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projections, Dr. Rodekohr stated that it was reasonable to assume
a real price increase of 5 percent per year.15 To account for
inflation, Dr. Rodekohr reviewed the consumer price index and
added 13.5 percent to the 5-percent increase rate because he felt
that it would have been reasonable to expect that amount of
increase in inflation for 1980.16
Although respondent has presented persuasive evidence that
the annual percentage increase in energy costs would not exceed
18.5 percent, we will apply the 20-percent rate and energy cost
amounts assumed in the PPM and advocated by petitioner. As
explained below, even after we apply the higher rate, the net
cashflow (disregarding tax considerations) is negative.17
15Dr. Rodekohr noted that this assumption was generous in
that for the commercial sector the average annual rate of
increase in prices was 1.4 percent per year between 1978 and 1995
and for the industrial sector it was 2.5 percent per year. He
stated that the 5-percent figure he used was the highest average
annual change between any two periods included in the
projections.
16Dr. Rodekohr noted that 13.5 percent was the highest rate
experienced during the years 1979 to 1981. He represented that
the inflation rates for the years 1979 and 1981 were 11.3 percent
and 10.3 percent, respectively.
17The higher the annual rate of increase in energy costs,
the higher the savings rate would be and the more cash Sav-Fuel
would receive under its arrangement with Gould and CEF.
Conversely, a lower annual rate of increase in energy costs would
result in less savings and cashflow each year, yielding a lower
overall net present value.
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