ML12181A365
| ML12181A365 | |
| Person / Time | |
|---|---|
| Site: | Indian Point  |
| Issue date: | 06/28/2012 |
| From: | Sheppard S State of NY, Office of the Attorney General, Williams College |
| To: | Atomic Safety and Licensing Board Panel |
| SECY RAS | |
| Shared Package | |
| ML12181A362 | List: |
| References | |
| RAS 22865, 50-247-LR, 50-286-LR, ASLBP 07-858-03-LR-BD01 | |
| Download: ML12181A365 (47) | |
Text
Pre-filed Written Rebuttal 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.
June 28, 2012 9
x 10 PRE-FILED WRITTEN REBUTTAL TESTIMONY OF 11 STEPHEN C. SHEPPARD 12 REGARDING CONTENTION NYS-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 rebuttal testimony by Stephen C. Sheppard, Ph.D. regarding 16 Contention NYS-17B.
17 Q.
Please state your full name.
18 A.
Stephen Charles Sheppard.
19 Q.
By whom are you employed and what is your position?
20 A.
I am the Class of 2012 Professor of Economics at 21 Williams College.
22
Pre-filed Written Rebuttal 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 to 5
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
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 3
Statistics, 60, August 1998, 357-382; and The Rise, Fall and 1
Rise Again of Industrial Location Theory, McCann, P., and 2
Sheppard, S., Regional Studies, 37, 6-7,649-663 (2003). In 2004, 3
a co-author and I published Capitalising The Value Of Free 4
Schools: The Impact of Supply Characteristics and Uncertainty, 5
which dealt with the impact of schools and other neighborhood 6
conditions on housing values. This paper was awarded the Royal 7
Economic Society Prize for the best paper published in 2004 in 8
the Economic Journal.
9 In addition to writing on the topic, I conduct original 10 research on land use policies and economics. I have been an 11 academic consultant at the International Monetary Fund and an 12 academic visitor at the London School of Economics, and I have 13 consulted for many banks and private corporations, including the 14 World Bank and the Inter-American Development Bank. My education 15 and experience are described in more detail in my curriculum 16 vita (CV), which is Exh. NYS000208. A list of my publications is 17 also included in my CV.
18 Q.
I show you what has been marked as Exhibit NYS000225 19 to Exhibit NYS000231. Do you recognize those documents?
20
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 4
A.
Yes. They are copies of the declarations and reports 1
that I previously prepared for the State of New York in this 2
proceeding. They reflect my analysis and opinions.
3 Q.
What is the purpose of your rebuttal testimony?
4 A.
The purpose of my testimony is to again discuss my 5
views on Consolidated NYS-17B (NYS-17B), which asserts that the 6
FSEIS fails to address the impact of the continued operation of 7
IP2 and IP3 for another 20 years on offsite land use, including 8
real estate values in the surrounding area in violation of 10 9
C.F.R. §§ 51.71(a), 51.71(d), 51.95(c)(1), and 51.95(c)(4).
10 Specifically, my purpose is to respond to the testimony, reports 11 and arguments presented by Entergy and Nuclear Regulatory 12 Commission (NRC) Staff.
13 Q.
Have you reviewed materials in preparation for your 14 rebuttal testimony?
15 A.
Yes.
16 Q.
What is the source of those materials?
17 A.
I have reviewed the testimony, reports and exhibits 18 submitted by Entergy and NRC Staff in response to my Pre-Filed 19 Testimony, NYS000224, and my most recent report, Impacts of the 20 Indian Point Energy Center on Property Values (December 2011),
21 NYS000231.
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 5
Summary of Rebuttal Testimony 1
Q.
Please summarize your rebuttal testimony.
2 A.
The conclusions in my December 2011 report, which 3
build upon my previous reports and declarations, are based on 4
sound scientific principles and are, in my judgment, correct.
5 To the extent that they are estimates, they are good ones. None 6
of the criticisms made by experts retained by Entergy or 7
employed by the NRC are material. Some of the criticisms 8
leveled by these experts reveal a profound misunderstanding of 9
the relationship between property values and land use. Other 10 criticisms reveal a lack of critical thinking and care. None of 11 them undermine my overall conclusion: Indian Point has a 12 considerable impact on property values in the area surrounding 13 the facility, which exerts a large socioeconomic influence on 14 housing and offsite land use. The failure of the Final 15 Environmental Impact Statement to consider property values 16 renders its conclusions about socioeconomics, including offsite 17 land use and housing, invalid.
18 Summary of Work to Date 19 Q.
Please summarize the analyses you have presented in 20 your five reports.
21
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 6
A.
In my first study, dated November 29, 2007, I used 1
conservative assumptions based on coal plant analysis to 2
conclude that IPEC could result in a diminution of property 3
values of more than $500 million within a 2-mile radius of the 4
plant.
5 In my second report, which was dated February 26, 2009, I 6
updated the initial report with respect to a longer timeframe 7
for reclamation. I found that "if the diminution in current 8
property values is approximately $500 million, then the burden 9
caused by the additional delay in restoration due to the period 10 of extended plant operation plus the longer period required for 11 site reclamation is reasonably estimated as between $300 and 12
$340 million."
13 In my third report, dated March 18, 2010, I outlined 14 various methods used by economists and real estate professionals 15 to determine property value. I concluded that "[i]f a 16 neighborhood contains activities that increase the range of 17 possible use values, then that increases the uncertainty in the 18 flow of benefits and diminishes the value of the property."
19 In my fourth report, dated January 24, 2011, I took into 20 account new information about the timing of decommissioning.
21 The fourth report looked at four decommissioning scenarios going 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 7
as far out as past 2100. This report concluded that "license 1
renewal combined with the potential delay in waste removal and 2
site reclamation imposes a severe burden on surrounding 3
communities. This burden is equivalent to a present decrease in 4
wealth in the communities of between $169 million and $237 5
million."
6 My fifth and final report is dated December 10, 2011. In 7
it I was able to make use of extensive data on residential 8
property values in the area around IPEC, for sales that have 9
taken place as early as 1945 and as recently as 2009. Thus my 10 data included sales of properties before IPEC existed as well as 11 after it had been in operation for many years. I examined pairs 12 of repeat sales in which I have observations on the price for 13 which a particular property sold at two points in time, and I 14 could therefore calculate the rate of price appreciation over 15 time for each of more than 1500 properties. I compared this 16 rate of price appreciation with the rate of price appreciation 17 that prevailed generally for residential properties in the 18 region. Some of these paired sales involved a sale price prior 19 to completion of the IPEC facility and afterwards. If IPEC 20 generated a disamenity, then the rate of price appreciation for 21 these pairs of sales will be lower than expected. If IPEC 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 8
generated no disamenity, the rate of price appreciation for 1
these sales would be generally equivalent to the rate observed 2
throughout the area. I estimated the impact of the IPEC 3
disamenity in this way.
4 Relationship of Property Values to Land Use 5
Q.
Are real property values a factor in determining land 6
use?
7 A.
Yes.
8 Q.
How is property value tied to land use generally?
9 A.
Property values and land use are intimately connected, 10 and the role of property values in determining land use patterns 11 has been understood and written about for a long time, going 12 back to the middle of the 19th century. For example, 30 years 13 ago George Tolley wrote, in a book he co-authored with Douglas 14 Diamond, that...the same things that influence house price 15 also determine location patterns...city size and migration.
16 The Economics of Urban Amenities, edited by Douglas B. Diamond, 17 Jr. and George S. Tolley, New York: Academic Press (1982). The 18 location patterns of human activities, and the resulting 19 population and size of cities are central to understanding land 20 population and size of cities are central to understanding land 21 use. The very meaning of the phrase land use refers to the 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 9
uses to which land is put by persons in the community--in 1
particular by the owners of the land. One cannot understand the 2
land use consequences of a decision or public policy without 3
careful analysis of how the decision or policy will affect house 4
prices and property values. The role of the concept of highest 5
and best use in determining and appraising property values 6
shows, conversely, the importance of land use in determining 7
property values.
8 Q.
Would you characterize property values as a major or 9
minor factor when compared to other relevant factors?
10 A.
I would characterize property value as a major driver 11 of land use, together with regulatory controls, local public 12 expenditures and tax rates.
13 Q.
Are there other factors that contribute to land use 14 determinations?
15 A.
Yes.
16 Q. What other factors contribute to land use 17 determinations?
18 A.
Environmental amenities or disamenities play an 19 important role, as well as regulatory controls (e.g., zoning or 20 similar regulations that affect use), relevant taxes, and 21 expenditures on local public goods.
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 10 Q.
Would an analysis of land use that took into account 1
only tax rates and changes in population as drivers be a good 2
analysis in your opinion?
3 A.
It would not. It is widely understood that within 4
regulatory bounds land uses are determined by property values.
5 Specifically, land uses that generate the highest property 6
values predominate.
7 Q.
Is this simply your opinion?
8 A.
No. It is widely accepted in my field. This is the 9
basis of the concept that we refer to as highest and best use.
10 As is clear from his 1992 book, Dr. Tolley accepts this premise, 11 too.
12 Q.
Why is it important to assess the impact of IPEC on 13 property values in the immediate vicinity of the plant?
14 A.
First and foremost, it is important to assess the 15 impact of NRC decisions regarding IPEC on property values 16 because NRC guidelines require that in applications for renewal 17 an environmental impact statement be prepared. This 18 environmental impact statement must evaluate, among other 19 things, the impacts of the renewal and of the no-action 20 alternative for off-site land use. Evaluation of these land use 21 impacts cannot be said to have been undertaken if the EIS simply 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 11 makes assertions that no change will occur. Evaluation of land 1
use impacts requires analysis of the significant factors that 2
determine land use, and how these factors can be expected to 3
differ between a decision of approval or a decision of no-4 action. First and foremost among these factors are property 5
values. An EIS that lacks any analysis of property values 6
cannot be said to have evaluated land use impacts as required by 7
NRC guidelines. Beyond the requirement that the EIS present an 8
evaluation of impacts of the decision on land use, the decision 9
maker expects that the EIS will present an evaluation of social 10 and economic conditions in the community including impacts on 11 housing. Naturally, evaluation of the impacts on housing 12 requires analysis of what can be expected happen to house prices 13 under the no-action alternative as well as in case of approval.
14 As in the case of land use impacts, evaluation requires more 15 than making assertions that are unsupported by careful data 16 analysis.
17 Q.
Have you read the testimony of NRC experts Jeffrey J.
18 Rikhoff, Andrew L. Stuyvenberg and John P. Boska, set forth at 19 NRC000081?
20 A.
Yes.
21
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 12 Q. At A10, Mr. Rikhoff testifies that the 1996 Generic 1
Environmental Impact Statement (GEIS) for License Renewal of 2
Nuclear Plants, NUREG-1437, requires a discussion of the impact 3
of license renewal on the use of offsite land (e.g., the use of 4
the land for agricultural, residential, commercial or industrial 5
purposes), not its value. Mr. Rikhoff claims that the issue 6
is whether nuclear power plant operations would cause offsite 7
land use to change. From an economics perspective, is Mr.
8 Rikhoffs view of the issue right?
9 A.
From an economics perspective, no. I cannot opine on 10 how a court would interpret NUREG-1437 but I can tell you that 11 Mr. Rikhoffs understanding of what would cause offsite land 12 use to change is flawed.
13 Q.
What is wrong with it, in your opinion?
14 A.
Mr. Rikhoff appears to believe that it is possible to 15 evaluate whether plant operations would cause offsite land use 16 to change without evaluating whether plant operations would 17 alter off-site property values. This belief is fundamentally 18 mistaken. It is contradicted by numerous peer-reviewed 19 scientific studies of land use and land markets.
20 Q.
Entergy has suggested that if Indian Point could be 21 shown to have an adverse impact on property values, that impact 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 13 might not be attributable to physical impacts on the 1
environment. Do you have a response to that?
2 A.
My study does not distinguish between Entergys 3
physical impacts and any other kind of impacts it might have on 4
property values. Neither does any analysis done by Entergy.
5 But the literature, including many studies upon which I have 6
relied, shows that electric generating facilities are a classic 7
disamenity. The facility indisputably has physical impacts on 8
the environment including pollutant leaks, sirens, traffic 9
impacts, and aesthetic impacts. These are classic indicia of 10 nuisances. They are all physical impacts.
11 10 C.F.R. § 51 Table B-1 12 Q.
Are you familiar with 10 C.F.R. § 51 Table B-1?
13 A.
Yes.
14 Q. Which of the potential environmental impacts listed as 15 Category 2 in Table B-1 are relevant to Contention 17B?
16 A.
The two categories of potential impacts in Table B-1 17 that are relevant to Contention 17B are Offsite Land Use and 18 Housing Impacts.
19 Q. Based on your work, how would the no-action 20 alternative, that is allowing denial of IPEC's license renewal 21 application, impact property values within two miles of IPEC?
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 14 A.
In sum, I conclude that denying the license renewal 1
application would allow property values to rebound. I calculate 2
that the impact of not renewing the operating licenses and 3
removing the IPEC disamenity would result in a significant 4
increase in property values within 5 kilometers of IPEC. The 5
total magnitude of this change in property values would exceed 6
$1 billion, or about 27% of the total value of property within 5 7
kilometers.
8 Where Entergy and NRC Go Wrong 9
Q. Are you familiar with Entergy's ER?
10 A.
Yes.
11 Q.
Please describe the methodology used by Entergy in its 12 ER to assess the impact of the plant on off-site land use and 13 property values and why this assessment is inadequate.
14 A.
Entergy relies primarily on NRC conclusions reached in 15 the GEIS for all plant relicensing processes to evaluate the 16 potential impacts on off-site land use of the relicensing of IP-17 2 and IP-3. In using this analysis, Entergy finds that the 18 impact of relicensing itself would be small.
19 Q.
Do you agree with that finding?
20 A.
I do not. Entergy fails to take into account the 21 diminution of property values caused by IPEC in the surrounding 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 15 communities, especially those communities in the immediate 1
vicinity like the Village of Buchanan, which according the 2
Levitan & Associates report relied on by Entergy and NRC Staff 3
perpetuates a perception that the area around the plant is low-4 to middle-class and has caused trepidation on the part of 5
potential developers from outside the immediate vicinity.
6 Entergy does include figures related to home prices in the five 7
counties surrounding the plant, finding that they increased by 8
7.62% on average from 1990-2000.
9 The ER concludes that this increase is related to the 10 presence of the plant but provides insufficient data to support 11 that conclusion, which could also be attributable to a generally 12 growing real estate market in that same time period, or other 13 factors not considered by Entergy in preparing the ER.
14 Q.
Is that all?
15 A.
No. Entergy also improperly "adopts by reference" the 16 NRC's findings with respect to the environmental impacts, 17 including land use and housing impacts in the no-action 18 scenario, indicating that there would be little difference 19 between that and relicensing. This, however, ignores the 20 potential increase in property values that my research indicates 21 is likely to occur following decommission of IP2 and IP3, which 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 16 could eventually increase property values by as much as $1 1
billion, leading to an increased tax base and changes in the 2
land use patterns in the area reflecting the change in property 3
values.
4 1996 GEIS for License Renewal of Nuclear Plants 5
Q.
Are you familiar with the Generic Environmental Impact 6
Statement for License Renewal of Nuclear Plants (May 1996) 7 (NUREG-1437) and supporting case studies, which include Indian 8
Point?
9 A.
Yes.
10 Q.
Please summarize any discussion of property value and 11 land use contained in those documents and tell me whether these 12 discussions are adequate.
13 A.
In the GEIS, NRC Staff do consider the impact IPEC has 14 on property values in the communities surrounding the plant.
15 However, this analysis fails to take into account any negative 16 impact caused by IPEC's presence, instead focusing only on the 17 positive impacts the plant may have had since its development.
18 As indicated by my research, the plant has had a mixed impact at 19 best and a substantial and unacknowledged negative impact on 20 property values at worst.
21 Q.
What is your opinion of the Indian Point case study?
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 17 A.
My opinion is that it appears to be entirely anecdotal 1
and further that the conclusions drawn from it are not supported 2
even by the anecdotal evidence recited.
3 Q.
Please explain.
4 A.
The case study concludes with this statement: In 5
summary, it appears that neither construction nor operation of 6
the Indian Point plants has considerably affected housing in the 7
communities neighboring the plants or in the whole of 8
Westchester and Dutchess counties. 1996 GEIS, Appx. C 9
(C.4.4.2). But the case study notes that occasionally an 10 outside buyer is deterred from the area because of the plants.
11 The case study also notes that one realtor maintains that more 12 development in communities neighboring Indian Point would have 13 occurred had it not been for Indian Point. Finally, the case 14 study also points out that [r]epresentatives of the Westchester 15 County Office of Community Development believe that the 16 presence of the plant perpetuated the image of these communities 17 being low to middle class.
18 Q.
What do those comments tell you?
19 A.
They tell me that real estate professionals and local 20 government officials believe that IPEC has depressed property 21 values in nearby communities.
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 18 Q.
Are their beliefs consistent, in your experience, with 1
the impact on property values of electric generating facilities?
2 A.
Yes, as I testified previously and set forth in the 3
first of my reports, it has been scientifically proven that 4
power plants in general negatively affect property values and 5
that this impact is larger for nuclear power plants. Potential 6
Impacts of Indian Point Relicensing on Property Values, at 2-3 7
(Nov. 29, 2007) NYS000226.
8 Q.
But what about the fact that the market had not slowed 9
and houses apparently sold quickly during the survey period?
10 A.
Even taking those statements as true, they are not 11 relevant.
12 Q.
Please explain.
13 A.
The question I have answered is whether IPEC has had 14 an impact on property values. Houses could be selling very 15 quickly and that fact would not tell us anything about the price 16 for which they were sold. What matters is what price a house 17 would have sold for with the plant and in the plants absence.
18 Q.
In your opinion, is the case studys conclusion 19 justified?
20 A.
No. I think the anecdotal evidence, which is 21 consistent with many peer-reviewed, published studies, 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 19 demonstrates that the facility has had a considerable impact 1
on property values. And, although NRC Staff do indeed examine 2
the impact IPEC has on property values in the communities 3
surrounding the plant, the analysis fails to take into account 4
any negative impact caused by IPEC's presence, instead focusing 5
only on the positive impacts the plant may have had since its 6
development. As indicated by my research, the plant has had a 7
mixed impact at best and a substantial and unacknowledged 8
negative impact on property values at worst.
9 Final Supplement Environmental Impact Statement (FSEIS) 10 Q.
Are you familiar with the FSEIS?
11 A.
Yes.
12 Q.
Please summarize how it addresses land use and 13 property value and tell me whether that discussion is adequate.
14 A.
For many of the same reasons outlined above, the 15 FSEIS, like the GEIS and Entergys Environmental Report, fails 16 to connect IPEC with diminution of property values in the 17 communities surrounding the plant. This failure does a 18 disservice to the communities most impacted by IPEC because as a 19 result the ER, GEIS and FSEIS all indicate that the plant has 20 been only a positive force in the community, when studies like 21 that conducted by Levitan, which I previously mentioned, the 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 20 1996 Indian Point case study, and my own research indicate that 1
the plant has suppressed property values in the area.
2 Q. What are the consequences of suppressed property 3
values?
4 A. The reduced property values have several important 5
consequences for the communities surrounding IPEC. Reduced 6
property values implies reduced levels of wealth for the 7
community. This directly affects the behavior of both 8
households and commercial enterprises. Households will 9
generally reduce their consumption of goods and services, and 10 reduce their expenditures on maintenance, rehabilitation or 11 development of their existing homes and properties. Commercial 12 enterprises can also be expected to reduce the level of 13 maintenance of their properties.
14 Importantly, there will be changes in the pattern of land 15 use that result from the reductions in property values. Holding 16 other factors equal, lower values of residential property reduce 17 the amount of land devoted to housing and reduce the incentive 18 of land owners to develop property for residential use. This 19 will reduce the quantity and quality of housing supplied in the 20 local area. These reductions in property development will have 21 the effect of reducing the local tax base and reducing local 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 21 revenues. These reduced revenues result in reduced expenditures 1
on local public goods, causing secondary impacts on off-site 2
land use.
3 Tolley Rebuttal 4
Q.
Are you familiar with the study conducted by Dr.
5 Tolley?
6 A.
Yes. As far as I know it contains the only attempt at 7
analysis of property values (and by implication land use) that 8
has been undertaken by Entergy or NRC staff using data collected 9
from the area around the IPEC facility for purposes of this 10 proceeding.
11 Q.
Please summarize the conclusion reached by Dr. Tolley 12 in that report with respect to Indian Point's impact on local 13 property values.
14 A.
Dr. Tolley surveyed the existing economics literature 15 examining the impact of nuclear power plants on property values 16 and noted that the published peer-reviewed studies have been 17 inconsistent. Some studies have found statistical evidence of 18 impacts on property values or land values, and some have found 19 no effect. Dr. Tolley offers some observations on these 20 studies, noting the importance of specification and causality.
21 He then presents an analysis of property values in communities 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 22 within 5 miles of the Indian Point power plant. He interprets 1
his analysis as showing that there is no impact on property 2
values due to IPEC. What his results actually show is that for 3
properties within 1.99 miles, increasing distance away from IPEC 4
is associated with a decrease in property values, and for 5
distances greater than 1.99 miles, IPEC is a disamenity that 6
reduces property values because increasing distance from IPEC is 7
associated with increasing property values. Dr. Tolley finds 8
this result counter-intuitive, anomalous, and unexpected, 9
and essentially dismisses it.
10 Q.
In your view, is Dr. Tolley's result completely 11 inconsistent with your analysis?
12 A.
No. While Dr. Tolley's estimates are not very 13 precise, his results show that for property in an area of about 14 12.5 square miles, proximity to IPEC might be desirable, while 15 for properties in a much larger area of 66 square miles, IPEC 16 appears to depress property values. For those properties the 17 no-action alternative would be likely to lead to eventual 18 increase in property values and potentially important land use 19 changes. While I have not undertaken specific calculations 20 using Dr. Tolley's imprecise model, in my opinion this much 21 larger area where property values would increase would dominate 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 23 the small area very close to IPEC where property values might 1
decrease, so that over the entire area within 5 miles from IPEC, 2
the no-action alternative would lead to an increase in property 3
values, exactly as suggested by my analysis.
4 Q.
Are his results counter-intuitive or incapable of 5
being explained?
6 A.
Not in my opinion. There are several possible 7
explanations for the result that Dr. Tolley obtains. For 8
example, for workers employed at IPEC, choosing to reside near 9
the facility reduces their commuting costs. Of course, they 10 must tolerate whatever disamenities are associated with living 11 near the plant, but some workers may be willing to tolerate 12 these in order to enjoy a shorter drive to work. As we move 13 further away from IPEC, the probability that the buyer for a 14 property will be employed at IPEC becomes close to zero. For 15 someone who has no reason to travel regularly to IPEC, they 16 experience only the disamenity of the facility, and so will be 17 willing to pay a higher price for a property that is further 18 away from IPEC. This is one plausible explanation that is 19 consistent with Dr. Tolley's estimates.
20 Another possible explanation focuses on the imprecision of 21 his estimates. As he notes at the bottom of page 21 of his 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 24 report: If the linear term is ignored because it is 1
statistically insignificant and the statistically 2
significant squared term is retained, distance is everywhere a 3
disamenity.... What this means in plain English is that Dr.
4 Tolley's estimates cannot reject the hypothesis that within the 5
range covered by his sample, house prices unambiguously increase 6
as distance from IPEC is increased.
7 Q.
What does that mean?
8 A.
It implies that IPEC is a source of disamenity and 9
that property values would increase under the no-action 10 alternative. This is closely related to what we might identify 11 as a third possible explanation for Dr. Tolleys result: his 12 choice of specification for the functional relationship between 13 distance from IPEC and house values. In his discussion of the 14 existing literature estimating possible impacts of nuclear 15 facilities, Dr. Tolley is quick to identify specification of the 16 functional relationship as important for understanding the 17 impact of such facilities. It is therefore surprising that he 18 does not appear to have considered alternatives to the 19 functional relationship he employs in his hedonic model. This 20 point is somewhat subtle but is an important part of the hedonic 21 methodology Dr. Tolley employs.
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 25 Q. Do I correctly understand you to say that Dr. Tolleys 1
result is consistent with your conclusion that IPEC negatively 2
impacts property values?
3 A.
Yes. Dr. Tolleys study not only does not exclude 4
that possibility but suggests that our conclusions are 5
consistent.
6 Q.
Please explain the methodology used by Dr. Tolley.
7 A.
Dr. Tolley uses what economists call a hedonic 8
methodology, taking a number of factors into account in order to 9
reach his conclusion, but his implementation of the methodology 10 is flawed in several respects. First, the sample used by Dr.
11 Tolley in conducting his hedonic analysis is too small. The 12 study uses a sample size of fewer than 300 homes. This is a 13 very small sample, much smaller than seen in most peer-reviewed 14 published studies that employ this method. By comparison, my 15 sample contained more than 1500 data points.
16 Q. Why does sample size matter?
17 A.
It is important in all statistical analysis, but 18 particularly important in hedonic analysis. Essentially, the 19 way hedonic analysis works is to take a large number of 20 properties, with their sales prices and the characteristics of 21 the properties. Ideally, there should be sufficient sample size 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 26 to observe many individual properties of every type. For 1
example, expensive houses that are very close to IPEC, a short 2
distance away, and a long way from IPEC. For each of these 3
there should be old and new houses, and everywhere in between.
4 There should be many examples of every combination of 5
characteristics. The statistical analysis can then be thought 6
of as comparing houses that are similar in every respect but one 7
- for example the age of the house. By looking at how price 8
changes as the age of the house increases, holding all the other 9
characteristics constant, and averaging this change over several 10 observations, we obtain an estimate of the separate impact of 11 age on house price. Similarly, we can get an estimate of the 12 impact of being close to IPEC on house price, and use this 13 estimate as a way of testing to see if there is a disamenity 14 associated with IPEC. If there is a disamenity that has a 15 significant impact on house price, then decommissioning IPEC can 16 be expected to have a significant impact on house price by 17 removing the disamenity, and this will have a significant impact 18 on land use. Dr. Tolleys hedonic model has 7 characteristics, 19 6 of which are continuously variable and one of which is 20 dichotomous (takes only 2 values). For estimation of the impact 21 of each characteristic, we could divide each characteristic into 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 27 3 ranges; think high, medium and low. Reliable estimation 1
is best served by having observations in every possible 2
combination of these ranges. There are 729 (3 raised to the 6th 3
power) such combinations. That would require 729 observations.
4 To thoroughly cover the dichotomous variable would double this 5
to require 1458 observations. Dr. Tolley's analysis uses 296.
6 While it is possible to calculate estimates with such a small 7
sample, the precision of the estimation suffers and as a result 8
the estimates are less reliable.
9 Q. Is that the studys only problem?
10 A. No. In my opinion the sample is also far too narrowly 11 focused in time. Dr. Tolleys sample consists of properties 12 offered for sale in the fall of 2011. At that time the housing 13 market in all areas, including near IPEC, was depressed for 14 reasons well outside the scope of this relicensing proceeding.
15 Q. On what do you base that opinion?
16 A. The widely reported collapse of the housing market that 17 helped cause the financial crisis that resulted in the current 18 deep and difficult economic recession. My analysis of house 19 price indices released by the Federal Housing Finance Agency 20 indicates that between the first quarter of 2007 and second 21 quarter of 2011, house prices in the region containing IPEC 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 28 declined by over 17%. That makes this time period very unusual 1
and possibly unrepresentative. In my opinion it would be safer 2
to base such analysis on data collected during a less stressful 3
and unusual time for property markets.
4 Q. Are there any other problems with Dr. Tolleys study?
5 A.
Yes. The property value of the data points in the 6
sample was determined using the propertys asking price, not its 7
sale price.
8 Q. Why is that significant?
9 A. The asking price tells us only what the homeowner, or 10 the homeowners realtor, thought the property was worth or what 11 would make a good starting point for negotiations, not what the 12 market ultimately determined to be the propertys value. Asking 13 price is meaningless for purposes of determining fair market 14 value, particularly in a time period when property prices may be 15 changing in unexpected ways. Asking price also does not reveal 16 whether a property in fact was sold.
17 Q.
What is fair market value and why does it matter?
18 A. Fair market value is the price a willing buyer will 19 pay a willing seller in an arms length transaction. It is 20 important because it tells us what a given property is really 21
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 29 worth, and will reflect the buyers evaluation of any disamenity 1
or other conditions relevant for the property.
2 Q. What other concerns do you have with Dr. Tolleys 3
analysis?
4 A.
While Dr. Tolley has previously leveled criticism at 5
the control group used in my analysis, his study contains no 6
obvious or demonstrable control group. His purported control 7
group is essentially the houses at the edge of his sample (five 8
miles from IPEC).
9 Q.
Whats wrong with that?
10 A.
It is generally unacceptable to simply assume this as 11 the control group, since it is equivalent to assuming that there 12 is no disamenity impact of IPEC at a distance of 5 miles. The 13 existence, or not, of a disamenity is precisely what the 14 analysis is trying to discover, so to assume that none exists at 15 some distance makes the analysis invalid, or at least contingent 16 on the accuracy of the assumption, which then remains untested.
17 Unlike my analysis, Dr. Tolley's "control" group contains no 18 observations about property values in the communities 19 surrounding IPEC from before the plant existed. Further, by 20 attempting to use homes at the edge of the sample as a control 21 group, Dr. Tolley ignores the potentially broader impact IPEC 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 30 has had on property values. His control group may be subject 1
to the same influence as all of the other samples observations 2
used in his study.
3 Q.
Your analysis had a different control group. Did you 4
employ hedonic analysis?
5 A.
I considered estimation of a hedonic model as an 6
approach, but decided that an alternative methodology was better 7
in this case and so I did not estimate a hedonic model. In 8
obtaining scientifically accurate estimates of impacts on 9
property prices, it is important that we establish a clear 10 control group (a set of observations that are unambiguously not 11 subject to impacts from IPEC) and have a sufficiently large 12 sample to obtain accurate estimates. For a hedonic approach, the 13 best control group is a set of observed property sales that take 14 place prior to completion of IPEC. If we can collect a 15 sufficient sample of these observations, then we can estimate 16 the value of proximity to IPEC before and after IPEC is built as 17 a way of testing for any disamenity. Working with local tax 18 assessors, I determined that it was not possible to obtain a 19 sufficiently large sample - including sales from before IPEC was 20 built - to use the hedonic approach with a proper control group.
21
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 31 I used another methodology summarized previously and described 1
in detail in my report of December 2011.
2 Q. Please explain your concerns about the specifications 3
used in the Tolley study.
4 A.
Dr. Tolley uses some of the variables inconsistently.
5 His analysis includes the distance of the homes from the plant, 6
as well as that distance squared. He includes the distance from 7
the nearest rail station but not the square of that distance, 8
and no explanation is offered for this asymmetric treatment.
9 Q.
First, could you explain what these variables are and 10 what their role is?
11 A.
The variables are other factors that could explain a 12 change in property values. These variables typically include 13 distance from amenities or disamenities.
14 Q.
Could you explain the significance of this 15 inconsistency?
16 A.
Yes. In hedonic analysis these variables are included 17 because they are among the factors a potential buyer of the 18 property could observe that might affect her or his willingness 19 to pay for the property. This in turn would affect the fair 20 market price that we are trying to estimate. Generally we expect 21 the impact of amenities and disamenities to depend on the 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 32 distance of the property from the amenity or disamenity. The 1
potential buyers are human, and human perception depends on 2
distance in ways that are not always linear in nature, so it is 3
natural to at least consider the possibility that the value of 4
the property is proportional to the straight line distance, or 5
to the square of distance, or to the square root or other 6
measure of distance. Generally, we might expect that the 7
sensitivity of a potential buyer has a similar dependence on 8
distance for all amenities or disamenities. Dr. Tolleys model 9
rejects this concept and imposes an assumption that the 10 desirability of proximity to a rail station (generally regarded 11 as an amenity) is linear in distance while the desirability (or 12 lack of desirability) of being near to IPEC (a possible 13 disamenity) is quadratic in distance. This assumption is 14 imposed without explanation or justification. Furthermore, if 15 one treats the two types of distance symmetrically, including 16 both distance from the rail station and the square of the 17 distance from the rail station, it alters Dr. Tolleys results 18 and reduces the precision of his model estimates. Treating the 19 two types of distance symmetrically by including both the 20 distance from the nearest rail station AND the square of the 21 distance from the nearest rail station and estimating the 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 33 hedonic using Tolleys data reveals that both distance and the 1
square of distance from the rail station are statistically 2
significant. Furthermore, this alters the estimates of the 3
impact of proximity to IPEC. With this new model property values 4
initially decline as we move away from IPEC, reaching a minimum 5
at a distance of 1.04 miles. Within this area, Dr. Tolleys 6
sample includes only ONE property within this range. Beyond this 7
distance, increasing the distance from IPEC causes the value of 8
houses to increase, holding other factors constant, exactly as 9
would be expected if IPEC were an important source of disamenity 10 that was suppressing property values.
11 Q.
Are there other problems with Dr. Tolleys study, in 12 your opinion?
13 A.
Even more problematic is the particular functional 14 relationship that Dr. Tolley imposes. As I noted previously, 15 Dr. Tolleys estimates indicate that the value of a house would 16 decline for the first 1.99 miles from IPEC, and then increase.
17 Using the sample average values for house characteristics, I 18 calculated the predicted price of a detached home using Dr.
19 Tolleys model estimates, and plotted the resulting estimates as 20 distance varies from 0 to 5 miles from IPEC (in Dr. Tolleys 21 sample, the closest actual observation is about 0.75 miles from 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 34 IPEC and in fact there are almost no residential properties 1
closer than 0.5 miles from the center of the IPEC property).
2 Q.
I show you Exh. NYS000435 (reproduced below for 3
convenience). Did you create the figure on this exhibit?
4 A.
I did.
5 Q.
What does it show?
6 7
A.
It shows the result of the calculation to which I just 8
referred. The dark red line, labeled Tolley model shows the 9
estimated value of a detached home with average characteristics 10 would change as it moves from 0 miles (where the value would be 11 approximately $444 thousand) to 5 miles (where the increased 12 distance from IPEC would generate an increase in value to more 13 than $545 thousand). This shape matches that presented in 14
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 35 Figure 2 of Dr. Tolleys report, although he neglects to mention 1
how much the predicted value of a house would increase if we 2
move to the edge of his sample area (where the control group 3
would be located). As Dr. Tolley suggests and as I noted above, 4
since the linear distance term in his model is not statistically 5
significant, we cannot reject the hypothesis that it is zero.
6 If we set it equal to zero and graph the value of this average 7
house, we obtain the upper line in the figure, labeled Tolley 8
model, drop linear distance effect. This would imply that IPEC 9
is a source of a disamenity because increasing the distance from 10 IPEC will always increase the value of the house.
11 Q.
Is that inaccurate?
12 A.
Yes, it is inaccurate. Dr. Tolley appears to 13 misunderstand the implications of his own estimates when he says 14 (on page 21) that distance is everywhere a disamenity - he 15 really means to say that IPEC is everywhere a disamenity in this 16 case. Despite finding this potential evidence that IPEC is an 17 important source of disamenity that would reduce property 18 values, Tolley dismisses this because (as he notes on pages 21 19 and 22) In either case, the unexpected implication is that the 20 disamenity effect is greater the farther away the property is 21 from IPEC. Of course, if IPEC is a source of disamenity 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 36 property values will continue to increase as houses move further 1
away from IPEC. This is what is illustrated in Tolleys Figure 2
1 (page 20). What Dr. Tolley apparently finds unexpected is not 3
that the house values continue to increase as distance from IPEC 4
increases, but that they increase at an increasing rate. This 5
feature, however, is caused by the functional relationship that 6
Dr. Tolley assumes between house price and distance from IPEC.
7 Q.
Could you give me an example?
8 A.
Suppose that instead of the form used in Dr. Tolleys 9
model, we estimate the same model using the same data, making 10 one small change: we use the square root of distance in place of 11 distance and distance squared. The resulting model fits the 12 data essentially as well as the model presented in Dr. Tolleys 13 report, and the estimated parameter associated with the square 14 root of distance is estimated with such precision that it is 15 statistically significant. Using this model to predict the 16 value of an average house at various distances produces the blue 17 line in the figure, labeled Model estimated using Tolley data, 18 impact is proportional to square root of distance. This line 19 shows house values at distance zero of about $158 thousand, 20 increasing to nearly $492 thousand at a distance of 5 miles.
21 Note that this model conforms well to the impact that Dr. Tolley 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 37 illustrates in figure 1 (page 20) as supporting my hypothesis 1
that IPEC is the source of a disamenity. Thus it appears that 2
Dr. Tolleys data are consistent with my analysis. He just did 3
not see this because while he claims to have considered some 4
alternative specifications, he apparently failed to consider 5
this obvious and simple alternative.
6 Q.
So does this revised model, estimated using Dr.
7 Tolleys data, produce a similar estimate of total property 8
value impacts as your analysis?
9 A.
Yes, based on my preliminary calculations. As I 10 mentioned earlier, there are several reasons for concern Dr.
11 Tolleys approach because of the sample size, use of asking 12 price rather than sales price and so on. It is possible, 13 however, to provide an analysis of the general range of property 14 value impacts using this alternative functional form. If, for 15 the sake of discussion, we follow Dr. Tolley in making the 16 assumption that there are no impacts from IPEC beyond 5 miles, 17 then we can use the estimated value at 5 miles as a control. If 18 we let f(d) represent the predicted value of an average home at 19 a distance of d miles from IPEC, then the percent impact on 20 property values at distance d is given by:
. For d=5, this 21 will give an impact of zero (since for the sake of this exercise 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 38 we are assuming the impact is zero at 5 miles). For d=0.75 (the 1
closest any sample observation is to IPEC) the impact would be -
2 41.55%. In my final report of December 2011, I estimated that 3
IPEC depressed property values by an average of 27% for 4
properties within 5 kilometers (3.11 miles). Using the revised 5
hedonic estimated using Dr. Tolleys data and assuming (for ease 6
of calculation) that properties are uniformly distributed within 7
this range, the revised model implies an average impact of IPEC 8
on property values of -25.05%. Thus Dr. Tolleys data imply 9
that property values are depressed by about 25% while my 10 analysis implies that property values are depressed by 27%.
11 This is an impressive level of agreement in estimated impacts 12 obtained using two different methodologies.
13 Q.
Can you summarize your views of Dr. Tolley's study and 14 its role in the consideration if license renewal for IPEC?
15 A.
There are several problems with Dr. Tolleys analysis.
16 The most salient of these are the small sample size, the use of 17 asking price instead of sales price, the inconsistencies in 18 distance variables used, the lack of a true control group, and 19 the failure to evaluate alternative functional forms. These 20 flaws led Dr. Tolley to conclude that IPEC has had a small 21 positive impact on property values, a conclusion completely 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 39 contrary to that reached in our study, which found that IPEC has 1
had a negative impact on the property values in surrounding 2
communities, a fact acknowledged by Entergy in its ER. On the 3
other hand, it must be acknowledged that my study and Dr.
4 Tolleys study are the ONLY evaluation of the impacts of IPEC on 5
property values that have been undertaken using data collected 6
from the area around IPEC. Other expert reports and 7
commentaries have relied upon assumptions or the unsubstantiated 8
statements of people active in the local market. These 9
statements, in turn, have been inconsistent - with some 10 asserting a negative impact and some asserting no impact or even 11 a positive impact. Careful analysis of data indicates that IPEC 12 is an important source of disamenity that diminishes property 13 values in the area around the plant. While Dr. Tolley presents 14 a model and expresses contrary opinions, a careful reexamination 15 of his data reveals that it is largely consistent with my own 16 analysis and in fact leads to somewhat similar estimates of 17 total impact. That reinforces my conclusions: IPEC has a 18 negative impact on property values. The no-action alternative 19 and decommissioning of the IPEC facility will lead to a recovery 20 of property values and this can be expected to have significant 21
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 40 land use impacts. These land use impacts have not been 1
adequately considered or evaluated in the FSEIS, GEIS or ER.
2 Q.
Dr. Tolley says that the PILOT payments received by 3
the communities surrounding IPEC are critical to the plants 4
positive impact on property values. He faults you for 5
overlooking those payments. He also criticizes your work for 6
assuming a constant rate of these payments following cessation 7
of operations at the plant. Can you please explain your 8
approach to PILOT payments in your first study and why Dr.
9 Tolley's criticism is unfounded?
10 A. Dr. Tolleys insistence on explicit consideration of 11 PILOT payments is unfounded for two reasons. First, his own 12 analysis of local property markets includes a specific variable 13 for the amount of PILOT payments, and his model shows that the 14 impact of such payments is statistically insignificant. This 15 means that we cannot reject the hypothesis that the true impact 16 of PILOT payments on property values is zero. If their impact 17 is zero, as Dr. Tolleys own analysis suggests, explicit 18 inclusion of the impact will have no consequence for the 19 analysis. Second, Dr. Tolley misunderstands the measure of 20 impact obtained in my analysis and presented in my December 2011 21 report. My estimate calculates all of the impacts on property 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 41 values that occur when IPEC is built. This includes any 1
disamenity or amenity associated with IPEC as well as any change 2
in property tax rates that might be associated with the 3
facility. Suppose that IPEC generated no disamenity, but paid 4
large PILOT payments to communities that allowed reductions in 5
property tax or increases in public services. Then houses 6
purchased before IPEC was built, but sold after these benefits 7
were realized should be much more valuable and such properties 8
would show above average rates of price appreciation. If, 9
instead, there is a large disamenity associated with IPEC, that 10 disamenity may be so burdensome that it overwhelms the value of 11 the PILOT-generated benefits. In such a case, a home purchased 12 before IPEC but sold after the combination of PILOT benefits and 13 disamenity burdens is realized will experience a below-normal 14 rate of price appreciation. After careful examination of the 15 data, I find that this latter case holds. This implies that the 16 disamenity burden is so great that it OVERWHELMS the benefits of 17 PILOT payments. My analysis doesnt ignore PILOT payments; it 18 shows that they are not enough to cause house values to 19 increase. In that sense I am obtaining a result that is 20 confirmed by Dr. Tolleys own analysis.
21
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 42 Q. Have you reviewed the studies Dr. Tolley references in 1
Section 1 of his March 2012 study?
2 A.
Yes.
3 Q.
In your opinion, are these studies applicable to this 4
proceeding in the way Dr. Tolley suggests?
5 A.
Not directly. They are studies that have been 6
undertaken in different communities with different 7
circumstances. The only reliable way to evaluate the impact on 8
property values and hence on land use in this case is to collect 9
data from the communities around IPEC and analyze those data.
10 This is what I have done.
11 Q.
Dr. Tolley also criticizes your use of a 4% discount 12 rate in conducting your analysis, while using a 7% discount rate 13 in his own work. Please explain why you chose to use a 4%
14 discount rate.
15 A.
Dr. Tolley appears to be confusing the analysis I 16 presented in my second report of February 2009 with my final 17 evaluation of the property value impacts presented in December 18 of 2011. It is impossible to tell for certain because Dr.
19 Tolley makes very sparing use of footnotes and references. In 20 the 2009 report I considered the impact of delay in receipt of 21 benefits, examining a range of discount rates up to and 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 43 including the 7% rate that Dr. Tolley likes. This has no real 1
bearing on my final analysis, where I use the actual change in 2
house prices in the broader region as a basis for estimating the 3
impact of removing the IPEC disamenity that both my analysis and 4
Dr. Tolleys analysis detect in local property market data. An 5
advantage of this approach is that I evaluate the impact as of a 6
particular date (January 2011), and do not need to discount this 7
estimate.
8 Q.
How does Dr. Tolley's use of a 7% discount rate 9
influence his results?
10 A.
Dr. Tolleys use of the 7% discount rate only applies 11 to his analysis of the impacts of PILOT payments, presented on 12 page 28. This analysis is nonsensical and directly contradicted 13 by his own analysis of property market data presented on page 17 14 of the very same report. The analysis shows that the impact of 15 PILOT payments on land values is not distinguishable from zero.
16 In an undergraduate econometrics course one would expect to 17 explain to the students that if the parameter estimate is 18 statistically insignificant, it might make sense to leave it in 19 the model but it makes no sense to claim that the parameter is 20 of the correct sign. This important and fundamental point 21 applies to Dr. Tolleys work as well. He has collected data from 22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 44 the local housing market and estimated a hedonic model. His 1
model includes the impact of PILOT payments to the community in 2
which the property is located. His analysis shows that the 3
impact of these payments is not statistically significant, which 4
means that we cannot with confidence reject the hypothesis that 5
the true impact of PILOT payments is zero. After presenting this 6
analysis he proceeds to ignore it and, 11 pages later in his 7
report, simply assumes that the impact is positive. Whether he 8
discounts these future payments by 4%, 7% or some other value is 9
irrelevant. He has made a mistake in rejecting his own analysis 10 of the data.
11 Q.
Dr. Tolley states that if property values have been 12 negatively impacted by IPEC, their values would not recover 13 until the end of a potential 60-year decommissioning window. Is 14 this an accurate assumption?
15 A.
No. It is likely that property values would begin to 16 recover at the cessation of operations at the plant and continue 17 through the end of the decommissioning window.
18 Q.
Some of your earlier reports have been criticized for 19 considering scenarios for decommissioning of IP3 and IP3 that 20 were unlikely to occur. What is your response to these 21 criticisms?
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 45 A.
These criticisms are misguided and indicate that there 1
remains a failure to appreciate my central and most important 2
point. My analysis of property value data collected in the area 3
around IPEC shows that IPEC is a significant source of 4
disamenity that is affecting local land values. Dr. Tolleys 5
analysis of property market data shows the same thing, and in 6
fact using a slightly modified and very reasonable specification 7
for his hedonic model the magnitude of impacts on property 8
values are in close agreement with my own analysis. In addition 9
to these two types of data analysis, several of the statements 10 from local real estate professionals support this finding. This 11 means that IPEC is depressing property values, and that fact 12 will alter local land use patterns. When the time comes that 13 IPEC is fully decommissioned - whatever time and in whatever 14 sequence - the disamenity will be removed and land values will 15 rebound. This will generate changes in offsite land use. These 16 changes should have been understood, acknowledged and analyzed 17 as part of the application for renewal, and there has been a 18 failure to do this and, so far, a refusal to recognize that it 19 needs to be done.
20 Conclusion 21 Q.
Does this conclude your rebuttal testimony?
22
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 46 A.
Yes.
1 I have reviewed all the exhibits referenced herein. True 2
and accurate copies are attached.
3 4
Pre-filed Written Rebuttal Testimony of Stephen C. Sheppard Contention NYS-17B 47 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.
June 28, 2012 9
x 10 DECLARATION OF STEPHEN C. SHEPPARD 11 12 I, Stephen C. Sheppard, do hereby declare under penalty of 13 perjury that my statements in the foregoing rebuttal testimony 14 and my statement of professional qualifications are true and 15 correct to the best of my knowledge and belief.
16 Executed in Accord with 10 C.F.R. § 2.304(d) 17 18 19 20 21 22 Stephen Sheppard 23 Professor of Economics 24 24 Hopkins Hall Drive 25 Williams College 26 413-597-3184 27 stephen.c.sheppard@williams.edu 28 June 28, 2012 29 30