ML20073G341

Testimony of C Wang on Commission Question 6 Re Energy, Environ & Economic Impact of Shutdown of Units 2 &/Or 3. Related Correspondence

ML20073G341
Person / Time
Site:	Indian Point
Issue date:	04/12/1983
From:	Wang C CONSOLIDATED EDISON CO. OF NEW YORK, INC., POWER AUTHORITY OF THE STATE OF NEW YORK (NEW YORK
To:
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ML20073G302	List: ML20073G301 ML20073G311 ML20073G341 ML20073G363 ML20073G375 ML20073G396
References
ISSUANCES-SP, NUDOCS 8304180253
Download: ML20073G341 (7)

Text

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. UNITED STATES OF AMERIhE D NUCLEAR REGULATORY COMMISSION 00thETED ATOMIC SAFETY AND LICENSING BOARDJW C Before Administrative Judge 9: APR 15L A10:35 James P. Gleason, Chairman Frederick J. Shon . cr .  : -

Dr. Oscar H. Paris 6:'; ; ;:fi, 5 i

's W 21

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In the Matter of )

)

CONSOLIDATED EDISON COMPANY OF ) Docket Nos.

NEW YORK, INC. ) 50-247 SP (Indian Point, Unit No. 2) ) 50-286 SP

)

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POWER AUTHORITY OF THE STATE OF )

NEW YORK ) April 12, 1983 (Indian Point, Unit No. 3) )

)

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LICENSEES' TESTIMONY OF GEORGE C. S. WANG ON COMMISSION QUESTION 6 ATTORNEYS FILING THIS DOCUMENT:

Brent L. Brandenburg Charles M. Pratt CONSOLIDATED EDISON COMPANY POWER AUTHORITY OF THE STATE OF NEW YORK, INC. OF NEW YORK 4 Irving Place 10 Columbus Circle New York, New York 10003 New York, New York 10019 (212) 460-4600 (212) 397-6200 8304180253 830412 PDR ADOCK 05000247 T PDR

. TESTIMONY OF GEORGE WANG 1

Q. Please state your name and business address.

2 A. George C. S. Wang, 4 Irving Place, New York, New York.

3 Q. Please state your education and experience.

4 A. I received a Bachelor of Arts degree in Economics from 5 National Taiwan University in 1958. From New York 6 University, I received an M.B.A. degree in 1965, and a 7 Ph.D. degree in 1972, majoring in statistics and 8 economics. I am a member of the American Statistical 9 Association. Prior to joining Con Edison, I was 10 employed by CBS, Marketing Division as a statistician, 11 1968-69. During my employment with CBS, my responsibili-12 ties involved market research utilizing statistical 13 sampling technique, regression analysis and experimental 14 design. In 1970, I was employed by con Edison.

15 Presently, I am Forecast Development Manager in the 16 Electric Forecast Section of the Forecasting and Economic 17 Analysis Department. My responsibilities are in the areas 18 of statistical and economic analysis, econometric modeling 19 for electric sendout, sales and revenue forecasts, 20 interdepartmental consultations on statistical matters, and

i WANG 1

evaluaticn of computer applications in the forecasting area .

2 Q. What is the purpose of this testimony?

A. The report on "The EconomicF. of Closing the Indian Point 4

Nuclear Power Plants" prepared by the Energy Systems ,

5 Research Group, Inc. appears to suggest that a price 6

elasticity of -0.4 for the Con Edison service area would 7

not be unreasonable (p. 72). The purpose of this 8

testimony is to show that -0.4 is a gross overstatement 9

of the price elasticity of demand for electricity in the 10 Company's service area.

11 Q. Have you ever testified in legal proceedings on forecasting 12 models which include estimates of price elasticities?

13 A. Yes, I have. In the Public Service Commission 14 electric rate case No. 28211, I testified 15 with respect to Con Edison's econometric model used to 16 forecast electric sendout. The model-includes estimates 17 of the short-term and long-term price elasticities of 18 demand for electricity in the Con Edison service area.

19 Q. Would you briefly define " price elasticity"?

20 A. Price elasticity is a measure of change in consumption

& s WANG 1: of a certain good in response to a change in its price.

t 2 The measure is simply'the ratio of the percentage change in 3 consumption and the percentage change in price. The value

. 4 of price elasticity is usually negative, i.e., when the 5 price of a good increases, the demand for the good de-6 ~ creases. There are generally two time periods for the 7 price elasticity. The short-term price elasticity '

8- measures the immediate response to a price change, and the 9 long-term price elasticity reflects consumers' gradual a

10 adjustment to price changes over time. If the short-term 4

- 11 price elasticity equals .10, a 10% increase in price will

- 12 result in a decrease in consumption by 1%.

f 13 Q. What are the estimated values of the short-term and j 14 long-term price elasticities included in Con Edison's

, 15 sendout forecast model presented in the Public

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16 Service Commission Case No. 28211?

17 A. The estimated short-term price elasticity was .10 and

, 18 the estimated long-term price elasticity was .25.

l 19 0 Other things being equal, does the magnitude of price 1

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! 20 elasticity affect Con Edison's revenue requirement i

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WANG 1

in a rate case proceeding?

2 Yes, it does.

A. For example, other things being equal, 3 had the estimated short-term price elasticity been .40 4 instead of .10, Con Zdison's net revenue forecast 5 presented in the Public Service Commission Case o.

6 28211 would have been 11% or $270 million less, and the 7 revenue requirement would have been $270 million more 8 than the Company's request.

9 Q. Besides the other independent variables in Con Edison's 10 econometric model, how was the price variable structured 11 into the model in order to estimate the short-term and 12 long-term price elasticities?

13 A. By the definitions for price elasticities described 14 before, the short-term price elasticity and its 16ng-15 term " steady state" value can be represented by a 16 power series which asymptotically approaches to a 17 constant. Let the short-term price elasticity be al 18 and the initial value of the power series be d, then 19 the long-term price elasticity equals al/ (1-d) . This 20 expression is demonstrated in Table 1.

A 4

WANG 1 Q. Would you describe the historic data used to estimate 2 the model?

3 A. The model presented in 'the Public Service Commission 4 Case No. 28211 used quarterly data from the first quarter 5

f 1972 through the fourth quarter of 1981 for electric 6

sendout which is the dependent variable and used quarterly 7

data from the first quarter of 1973 through the fourth 8

quarter of 1981 for the price variable which is one of ,

9 the independent variables. All other independent 10 variables included in the model have the same historic 11 modeling period as the sendout data. These historic 12 modeling data have been updated through the fourth 13 quarter of 1982. The estimated price elasticities 14 using this extended historic period did not change 15 significantly from the values mentioned before.

16 Q. Were the results of Con Edison's econometric model for electric sendout forecast used in the decision of 17 Public Service Commission Case No. 28211?

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A. Yes.

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o TABLE 1 Formula for the Estimation of Short-Term and Long-Term Price Elasticities Let the short-term elasticity be al and the long-term adjustment process be represented by the following power series:

2 1+d+d +...+d" which asymptotically approaches 1/ (1-d) , for 0 6 d 41. The long-term price elasticity is, then, ,

2 al (1+d+d +. . .+d") =a l/ (1-d) .

The model for estimating al and d can be structured as follows:

K Yt ""o+"III+0b+d b ***,g t Lt)P+ EaX g it 1=2 K

=ag +[al/(1-dL)]P + JE a Xgg 1=2 Where Y P and X g are in logarithm, and L is the backward t' t shift operator.

Y = Electric sendout in quarter t.

P = Real electric price in quarter t.

X it

= Other independent variables.

The estimated values for al and d are .1 and .6 respectively.

The long-term price elasticity is, al/(1-d) = .1/(1 - .6) = .25.