing the 9
target group against a control, which has not been impacted by 10 whatever event is being measured, can we know what the impact 11 actually is.
12 Q.
What is the third group?
13 A.
That is the group that interests us and we call it the 14 treatment group. This is the group that would have been 15 directly affected. That is, these parcels were bought before 16 1974 and sold after 1976 and they thus received the treatment 17 of Indian Point. It is Indian Points impact on this group that 18 matters for our purposes.
19 Q.
And what is Indian Points impact on that group?
20 A.
First let me tell you about the entire group - the 21 treatment group plus the control group. Then I will tell you 22 about the treatment group.
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 31 Q.
What is the average nominal rate of return?
1 A.
Just over 9%.
2 Q.
Is that good?
3 A.
Quite. It is as if a mutual fund or stock increased 4
9% over 8 years. A typical investor would be happy with that 5
rate of return.
6 Q.
What percentage of the group received the treatment?
7 A.
About 10%.
8 Q.
In other words, ten percent of the observed pairs of 9
transactions involved a purchase of a house before 1974 and 10 subsequent sale occurring after 1976?
11 A.
Thats right.
12 Q.
How big are the respective groups?
13 A.
In total, the data included 1,511 observed repeat 14 sales that were for properties within 5 kilometers of IPEC and 15 were included in the sample. This includes only those 16 observations that contained all required information and had not 17 been excluded for some reason. The treatment group included 164 18 sales pairs, and the control group included 1347 sales pairs.
19 Q.
Your chart presented above lists, in column 2, the 20 number of observations for each variable. Those numbers range 21 as high as 1554. Why is this number different from the 1511 you 22 just mentioned?
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 32 A. As I said in my previous response, the analysis was 1
undertaken only for those observations that had all the required 2
information. A few observations had both prices but were 3
missing precise information on the sales date or prior sales 4
date, for example, and therefore could not be included in the 5
analysis.
6 Q.
Could a particular property show up in more than one 7
observation?
8 A.
Yes. There were 507 discrete properties in the 9
sample. Over a span of 65 years many properties were sold 10 multiple times.
11 Q.
What was the impact of Indian Point on the treatment 12 group?
13 A.
Commencement of operations of units IP2 and IP3 at 14 Indian Point reduced by nearly 3% the nominal rate of annual 15 return.
16 Q.
So those homeowners had a rate of return closer to 6%
17 rather than the sample average of 9%?
18 A.
Yes.
19 Q.
Was this diminution offset by reduced property taxes?
20 A.
No. This estimated decline in the nominal return 21 includes the combined effect of reduced value in use for the 22 property and coincident changes in property tax obligations.
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 33 Q.
Would you characterize a nearly three percent 1
diminution in value as either undetectable or so minor that it 2
will neither destabilize nor noticeably alter any important 3
attribute of land use?
4 A.
No, I would not. The three percent is an annual 5
impact on each individual homeowner. It means that each year 6
each homeowner loses 3% of the value of its asset - in this 7
case, the return on its investment in housing. Although it is 8
related to the aggregate impact on the community, it is not the 9
same.
10 Q.
What is the aggregate impact on the homeowners within 11 5 kilometers?
12 A.
The total estimated loss in residential property 13 values as of January 2011 is over $1 billion, which is slightly 14 more than 27% of residential property values within 5 kilometers 15 of IPEC.
16 Q.
Would you explain how you obtained that figure?
17 A. There were several steps. First, as described above, I 18 had to estimate the change in the nominal return to owning a 19 house for the treatment group. This is a change in the annual 20 return estimated for members of the control group, who 21 experienced this reduction in annual return during the time they 22 held the property. For the sample the holding period or time 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 34 between property sales averaged 8.19 years, so homeowners who 1
held properties when IPEC appeared experienced the reduced 2
return for an average of 8.19 years.
3 Q.
So the reduction in total value for each home was 8.19 4
years multiplied by a 3% loss? That sounds like about 25%.
5 A.
Only approximately. The actual calculation is more 6
complicated. The change in nominal return actually varies with 7
location somewhat, and I take that into account. In addition, 8
the nominal return is compounded, so it is not simply the 9
percentage annual loss multiplied by the number of years. I use 10 data from the 2000 census on the total value of residential 11 property in each census block group. The actual loss was 12 experienced in 1976, so I estimate what the value of these 13 properties would have been under 1976 price levels and market 14 conditions.
15 Q.
How did you determine these values?
16 A.
I constructed a price index for the properties within 17 the 5 km. boundary.
18 Q.
How did you do that?
19 A.
I combined data from the Federal Housing Finance 20 Administration house price index data with price data from the 21 Bureau of Labor Statistics. This allowed me to estimate total 22 residential property values at different times.
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 35 Q.
Is this a precise calculation?
1 A.
No, it is an estimate based on the best possible 2
available data. A graph in my December 2011 report shows the 3
house price index that I created, which covers Peekskill, 4
Buchanan and Cortlandt from 1945 to 2010.
5 Q.
What did your house price index allow you to do?
6 A.
I used it to translate data from the 2000 Census to 7
estimate total rental and owner-occupied property values. I 8
translated the 2000 values to the values that would prevail with 9
1976 prices and market conditions. Then I calculate the change 10 in nominal return for properties in each block group. I apply 11 this change in annual nominal return for owning residential 12 property to the value of residential property in the block group 13 over a period of 8.19 years. This provides an estimated change 14 in total value of residential properties under 1976 price levels 15 and market conditions. Then I translated the 1976 values and 16 associated impacts to total values and impacts as of January 17 2011 using the price index I had constructed.
18 Q.
Does your analysis show greater impacts on properties 19 that are located closer to IPEC?
20 A.
The methodology I have employed does not allow me to 21 measure this directly because of the construction of the control 22 and treatment groups I mentioned above. In this case the group 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 36 of observations received a treatment - and were included in 1
the treatment group - if they were purchased before IPEC began 2
full scale operations and sold afterwards. In order to 3
determine if the impact was greater for properties located 4
closer to IPEC, I would need a much larger treatment group. Then 5
I could examine rates of return on properties at various 6
distances, comparing ownership periods that took place entirely 7
before IPEC or after IPEC with those that span the opening of 8
IPEC. The amount of data available to me was sufficient to 9
determine, to a reasonable degree of scientific certainty, that 10 there was an effect on the entire area within a 5 kilometer 11 radius from IPEC. The data did not permit me to determine 12 accurately the variation in impacts as we get closer to IPEC.
13 Q.
So your analysis did not consider any impact of 14 distance from IPEC?
15 A.
My model does include a variable for distance from 16 IPEC, but this variable measures a constant impact before, 17 during and after IPEC opens. It is included to account for 18 variations in the rate of return on housing that are sensitive 19 to proximity to employment centers or other factors, but it does 20 not capture a location-related impact of IPEC.
21 Q.
To what do you refer when you say impacts?
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 37 A.
By impacts I mean changes in the value of properties 1
that can be reliably attributed to the construction and 2
operation of IPEC.
3 Q.
Can you describe the formula used to measure the loss?
4 A.
Yes. The measured loss as of December 1976 was 5
estimated by the formula:
6
( )
(12)
Where:
7 Loss = Estimated loss in property value as of December 1976 Price1976 = Total property value as of December 1976
= The reduction in the nominal rate of return on residential property
= The average amount of time residential property is held 8
This yields a conservative estimate of the reduction in property 9
value attributable to the facility being present in the 10 community.
11 Q.
What makes the estimate conservative?
12 A.
Properties in the treatment group were actually owned 13 for longer than the 8-year average. Using that longer ownership 14 period would have resulted in an even larger estimate of 15 property value impacts. In addition, I am measuring the impact 16 based on property market response that took place between 1974 17 and 1976 when IP2 and IP3 began operations. Because 18 construction of the plant had been going on for some time prior 19
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 38 to this, and the much smaller IP1 had actually been in 1
operation, there may have been some adverse property value 2
impacts that took place prior to 1974. If so, then my analysis 3
would underestimate the total impact on property values.
4 Q.
So this formula was applied to the total value of 5
residential property in each block group after adjusting that 6
value to 1976 prices and market conditions?
7 A.
That is correct. I then summed the estimated change 8
in total value of property across all block groups whose center 9
was within 5 kilometers of IPEC.
10 Q.
You then translated this total loss measured in 1976 11 prices to January 2011 using your price index?
12 A.
That is correct.
13 Q.
Can you now tell me the magnitude and direction of the 14 impact of Indian Point on the sample treatment properties?
15 A.
I can. The direction is negative. Indian Point 16 adversely impacts property values.
17 Q.
And the magnitude of that impact?
18 A.
As of January 2011, the loss suffered by residential 19 properties within 5 kilometers of the facility was just over 20 27%.
21 Q.
What is the dollar value of that impact?
22 A.
$1,070,074,312.
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 39 Q.
So is this amount the dollar value of a loss that has 1
been experienced by current residents of the area?
2 A.
Not exactly. Much of the loss was experienced by 3
property owners who owned residential property prior to opening 4
of IPEC and continued to own the property when IPEC commences 5
operations. When they sold their properties after 1976, they 6
would be selling at the reduced price. My objective in this 7
analysis, however, has not just been to estimate the losses, if 8
any, experienced by some past owners. Many of the homes in the 9
area today werent even built in 1976. Rather, my objective has 10 been to estimate how much residential land value might increase 11 when IPEC is decommissioned and the site is returned for use.
12 This is my counter-factual. I have estimated this by careful 13 analysis of what happened to property values when IPEC opened, 14 assuming that when IPEC is gone and the site is restored these 15 changes will be undone.
16 Q.
Would you characterize a 27% loss in value as 17 undetectable or minor?
18 A.
I would not. A 27% loss in value is one that will 19 clearly have noticeable effects on land use decision making.
20 Q.
Would that impact in your opinion be sufficient to 21 destabilize the community?
22
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 40 A.
Quite possibly. It is certainly sufficient to result 1
in very significant impacts. These include economic impacts 2
such as the value of residential property and the associated 3
wealth of property owners. They also could include 4
environmental land use impacts that will arise because the 5
increased values of residential property will cause owners to 6
make more careful use of land and allocate the land to different 7
types of uses. This is why I disagree so strongly with the 8
assertions made in the FSEIS that land use would experience no 9
noticeable... change.
10 Q.
On what do you base your opinion?
11 A.
On recent experience that we have all shared to a 12 greater or lesser degree. From early 2007 through the first 13 quarter of 2011, house prices in the United States fell by 14 approximately 16%. A few large markets experienced a diminution 15 in value of more than 16% and some other markets experienced a 16 lesser diminution. But the average impact, 16% nationwide, has 17 had profound impacts on land use around the country; these 18 impacts are likely to persist for at least a decade. This 19 event, and related economic trends, is being called the Great 20 Recession. But the impacts I have documented in the five 21 kilometers around IPEC are even greater. By any measure, those 22 impacts may only be described as LARGE.
23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 41 Q.
Does this conclude your testimony?
1 A.
Yes.
2 3
4 5
6 7
8 9
10 11 12 13 14 15 16 17 18 19 20 21 22 23
Pre-filed Written Testimony of Stephen C. Sheppard Contention NYS-17B 42 UNITED STATES 1
NUCLEAR REGULATORY COMMISSION 2
BEFORE THE ATOMIC SAFETY AND LICENSING BOARD 3
x 4
In re:
Docket Nos. 50-247-LR; 50-286-LR 5
License Renewal Application Submitted by ASLBP No. 07-858-03-LR-BD01 6
Entergy Nuclear Indian Point 2, LLC, DPR-26, DPR-64 7
Entergy Nuclear Indian Point 3, LLC, and 8
Entergy Nuclear Operations, Inc.
December 16, 2011 9
x 10 DECLARATION OF STEPHEN C. SHEPPARD, Ph.D.
11 I, Stephen C. Sheppard, do hereby declare under penalty of 12 perjury that my statements in the foregoing testimony and my 13 statement of professional qualifications are true and correct to 14 the best of my knowledge and belief.
15 Executed in Accord with 10 C.F.R. § 2.304(d) 16 17 Stephen C. Sheppard, Ph.D.
18 Professor of Economics, Williams College 19 24 Hopkins Hall Drive 20 Williamstown, MA 01267 21 Stephen.c.sheppard@williams.edu 22 413-597-3184 23 December 16, 2011 24