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<br /> <br />more than five years, the 95 per cent. confidence interval was selected as <br />the interval within which the iong-term annual rate was to be found. <br />The historical time series data were least-squares fit to the recursive <br />function <br /> <br />Yi = r * Yi-1 <br /> <br />where <br />y. = price in year i, <br />I <br />r = annual growth rate. <br />Employing an iterative search, r was found which yielded a minimal <br />chi-squared statistic. That is, the search produced the compound annual <br />rate-of-'change, r, with a best goodness-of-fit within the predetermined <br />confidence interval for r. <br />This r, the annual rate-of-change, was taken as the annual real <br />escalation rate for the commodity. <br /> <br />3.3 PROJECTED PRIMARY ENERGY COMMODITY PRICES <br />Using the methodology described in Sections 3.1 and 3.2, rate-of- <br />change projections of futureprites for coal f.o.b. mine and crude petro. <br />leum wer,e developed. Future natural gas at wellhead prices were pro- <br />jected on the basis of current regulatory intent and projected crude <br />petroleum prices. Each of these projections is discussed separately in the <br />following paragraphs. <br /> <br />3.3.1 Projected Coal Prices (f.o.b. Mine) <br />Future coal prices were projected by applying the calculated long- <br />term annual rate-of-change in real prices to the estimated current-average <br />cost of coal for the six High Plains states. <br />The long-term annual rate-of-change was determined to be approxi- <br />mately 1.13 per cent; the current average coal price (f.o.b. mine) for <br />the region was estimated to be about $0.62 per million Btu (MBtu) in 1977 <br />doilars. In ,the future, the average heating value of coal in the six-state <br />region is estimated to be 17.9 MBtu per ton (8,950 Btu per pound), <br />reflecting increased production of subbituminous and lignite coals. <br /> <br />3-4 <br />