[Senate Hearing 107-666]
[From the U.S. Government Publishing Office]
S. Hrg. 107-666
PRICE-ANDERSON ACT REAUTHORIZATION
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HEARING
BEFORE THE
SUBCOMMITTEE ON TRANSPORTATION, INFRASTRUCTURE, AND NUCLEAR SAFETY
OF THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ON
__________
JANUARY 23, 2002
__________
Printed for the use of the Committee on Environment and Public Works
______
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
JAMES M. JEFFORDS, Vermont, Chairman
MAX BAUCUS, Montana BOB SMITH, New Hampshire
HARRY REID, Nevada JOHN W. WARNER, Virginia
BOB GRAHAM, Florida JAMES M. INHOFE, Oklahoma
JOSEPH I. LIEBERMAN, Connecticut CHRISTOPHER S. BOND, Missouri
BARBARA BOXER, California GEORGE V. VOINOVICH, Ohio
RON WYDEN, Oregon MICHAEL D. CRAPO, Idaho
THOMAS R. CARPER, Delaware LINCOLN CHAFEE, Rhode Island
HILLARY RODHAM CLINTON, New York ARLEN SPECTER, Pennsylvania
JON S. CORZINE, New Jersey BEN NIGHTHORSE CAMPBELL, Colorado
Ken Connolly, Democratic Staff Director
Dave Conover, Republican Staff Director
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Subcommittee on Transportation, Infrastructure, and Nuclear Safety
HARRY REID, Nevada Chairman
MAX BAUCUS, Montana JAMES M. INHOFE, Oklahoma
BOB GRAHAM, Florida JOHN W. WARNER, Virginia
JOSEPH I. LIEBERMAN, Connecticut CHRISTOPHER S. BOND, Missouri
BARBARA BOXER, California GEORGE V. VOINOVICH, Ohio
RON WYDEN, Oregon LINCOLN CHAFEE, Rhode Island
C O N T E N T S
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Page
JANUARY 23, 2002
OPENING STATEMENTS
Jeffords, Hon. James M., U.S. Senator from the State of Vermont.. 1, 45
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 2, 45
Report, National Energy Policy Development Group............. 3
Reid, Hon. Harry, U.S. Senator from the State of Nevada..........17, 44
Smith, Hon. Bob, U.S. Senator from the State of New Hampshire.... 19
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...16, 46
WITNESSES
Bradford, Peter, visiting lecturer, Yale University.............. 27
Prepared statement........................................... 71
Responses to additional questions from Senator Reid.......... 73
Brinkley, Christie, board member, Star Foundation................ 24
Comments, Response to Report NUREG-1738...................... 87
Prepared statement........................................... 86
Report, Safety and Regulatory Assessment of Generic BWR and
PWR Permanently Shutdown Nuclear Power Plants, Brookhaven
National Laboratory........................................ 93
Fertel, Marvin S., senior vice president, Nuclear Energy
Institute...................................................... 34
Prepared statement........................................... 64
Responses to additional questions from:
Senator Inhofe........................................... 68
Senator Graham........................................... 68
Senator Reid............................................. 71
Senator Voinovich........................................ 67
Guttman, Dan, Fellow, Center for Study of American Government,
Johns Hopkins University....................................... 29
Prepared statement........................................... 74
Responses to additional questions from Senator Voinovich..... 84
Kane, William F., Deputy Executive Director for Reactor Programs,
Nuclear Regulatory Commission.................................. 20
Prepared statement........................................... 47
Responses to additional questions from:
Senator Inhofe........................................... 49
Senator Graham........................................... 50
Senator Reid............................................. 51
Senator Voinovich........................................ 49
Quattrocchi, John L., senior vice president for underwriting,
American Nuclear Insurers...................................... 32
Prepared statement........................................... 55
Responses to additional questions from:
Senator Inhofe........................................... 62
Senator Reid............................................. 63
Senator Voinovich........................................ 60
PRICE-ANDERSON ACT REAUTHORIZATION
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WEDNESDAY, JANUARY 23, 2002
U.S. Senate,
Committee on Environment and Public Works,
Subcommittee on Transportation, Infrastructure and Nuclear
Safety,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:08 a.m. in
Room 406, Dirksen Senate Building, Hon. Harry Reid [chairman of
the subcommittee] presiding.
Present: Senators Reid, Jeffords, Inhofe and Voinovich.
OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM
THE STATE OF VERMONT
Senator Jeffords [assuming the chair]. The committee will
come to order.
Senator Reid is on his way from the White House and will be
here shortly. I will give my statement so we can have that out
of the way while we await his arrival.
I am pleased to be here this morning to hear testimony
regarding reauthorization of the Price-Anderson provisions of
the Atomic Energy Act. My good friend, Senator Reid, who is the
subcommittee chair, has called this hearing and as I said, he
will be slightly delayed.
Price-Anderson was enacted in 1957 as an amendment to the
Atomic Energy Act. Its purpose was to ensure that adequate
funds would be available to compensate victims of nuclear
accidents and to remove the threat of unlimited liability that
would deter private companies from engaging in nuclear
activities.
Price-Anderson is due to expire August 1, 2002. However,
existing Price-Anderson coverage for already licensed power
plants will not expire since under the law existing power
plants are covered for the lifetime of the facility. The Price-
Anderson coverage we are talking about is that which will apply
to any new facilities licensed after August.
Nuclear power supplies are a very important part of our
energy mix. In Vermont, nuclear power from the Vermont Yankee
plant provides almost 30 percent of our electricity as well as
providing electricity to other New England States. Nationwide,
nuclear power produces 20 percent of the electricity used. As
an emissions free energy source, it has many benefits.
However, nuclear energy is also burdened with serious
concerns over waste disposal and safety. Price-Anderson acts as
a means of encouraging the development of nuclear power and
also sets a framework for providing financial coverage in the
event of an accident at any of our Nation's nuclear power
facilities. Price-Anderson provides several important public
benefits including simplifying claims in the event of an
accident and providing for immediate reimbursement in the case
of an emergency.
There are, nonetheless, a number of very legitimate
questions about the appropriateness and the adequacy of this
legislation. For example, how do we best ensure that companies
have sufficient financial resources to pay the deferred
premiums which are not due until an accident occurs but which
form the bulk of the coverage amounts? Also, while the
approximately $9 billion coverage per nuclear accident that
Price-Anderson would supply is high in terms of insurance
coverage, is it sufficient to cover the actual public and
private costs of a catastrophic nuclear accident?
Price-Anderson was initially contemplated as temporary
coverage to help a fledgling industry. Should that coverage now
be extended indefinitely as some would suggest? Does this kind
of insulation from liability with the Federal Government
bearing responsibility for anything above the $9 billion per
accident coverage unfairly benefit the nuclear industry over
all desirable energy forms such as wind and solar? Is existing
Price-Anderson coverage sufficient to cover terrorist acts?
These are all very important issues and I thank today's
witnesses for sharing their time and expertise with the
committee and I look forward to their testimony.
Our first witness will be Mr. William Kane, Deputy
Executive Director for Reactor Programs, U.S. Nuclear
Regulatory Commission, testifying on behalf of the
Administration. Mr. Kane, please proceed.
Senator Inhofe. I think it would be more appropriate to do
our opening statements and wait for the chairman to arrive.
Senator Jeffords. Yes, please do.
OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM
THE STATE OF OKLAHOMA
Senator Inhofe. Thank you, Mr. Chairman.
Last September when I added the energy bill that passed the
House, H.R. 4, as an amendment to the Defense Authorization
bill, a lot of people started screaming and got quite upset. I
was trying to make the point that our reliance upon foreign
sources for our abilities to run a Nation, to fight a war, is a
national security issue, not an energy issue. This is not a new
concept with me because starting back in the 1980s when Don
Hodell was the Secretary of Interior and then later Secretary
of Energy, we went around at that time and said why it is so
critical for the United States to get in a position where we
are not dependent upon foreign sources for our ability to fight
a war. At that time, we were 37 percent dependent upon foreign
sources. Today, it is 57 percent. So times have changed and it
has gotten worse.
I think we now realize we have to have the broadest
possible based energy policy and that has to include nuclear,
oil, gas, coal, sun, wind, conservation itself among others as
a means of making these resources more available.
Currently, the 106 U.S. nuclear units supply about 20
percent of the electricity produced in the United States. Going
forward into the future, nuclear energy must be a key component
to any national energy policy and the first step would be to
reauthorize Price-Anderson.
I would like to insert at this point in the record, the
National Energy Policy Development Group's findings and key
recommendations concerning nuclear energy.
Senator Jeffords. Without objection.
[The referenced document follows:]
Senator Inhofe. I have also noticed attitudes changing. I
can remember back when people were marking in protests at
various nuclear opportunities they would see and now they
realize all of a sudden that each year the U.S. nuclear
powerplants prevent 5.1 million tons of sulfur dioxide, 2.4
million tons of nitrogen oxide, and 164 million metric tons of
carbon from entering the Earth's atmosphere. Furthermore, as a
former insurance executive, I think Price-Anderson as an
insurance program is a good deal for the public. For over 45
years, we have seen this provide immediate and substantial
private compensation to the public in the event of a nuclear
accident, the case in point being Three Mile Island, how well
that went in terms of compensation. It provides coverage for
precautionary evacuations and out of pocket expenses, it has
reduced delays often inherent in tort cases and I think we all
understand that, it has consolidated all cases into a single
Federal court.
Price-Anderson's renewal enjoys bipartisan support. This
Administration is for it, the past Administration, the Clinton
Administration, was supportive of it, the House has already
passed it by voice vote, and we need to get something happening
here in the Senate so that we can ensure we have that
opportunity.
While I understand the chairman and others have concerns
about Price-Anderson, I think it is really necessary that we do
something and this is a good start, Mr. Chairman. For all the
witnesses on the first and second panel, I am hoping you will
be thinking about an answer to the question as to what is going
to happen if we do not reauthorize Price-Anderson; what is
going to happen to our Nation, who is now dependent upon
nuclear energy for 20 percent of its energy if we don't have
nuclear energy, and I think that would be the result; so I
think these questions have to be answered by all the witnesses
that come forth. We look forward to those answers.
Senator Jeffords. Senator Voinovich?
OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR
FROM THE STATE OF OHIO
Senator Voinovich. Mr. Chairman, I am pleased we are having
this hearing today on the reauthorization of the Price-Anderson
legislation. As you know, I have introduced the bill to
reauthorize Price-Anderson, Senate 1360, and that bill is
cosponsored by Senators Smith and Inhofe, the Ranking Members
of both the full and subcommittee. I really appreciate their
support for that legislation.
Mr. Chairman, as you know, this law was first passed back
in 1957 and has been renewed three times since. The current
version expires on August 1 of this year and it is important
that this legislation which provides the insurance program for
commercial nuclear powerplants and the Department of Energy
facilities be passed as soon as possible. I am pleased that the
House of Representatives passed their version of the bill on
November 27 and as I say, I hope we can move quickly to
reauthorize it.
I think it's important to note that during the previous
Administration, both the Department of Energy and the Nuclear
Regulatory Commission issued reports to Congress recommending
reauthorization of Price-Anderson, both Republicans and
Democrats. The report also called for doubling of the annual
premium paid by nuclear reactors from $10 million to $20
million. This recommendation was made prior to the relicensing
process and at that time, the NRC projected that up to half of
the nuclear energy reactor fleet would retire instead of being
relicensed. However, thanks to the regulatory improvements made
to the process largely due to the oversight of this
subcommittee under the chairmanship of Senator Inhofe, the NRC
believes that most of our nuclear reactors will be relicensed
so that many they anticipated going out at one time are being
relicensed.
As a result, the NRC issued a statement last year revising
their projections and recommending that the annual premium not
be increased from $10 million to $20 million but rather, remain
at $20 million.
Mr. Chairman, currently nuclear energy provides
approximately, as you pointed out, 20 percent of our energy
needs while fossil fuels such as coal and natural gas provide
the bulk of the remainder. Coal and nuclear power have been, in
my opinion, inappropriately demonized over the last few years
but the fact of the matter is that they are both efficient and
cost effective sources of energy. As you point out, they
contribute substantially, particularly in the northeastern part
of this country, to providing their energy needs. One thing we
need to reiterate over and over again with nuclear power is
that it is very friendly to the environment. In fact, in terms
of emissions, it is zero.
Like many of my colleagues, I support investing in
renewable energy. As a matter of fact, in the Murkowski energy
bill, of which I am a cosponsor, the first title is ``Energy
Conservation,'' and the second is ``Renewable Energy.'' We
provide over $5 billion for energy efficiency activities and
$1.3 billion for renewable fuels. I think we have to understand
though that nevertheless, wind and solar currently provide less
than one-tenth of one percent of our energy. I keep hearing
over and over again that windmills and the sun are going to be
able to take care of our current and future needs, when
currently they only make up one-tenth of one percent of
provision of our energy needs. Even with significant
investments, these sources would not come close to meeting our
growing energy demand or replace our current energy resources.
I think last night Senator Kerrey was on talking about his
bill. He admitted before these renewables become a reality, it
will be 10 to 15 years before they will make any kind of real
dent in providing us energy. It is extremely important that we
maintain and expand nuclear power if we are going to meet our
current and future energy needs.
I think Senator Inhofe said it well, we need coal, we need
nuclear, we need gas, all of these sources of energy and
renewables if we are going to provide for our current needs and
also our future needs. Mr. Chairman, this legislation is
fundamental to our maintaining and expanding nuclear power;
it's fundamental to providing insurance for the Department of
Energy.
Mr. Chairman, now that you're here, I want to say I
appreciate your holding this important hearing. I realize that
you have issues regarding the status of Yucca Mountain which we
are going to be hearing a lot more about during this year, but
I appreciate your willingness to separate the renewal of this
relatively noncontroversial program from the larger issue of
waste storage.
Thank you.
OPENING STATEMENT OF HON. HARRY REID, U.S. SENATOR FROM THE
STATE OF NEVADA
Senator Reid [assuming the chair]. I would like to express
my appreciation to the full committee chair, Senator Jeffords,
for starting this meeting. Senator Daschle and I were asked to
come to the White House this morning and we just finished that
meeting. I appreciate everyone's patience and being here.
I would just say to my friend, Senator Voinovich, that this
hearing has nothing to do with Yucca Mountain but it has
everything to do with some of the things about which you spoke,
and that is the future of energy generation in this country.
Even though the amount of energy produced by alternative forms
is very small, one reason is we have really been no help to
these alternative energy production units and hopefully, we can
be more help in the immediate future to get that figure up
where it's with geothermal, with wind, with the sun and some of
the other alternative energy, and we can do a better job there
than we have done as a Congress in helping those industries.
As many of you know, Price-Anderson has been with us for a
long time. The Act was first established almost 50 years ago
and I think it was for two purposes: first, to allow for
commercial use of nuclear energy by providing liability
certainty to a complex, untested technology; and second, to
ensure compensation to the public in the event of an accident.
We all agree it has performed the first function quite well,
but that was easy. The second is the one we must address and
it's a challenge. I don't think we can shrink from that
responsibility.
The builders of the Titanic told people it was unsinkable.
Only when the boat was in the water did its vulnerabilities
appear apparent. Thankfully, Price-Anderson's ship has not been
put to a test yet and I hope it never is, but we must prepare
for that possibility. It is our job to make sure we don't skimp
on the legislative lifeboats.
So what should we do? The nuclear power industry went
through its troubled teenage years during the 1970s and maybe
even during the 1960s, moved through adolescence and has now
settled into a comfortable middle age. It no longer needs the
Federal Government to nurture it.
Over the years, Price-Anderson has shifted more to
fulfilling the second goal, providing the public with
compensation in the event of a catastrophic nuclear accident.
The law has become an upgraded Model T with original parts and
newfangled additions that simply don't match. What we really
need now is a brand new vehicle, one that is designed using
today's understanding to secure tomorrow's energy industry.
Generation and selling of electricity are very different than
50 years ago. That is for better or worse, but we now have
unregulated electricity markets in some States where
competition is keen and consumers are no longer captive to rate
monarchies. A new electricity market demands a new Price-
Anderson system. This isn't easy.
The basic problem appears to be that the cost of an
accident would be just too big and how big, the General
Accounting Office reported in 1986 that the cost could be in
the tens of billions or even in the hundreds of billions of
dollars, depending on which way the wind is blowing. There can
be no doubt that without some form of insurance, no nuclear
powerplant has the assets to cover the cost of a truly
catastrophic accident. The utility would simply go bankrupt
first.
Unfortunately, even after 50 years the private insurance
industry still is only willing to insure a nuclear powerplant
for a few hundred million dollars, much less than the likely
cost of an accident. The bulk of the Price-Anderson insurance
comes from the industry's promise to share the burden in cost,
up to $9 billion, in the event of an accident. That's like
promising to pay your health insurance premiums only after
you've been diagnosed with a debilitating disease, a disease
that will keep you bedridden for years, unable to work or
otherwise take care of yourself. No insurance company would be
willing to let you get away with that and we cannot allow
nuclear powerplants to operate without adequate insurance. It's
as simple as that.
The question we then have to ask is how can we fill the
void left by the private insurance companies and insure nuclear
powerplants for a reasonable sum in a way that is both fair to
potential accident victims and guarantees payment in the event
of an accident. Perhaps the first question is why we should do
this when we don't do it for other industries? Maybe the market
decision not to insure nuclear powerplants adequately means
nuclear powerplants shouldn't be built, especially now that
other safer, alternative energy sources are available. Today,
our witnesses will address these and other issues.
I would say to my colleagues on the subcommittee that we
have a vote right after noon. We're starting the second session
of the 107th Congress and we will have a vote right after that
which means we will have to finish here shortly after noon. So
I say to all witnesses we have asked that you limit your
statements to five minutes and I would ask my colleagues to be
somewhat conservative, as you always are, but this time in your
questions.
[The statement of Senator Smith follows:]
Statement of Hon. Bob Smith, U.S. Senator from the State of New
Hampshire
Good morning, and thank you all for coming here today for a hearing
on the reauthorization of Price-Anderson. As you all know, Price-
Anderson first became law in 1957 in order to provide immediate
compensation in the event of a nuclear accident.
After being reauthorized three times, the Act is set to expire this
August. I have joined Senators Voinovich, Inhofe and Crapo in
introducing a bill that will again, reauthorize the statute.
I am a strong supporter of Price-Anderson because I believe that it
is the best mechanism for providing the highest level of compensation
in the shortest period of time; without having to put victims through
an arduous and protracted legal process.
On top of all of that, it is the best deal for the tax payer.
With Price-Anderson--if there were a major nuclear accident up to
$9.5 billion, under current law, would be provided in compensation to
the victims, not by the government, but by private insurers and the
nuclear industry--without having a lengthy judicial process to
determine liability or culpability.
The law requires the insured and the insurers to waive most
standard legal defenses--fault does not need to be established.
Absent Price Anderson, victims would have to rely on the tort
system--and damages would effectively be limited by the assets of a
company. Bottom line is that there would be less money available and it
would take years for the dollars to work their way through the courts
and into the hands of those who need immediate assistance.
And when you do finally get out of the courts - check your pockets,
because the lawyers will have gotten their share and probably a good
chunk of your share. In all probability, while we are waiting for the
courts to act, it is likely that the taxpayer, via Congress, would
already have stepped in and provided whatever financial assistance was
needed--the events of September 11, showed how quickly Congress can act
in such a disaster situation.
To put the $9.5 billion into historical perspective:
In the nearly 45 years of Price-Anderson, the most widely
known payout under the law was with Three Mile Island - certainly a
major event -
That pay-out totaled $70 million--even when adjusted for
inflation, it barely makes a dent in what funds are available
Certainly Price-Anderson is a good deal, both for the taxpayers and
for anyone seeking damages.
I understand that there are those who simply do not like nuclear
energy and will see the Price-Anderson debate as a means stop nuclear
power. I do respect the rights and integrity of those who hold this
view.
But, I believe that there are enormous benefits to nuclear power--
the majority of energy generated in New Hampshire comes from nuclear.
Seabrook has proven to be a safe, reliable source of power - on top
of that, it is emissions free.
I have spent the better part of two years working with a number of
stakeholders to come up with a bipartisan plan for reducing our utility
emissions without compromising our long-term energy security.
Nuclear power allows us to safely generate enormous amounts of
energy at low cost and with zero emissions--it must be a part of any
reasonable energy plan.
And that means that we should not be discouraging the development
of new, safe nuclear technologies.
If we do not reauthorize Price-Anderson, we effectively kill those
promising technologies that are the next generation of emissions-free
power production.
As we do look at reauthorization, there are a number of questions
that should be debated. For instance, looking forward, how do we treat
new modular technologies that are not that far down the road? Should we
adjust insurance coverage and the retrospective premiums?
Our witnesses have raised a number of questions, concerns and ideas
as we look toward reauthorization--and I look forward to the discussion
of those ideas this morning.
I want to thank you again for coming here today and I do look
forward to hearing your testimony.
Senator Reid. Our first witness is William F. Kane, Deputy
Executive Director for Reactor Programs, United States Nuclear
Regulatory Commission.
Senator Inhofe, the first vote will be a live quorum to my
understanding.
Please proceed, Mr. Kane.
STATEMENT OF WILLIAM F. KANE, DEPUTY EXECUTIVE DIRECTOR FOR
REACTOR PROGRAMS, UNITED STATES NUCLEAR REGULATORY COMMISSION
Mr. Kane. Mr. Chairman, members of the subcommittee, I am
pleased to appear before you today to present the views of the
Nuclear Regulatory Commission on extending and amending the
Price-Anderson Act.
As requested by the committee, I have a short oral
statement that I will present and ask that the Commission's
prepared testimony be made a part of the hearing record.
Senator Reid. That will be the order.
Mr. Kane. Seated with me at the table is Joseph Gray,
Associate General Counsel for Licensing and Regulation.
I am here to deliver the strong and unanimous
recommendation of the Commission that the Price-Anderson Act be
renewed. However, I would like to point out that the
Commission's primary concern is public health and safety. We
are not a promotional agency. Our mission is to ensure the safe
use of nuclear power and nuclear materials. Nonetheless, it
remains important to assure that if an improbable accident
should occur, the means are provided to care for the affected
members of the public.
As you know, Congress first enacted the Price-Anderson Act
in 1957 and its goals were then, as now, one, to ensure that
adequate funds would be available to the public to satisfy
liability claims in a catastrophic nuclear accident and two, to
permit private sector participation in nuclear energy by
removing the threat of a potentially large liability in the
event of such an accident.
On original passage, the Congress provided the term during
which the Commission could extend the Price-Anderson coverage
to new licensees and facilities. When that term expired, the
Congress then and repeatedly since decided that the Nation's
energy policy would be served by extending the Price-Anderson
Act so that the coverage would be available for newly licensed
reactors. This action assured protection of the public and
preserved the option of private sector nuclear power.
I would note that Price-Anderson coverage for currently
licensed nuclear powerplants is granted for their lifetime and
does not expire in 2002. Thus, Price-Anderson coverage will
continue for liability claims resulting from an accident at
those facilities.
While Congress has amended the Price-Anderson Act, it has
done so cautiously so as to avoid upsetting the balance of
obligations between operators of nuclear facilities and the
United States Government. Perhaps the most significant
amendments to date were those that effectively removed the
United States Government from its obligation to indemnify
reactors and instead place that burden on the nuclear power
industry. Today, commercial insurance and the reactor
retrospective premium pooled together would make available, as
noted earlier, over $9 billion to cover any personal or
property harm to the public caused by an accident.
In 1988, as mandated by Congress, the NRC issued a report
on the Price-Anderson Act that included an update on legal
developments and events pertaining to the nuclear insurance and
indemnity in the last decade. In that report, the Commission
recommended that Congress renew the Price-Anderson Act because
it provides a valuable public benefit by establishing a system
for the prompt and equitable settlement of public liability
claims resulting from an accident. This remains the strong
position of the Commission.
Also, having noted that substantial changes in the nuclear
power industry had begun and could continue, the Commission
recommended renewal of the Act for only 10 years so that any
significant evolution in the industry could be considered when
the effects of ongoing changes could be clear.
Finally, the Commission recommended that Congress consider
doubling the annual retrospective premiums installment because
it then appeared likely that in the coming decade a number of
reactors would permanently shut down, thus reducing the amount
of funds available to the retrospective premium pool.
Further developments in the electric generation industry
since the report such as extending the operating life for most
if not all of the currently operating reactors and the
possibility that some companies may submit applications for new
reactors or complete construction of reactors that have been
deferred led the Commission to reassess this recommendation. As
noted earlier, the Commission does not now believe that there
is a justification for raising this maximum annual
retrospective premium.
In conclusion, I would note to date the United States
Government has not paid a penny in claims against nuclear
powerplant licensees. In the event a serious accident were to
occur, over $9 billion would be available to pay compensation
for any personal injury or off-site property damage. Money will
come from insurance policies bought by the industry and from
retrospective premiums. If those funds were inadequate,
Congress would be called upon to decide what action is needed
to provide assistance to those harmed. We believe the public is
protected by this broad base of prompt funding.
The Price-Anderson Act further aids the public by
channeling liability to the licensee establishing a single
Federal form for all claims, eliminating the need to prove
fault, requiring waivers of other significant defenses, making
prompt settlements possible and if litigation is needed,
establishing legal management processes to assure fairness and
equity in distribution of damage awards.
The Commission reiterates its support for reauthorization
of the Price-Anderson Act.
Thank you, Mr. Chairman. I welcome your comments and
questions.
Senator Reid. Mr. Kane, you work with reactors, that's your
job. In your experience, have you known of any other businesses
where the Federal Government, in effect, provides for the
liability of any harm caused by the business?
Mr. Kane. The short answer is ``no.''
Senator Reid. I don't either and that's the problem I have.
I am not opposed to looking at further generation of nuclear
power but I think we have to have a lot of questions answered
before we do that, one of which would be why do we treat this
industry different than any other that I am aware of. That is a
question I thought you might have an answer for me.
Senator Inhofe?
Senator Inhofe. Thank you, Mr. Chairman.
Mr. Kane, I'd like to address a couple of the hysterical
things that come up because I know there have been studies that
have been conducted by the NRC responding to some of the
accusations that talked about consequences such as some have
recently referred to thousands of deaths and about $600 billion
in damages projected from the 1982 Sandia National Lab study.
That was 20 years ago and it's my understanding that there has
been some evaluation of that. How would you react to that now,
20 years later, as to how authentic those estimates would be?
Mr. Kane. You have to appreciate what the report was
designed to do at the time. It's a siting study report and it
made a number of assumptions that were somewhat generic and
applied them to all sites to get a comparison of various sites.
It didn't take into account some of the tools and
technology that we use today in terms of evaluating risk such
as new reg 1150 which has updated many of those assumptions
including the source term which is a very significant
contributor. At the time it was produced, it was useful in
terms of comparison of sites but to get into looking at
specific damage at a particular site, one would have to take
into account the operating features of the reactor at that site
and also the off-site preparedness and the environment
surrounding the site.
Senator Inhofe. So you don't think it's really appropriate
today to use that 20-year-old study?
Mr. Kane. We do not.
Senator Inhofe. In recent months, there have been reports
from the so-called Tooth Fairy Project that alleges finding
levels of this Strontium 90 in teeth collected from people
living around a nuclear reactor. There has been a study on this
too, is that correct?
Mr. Kane. That's correct. We have looked at it and I can
give you a high level response.
There are a number of concerns that we had with that study.
We would not support the results of that study. The amount of
Strontium 90 that is released from nuclear plants is very, very
low compared with that which was associated with background as
a result of atomic bombs or atmospheric testing, as I should
more accurately describe it, elsewhere.
Senator Inhofe. Thank you, Mr. Kane.
Senator Reid. Senator Voinovich?
Senator Voinovich. Mr. Kane, what if we don't reauthorize
Price-Anderson? If it's not done this year, what impact will it
have?
Mr. Kane. That's a somewhat difficult question for me to
answer. Obviously as noted earlier, it would not impact those
currently operating facilities. My sense is, and I have to put
this in the context of we're not a promotional agency, but my
sense is that it would have an impact on the future development
of new powerplants.
Senator Voinovich. Senator Jeffords, when he was here, in
his opening statement indicated that we never used Price-
Anderson. Didn't we use Price-Anderson at Three Mile Island?
Mr. Kane. Yes. We have never used the retrospective
payments portion of Price-Anderson but the insurance industry
has paid claims. I think the witness from ANI can probably give
you a better update but it's on the order of $200 million
cumulative overall and, he can probably provide you better
information than I could, I understand around $70 million at
TMI.
Senator Voinovich. So the retrospective thing never came
in, the insurance they had on those facilities took care of the
damages?
Mr. Kane. That's correct, primary insurance.
Senator Voinovich. Thank you.
Senator Inhofe. Mr. Chairman, would it be all right if I
interrupt at this point? Senator Smith he was not going to be
able to be here unfortunately and asked that I ask unanimous
consent that his statement be included in the record
immediately following our opening statements.
Senator Reid. That will be the order.
Mr. Kane, do you know of any future development planned for
nuclear powerplants as we speak?
Mr. Kane. We have had a number of discussions as we do in
terms of trying to prepare a budget for the Congress and there
have been discussions.
Senator Reid. With whom?
Mr. Kane. For example, the Pebble Bed reactor, which is a
modular type.
Senator Reid. Where is that?
Mr. Kane. It's not sited anywhere in this country. South
Africa is looking at it, the Germans have looked at it and I
believe the Chinese have looked at it.
Senator Reid. Do we have any control over what they build
in South Africa or China?
Mr. Kane. No, we do not.
Senator Reid. Why are you having discussions on these
plans?
Mr. Kane. It's with respect to potentially siting them in
this country.
Senator Reid. Do you know where?
Mr. Kane. At this point, no.
Senator Reid. It's my understanding that the Nuclear
Regulatory Commission recommended raising the retrospective
premium to $20 million from $10 million and now you don't think
that's appropriate. Why?
Mr. Kane. The logic in that was that as we made our
recommendations in 1998, the status of the industry was such
that they were forecasting plant shutdowns and decommissioning.
In the intervening several years, that has turned around rather
dramatically such that some of those facilities that were
forecast to be shutdown are not at this point, but are going
for license renewals for an additional 20 years beyond the 40-
year license. The most recent projections that we have by
assessing the industry is that most, if not all, of the current
reactors will apply for plant life extension.
To complete the answer, the $20 million was in
consideration of the fact that there may be a reduction in the
pool.
Senator Reid. Thank you very much for being here today. We
appreciate it. You are excused now.
We are going to hear now from a panel that we are anxious
to hear. We are going to hear first from Christie Brinkley, a
member of the board of directors of the STAR Foundation, a
group which opposes reauthorization of Price-Anderson. We will
hear from Peter Bradford who teaches and consults in regulatory
practices and procedures in the United States and abroad and
was a member of the United States Nuclear Regulatory
Commission. Dan Guttman will also appear before us, who teaches
and is an attorney in private practice with substantial
experience in the public and private management of the electric
utility industry. John L. Quattrocchi is Senior Vice President,
Underwriting, American Nuclear Insurers. Marvin Fertel is
Senior Vice President, Nuclear Energy Institute, a professional
association representing the nuclear power industry.
Ms. Brinkley, we are happy to have you here. Please
proceed.
STATEMENT OF CHRISTIE BRINKLEY, BOARD MEMBER, STAR FOUNDATION
Ms. Brinkley. Mr. Chairman, members of the committee, I
thank you for the opportunity to appear here today.
My name is Christie Brinkley and I am a member of the STAR
Foundation based in East Hampton, New York. It's an
environmental organization which my husband, Peter, and I
joined after we learned we were raising our three children in
the cross-hairs of several very old and troubled nuclear
reactors. We decided we had to learn everything we could about
the Oyster Creek reactor to our south, the Indian Point Reactor
to our west and the Millstone Reactor to our north. Millstone
is just 11 miles off the shores of Long Island which we call
home and that puts us just one mile too far away for an
evacuation plan.
Amongst many things we learned was that a lot has changed
since those reactors were built. For one thing, they are now
over 24 million people living within the triangle defined by
these three nuclear powerplants.
After the terrorist attacks on September 11, like many
Americans, my husband and I became concerned about the safety
of our family and our friends, and our country and we attended
public meetings with local emergency officials where many
questions were asked. How can we protect our children in the
event of a nuclear emergency? What if it happens at night while
we're sleeping? What if it happens while our kids are at
school? How will we be notified to take shelter or should we
evacuate? Is it even possible to evacuate densely populated
areas like Long Island or New York City where there are few and
highly congested roads and bridges and tunnels? No clear
answers were provided. Unfortunately today these questions are
no longer abstractions given that highly destructive acts of
terror have become a reality in the United States.
Today, this Senate committee is addressing a law that deals
with how Americans are going to be compensated after a major
nuclear accident. Before I go any further, I just have to say
what I think we all know in our hearts that no one could ever
truly be compensated for the loss of a loved one, a birthplace
or your health, your hometown, your way of life or peace of
mind. This discussion today is really about an industry owning
up to its responsibilities.
I am not an expert on the Price-Anderson Act but what I do
know leaves me filled with questions and concerns. One half of
all of Americans, 145 million people, live within a 50-mile
radius of a nuclear powerplant. I'll bet they'd be interested
to know if they took out their homeowners insurance policy,
they would see in plain black and white--I have one right
here--that their policy excludes them from coverage in the
event of a nuclear accident. You can get coverage against a
meteor hitting your home but not one private insurance company
in America will cover you against a nuclear event.
Since you can't get private insurance coverage, we're
supposed to be compensated under the Price-Anderson Act which
arbitrarily sets a limit of $9.4 billion for compensation of
damages in the event of a nuclear catastrophe. It's abundantly
clear radiation from a nuclear accident does not follow
arbitrary rules that say, dangerous contamination will just
travel ten miles and then stop.
The STAR Foundation and numerous groups around the country
have repeatedly asked the NRC for several years to expand its
evacuation zone beyond 10 miles to protect Americans but to no
avail. This arbitrary $9.4 billion limit doesn't even match
with recent damage estimates done for the Nuclear Regulatory
Commission.
A study developed for the NRC by Brookhaven National
Laboratory in 1997 reported that a spent pool fuel fire could
contaminate a large area, cause thousands of fatal cancers and
could cost about $59 billion in property and economic loss.
With your permission I would like to place this study in the
record of the hearing.
Senator Reid. Without objection, that will be the order.
[The referenced document appears in the hearing appendix.]
Ms. Brinkley. I would also like to take this opportunity to
remind you that the impetus for the Price-Anderson Act was WASH
740, a 1957 study more commonly referred to as the Brookhaven
Report which established that a nuclear plant accident could
incur up to $7 billion in property damage alone, aside from
payments for loss of life and injuries. That's $7 billion 1957
dollars. Using the U.S. Government calculations for inflation,
that $7 billion is equal to $45 billion in today's dollars and
a lot has changed since 1957.
Unlike private insurance companies, reactor owners do not
have to come up with over 95 percent of the $9.4 billion they
are supposed to pay out until after a nuclear accident occurs.
This means that the nuclear industry only has to show a source
for less than 3 percent of that $9.4 billion. That's like
taking out a million dollar insurance policy from an insurance
company that can only show assets of $20,000. Why doesn't the
Price-Anderson Act require the nuclear industry to keep the
full $9.4 billion untouched, excuse the expression, in an
ironclad lockbox.
After September 11, our world has unfortunately become a
more dangerous place. Nuclear power stations are now frequently
reported as being prime targets for terrorists. It is my
understanding that the Price-Anderson Act excludes acts of war
from coverage from nuclear accidents. Our President has
declared that America is at war against terrorism. Does that
mean that if there is a terrorist attack against a nuclear
facility, Americans won't get anything, not even the paltry,
arbitrary amount provided for in the Price-Anderson Act as
currently written? Why is the limit on liability set by the
Price-Anderson Act not based on official estimates of damage?
What guarantees do we have that the nuclear industry will come
up with the necessary funds if such a terrible event arises?
If the nuclear industry can't come up with the funds to
compensate victims, the burden of payment falls on the American
people, the taxpayer. Is it really fair or reasonable for the
taxpayer to be stuck with the cost of a major nuclear accident?
In this increasingly dangerous world, can we even afford to
bear the cost of nuclear power stations and their potential
consequences?
England, Germany and Sweden have decided they cannot and
are phasing out nuclear power for safer, cleaner energy
alternatives. I hope the committee will find the answers to
these questions and seek reasonable solutions. I hope and trust
that this committee will also help ensure that the risks and
consequences of such terrible acts are minimized. For this
reason, I extend my thanks to Senator Clinton from my home
State of New York, Senator Reid and Senator Lieberman for
introducing the Nuclear Security Act which strengthens safety
protection and emergency response near nuclear powerplants. I
would like to urge all the U.S. Senators to join them and
support this important piece of legislation.
Once again, I wish to thank Senator Reid and the members of
the committee for allowing me the privilege of appearing before
you today.
Senator Reid. We appreciate your testimony. If you would
remain seated, we may have some questions for you when we
finish.
Mr. Bradford?
STATEMENT OF PETER BRADFORD, VISITING LECTURER, YALE UNIVERSITY
Mr. Bradford. Thank you very much for the invitation to
testify regarding the renewal of the Price-Anderson Act in the
context of competitive electric markets.
Aspects of the law have provided for a system of self-
insurance by the nuclear industry for 45 years. While these
provisions can and should be strengthened to assure funding in
the event of a serious nuclear accident, the underlying concept
of that part of the law is sensible.
However, the electric industry has changed significantly
since Congress last renewed Price-Anderson, since my own term
on the NRC and since I last testified before this committee on
that subject in 1985. These changes undermine the wisdom and
the fairness of applying the liability limitation provisions to
new nuclear units and perhaps also to units whose license life
is extended beyond its original term.
One change of note in recent years is that virtually no
imported oil is now burned to generate electricity in the
United States. Consequently, nuclear energy, while still a
hedge against air pollution, does nothing to reduce U.S. oil
import dependence or vulnerability.
However, the most significant change is the opening of the
electric power market to competition among all forms of power
generation. A national policy requiring competitive electric
power supply was achieved through the enactment of the Energy
Policy Act of 1992 and through subsequent proceedings of the
Federal Energy Regulatory Commission. Pursuant to this national
policy, all powerplants should now have an equal opportunity to
sell into the wholesale electric market based on their costs
and other operating characteristics.
The basis for this policy was Congress's belief that
marketplace competition will produce lower prices and greater
customer satisfaction than did the powerplant selection process
based on utility and governmental forecasts that prevailed when
Price-Anderson was enacted and renewed.
In a competitive power generation market, capacity from
nuclear plants must compete with capacity from fossil fuels and
from renewable resources, none of which enjoy any type of
federally mandated liability limitations. Under these
circumstances, the liability limitation has two anticompetitive
effects, first, new nuclear capacity appears cheaper than it
really is relative to other sources or for that matter,
relative to an investment in energy efficiency. This is because
its cost of capital does not reflect the risk of having to pay
for damages in excess of $9 billion when estimates of worst
case accident or sabotage scenarios are much higher than that.
Second, any nuclear design that is truly inherently safe--
op that is least incapable of doing more than $9 billion in
damage does not enjoy the benefit of its improved safety and
competition with those nuclear plants that do benefit from the
liability limitation. Indeed, the liability limitation
ultimately is less a subsidy of nuclear power than of nuclear
catastrophe. As such, it removes market incentives for remote
siting, underground siting and inherently safe designs.
Companies offering designs that have such advantages would be
well advised to disavow the liability limitation and thereby
avoid the public skepticism that it engenders.
The risk of an accident that exceeds $9 billion in damages
is in no way diminished by the Price-Anderson Act. The Act
merely requires that whatever that risk is, it will be borne
either by those who suffer the damage or by the Nation's
taxpayers.
In the wake of September 11, the possibility of a disaster
involving nuclear energy and costing many times $9 billion is
clearly not as low as we had thought. Rather than underwrite
industry cost in the event of such an accident, it would seem
far wiser for Congress to adopt a framework that encourages the
deployment of energy sources conceivably including inherently
safe nuclear sources that do not carry with them the potential
for inflicting such large damages.
No connection exists between the upper limit on liability
and the more desirable features of Price-Anderson. Removal of
the limit coupled with the provision extending the
retrospective annual premium until all damages had been paid
would provide more assurance to the general public than the
present law. Indeed, most of the witnesses who testified in
favor of Price-Anderson renewal in the House last year made
little or no mention of the liability limit for nuclear
powerplants. Their testimony urged retention of the mutual
insurance scheme and other aspects of the law. If they saw
Price-Anderson as essential to future nuclear plants, to
nuclear relicensing, to increasing the licensed output of
existing nuclear plants, they did not say so. Even the two
witnesses who endorsed the liability limit offered no proof
that it is still needed to encourage future nuclear
construction.
The most vehement claim that the liability limit is
essential to the future of nuclear power was made by a witness
opposing renewal of Price-Anderson. The fact is that other
industries--marine oil transport comes to mind--are required to
provide a mutual insurance framework independent of any
liability limit that may exist and the Price-Anderson mutual
insurance requirement need not be modified if the liability
limit were removed.
The Price-Anderson limited liability principle was
originally adopted as part of a clear congressional bargain
that included detailed requirements for public participation in
the nuclear licensing process. Over the years those protections
have been substantially eroded, usually on the basis of
arguments that nuclear technology had substantially matured and
no longer required so great a set of intervenor protections.
Furthermore, probabalistic risk assessment has been
introduced into many aspects of nuclear regulation. Again,
based on the rationale that the technology and risk assessment
methodology have matured to an extent now adequate to provide
informed judgment about accident vulnerability.
What then are we to make of continued insistence on
liability limits? Can it really be that all of this maturing,
all of this increased database only counts when it is being
used to reduce aspects of NRC safety oversight, that it counts
for nothing in the context of reconsidering the liability
limit?
Such a result is indefensible. If the technology is mature
enough to cut public hearing and information rights to the
vanishing point, if it is mature enough to circumscribe
regulatory scrutiny with probabalistic risk assessment, then it
is too mature to need a limitation on its liability for
catastrophic accidents.
The justification for the limit dates from a time when
other alternatives to fossil fuels did not exist. Now, however,
at a time when competitive markets are actually providing as
many or more renewable megawatts per year worldwide as new
nuclear powerplant megawatts, this argument is out of date. If
nuclear law is to be updated as industry witnesses urged, to
take account of changes in the 1990s, then Congress should take
all of those changes into account. Congress should let nuclear
power compete within a framework that will reward its safest
designs to the fullest. Congress should not continue a
framework that encourages facilities with a remote potential
for extreme catastrophe to substitute for facilities that can
provide or conserve energy in safer ways.
At the very least, those who support renewal of the
liability limitation can hardly oppose measures providing
support for renewable energy and energy efficiency as part of
electric industry restructuring legislation. The liability
limitation is a specific override of an asserted free market
outcome, the unwillingness of private insurers to cover the
full potential cost of a nuclear accident.
If such a counter market subsidy is to be offered to one
technology, then the least that can responsibly be done is to
ascertain its value and offer a comparable subsidy to other
technologies that offer the same advantages of domestic supply,
reduced fossil fuel dependence and diminished air pollution,
especially since these technologies really are in the start-up
phase that was said to justify the Price-Anderson Act when it
first became law 45 years ago.
Thank you for the opportunity to testify.
Senator Reid. We will now hear from Dan Guttman.
STATEMENT OF DAN GUTTMAN, FELLOW, CENTER FOR STUDY OF AMERICAN
GOVERNMENT, JOHNS HOPKINS UNIVERSITY
Mr. Guttman. Thank you all for inviting me. I appear here
today as a citizen, as my testimony states, privileged to have
a variety of experience in the nuclear area, most recently
privileged to work with the nuclear weapons workers who owe an
extraordinary debt to you all and particularly to Senator
Voinovich for the Compensation Act which is now being put into
effect.
When I listened to some of the questions here about why we
should care about hypothetical questions about a law that
fortunately has never had to be tested, I think about some of
the other folks I'm working with and I know Senator Voinovich
is, of the Portsmouth of Piketon, Ohio workers. Three years
ago, the workers were asking questions about the USEC
Privatization Act saying what if this doesn't work, what if
this, what if that, and the answer was no problem, we've got
the best and the brightest working on it.
The point is not that Price-Anderson shouldn't be
reauthorized but that an ounce of prevention is worth a pound
of cure because as we see in the case of USEC, the industry may
now be strangling itself to the closure of our domestic uranium
enrichment facilities which is one of the things I suspect
Senator Inhofe is quite concerned with, as are the workers at
these facilities.
So when I was asked by the subcommittee staff to testify
about this as an expert, I said good news, bad news. The good
news is I don't have a horse in this race, a dog in the show.
The bad news, I don't know anything about the Act, fortunately
because it hasn't been used.
I've had four or five months since the initial inquiry was
six or seven months ago to read the case law, read what the GAO
and NRC have been reporting. What surprises me as a citizen is
that there are so many basic unanswered questions, some of
which have just been addressed.
Briefly, to go down the unanswered questions, by which I
don't mean to say the Act shouldn't be reauthorized but by
which I mean Congress should think about these questions. If it
doesn't want to do anything, that's okay.
Question one is kind of technical, inside, legal stuff but
that's why I don't get paid much for testifying, is what does
the Act cover? Much to my shock, it turns out what is covered
by the Price-Anderson Act. There are three kinds of splits in
the court decisions. A couple of cases recently said you have
to have an indemnification agreement.
As we know only some folks, obviously the big reactors have
indemnification agreements but there are lots of other,
probably the vast majority, NRC licensees that don't have such
agreement and one case having to do with a thorium plant that
was in operation until 1956 said this is not Price-Anderson
Act. It had nuclear materials but no indemnification agreement.
Another set of cases has to be an accident, it can't be
intentional. This had to do with another Ohio case, the famous
Cincinnati human radiation experiments, University of
Cincinnati. The question was, did Price-Anderson apply to this
radiation therapy which was clearly, admittedly related to the
AEC NRC. The court said it wasn't an accident, the doctors
intended to inject these folks. This was how this stuff was
supposed to be used. So it's intentional. So you're sitting
here after September 11 thinking this is what the terrorists
intended to do.
A third question is how broadly does the Act apply. The
most amusing case was a Swatch watch product liability case.
Can you go under the Price-Anderson Act if you're complaining
about the defects in the radioisotopes that illuminate the
dial. The court said, it doesn't sound like you can but
Congress didn't say anything about it, so I guess it covers
Swatch watches.
So there are basic questions that have nothing to do with
is this good or bad for the future, that should merit attention
or the tort system that we are all concerned about may get
bogged down in this kind of litigation.
The most obvious of these questions is the apparent
exclusion, not clear, acts of terrorism. Public liability is
the technical term that triggers the law. The definition of
public liability excludes act of war, the point not be
belabored.
What surprised me as a citizen, I would have thought that
by now having gone this far in the Price-Anderson process with
all the high powered people who know this stuff, this would
have been ironed out. What do we do with acts of terrorism? Do
we intend to cover it? If so, does the Act currently provide
it? If not, where do folks go if a powerplant has caused damage
as a result of an act of terrorism?
Another obvious question Peter Bradford addressed, the
deregulation effect. Again, I'm surprised the NRC report to you
in 1998 said we have concerns because when you have
deregulation you can't guarantee that there is going to be a
revenue base of ratepayer dollars to provide for the
retrospective payments as Ms. Brinkley said, is the lion's
share of what the public has to rely on. This concern was
punctuated in December by a report to Congressman Markey from
the GAO and that to me was a very disturbing bell ringing
report because that looked at the NRC's review of whether the
license transfer process, when folks are buying up these
plants, the Excelons and the Dukes, whether the NRC looks to
see if there are adequate decommissioning costs.
The GAO said the NRC, on paper, looks good but it isn't
clear that they sharing decommissioning costs. The reason this
is so important is that the NRC's new reg document on financial
conditions has half the things on decommissioning costs. Price-
Anderson isn't mentioned.
So if a citizen is saying, if they are not, according to
the GAO, doing what has to be done on decommissioning, what
about Price-Anderson, where is that money going to be? As an
obvious concern, you can see in the old days where the
utilities had mixes of powerplants, a shutdown would permit
that utility continue to operate coal and gas and get some
revenues to pay for Price-Anderson.
Now where you've got consolidation, if you have an accident
on one facility and you've got Excelon with 5, 10 or 15
facilities, a design factor review may cause a cascading, the
perfect storm that we all are familiar with light of Enron and
everything else. The point is not that we don't need Price-
Anderson, we need it, but you need to think about it.
The other things are identified in the testimony. One of
the stunning as a citizen and believer in small government as
in Ohio, is that one of the premises of Price-Anderson when you
amended it in 1988 to bring everything before the Federal
courts was that the Federal court apply State law decision.
This was not an antistate thing, this was an efficiency thing.
It turns out while Federal courts generally do that, there
is one area that they don't, and that's the duty that is owed
by the licensees, and the Federal courts have said that it
doesn't matter what the State law says, you can only apply the
numerical dose standard that is the NRC or governing DOE
standard.
As a citizen I'm saying, of course and I can understand the
logic of Federal preemption for efficiency or conflict reasons,
but then I'm reading a case with a poor individual working for
Florida Power and Light Company. He said he wasn't given
protective equipment. The State of Florida would have required
him to get protective equipment. The Court of Appeals said, too
bad, we are only permitted to apply the Federal duty of care
which is numerical. I'm saying it can't be that if there is a
State protective standard that is not in conflict but
supplemental that is still something you intended in your
interest in protecting States, intended to have eliminated.
The final point is a small but very important point. The
Court of Appeals in the New Mexico area said you inadvertently
did an injustice by tagging recoveries to the State statute of
limitations. There are some States, New Mexico apparently is
one, where if you don't bring a case within three years if
someone dies, you're out of luck.
As that court said, unfortunately in the case of radiation,
as you know, you have latencies that may be more than three
years, this may work an injustice. In essence, this court, and
I cite the decision, said, gee, Congress can you fix this.
Senator Inhofe's point is extremely well taken. We have a
need, as Senator Voinovich knows, in the case of USEC, we may
be running out of fuel shortly. We have a need to keep the
system going. The question is, in the window you have, to think
about fixing it to make sure that if like USEC, for some
perfect storm reason it comes apart, you've given the best
thought you have to make sure it is the best system there can
be.
Senator Reid. Thank you.
I know this has never happened to you, your name being
mispronounced, but to complicate things I was given a piece of
paper that had it even spelled wrong. It is my understanding
your name is Quattrocchi.
Mr. Quattrocchi. Actually, it's Quattrocchi but for obvious
reasons, most people just refer to me as John Q.
Senator Reid. These Irish names have always been hard to
remember. Please proceed.
STATEMENT OF JOHN L. QUATTROCCHI, SENIOR VICE PRESIDENT,
UNDERWRITING, AMERICAN NUCLEAR INSURERS
Mr. Quattrocchi. I am John Quattrocchi, Senior Vice
President at the American Nuclear Insurers which I'll
abbreviate as ANI.
I am here today representing the member companies of ANI
which are some of the largest insurance and reinsurance
companies in the country, if not the world. ANI is a joint
underwriting association or pool of insurers that were formed
for the special purpose of insuring the nuclear risk. We were
created in 1956 in response to Congress's desire that the
insurance industry find a way to insure what was then a very
new technology.
We worked very closely with Congress in those early days to
develop the Price-Anderson law which essentially is an
insurance program. The law, as many have said, had several
purposes in mind. The first was to encourage private
development; the second was to establish a framework for
handling potential claims and the third was to provide a ready
source of funds to compensate injured victims of an accident.
My purpose today is to let you know that from our
perspective as professional insurers, the Act has served the
American public very well and should be renewed with little if
any change. Let me quickly mention a couple of key provisions
of the Act that have allowed us to provide this insurance
market for more than 40 years without interruption.
The law requires reactor operators to maintain primary
financial protection equal to the maximum amount of liability
insurance available from private sources at reasonable terms.
That requirement is satisfied under nuclear liability policies
that we write. Over the years, the primary insurance limit has
increased from $60 million in 1957 to $200 million today.
Incidentally, that's $200 million per site. So when the limits
are totaled, insurers have a cumulative risk of more than $15
billion. The primary limit was last increased in 1988 after
time of last renewal of the Act.
In the event that loss exceeds the primary limit, the law
requires reactor licensees to participate in what is called a
secondary financial protection program which we at ANI
administer. Under this program, each licensee is
retrospectively assessable for any loss in excess of the
primary limit up to a maximum assessment of $88.1 million per
reactor, per accident. As I mentioned ANI writes the secondary
contract and we administer the program but the second layer of
protection is drawn from reactor operators' own funds. With 106
units in the program, the total level of financial protection
available to the public is just over $9.5 billion.
There are a number of other key provisions in the law
critical to the interest of insurers and to the public. Those
are outlined in my testimony and I won't go through them now in
the interest of time but give some other quick points.
I mentioned earlier that our primary limit has not been
increased since 1988. Obviously inflation has taken a toll. In
testimony I delivered in Congress in June of last year, I
indicated a reasonable goal might be a primary limit in the
range of $300 million, assuming a satisfactory renewal of the
Act. That remains our goal but I have to qualify my remarks by
stating what may be obvious at this point. The events of
September 11 will make it much more difficult for us to achieve
the goal.
On the terrorism issue, ANI has elected to continue to
cover liability arising out of terrorist acts as has been the
case since 1957 but up to one shared industry aggregate limit
of $200 million. The aggregate is necessary to assure our
member companies and reinsurers that their exposure to
terrorism is quantified and capped.
I would add that the secondary program will continue to
apply to loss in excess of any diminished primary limit, so the
program remains seamless as to terrorism.
We have also increased premiums by 30 percent effective
January 1. There is obviously a cost to generate insurance
capacity and the cost after September 11 is higher than it was
before. I might also mention that we have begun talking with
the nuclear industry about their interest and a possible new
coverage that would pay the retrospective assessment in the
second layer for the reactor that has the accident. We think in
the unlikely event of an accident that requires assessments,
the utility that suffers the loss will be under the most severe
financial pressure. This new coverage would shift that pressure
to insurers, at least for one full retro assessment.
I have to stress one point again. To introduce a new
product that would pay one full retro premium, we would have to
develop additional insurance capacity over and above whatever
additional capacity is developed for the primary layer. My
comments about a new product therefore have to be qualified
again. The events of September 11 will make the development of
this new product difficult to accomplish and our first priority
after all for new capacity has to be on the primary side.
I'll sum up by saying the financial protection this law
provides the public far surpasses any other system that we as
professional insurers are aware of. The Act is clearly in the
public interest regardless of one's point of view on the issue
of nuclear power itself. In its first true test in 1979--and I
heard from other witnesses the Act had not been tested but in
fact it had.
After the Three Mile Island accident, the Act served the
public well. We as insurers responded under the Act within 24
hours of the evacuation order. We made emergency assistance
payments to some 3,100 families without requiring a liability
waiver of any kind. I myself was part of that effort and I am
proud that we able to help those affected by the accident.
There is a little amusing and short story I'd like to share
with you about that difficult time.
Senator Reid. I let the others finish their statement
because they were close to the end. Your's is extremely long so
you would have to wrap it up quickly if you could.
Mr. Quattrocchi. I have told the story before so for those
who have heard it my apologies.
The insurance team was staying at a motel about 10 miles
from the site and that motel was nearly deserted. At breakfast
one morning, I spotted a young couple with two children. Mom
and dad were clearly distraught. A waitress walked over to
their table and tried to console them. She said, ``Do you see
those people over there? They're with the insurance company and
there's no way they'd be here if we were in any real danger.''
Then she added, ``But watch them very carefully because when
they leave, we leave.''
I don't expect that to happen again but if it does, the
public needs the protection the Act provides. We therefore urge
the members of the subcommittee to support renewal of the Act
in its existing form.
Thank you for your time and for the opportunity to express
the views of insurers on this important issue.
Senator Reid. Mr. Guttman, your full statement will be made
a part of the record as your's will be.
Mr. Fertel?
STATEMENT OF MARVIN S. FERTEL, SENIOR VICE PRESIDENT, NUCLEAR
ENERGY INSTITUTE
Mr. Fertel. Thank you for the opportunity for NEI to
testify today. I request my statement be made a part of the
record.
Senator Reid. Hearing no objection, that is the order.
Mr. Fertel. As you've heard, for 45 years now Price-
Anderson Act has provided what we believe is the most effective
third party liability protection in the world. Since the
inception of Price-Anderson in 1957, the law has been extended
three times for successive ten year periods and in 1988 for an
extended 15 year period.
Over that period it really has evolved from one that
provided some specific government indemnification to a law that
imposes, and I've heard a lot today, that it limits. I think
there is two sides to a limit. It's an imposition too. There is
an imposed requirement of $9.5 billion for the industry to have
available through insurance and self insurance in the event of
an accident. I think that's the right public policy and it's a
good outcome.
Unless Congress renews the Price-Anderson Act, it will
expire on August 1 of this year. Given its proven record,
Congress should renew the Act indefinitely without changing the
current processes applicable to commercial nuclear powerplants.
The industry also recommends adding a provision to the law
that would address new, smaller, highly efficient modular
reactors as the chairman spoke with Mr. Kane about which are
under consideration by companies in our country for deployment
here. Price-Anderson Act renewal should recognize this
development and include these reactors in its protocols. We
would be pleased to provide the committee with appropriate
language to do that.
The Price-Anderson Act insures the availability of more
than $9.5 billion to appropriately compensate members of the
public as a result of a nuclear incident. I should add and
somewhat contrary to what I have been hearing, no other energy
source or industry has such an obligation. What I've heard is
only the nuclear industry has such a provision to protect us.
Nobody else has the obligation. I think there are both sides of
that coin that we need to talk about.
The Price-Anderson Act has two tiers of liability
protection, the primary level of coverage. The law requires
nuclear plant operators to buy all nuclear liability insurance
available or provide for an equal amount of financial
protection. Currently, as John Q said, there's $200 million
available at each nuclear powerplant site.
For the second level, nuclear power operators are assessed
up to $88 million for each incident that exceeds the primary
level at a rate not to exceed $10 million per year per reactor
which gets you to another $9.3 billion. I should indicate that
the $9.5 billion aggregate is per site per reactor. It's a lot
of money, not only per reactor but across our whole country.
I want to emphasize that the Act creates an industrywide
obligation for providing insurance by spreading the liability
for a major accident across the industry. It's a pooling
arrangement and actually seems to make good sense from public
policy. I don't declare bankruptcy, all my peers help me make
this payment.
In addition, the law requires that Congress may establish
more assessments on the industry if that is required, if the
first two levels of coverage are not adequate to cover claims.
The cost of Price-Anderson coverage is included in the cost of
electricity; it is not a Federal subsidy.
To date, no taxpayer dollars have ever been paid out for
commercial claims under Price-Anderson and of the approximately
$200 million paid in claims since the Act went into effect,
including the $70 million from the Three Mile Island accident,
all have been paid by private insurers in the industry.
I should note that the $70 million for TMI is a real cost
based on the worst accident in the history of the U.S. nuclear
program and represents less than 1 percent of the liability
coverage required by Price-Anderson. Since TMI, in our opinion,
the safety of our plants has moved to a level that no other
country even approaches and has set a standard for the rest of
the world.
The NRC and DOE have recommended renewal of the Price-
Anderson Act and the House of Representatives passed
legislation renewing Price-Anderson in November of last year.
We believe electricity is essential for both insuring our
quality of life and driving our economic growth. The strength
of our electricity system is diversity of fuel type and
technology, coupled with a robust program for energy
conservation and efficiency.
Nuclear energy as our second largest source of electricity
and our only large expandable source of emission free
electricity is a critical component of our supply system. Our
powerplants continue to achieve record levels of safety and
reliability and 2001 has proved no different from previous
years. Preliminary data show the industry is on track to
produce about 760 billion kilowatt hours of electricity. That
is more electricity than produced by nuclear programs in France
and Japan combined.
Also, our existing nuclear plants are proving to be the
most cost effective source of electricity in our country.
Nuclear energy has played a vital role in meeting increased
demand while significantly contributing to meeting our clean
air goals and reducing carbon emissions. As demand continues to
rise, nuclear energy will be even more important.
The Price-Anderson Act has been an effective law for more
than four decades. We recommend that Congress renew it this
time as it has over the three last times.
Thank you and we welcome any questions.
Senator Reid. I'll take five minutes and ask questions and
then Senator Inhofe and then you. If we need more time, we can
go after that.
First to Christie Brinkley, I appreciate your lending your
``star'' power to this hearing. Your presence has helped focus
attention on this most important issue. Thank you very much for
being here.
I do think you sum the concern a lot of people have. You
are a mother with children. You live in an area that is densely
populated and you have these power producing devices that could
cause irreparable harm to lots of people. I think it is good
you raise concern because you are speaking for a lot of people
in America today.
Mr. Bradford, as I understood your testimony, you support
an unlimited liability system for the industry, is that right?
Mr. Bradford. Yes. If it were up to me, I would remove the
liability limitation on a going forward basis.
Senator Reid. You laid out in your statement why. In short,
would you repeat that for me?
Mr. Bradford. Because the liability limit is in effect
anticompetitive now that we have a competitive wholesale
generation market. It provides a subsidy of indeterminant value
to the nuclear powerplants who benefit from it, both in
comparison to other sources of electricity generation be they
fossil or renewable, and even between nuclear powerplant
designs with the claims now being advanced to the effect that a
new generation of nuclear powerplants potentially and
inherently safe, potentially sited underground that would not
have the potential to do these large kinds of damages, those
plants don't need this subsidy. So to the extent that the price
of power from the plants that do benefit from the subsidy is
lower, those who don't need it are at a competitive
disadvantage even there.
Senator Reid. Mr. Guttman, in your testimony you raise
concerns about the failure of Price-Anderson to require the
powerplants to keep records of their accidents?
Mr. Guttman. I'm saying the experience of the Congress and
the Administration in the last decade looking at the nuclear
weapons workers the atomic veterans, even radiation experiments
is what happens when you have these kinds of incidents.
The problem the public has is not they are obtuse, not that
they think low levels of radiation are dangerous but again and
again it turns out the Government, in the case of DOE, its
contractors don't keep records and don't disclose.
Senator Reid. So you're saying they should?
Mr. Guttman. That's right. What was done by the
Administration in response to the President's Advisory
Committee on Radiation experiments was incorporated in the
Nuclear Workers Employee Act, that instead of having a
longstanding holy war debate about low levels causing this and
that, do you have the data? There should be a burden. One of
the things you can put in the Act is a burden on whoever may be
causing an accident, if you can't provide the documents and the
monitoring to show years removed that someone was not--
Senator Reid. I would say this to you is not theoretical,
you've had experience where you have had problems in finding
out and trying to settle claims for victims and there were no
record there, is that right?
Mr. Guttman. As we are well aware, the law you folks
passed, the Employees Compensation Act, has a special section
which is premised even with nuclear weapons workers. Richard
Miller has said you can't even monitor the nuclear weapons
workers who you know are working for you.
Senator Reid. So the answer to my question is, ``Yes, you
have had experience?''
Mr. Guttman. Yes, we have had experience.
Senator Reid. Could you elaborate on your testimony that
Price-Anderson does not cover acts of war. Ms. Brinkley also
said the same thing. Should it?
Mr. Guttman. That's for the Congress. I think what is for
us to say is that is something you should address.
Senator Reid. What is your opinion?
Mr. Guttman. My opinion is it is an interesting question. I
think it is a neutral question in the following respect. From
the perspective of torts lawyers as we see from September 11,
they would be just as happy if it didn't cover, it wasn't
covered because then they could go to court and sue for
unlimited damages. If one is concerned about the health and
safety of the nuclear industry, I'm not speaking for them, but
it might be desirable to provide quite clearly that we want to
address this in advance. I think the policy considerations are
do you want to protect the industry in advance or do you want
for all heck to break loose should something like this ever
happen. How you provide for it, that's why you're deliberating.
I wouldn't presume to tell you whether it should or shouldn't.
Senator Reid. Senator Inhofe.
Senator Inhofe. Let me start by making a comment. I think a
lot of the things you're talking about, Mr. Guttman, are not
really in the jurisdiction of this committee. If you talk about
the labs, that's DOE, not that we're not concerned, but I would
ask Mr. Fertel if he has any ideas or comments as to what they
are doing on this but make it very short.
Mr. Fertel. I think your comment is appropriate. I think if
you go to commercial plants and if Mr. Kane from the NRC was
here you could certainly ask him or you could for the record.
The records kept at the plants on exposures are very elaborate,
very detailed and very comprehensive. We want them that way,
the NRC wants them that way. It's a much different system than
the old weapons complex system.
The other thing as John Q said, we see Price-Anderson right
now as covering acts of terrorism, their policy covers it, our
secondary financial protection covers it. It does not cover
acts of war.
Senator Inhofe. Ms. Brinkley, I want to echo the remarks of
our chairman on your presence here. We appreciate it very much.
This committee has been addressing clean air and emissions
for several years. It has been quite a concern and I know you
are concerned about it too. In my opening statement I mentioned
that each year the U.S. nuclear powerplants prevent 5.1 million
tons of sulfur dioxide, 2.4 million tons of nitrogen oxide and
164 metric tons of carbon from entering the Earth's atmosphere.
Wouldn't you have to agree that is a benefit of nuclear energy?
Ms. Brinkley. I would have to respond that renewable clean
energy sources such as photovoltaics, fuel cells and wind,
hydro don't have any of those emissions at all. If our
government would subsidize those industries the way they do the
nuclear industry as Senator Voinovich expressed earlier, he
believes the solar and wind power would be effective in say a
15 year span. Imagine if the government supported these
renewable energy sources.
Senator Inhofe. I'm sorry I have to interrupt you but we're
going to run out of time on this. I would say yes, government
is supporting that, I'm supporting that, Senator Voinovich is
supporting that.
We have a problem right now with the here and now. What
happens if we were tomorrow to find out we'd lose 20 percent of
our energy?
Ms. Brinkley. We talk about clean emissions but I don't
think we can ignore the waste that is produced that nobody
really knows what to do with. I think it's irresponsible for us
to continue producing piles of nuclear waste with no disposal
system. I don't think you can truly call this clean energy.
Senator Inhofe. We were talking about emissions and you've
answered the question.
Mr. Fertel, in Ms. Brinkley's testimony she cites a study
done for the NRC by Brookhaven Lab in 1997 that stated spent
fuel pool fire could cause widespread contamination at a cost
of $59 billion and property damage. In your view, is this
realistic?
Mr. Fertel. We actually offered NRC comments on that. We
could submit them for the record if you'd like. We don't
believe it's realistic, even though we think the study provided
value and things we could look at to improve safety at the
plants.
Senator Inhofe. I would like to have that for the record. I
think it would be very appropriate at this point to have it in
there.
Senator Inhofe. Mr. Quattrocchi, as I understand things
changed after September 11 in terms of the two things that
could happen in primary protection. One, it could affect
raising that limit from $160 million to $200 million in 1988 or
that time frame to $300 million or could have an effect on the
premiums. Which of these do you think is going to happen and
what kind of premiums are we looking at for this coverage?
Mr. Quattrocchi. Premiums in 2001 were roughly $275,000 for
a single unit site, roughly $400,000 for a double unit site,
and roughly $600,000 for a triple unit site. In 2002, those
premiums were increased by 30 percent. I should add that up to
75 percent of the premiums we charge are actually refundable
after a 10 year loss experience period. In fact, we've been
making refunds every year since 1967 which is an indication of
the safe record of the industry we insure.
On the terrorism issue, as I said, we have elected to
continue to insure terrorism but we have imposed an industry
aggregate of $200 million but again, the secondary policy will
sit on top of that.
Senator Inhofe. Do other countries have the secondary
financial protection program comparable to Price-Anderson? What
do other countries do?
Mr. Quattrocchi. As a matter of fact, no other country has
this system of protection. In every country I'm aware of, they
essentially have a system that is very similar to Price-
Anderson back in 1957. In other words, there is required
insurance and then there is government indemnity which applies
in excess of that. So there is no joint liability that has been
accepted by utilities anywhere else but in the U.S.
Senator Reid. Senator Voinovich?
Senator Inhofe. Let me make one last comment. I know I'm
out of time and won't be able to stay for another round but I
do have some questions for the record I'd like to submit to
each of the witnesses.
Senator Reid. I think we all have additional questions and
I would ask panel members, our staff will give you these
questions and within two weeks, if you'd get the answers back
to us, we'd appreciate that.
Senator Voinovich?
Senator Voinovich. Mr. Bradford, you raise the concern in
your testimony that nuclear facilities are only covered by $9
billion. Do you know of any other industry out there that has a
$9 billion policy of coverage, any coal unit, natural gas,
chemical, large manufacturing facility that does? It seems to
me that the nuclear power industry is the most insured industry
that we have. You talk about this being a subsidy because there
is a limit at the other end, but the fact of the matter is they
do pay premiums every year for this insurance coverage.
One other thing that really needs to be pointed out, and we
forget this, that all the costs we're talking about here are
paid for by the ratepayers. It's interesting to me that there
are so many people opposed to nuclear energy, and you raise a
good point, Ms. Brinkley, about the fact it is about Yucca
Mountain, what are we going to do with the waste an that
question needs to be resolved if we're going to go forward at
all with nuclear energy. That is one hopefully we will resolve
this year.
Once that is resolved, the fact of the matter is all of
these costs have to be picked up by the consumers. If we
eliminate nuclear energy then we have to go to some other
resources. Many people in your part of the country--there is a
bill in here that will prevent us from burning coal which
provides 50 percent of the energy across the country, and in my
State, 80 percent.
So if you eliminate nuclear, you eliminate coal, all you're
left with is gas, hydro and renewables. The fact of the matter
is it's going to be a long time before these renewables are
going to be fiscally and from an efficient point of view,
available to provide energy for this country. So we have
somewhat of a dilemma. How do we balance all of these different
things that need to be taken care?
I'd like to take the rest of my time, Mr. Chairman, and
give Mr. Fertel or Mr. Quattrocchi a chance to respond to
anything else they'd like to respond to because they are the
experts. Mr. Fertel, I'll call on you first.
Mr. Fertel. I'd like to make two points. As Ms. Brinkley
said, living around nuclear plants and their vicinity is
something everybody wants them to be safe. Well, all the people
that work at the plant live around the plant with their
families. I think one thing you might benefit from is going to
visit some plants and talking to the people there. No one wants
them to operate safer than the guys that are there.
Senator Voinovich. Doesn't Homer Simpson work in a plant?
Mr. Fertel. He ``works'' in Hollywood. That's fantasyland,
sir. We'd love to take you to a plant if you'd like to visit
one.
The other point that Peter Bradford was making was that
with the competitive market, the subsidy to nuclear. I think if
you see what's happening in the electricity markets now what
you'd find is the nuclear plants are our most cost effective
source of electricity. They are being dispatched 24 hours a
day, 7 days a week, 365 days a year because there's cheap
electricity put out on a grid. They have no problem competing.
The subsidy is not there. The $88 billion liability is shown in
the financial reports that the companies have. Nobody else
shows any liability potential because they don't have that
obligation.
If we have an Enron situation today, one of the things
people are concerned about, they have a problem, it's a
catastrophe, they don't have the assets. One thing they do
have, Mr. Quattrocchi, is their insurance and they have all
these other people out there that are going to be held
responsible to pay for their problem, and they are exempted
from certain tort liability defenses that industries can use.
If you have an accident, immediately they start moving in to
pay for it. They can't raise the argument that it wasn't our
fault or something else happened as a result of that. It's no
fault insurance.
Mr. Quattrocchi. Let me make two quick points on the issue
of a subsidy. A subsidy is usually defined as the transfer of
government funds to a private entity. That is simply not the
case in this business.
Second point, the insurance industry has a great deal of
experience in handling litigation that has been unfettered by
limits on liability. I mentioned in my testimony that no case
comes to mind more poignantly than the Bhopol accident in 1984.
After flirting with bankruptcy, Union Carbide ultimately
settled that case for $470 million or roughly $1,000 for every
person killed or injured. There was no limit.
Senator Reid. Is that something you're proud of?
Mr. Quattrocchi. That's not something I'm proud of. I'm
proud of the fact that the Price-Anderson system serves the
public interest in a way that the absence of a limit on
liability would not, Senator.
Senator Reid. I would just say you'd better refine that
answer a bit. The fact of the matter is one reason it settled
so cheaply is it was some foreign country it happened in and if
it had been in American courts, you know that wouldn't have
happened.
I would also say in response to my friend, Senator Inhofe,
when he makes the comment this committee doesn't have
jurisdiction, this committee may not have jurisdiction of a lot
of things but we have other responsibilities in the Senate and
one of the things is I'm chairman of the Energy and Water
Appropriations Subcommittee where we deal with energy we
funded. So this testimony is extremely important.
I would also say that I really appreciate Ms. Brinkley's
answer. One of the reasons we're not doing more with wind and
other alternative energies is we in Congress have done nothing
to support it. No wonder we are 10 or 15 years away. We have
had to fight for skimpy dollars every year we have a bill. I
recognize it is not going to change overnight but we have to
start changing, in my opinion, our dependence on a number of
things.
I would also say to you, George, Senator Voinovich, no
matter what happens with the Secretary of Energy's
recommendation on Yucca Mountain, it's not going to end this
year. This is only a recommendation as to what should happen
with nuclear waste. The Nuclear Regulatory Commission will
spend at least ten years trying to figure out if Yucca Mountain
can be licensed.
Mr. Bradford, could I ask you to respond to the statements
by Mr. Fertel about why they really don't get a subsidy?
Mr. Bradford. I think it's important to distinguish between
two parts of Price-Anderson and also with regard to Senator
Voinovich's question. The retrospective premium elements, the
money that is there up to $9 billion is not where the subsidy
is. The subsidy is in the limitation on liability above that
amount.
Senator Voinovich. Isn't that a subsidy also if you want to
call it a subsidy to the ratepayers? What we forget about here
is the companies are paying this money, the companies make x
profit and they pass it on to their customers. Ultimately, it's
the consumer that pays for this one way or the other.
Mr. Bradford. If it's a subsidy to the customer and since
restructuring I've stopped using the word ratepayer, if it's a
subsidy to the customer, it comes at the expense of people
living around the powerplants. In essence what's happening is
that risk is being transferred, both risk of harm and risk of
loss of money, onto the people around the powerplants or if
Congress steps up and makes them whole, to the U.S. taxpayer.
That risk is being shifted off the nuclear powerplant owner and
as you suggest, probably also off the consumer of nuclear
power. That's why that is a subsidy that works against not just
wind and photovoltaics, but also against any inherently safe
forms of nuclear energy.
Senator Voinovich. You're saying it gives them an advantage
because of down the road protection of not being vulnerable in
terms of liability. That's one way of looking at it. The other
way of looking at it is what business entity in this country,
and we have a lot of dangerous businesses in this country, have
required they have to have $200 million worth of insurance each
year and then everybody else in the industry says if something
happens to them, we're going to let you use our insurance and
by the way, for the next ten years, eight years or whatever,
we're going to kick in $10 million a year to take care of
providing for those people and businesses that have been
injured? There's the other side of this coin that seems to be
forgotten here.
Mr. Bradford. It is a subsidy that shows up in the short
term because the cost of capital of the powerplant owner is
lower to the extent that the investor receives a lower risk
because there is a limit on the potential liability. So it is
not a distant subsidy.
Secondly, other industries and other forms of electric
power generation just don't have what that 1957 study, WASH
740, described as the ability to render an area the size of the
State of Pennsylvania uninhabitable and to do the levels of
damage that a nuclear powerplant could do. When you say that a
coal plant or a set of wind generators doesn't have a limit on
it.
Senator Voinovich. I'm talking chemical. There's all kinds
of industries that could cause terrible damage to society. All
I'm saying is you make a point but the other side of the coin
is that there is coverage there for people that are injured and
you might argue that it's not going to be enough to take care
of their problems and in that case they'd come back to Congress
and probably ask us, like they are in New York today, to come
forward with additional money to help pay for that.
Senator Reid. That's his whole point. That's the whole
point he's making.
Senator Voinovich. The whole point is that there are people
in this country that want to eliminate nuclear energy and I'm
saying at this stage of the game, we have a problem of
providing energy for those people who need energy today and
take care of our energy needs in the future and what we're
asking for is a renewal of something that's been around a long
time so that we can continue to do that and hopefully expand as
time goes on.
Senator Reid. I don't think Mr. Bradford is talking about
eliminating nuclear power. I haven't heard you say that.
Mr. Bradford. As others have said, if you remove the
liability limit in reauthorizing Price-Anderson, indeed if you
didn't reauthorize Price-Anderson, it would remain in effect
for the existing plants. So the idea that 20 percent of the
Nation's electric capacity will disappear if Price-Anderson is
substantially modified just doesn't hold. What we're talking
about is what kind of incentives removing the liability limit
would give to the types of electric generation or the
investments in energy efficiency--
Senator Voinovich. Mr. Bradford, that's the question I
asked before and Mr. Quattrocchi, you're the insurance man.
What's your answer to that? That is a very good point he makes,
why bother with reauthorizing Price was the first question I
asked. Why bother reauthorizing it if it takes care of the
people already in the business? Why bother?
Mr. Quattrocchi. Let me make a point.
Senator Reid. Let me say this: this committee has
jurisdiction over any perspective powerplants, nuclear power
plants. We have no jurisdiction over those already in operation
as far as Price-Anderson. That's the arrangement that was made
with Jeff Bingaman, chairman of the Energy Committee, so these
hearings relate to what's going to happen in the future with
nuclear power. Please go ahead.
[NOTE: Upon reviewing his statement, Senator Reid provided
the following clarification for the record: ``Since no action
on the Price-Anderson Act would leave existing plants
unnaffected, I am particularly interested in its effect on
potential new nuclear power plants. I recognize that the
Environment and Public Works Committee has jurisdiction over
all Nuclear Regulatory Commission licensed facilities--existing
and prospective. I have discussed this with several members.'']
Mr. Quattrocchi. In my view as an insurer, the Act
represents a balancing of interest between the public interest
and the need for insurers and nuclear operators to have a
certain semblance of certainty and predictability. If you take
away one leg of a three-legged stool, in this case the limit on
liability, the stool will fall over. For example, without a
limit on liability, how many utilities would accept joint
liability, responsibility for an accident in California for
which a utility in New York is now responsible to pay retro
premium? How many utilities would continue to accept that
responsibility? I think, Senator, very, very few, if any.
Senator Reid. Let me ask one last question. As I understand
Price-Anderson if there were a catastrophic incident, then
there is a responsibility to come forward with money.
Mr. Fertel. Yes. Even short of that, there is a
responsibility to come forth with money.
Senator Reid. What would happen if there were a
catastrophic accident, wouldn't that mean there would be less
ability to come forward and these companies would be in bad
shape? Where are we going to get the money? Mr. Guttman?
Mr. Guttman. Yes, you're talking about the deregulation
effect and the question I have is, is it possible that will
make it even worse because you may have all your eggs in one
company basket in Excelon or standalone plants which are
limited in liability so that they have no other source? If the
insurance industry is now saying they are going to cover
terrorism in their first $200 million, what does that mean
about the rest? That's nice but now you have real ambiguity. I
go to court representing all these fine folks, do I say it's
not the first $200 million, it's the whole $9 billion? Where is
that addressed in what you're thinking of because Senator
Voinovich is saying the industry is paying for this. They're
paying for it in the first $200 million. I think Mr. Bradford,
Ms. Brinkley and I are saying the lion's share, and what you're
suggesting, is the retrospective payment which is put at risk
by the deregulation and restructuring and have not been studied
and the NRC say we should look at this carefully.
Senator Reid. The subcommittee stands in recess.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned,
to reconvene at the call of the chair.]
[Additional statements submitted for the record follow:]
Statement of Hon. Harry Reid, U.S. Senator from the State of Nevada
I want to thank the witnesses for being here today to discuss the
reauthorization of the Price-Anderson Act.
As many of you know, Price-Anderson has been with us for a long
time.
The Act was first established almost 50 years ago for two purposes:
First, to allow for the commercial use of nuclear energy by
providing liability certainty to a complex, untested technology;
Second, to assure compensation to the public in the event of an
accident
I think we all agree that it has performed the first function
well--that was the easy part.
But it is the second that we must really address--that is the real
challenge.
We must not shirk that responsibility. You know the builders of the
Titanic told people it was unsinkable, and only when the boat was in
the water did its vulnerabilities become apparent.
Thankfully, the Price-Anderson ship has not been put to the test
yet. I hope it never is--but we must prepare for that possibility. And
it is our job to make sure we don't skimp on the legislative lifeboats.
What should we do?
The nuclear power industry went through its troubled teenage years
during the 1970s, moved through adolescence and has now settled into a
comfortable middle age. It no longer needs the federal government to
nurture it.
Over the years, Price-Anderson has shifted more to fulfilling the
second goal--providing the public with compensation in the event of a
catastrophic nuclear accident.
But the law has become an upgraded Model T, with original parts and
newfangled additions that just don't match. What we really need is a
brand new vehicle, one that is designed using today's understanding to
secure tomorrow's energy industry.
The generation and selling of electricity are very different today
than 50 years ago. For better or worse, we now have unregulated
electricity markets in many states, where competition is king and
consumers are no longer captive to rate monarchies.
A new electricity market demands a new Price-Anderson system.
This is not an easy task, however. The basic problem appears to be
that the costs of an accident would be just too big. How big? The
General Accounting Office reported in 1986 that the costs could be in
the tens of billions or even in the HUNDREDS of BILLIONS depending on
which way the wind is blowing.
There can be no doubt that without some form of insurance, no
nuclear power plant has the assets to cover the costs of a truly
catastrophic accident. The utility would simply go bankrupt first.
Unfortunately, even after 50 years, the private insurance industry
still is only willing to insure a nuclear power plant for a few hundred
million dollars--much less than the likely cost of a truly catastrophic
accident. The bulk of the Price-Anderson insurance comes from the
industry's promise to share the burden and costs--up to $9 billion--in
the event of an accident.
That's like promising to pay your health insurance premiums only
after you've been diagnosed with a debilitating disease--a disease that
will keep you bedridden for years, unable to work or otherwise take
care of yourself. NO insurance company would be willing to let you get
away with that. And we cannot allow nuclear power plants to operate
without adequate insurance.
The question we then have to ask is how can we fill the void left
by the private insurance companies and insure nuclear power plants for
a reasonable sum, in a way that is both fair to potential accident
victims and guarantees payment in the event of an accident.
Or perhaps the first question is why we should do this when we
don't do it for other industries. Maybe the market decision not to
insure nuclear power plants adequately means nuclear plants should not
be built, especially now that other, safer alternative energy sources
are available.
Today, I hope to hear our witnesses address these issues.
__________
Statement of Hon. James M. Jeffords, U.S. Senator from the State of
Vermont
I am pleased to be here this morning to hear testimony regarding
reauthorization of the ``Price-Anderson'' provisions of the Atomic
Energy Act. My good friend Senator Reid, who as subcommittee chair has
called this hearing, will be delayed slightly, so I am happy to proceed
this morning on his behalf.
Price-Anderson was enacted in 1957 as an amendment to the Atomic
Energy Act. Its purpose was to ensure that adequate funds would be
available to compensate victims of a nuclear accident, and to remove
the threat of unlimited liability that would deter private companies
from engaging in nuclear activities.
Price-Anderson is due to expire on August 1, 2002. However,
existing Price-Anderson coverage for already-licensed power plants will
not expire, since under the law, existing power plants are covered for
the lifetime of the facility. The Price-Anderson coverage we are
talking about is that which will apply to any new facilities licensed
after August. Nuclear power supplies a very important part of our
energy mix. In Vermont, nuclear power from the Vermont Yankee plant
provides almost 30 percent of our electricity, as well as providing
electricity to other New England States. Nationwide, nuclear power
produces 20 percent of our electricity use. As an emissions-free energy
source, it has many benefits.
However, nuclear energy is also burdened with serious concerns over
waste disposal, and safety. Price-Anderson acts as a means of
encouraging the development of nuclear power, and also sets a framework
for providing financial coverage in the event of an accident at any of
our nation's nuclear power facilities. Price-Anderson provides several
important public benefits including simplifying claims in the event of
an accident, and providing for immediate reimbursement in the case of
an emergency. There are nonetheless a number of very legitimate
questions about the appropriateness and adequacy of this legislation.
For example, how do we best ensure that companies have sufficient
financial resources to pay the deferred premiums, which are not due
until an accident occurs but which form the bulk of the coverage
amounts?
Also, while the approximately $9 billion coverage, per nuclear
accident, that Price-Anderson would supply is high in terms of
insurance coverage, is it sufficient to cover the actual public and
private costs of a catastrophic nuclear accident?
Price-Anderson was initially contemplated as temporary coverage to
help a fledgling industry. Should that coverage now be extended
indefinitely as some would suggest? Does this kind of insulation from
liability, with the Federal government bearing responsibility for
anything above the $9 billion per accident coverage, unfairly benefit
the nuclear industry over other desirable energy forms such as wind and
solar? Is existing Price-Anderson coverage sufficiently broad to cover
terrorist acts?
These are all very important issues, and I thank today's witnesses
for sharing their time and expertise with the committee.
__________
Statement of Hon. James M. Inhofe, U.S. Senator from the State of
Oklahoma
Last September, when I attempted to attach a national energy policy
to the defense bill, I argued that a diverse and domestically produced
energy supply was key to our national and economic security. I have
been saying this for almost 20 years now. In the 1980's, when I was in
the House, Secretary of Energy Don Hodel and I went on a national
speaking tour on energy policy. Our message was that our nation must
have adequate supply of energy at competitively sound prices to ensure
national and economic security. This same message endures and applies
today.
We must utilize the broadest possible base of our God-given
resources: nuclear, oil, gas, coal, alternative, sun, wind, and
conservation itself--among others--as a means of making these resources
more available.
Currently, 103 U.S. nuclear units supply about 20 percent of the
electricity produced in the United States. Going forward into the
future, nuclear energy must be a key component of any national energy
plan. The first step in that direction must be Price-Anderson
Reauthorization. The Administration's National Energy Policy
Development group agrees with this statement. I would like to insert
the National Energy Policy Development group's findings and
recommendations regarding nuclear energy into the record.
Because nuclear energy is an emission-free source of electricity,
nuclear energy is also a key component to our national clean air goals.
Each year, according to the Nuclear Energy Institute, U.S. nuclear
power plants prevents 5.1 million tons of sulfur dioxide, 2.4 million
tons of nitrogen oxide, and, 164 million metric tons of carbon from
entering the earth's atmosphere.
Furthermore, as a former insurance executive, I think Price-
Anderson, as an insurance program, is a good deal for the public. For
over 45 years, Price-Anderson has:
provided immediate and substantial private compensation
to the public in the event of a nuclear accident;
provided coverage for precautionary evacuations and out-
of-pocket expenses;
reduced delays often inherent in tort cases; and
consolidated all cases into a single federal court.
Price-Anderson renewal enjoys substantial bi-partisan support. Both
the Bush Administration and the previous Clinton Administration, which
had submitted reports from NRC and DOE in the late 1990s supporting
renewal of the Act with few changes, support reauthorization. The House
has already passed by voice vote a Price-Anderson reauthorization bill
that makes few changes to the commercial reactor provisions of the law.
While I understand that the chairman and others have concerns about
Price-Anderson, we must work together to get this done by this August
it is essential to the future of our national, energy, and
environmental security.
__________
Statement of Hon. George V. Voinovich, U.S. Senator from the State of
Ohio
Mr. Chairman, thank you for holding today's hearing on the
reauthorization of the Price Anderson legislation.
As you know, I have introduced the Bill to reauthorize the Price
Anderson Act, S. 1360. My Bill is cosponsored by Senator Smith and
Senator Inhofe, the ranking members of both the full and subcommittee,
and I appreciate their support on my legislation.
Mr. Chairman, as you know this law was first passed in 1957 and has
been renewed three times since. The current version expires on August
1st of this year. Mr. Chairman, this is important legislation which
provides the insurance program for commercial nuclear power plants and
Department of Energy facilities.
I am pleased that the House of Representatives passed their version
of the Bill on November 27th last year, and I hope that this committee
and the Senate can move quickly to reauthorize this program early this
year. This is the type of must-pass legislation that keeps the trains
of government running on time.
I think it is important to note that during the previous
Administration, both the Department of Energy and the Nuclear
Regulatory Commission issued reports to Congress recommending the
reauthorization of the law.
The Reports also called for a doubling of the annual premium paid
by the nuclear reactors from $10 million to $20 million. This
recommendation was made prior to the relicensing process and at that
time the NRC projected that up to half of our nuclear reactor fleet
would retire instead of being relicensed. However, thanks to the
regulatory improvements made to the process, largely due to the
oversight of this subcommittee, the NRC believes that most of our
nuclear reactors will in fact be relicensed. Therefore, the NRC issued
a statement last year revising their projections and recommending that
the annual premium not be increased, and our legislation follows their
recommendations.
Mr. Chairman, currently nuclear energy provides approximately 20%
of our energy needs while fossil fuels such as coal and natural gas
provide the bulk of the remainder. Coal and nuclear power have been
inappropriately demonized over the last few years but the fact of the
matter is both are efficient and cost-effective sources of energy, and
like it or not we are going to be dependent upon them for the
foreseeable future.
Like many of my colleagues, I support investing in renewable
energy. As a matter of fact, the Murkowski energy bill, which I am a
co-sponsor, the first title is energy conservation, and the second is
renewable energy. We provide over $5 billion for energy efficiency
activities and $1.3 billion for renewable fuels; nevertheless we need
to understand that wind and solar currently provide less than 1/10 of
1% of our energy needs. Even with significant investment these sources
would not come close to meeting our growing energy demand, or replace
our current energy sources.
It is extremely important that we maintain and expand nuclear power
if we are to meet current and future energy needs. This legislation is
fundamental to that happening as well as to providing insurance for the
Department of Energy facilities.
Mr. Chairman, again I appreciate you holding this important
hearing. I realize you have issues regarding the status of Yucca
Mountain but I appreciate your ability to separate the renewal of this
relatively non-controversial program from the larger issue of waste
storage. This program is important to the thousands of government
contractors who work for DOE and to our nation's nuclear reactors.
Thank you.
__________
Statement of William F. Kane, Deputy Executive Director for Reactor
Programs, U.S. Nuclear Regulatory Commission
Mr. Chairman, Members of the subcommittee, I am pleased to appear
before you today to present the views of the Nuclear Regulatory
Commission (NRC) on extending and amending the Price-Anderson Act.
As you know, legislation will be needed to extend the Price-
Anderson Act. The Act, which expires on August 1, 2002, establishes a
framework that provides assurance that adequate funds will be available
to compensate the public in the event of a nuclear accident and sets
out a process for considering nuclear liability claims. Without the
framework provided by the Act, new private-sector participation in
nuclear power would be discouraged because of the risk of potentially
large liability claims if such an accident were to occur.
I am here to deliver the strong and unanimous recommendation of the
Commission that the Price-Anderson Act be renewed with only minor
modifications. However, I would like to preface my statement of that
position with the reminder that the Commission's primary concern is
public health and safety. We are not a promotional agency. Our mission
is to ensure the safe use of nuclear power and materials. We can look
back on a successful history of safe operation and intend to exercise
vigilance to maintain or improve on this record of safety. Nonetheless,
it remains important to assure that if an improbable accident should
occur, the means are provided to care for the affected members of the
public.
As you know, Congress first enacted the Price-Anderson Act in 1957,
nearly a half century ago. Its twin goals were then, as now:
to ensure that adequate funds would be available to the
public to satisfy liability claims in a catastrophic nuclear accident;
and
to permit private sector participation in nuclear energy
by removing the threat of potentially enormous liability in the event
of such an accident.
On original passage the Congress provided a term during which the
Commission could extend Price-Anderson coverage to new licensees and
facilities. When that term expired, the Congress then, and repeatedly
since, decided that the nation's energy policy would be served by
extending the Price-Anderson Act so that coverage would be available
for newly licensed reactors. This action preserved the option of
private sector nuclear power and assured protection of the public. At
this point, in order to avoid confusion, I should note that Price-
Anderson coverage for NRC licensees is granted for the lifetime of the
covered facilities and does not ``expire'' in 2002. Thus, in any event,
Price-Anderson coverage with respect to already licensed nuclear power
reactors will continue and will afford prompt and reasonable
compensation for any liability claims resulting from an accident at
those facilities.
While Congress has amended the Price-Anderson Act from time to
time, it has done so cautiously so as to avoid upsetting the delicate
balance of obligations between operators of nuclear facilities and the
United States government as representative of the people.
Perhaps the most significant amendments to date were those that
effectively removed the United States government from its obligation to
indemnify any reactor up to a half billion dollars and instead placed
that burden on the nuclear power industry. Congress achieved this by
mandating in 1975 that each reactor greater than 100 MW, essentially
each reactor providing power commercially, contribute $5 million to a
retrospective premium pool if and only if there were damages from a
nuclear incident that exceeded the maximum commercial insurance
available. The limit of liability was then $560 million. Government
indemnification was phased out in 1982 when the potential pool and
available insurance reached that sum.
In 1988, Congress increased the potential obligation of each
reactor in the event of a single accident at any reactor to $63 million
(to be adjusted for inflation). The maximum liability insurance
available is now $200 million. When that insurance is exhausted each
reactor must pay into the retrospective premium pool up to $83.9
million, as currently adjusted for inflation, if needed to cover
damages in excess of the sum covered by insurance. The $83.9 million is
payable in annual installments not to exceed $10 million. Today, the
commercial insurance and the reactor pool together would make available
over $9 billion to cover any personal or property harm to the public
caused by an accident.
In 1998, as mandated by Congress, the Nuclear Regulatory Commission
submitted to the Congress its report on the Price-Anderson system. The
report included a concise history and overview of the Price-Anderson
Act and its amendments as well as an update on legal developments and
events pertaining to nuclear insurance and indemnity in the last
decade. Congress had also required the NRC to address various topics
that relate to and reflect on the need for continuation or modification
of the Act: the condition of the nuclear industry, the state of
knowledge of nuclear safety, and the availability of private insurance.
After considering pertinent information, the Commission considered
what its recommendations should be. It concluded then that it should
recommend that Congress renew the Price-Anderson Act because it
provides a valuable public benefit by establishing a system for the
prompt and equitable settlement of public liability claims resulting
from a nuclear accident. That, as I said at the outset, remains today
the strongly held position of the Commission.
Having noted that substantial changes in the nuclear power industry
had begun and could continue, the Commission believed it would be
prudent to recommend renewal for only 10 years rather than the 15-year
period that had been adopted in the last reauthorization so that any
significant evolution of the industry could be considered when the
effects of ongoing changes would be clearer. Notwithstanding that view,
the Commission recommended that the Congress consider amending the Act
to increase the maximum annual retrospective premium installment that
could be assessed each holder of a commercial power reactor license in
the event of a nuclear accident.
The NRC suggested that consideration be given to doubling the
ceiling on the annual installment from the current sum of $10 million
to $20 million per year per accident. The total allowable retrospective
premium per reactor per accident was to remain unchanged at the
statutory ``$63 million'' adjusted for inflation. (It is now $83.9
million as so adjusted). The Commission recommended consideration of an
increase to $20 million because it then appeared likely that in the
coming decade a number of reactors would permanently shut down. The
effect of these shutdowns would have been to reduce the number of
contributors to the reactor retrospective pool. Fewer contributors
would, in turn, reduce the funds that, in the event of a nuclear
accident, would become available each year to compensate members of the
public for personal or property damage caused by an accident.
Increasing the maximum annual contribution available from each reactor
licensee would provide continuing assurance of ``up front'' money to
assist the public with prompt compensation until Congress could
consider whether to enact additional legislation providing further
relief, should it be needed.
Further developments in the electric generation industry since the
1998 report to Congress have led the Commission to review its 1998
recommendations and to re-evaluate its recommendation that Congress
consider increasing the annual installment to $20 million. There is now
a heightened interest in extending the operating life for most, if not
all, of the currently operating power reactors, and some power
companies are now examining whether they wish to submit applications
for new reactors or complete construction of reactors that had been
deferred. As a result, contrary to our former recommendations, the
Commission does not believe that there is now justification for raising
the maximum annual retrospective premium of $10 million. This level is
adequate and does not need to be changed.
In summing up, I would like to leave these thoughts with you. To
date, the United States government has not paid a penny for claims
against nuclear power plant licensees. In the event a serious accident
were to occur, over $9 billion will be available to pay compensation
for any personal injury or offsite property damage. The money will come
from insurance policies bought by the industry and from retrospective
premiums that will be paid by industry. If those funds are inadequate,
Congress will be called upon to decide what action is needed to provide
assistance to those harmed. We believe the public is protected by the
broad base of prompt funding. The Price-Anderson Act further aids the
public by establishing important procedural reforms for claims arising
from nuclear accidents. It channels liability to the licensee,
establishes a single Federal forum for all claims, eliminates the need
to prove fault, requires waivers of other significant defenses, makes
prompt settlements possible, and, if litigation is needed, establishes
legal management processes to assure fairness and equity in
distribution of damage awards.
The Commission reiterates its support for the Price-Anderson Act
Reauthorization.
Thank you Mr. Chairman. I welcome your comments and questions.
______
Responses of William F. Kane to Additional Questions from Senator
Voinovich
Question 1. In Mr. Guttman's testimony, he raises concerns about
the adequacy of the NRC's oversight of the decommissioning funds as
utilities restructure. He quotes from a December 2001 GAO Report, which
criticizes the consistency of NRC oversight. Could you comment on this
report?
Response. The NRC is completing its comments on the final report
and will send them to GAO and Congress, as required. The comments will
also be submitted for the hearing record.
Question 2. It is my understanding that the Clinton Administration
called for the reauthorization of Price-Anderson with very few changes.
Is this correct and could you summarize the changes that were
requested?
Response. Both the Nuclear Regulatory Commission (NRC) and the
Department of Energy (DOE) during the Clinton Administration submitted
statutorily mandated reports to Congress on the reauthorization of
Price-Anderson. In their respective reports, both NRC and DOE
recommended that the Act be renewed.
In its 1998 report which solely addressed application of the Price-
Anderson Act to incidents arising from NRC regulated facilities, the
NRC concluded that, in view of the strong public policy benefits in
ensuring the prompt availability and equitable distribution of funds to
pay public liability claims, the Price-Anderson Act should be extended
to cover future reactors. The Commission recommended that the same
amount, type and terms of public liability protection required for
current licensees should be required for future plants. In its only
significant recommended change, the NRC suggested that Congress
consider increasing the maximum annual installment on the retrospective
premium that each reactor licensee would be responsible to pay
following an accident from $10 million to $20 million. However, the NRC
did not recommend a change in the total maximum retrospective premium
amount, now $83.9 million. As you are aware, the Commission has
subsequently withdrawn its recommendation that the $10 million maximum
annual retrospective premium be raised. (See Response to Senator Reid's
Question 1.)
The DOE report (which presumably represented the views of the
Clinton Administration) addressed the Price-Anderson Act solely with
respect to DOE's facilities and contractors, subcontractors and
suppliers. DOE recommended renewal with very few changes.
The report contained five recommendations: (1) The DOE
indemnification should be continued without any substantial change; (2)
The amount of the DOE indemnification should not be decreased; (3) The
DOE indemnification should continue to provide broad and mandatory
coverage of activities conducted under contract for DOE; (4) DOE should
continue to have authority to impose civil penalties for violations of
nuclear safety requirements by for-profit contractors, subcontractors
and suppliers; and (5) The Convention on Supplementary Compensation for
Nuclear Damage should be ratified and conforming amendments to the
Price-Anderson Act should be adopted.
______
Responses of William F. Kane to Additional Questions from Senator
Inhofe
Question 1. In past years there have been a number of studies that
predict losses of life and massive property damage. These studies put
forth numbers that are in the range of $59 billion to over $300
billion.
For what purpose were these studies conducted and what relevance do
they have to liability coverage provided by the Price-Anderson Act?
Response. There have been a number of studies done over the years
on the probabilities and consequences of nuclear accidents. Some of the
studies have been done by AEC, NRC, DOE, and other, non-governmental
groups. The NRC did not sponsor and was not involved with studies that
indicated damages in the range of $59 billion to over $300 billion.
Thus, the NRC is unable to comment on the purposes of these studies and
has no opinion on their relevance.
However, the studies that the AEC and NRC did sponsor were used
primarily to evaluate the risk of severe accidents at nuclear power
plants and to develop appropriate regulations and reactor oversight to
minimize those risks. The studies were not used directly as a basis by
Congress to establish the limit of liability under the Price-Anderson
system. The NRC believes that the potential damages from most serious
accidents would be covered by the current limit of liability of
approximately $9 billion. In 1975, Congress explicitly committed to
take necessary action to protect the public from the consequences of a
disaster of such magnitude. In the 1988 Amendments, Congress redefined
the procedures it would follow and described the goal as ``full and
prompt compensation'' to the public for ``all public liability claims''
resulting from such a significant incident. SENATOR INHOFE
Question 2. Given the deregulation of electricity markets, can we
be reasonably assured that utilities can pay the retrospective
premiums? What would happen if a company declared bankruptcy, as did
Pacific Gas and Electric Company?
Response. Under 10 CFR 140.21, the NRC requires its reactor
licensees that are covered under the Price-Anderson system to provide
annual guarantees of payments of retrospective premiums. These
guarantees are applicable to rate deregulated companies as well as
traditional electric utilities.
Under Part 140, a licensee is required to pay the retrospective
premium, notwithstanding its financial status. However, the NRC could
potentially face a conflict with other claims in a bankruptcy
proceeding if there were an accident sufficient to trigger a
retrospective premium assessment. The NRC would presumably require a
licensee to pay the assessment, but the bankruptcy court could order
the licensee not to pay it.
In the specific case of Pacific Gas and Electric Company's (PG&E)
Chapter 11 filing, the NRC is being represented by the Department of
Justice. It is unlikely that this issue will be specifically addressed
unless there is an actual accident triggering a retrospective premium
assessment during PG&E's time in bankruptcy. Also, as a practical
matter based on previous utility bankruptcies, it is likely that the
bankruptcy court will take on the order of 2 to 3 years to restructure
PG&E's debts and complete the bankruptcy proceeding. Even if a severe
accident occurs during this time, it is likely that the primary, $200
million layer will be sufficient to handle any short-term claims.
Latent injury claims will take several years to arise and, even with
the relatively streamlined Price-Anderson claims settlement structure,
many shorter-term claims will likely end up before a Federal court for
several years, with the result that retrospective premiums may not need
to be called for until after a licensee emerges from bankruptcy.
Although a conflict between the NRC and other claims in a
bankruptcy proceeding is possible, the NRC has had positive experiences
so far with bankruptcy courts that have overseen Chapter 11
reorganizations of power reactor licensees. (So far, no power reactor
licensees have filed for Chapter 7 liquidation. Because generators of
electricity typically provide an essential service, it is unlikely that
they would be liquidated unless their assets had become worthless. If
liquidated, the reactor, as a valuable economic asset, would likely be
sold to another company at the direction of the bankruptcy court and
after approval by the NRC.) In the cases of Public Service Company of
New Hampshire (Seabrook), Cajun Electric Cooperative (River Bend), El
Paso Electric (Palo Verde), and Vermont Electric Generation &
Transmission Cooperative (Millstone 3), the bankruptcy courts allowed
these bankrupt licensees to pay all safety-related operational and
decommissioning expenses (including, we understand, Price-Anderson
primary layer and onsite property insurance premium payments). During
its bankruptcy, PG&E has continued to meet all safety-related expenses
for its nuclear plants.
The NRC has sought legislation from Congress to ensure that
decommissioning costs receive explicit priority in bankruptcy
proceedings. So far, the legislation has not been enacted. The NRC
would support legislation to prioritize safety-related claims in
bankruptcy proceedings and to address any potential conflict between
the requirement to pay retrospective premiums and other claims in a
bankruptcy proceeding if Congress determines such legislation would be
appropriate.
______
Responses of William F. Kane to Additional Questions from Senator
Graham
Question 1. Mr. Fertel of the NEI has testified that the groundwork
is being laid for smaller modular reactors to come online. It was Mr.
Fertel's testimony that Price-Anderson be amended to include these
smaller reactors. You mention that the industry has undergone and could
still undergo substantial change but make no mention of modifications
to allow for these new types of power plants. Do you agree that these
smaller reactors should come under the auspices of Price-Anderson?
Response. Any reactor, no matter what its capacity, is mandatorily
indemnified under the provisions of the Price-Anderson Act. Under
current law even the smallest of the modular reactors under
consideration would be required to buy the maximum insurance and be
responsible for retrospective premiums. What the proponents of modular
reactors seek is to allow these smaller reactors to be grouped and to
buy the maximum insurance available for one reactor and to pay only one
retrospective premium. The Commission agrees that the modular reactors
should be covered under Price Anderson. However, the Commission has not
taken a position whether modular reactors should be given special
treatment. At the request of Senator Murkowski, the Commission provided
the attached language to accomplish the grouping of modular reactors
for the purposes of the retrospective premium without taking a position
on whether the proposal should be enacted. In the bill that was passed
by the House last year, H.R. 2983, provisions were included to address
this issue.
__________
Responses of William F. Kane to Additional Questions from Senator Reid
Question 1. In 1998, the NRC recommended raising the retrospective
premium to $20 million from $10 million. The NRC has recently reversed
this position, because it appears many plants will not be shut down. It
would appear that having more utilities seek license extensions would
indicate the industry is more, not less viable. In real dollars $10
million is much less today than it was in 1988. If the industry is more
viable today than anticipated, shouldn't the industry be able to make a
larger annual payment or at least one that keeps up with inflation?
Response. In a letter dated May 11, 2001, from Chairman Meserve to
the Congress, the NRC indicated that it was withdrawing its previous
recommendation that Congress should consider raising the maximum annual
retrospective premium to $20 million and recommended, instead, that the
premium remain at the current $10 million level. The annual
retrospective premium determines the rate at which the funds for the
retrospective premium pool will be collected. It does not influence the
total amount to be collected in the retrospective premium pool. That
amount remains the same despite a change in the retrospective annual
premium. When the NRC made its original recommendation to Congress in
1998 that the annual retrospective premium be increased from $10
million to $20 million, the NRC was concerned that projections of
reactor shutdowns would decrease the available pool of reactor
licensees to pay retrospective premiums. However, recent changes in the
industry suggest that the NRC's original concerns have been
substantially met by revised decisions to continue plant operation,
due, in part, to the expectation of the nuclear industry that most, if
not all, power reactors will seek license extension.
The NRC also notes that, while the $10 million annual retrospective
premium assessment has not been indexed to inflation, the overall
assessment per reactor has been indexed. Thus, assuming that the number
of reactors in the retrospective premium pool essentially remains the
same, the overall amount of funds available for payment of claims under
Price-Anderson will increase over time as the overall payments are
adjusted for inflation. For example, a licensee of a single plant would
be liable for a payment of $83.9 million per accident. This amount
would be payable of a maximum of $10 million annually for approximately
8.4 years. As the $83.9 million payment is increased to take into
account inflation, the licensee would still be required to pay only $10
million each year, but would be obligated to pay over a longer period
until the total assessment were paid.
Because the bulk of claims arising from a serious accident are
likely to arise from latent injuries that may take years, or even
decades, to appear, the NRC does not believe that keeping the maximum
annual retrospective premium assessment at $10 million will limit the
amount of funds available to claimants when actually needed. Further,
the Price-Anderson Act (Section 170(o) of the Atomic Energy Act)
provides that no more than 15 percent of the limitation of liability,
which is approximately $1.35 billion, can be paid out before a Federal
district court is required to approve a plan for distribution of Price-
Anderson funds. With the current $10 million annual retrospective
premium assessment and 106 reactors presently under the system, a total
of $1.26 billion, including $200 million in primary insurance, is
available to pay shorter-term claims. Therefore, it is not necessary to
increase the annual retrospective premium to pay for shorter-term
claims that would be subject to detailed judicial review over several
years.
Question 2. Under the Price-Anderson Act, if the NRC determines
that assessing payment of insurance premiums including the $10 million
per year annual premium would result in undue financial hardship or
there was more than one nuclear incident in a year, funds would be
sought from the U.S. Treasury to pay these costs. What rules does the
NRC [have] in place that state the criteria and process by which such
determination will be made, and to identify the steps to be taken if a
financial hardship determination is made.
Response. The NRC has no rules in place that are specific to that
purpose. In the near-half-century since enactment of Price-Anderson,
there has been no call for funds in excess of the required first layer
of insurance, and since creation in 1975 of the retrospective premium
pool, no call has been made on that pool for funds. In the event that
there were to be a call for funds and also financial hardship on the
part of one or more reactor licenses, the Commission expects that any
requests for special treatment would be entertained on a case-by-case
basis in light of the public interest and the congressional purpose in
enacting the statute.
If it were to appear necessary or desirable, following an accident,
the NRC could promulgate regulations governing the assessment of lower
annual payments to the retrospective premium pool without delaying
compensation of victims. The insurers would stand ready to pay out $200
million immediately, and even assuming several defaults, some 90 to 100
reactors would be paying $10 million each immediately if called on. A
similar payment from the reactor pool, if needed, could be expected in
subsequent years. These funds would appear to be able to bridge any gap
until the Commission promulgated any needed regulations. Thus, the
regulations could be established significantly earlier than one could
expect court judgments which would trigger the need for significant
sums to pay damages. In the event of an accident where damages could
reach or exceed the limit of liability, Price-Anderson prohibits
payments in excess of 15 percent of the total limit of liability
without court approval based on a distribution plan to be drawn up and
adopted by the court or a court determination that the distribution
will not prejudice such a plan.
It is also important to note, first, that currently the nuclear
insurers cover defaults of individual licensees in paying the annual
premium up to a total of $30 million in a single year, i.e. it would
cover three separate defaults of the annual $10 million payment or a
greater number of partial defaults in 1 year. The coverage would be for
a maximum total of $60 million. Second, payment by the insurers or by
the NRC with funds advanced by the U.S. Treasury does not excuse the
defaulting licensee from its obligation to pay the full retrospective
premium assessed. The licensee would remain legally obligated for that
sum and, at least in the case of Federal funds advanced to the
licensee, is statutorily required to repay at a later date with
interest. See Atomic Energy Act of 1954, as amended, Sec. 170b.(2)(B)
&(3).
Question 3. Has the NRC considered whether the Price-Anderson Act,
as currently enacted, covers acts of terrorism? Please provide
explanation of how to define ``acts of terrorism.'' For example, should
``acts of terrorism'' be defined in distinction from ``acts of war,''
which are currently excluded from coverage?
Response. ``Acts of terrorism'' are not excluded from Price-
Anderson coverage; thus, claims for damages arising out of these acts
would be covered. In the definition of ``public liability'' in Section
11.w of the Atomic Energy Act of 1954, as amended, ``claims arising out
of an act of war'' are excluded from coverage. This definition is of
course a statutory provision enacted by the Congress. While any needed
interpretation of those terms by the agency entrusted to administer
them is generally respected by the courts if it is a reasonable one, a
question of this nature and magnitude--whether particular ``acts of
terrorism'' constitute an ``act of war'' excluded by Price-Anderson--
would likely need to be resolved by a court in the first instance.
Question 4. Has the NRC considered court decisions that appear to
limit Price-Anderson Act coverage, to accidental as opposed to
intentional, conduct e.g., In Re Cincinnati Radiation Litigation, 874
F. Supp 796 (SD Ohio 1995)? If so, provide the analyses of the scope
and validity of these decisions. If not, does the NRC agree that the
Price-Anderson Act, as currently in effect: (a) is limited as these
court decisions provide; and (b) should be so limited.
Response. It is NRC's view that Price-Anderson Act coverage extends
to both accidental and intentional acts which cause a nuclear incident,
i.e., an unlikely but conceivable nuclear event or condition involving
an unexpected or unwanted exposure to radiation that causes
radiological harm. Moreover, based on the legislative history of the
Act, it is clear that Congress was aware that it was enacting
legislation which would cover damages from a nuclear incident caused by
an intentional act of sabotage and would indemnify the wrongdoer. No
case of which we are aware holds otherwise. The purpose of the Act,
simply stated, was to assure the public that it would be financially
protected in the event of a nuclear incident involving a facility, or
its material. To accomplish this end, Congress deemed it appropriate to
impose special financial protection requirements. These include the
requirement that the licensee and the Atomic Energy Commission (now NRC
or, as relevant, DOE) execute an indemnification agreement that would
in turn indemnify any person who has caused the nuclear incident.
Congress imposed these provisions to fill a void where commercial
insurance was unavailable to cover the possibly enormous costs of
damages in the event of a highly unlikely incident.
Nonetheless, the In re Cincinnati Radiation Litigation court
correctly denied claims that Price-Anderson coverage extends to
intentional, harmful acts by medical personnel in experimental
irradiation of human subjects in which the facilities performed as
designed without incident. In those experiments there was no ``nuclear
incident.'' The court found the nuclear source did not malfunction, but
rather ``was employed as intended'' and thus could not give rise to a
claim under Price-Anderson. Otherwise stated, the radiological harm
occurred in the absence of a nuclear occurrence or incident. Moreover,
and significantly in this case, the Court agreed that ``Price-Anderson
was never intended to create a Federal claim for the contained
application of nuclear medicine and that such use of radiation in a
controlled environment is distinguishable from the Fernald and Three
Mile Island occurrences typical of those that the 1988 Amendments were
designed to address.'' 874 Fed. Supp at 832.
Question 5. Has the NRC considered whether court decisions that
indicate that the Price-Anderson Act should apply to product liability
claims, such as the leaking of tritium out of Swatch watches (see,
e.g., Gassie v SMH Swiss Corp, 1998 U.S. Dist Lexis 2003 (ED La 1998)).
If so, please provide the analysis. If not, does the NRC agree that the
Price-Anderson Act, as currently written: (a) does apply to such
claims; and (b) should apply to such claims.
Response. At the outset, it may be helpful to clarify which of two
common uses of the term ``Price-Anderson Act coverage'' is at issue
here. First, the narrow (but common and frequently used) meaning of
Price-Anderson coverage is that by the terms of an executed indemnity
agreement between NRC and its licensee (or with DOE, its contractor)
there is an assured scheme for insurance or other compensation funding
and for indemnification of anyone liable for damages arising from a
nuclear incident up to the limit of liability provided by the Price-
Anderson Act. Second, the broader effect of Price-Anderson coverage is
that there is original jurisdiction in a United States District Court
or mandatory removal to a United States District Court.
Under the more narrow meaning, Price-Anderson clearly does not
cover the Swatch watches because no such indemnification agreement
exists with the producer of that product. Furthermore, the Commission
has not specifically considered whether the Price-Anderson Act should
apply to product liability claims such as the leaking of tritium out of
Swatch watches. However, it is unlikely that such consumer product
manufacturers would be granted Price-Anderson coverage because, among
other possible reasons, there has been no demonstrated difficulty in
obtaining adequate liability insurance. Other than its application to
reactors, fuel facilities and the transportation and interim storage of
certain nuclear wastes, the only application of Price-Anderson the
Commission has considered in detail was whether Price-Anderson
indemnification should be extended to cover the manufacture of
radiopharmaceuticals. The Price-Anderson Act Amendments of 1988
required the Commission to conduct a negotiated rulemaking on that
issue. After an extensive examination of the pros and cons of such an
extension, the Commission concluded that it should not indemnify the
manufacture of radiopharmaceuticals.
With respect to the broader effect of Price-Anderson coverage, the
Commission has not had occasion to consider Gassie, a case not
published in official reporters, and thus can neither agree nor
disagree with that court's decision. Whether or not original Federal
jurisdiction was available in a products liability case involving
claimed radiological harm from wrist watches was at issue in the Gassie
case cited in the question. The Commission also has not considered
whether or not Price-Anderson jurisdictional provisions should apply to
radiological harm from a source outside of the sphere of the production
of nuclear energy which was the focus of the original enactment. A
broad jurisdictional grant would support consistent application of any
Federal regulation that might be applicable, while a narrower grant
would show greater deference to State courts and possibly avoid some
increase in the Federal dockets. These policy considerations are among
those that the Congress might wish to consider.
Question 6. Do the NRC's license transfer requirements specifically
and expressly provide for review of the new owner(s) ability to assure
that Price Anderson Act financial protection payments (including any
retrospective payments) will be available if needed? If yes, please
provide a copy of the provisions referred to.
Response. The NRC's license transfer requirements are contained in
10 CFR 50.80 and do not specifically or expressly refer to a
transferee's ability to meet financial protection payments under the
Price-Anderson system. However, 10 CFR 140.21 requires reactor
licensees that are covered under the Price-Anderson system to provide
annual guarantees of payments of retrospective premiums. When the NRC
reviews a license transfer applicant's technical and financial
qualifications to own and operate the facility being transferred, it
ensures that applicants will obtain required Price-Anderson coverage
and evaluates an applicant's guarantees of payment of retrospective
premiums pursuant to 10 CFR 140.21. General findings on financial
qualifications are contained in the Safety Evaluations prepared by the
NRC staff that accompany the approval (or denial) of the license
transfer. The NRC also understands that American Nuclear Insurers,
which provides primary coverage under the Price-Anderson system and
administers the secondary, retrospective premium assessment layer,
requires its own guarantees of payment of retrospective premiums from
the transferee.
Question 7. Would the NRC support amendments to the Price Anderson
Act that require the same insurance coverage and the same emergency
planning requirements for decommissioned reactors with spent fuel pools
as it requires for operating reactors? If not, why not?
Response. There are presently ten reactors that have been granted
exemptions from providing the maximum amount of primary insurance and
from participating in the secondary retrospective insurance pool. The
licensees of these reactors are required to provide primary insurance
under the Price-Anderson system of $100 million. These reactors are in
various stages of decommissioning. The NRC is currently preparing an
assessment of emergency planning and insurance issues, among others,
and is evaluating whether these exemptions should be continued and if
so, whether they should be modified, i.e., made less or more strict.
This evaluation is expected to be completed later this year.
Question 8. After approving a reactor license transfer to a limited
liability corporation (LLC), does the NRC regularly review the
financial viability of reactor licensees to assure they can afford to
make payments for secondary insurance under Price-Anderson? Please
explain.
Response. Yes. As described in the answer to Question 6 from
Senator Reid, power reactor licensees are required, pursuant to 10 CFR
140.21, to provide, annually, guarantees of payment of retrospective
premiums. The NRC annually reviews these guarantees for all its power
reactor licensees, including those that are LLCs. All licensees so far,
including LLCs, have used the cash-flow method of guarantee allowed
under Sec. 140.21; that is, a licensee may demonstrate that it has
sufficient cash-flow over 3 months to meet a $10 million retrospective
premium payment for each reactor that it owns. As long as an LLC
chooses that method and is able to pass the financial test for cash-
flow each year, no additional guarantee is required. However, if a
licensee cannot pass the cash-flow test, it must provide some other
allowable guarantee. Such alternative guarantee methods include surety
bonds, letters of credit, revolving credit/term loan arrangements,
maintenance of escrow deposits of government securities, or such other
type of guarantee as may be approved by the NRC. This final type of
guarantee could include a guarantee by the parent company of an LLC, if
approved by the NRC.
Question 9. In the event of bankruptcy, what NRC provisions are
there to assure that a licensee would be able to meet their obligations
for secondary protection? Has NRC established any requirements to
assure that such funds are bankruptcy remote?
Response. Under 10 CFR 140.21, the NRC requires its reactor
licensees that are covered under the Price-Anderson system to provide,
annually, guarantees of payments of retrospective premiums. These
``guarantees'' are applicable to rate deregulated companies as well as
traditional electric utilities. Under Part 140, a licensee is required
to pay the retrospective premium, notwithstanding its financial status.
However, the NRC could potentially face a conflict with claims in
bankruptcy proceeding if there were an accident sufficient to trigger a
retrospective premium assessment, in that the NRC would presumably
require a licensee to pay the assessment, but the bankruptcy court
could order the licensee not to pay it. Nonetheless, the NRC has had
essentially positive experiences so far with bankruptcy courts that
have overseen Chapter 11 reorganizations of power reactor licensees.
(So far, no power reactor licensees have filed for Chapter 7
liquidation. Because generators of electricity typically provide an
essential service, it is unlikely that they would be liquidated unless
their assets had become worthless. If liquidated, the reactor, as a
valuable economic asset, would likely be sold to another company at the
direction of the bankruptcy court and after approval by the NRC.) In
the cases of Public Service Company of New Hampshire (Seabrook), Cajun
Electric Cooperative (River Bend), El Paso Electric (Palo Verde), and
Vermont Electric Generation & Transmission Cooperative (Millstone 3),
the bankruptcy courts allowed these bankrupt licensees to pay all
safety-related operational and decommissioning expenses (including,
apparently, Price-Anderson primary layer and onsite property insurance
premium payments). During its bankruptcy, PG&E has continued to meet
all safety-related expenses for its nuclear plants.
The NRC would support legislation as part of broader legislation to
prioritize safety-related claims in bankruptcy proceedings and to avoid
any potential conflict between NRC requirements to pay into the
retrospective premium pool and other claims in bankruptcy if the
Congress determines such legislation would be appropriate.
__________
Statement of John L. Quattrocchi, Senior Vice President, Underwriting,
American Nuclear Insurers
Mr. Chairman and distinguished members of the subcommittee, I am
John Quattrocchi, Senior Vice President, Underwriting at the American
Nuclear Insurers or ANI. Joining me today is Tim Peckinpaugh,
Washington, D.C. Counsel to ANI. We appear today on behalf of the
member insurance companies of ANI. The National Association of
Independent Insurers and the Alliance of American Insurers also join in
our statement. We appreciate your invitation to present our views on
the nuclear risk with a special focus on the financial protection
requirements of the Price-Anderson Act.
ANI is a joint underwriting association that acts as managing agent
for its member insurance companies. We are, in effect, a ``pool'' of
insurance companies formed for the purpose of insuring a unique risk.
Together with our reinsurance partners from around the world, we
represent the worldwide insurance community.
We will not dwell on the advantages of nuclear power. We are not
advocates for any particular energy source. However, as professional
insurers and long-term observers of the energy scene, we believe
nuclear power represents a safe, reliable and environmentally friendly
part of our nation's energy mix. The nuclear industry has achieved an
impressive safety record and, as insurers, ANI is proud of the role
we've played in supporting their efforts.
ANI and its predecessor organizations were created in 1956 in
response to Congress' urging that insurers find a way to insure what
was then a fledgling technology. We worked closely with Congress and
with the industry to develop the Price-Anderson law. The law is
essentially an insurance program that had several purposes in mind.
The first was to encourage the private development of
nuclear power.
The second was to establish a legal framework for
handling potential liability claims.
And the third was to provide a ready source of funds to
compensate injured victims of a nuclear accident.
The Act represents a careful balancing of the interests of the
public as private citizens and as participants in and beneficiaries of
private business enterprise. We also believe the Act has been critical
in enabling us to provide stable, high quality insurance capacity for
nuclear risks in the face of normally overwhelming obstacles for
insurers those obstacles being catastrophic loss potential, the absence
of credible predictability, a very small spread of risk and limited
premium volume. This has been accomplished for more than four decades
without interruption and without the ``ups and downs'' (or market
cycles) that have affected nearly all other lines of insurance.
key provisions of the price-anderson act
Financial Protection\1\ . . . In Two Layers
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\1\Defined in Section 11.k. of the Atomic Energy Act of 1954, as
amended.
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To assure a source of funding to compensate accident victims, the
law requires reactor operators to maintain primary financial protection
equal to the maximum amount of liability insurance available from
private insurance sources at reasonable terms.\2\ This provision has
enabled insurers to develop and sustain secure, high quality insurance
capacity from worldwide sources. Evidence of this lies in the stability
of limits, price and coverage that insurers have provided in what is a
very special line of business. Indeed, primary insurance limits
actually increased after the Three Mile Island (TMI) accident in 1979
from $140 million to $160 million, and prices rose only modestly. The
primary limit was last increased to $200 million in 1988 coincident
with the last renewal of the Act. This limit is written by ANI at each
operating power reactor site in the U.S., which satisfies the
requirement for primary financial protection.
---------------------------------------------------------------------------
\2\The Atomic Energy Act of 1954, as amended, Section 170.b.(1).
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The Act also requires reactor operators to participate in an
industry-wide retrospective rating program for loss that exceeds the
primary insurance limit.\3\ ANI writes a Secondary Financial Protection
(SFP) Master Policy through which we administer the SFP program. Under
this policy, each insured is retrospectively assessable for loss that
exceeds the primary insurance limit up to a maximum retrospective
assessment currently set at $88.095 million (adjusted every five years
for inflation) per reactor, per incident. In other words, the second
layer of protection is drawn from reactor operators' own funds.
Insurers have a contingent liability to cover potential defaults of up
to $30 million for one incident or up to $60 million for more than one
incident. Under the terms of the contract, however, ANI would expect to
be reimbursed with interest for any funds it advances under this
program. With 106 reactors in the program, the total level of primary
and secondary financial protection is just over $9.5 billion ($200
million in the primary layer + $88.095 million in the secondary layer X
106 reactor units participating).
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\3\Ibid.
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Limitation on Aggregate Public Liability\4\
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\4\The Atomic Energy Act of 1954, as amended, Section 170.e. (1)
(A) and Section 170.o. (1) (E).
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The Act limits the liability of reactor operators or others who
might be liable for a nuclear accident to the combined total of primary
and secondary financial protection, though Congress is committed to
providing additional funds if financial protection is insufficient.\5\
Knowing the extent of one's liability provides economic stability and
incentives that would not exist without a limit.
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\5\The Atomic Energy Act of 1954, as amended, Section 170.e. (2).
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Legal Costs Within the Limit\6\
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\6\The Atomic Energy Act of 1954, as amended, Section 170.e. (1)
(A).
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The expenses of investigating and defending claims or suits are
part of and not in addition to the limit of liability. The inclusion of
these costs within the limit enables insurers to offer their maximum
capacity commitments without fear of exceeding those commitments. This
provision is absolutely essential if insurers are to maintain and
hopefully increase the assets they place at risk.
Economic Channeling of Liability\7\
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\7\The Atomic Energy Act of 1954, as amended, Section 11.t. and
170.c.
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The Act channels the financial responsibility and insurance
obligation for public liability claims to the nuclear plant operator.
This helps assure that injured parties will be able to establish with
certainty liability for a nuclear accident that will be backed by solid
financial resources to respond to those liabilities.
Waiver of Defenses\8\
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\8\The Atomic Energy Act of 1954, as amended, Section 170.n. (1).
---------------------------------------------------------------------------
In the event of what is called an Extraordinary Nuclear Occurrence
(ENO),\9\ insurers and insureds waive most standard legal defenses
available to them under state law.\10\ The effect of this provision is
to create strict liability for a severe nuclear accident. Claimants in
these circumstances need only show that the injury or damage sustained
was caused by the release of nuclear material from the insured
facility. Fault on the part of a particular defendant does not have to
be established.
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\9\Defined in Section 11.j. of the Atomic Energy Act of 1954, as
amended. Without citing all the specifics, the term refers to a
significant nuclear incident that results in severe offsite
consequences.
\10\The legal defenses waived in the policy include (i) any issue
or defense as to the conduct of the claimant or the fault of the
insured, (ii) any issue or defense as to charitable or governmental
immunity, and (iii) any issue or defense based on any statute of
limitations if suit is instituted within three years from the date on
which the claimant first knew, or reasonably could have known, of his
bodily injury or property damage and the cause thereof.
---------------------------------------------------------------------------
Federal Court Jurisdiction in Public Liability Actions\11\
---------------------------------------------------------------------------
\11\The Atomic Energy Act of 1954, as amended, Section 170.n. (2).
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Historically, state tort law principles have governed nuclear
liability determinations. The Price-Anderson Act provides for a federal
overlay to the application of state law. The Act confers jurisdiction
over public liability actions on the Federal District Court in which
the accident occurs. This removes the confusion and uncertainties of
applicable law that would otherwise result when multiple claims and
lawsuits are filed in multiple courts. The provision also reduces legal
costs and speeds the compensation process.
Precautionary Evacuations\12\
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\12\Defined in Section 11.gg. of the Atomic Energy Act of 1954, as
amended.
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The system anticipates that insurers will provide immediate
financial assistance to people who are forced to evacuate their homes
because of a nuclear accident or because of imminent danger of such an
event.
The Act, and these provisions in particular, have stood the test of
time and served the public well as demonstrated by the response at
Three Mile Island.
THE ACCIDENT AT THREE MILE ISLAND
The accident at Three Mile Island occurred on March 28, 1979.
Within twenty-four hours of the Pennsylvania Governor's advisory for
pregnant women and pre-school age children to evacuate a five-mile area
around the site, we had people in the area making emergency assistance
payments. Two days later, a fully functioning claims office staffed
with some 30 people was open to the public. The claims staff grew to
over 50 people within the next two weeks. All of the claims staff came
from member insurance companies from around the country. I spent about
10 days at the claims office shortly after it opened to lend whatever
support I could.
As the office was being set up, we placed ads on the radio,
television and in the press informing the public of our operations and
the location of the claims office. Those people affected by the
evacuation advisory were advanced funds for their immediate out-of-
pocket living expenses, that is to say, expenses for food, clothing,
shelter, transportation and emergency medical care. Approximately $1.3
million in emergency assistance payments were made to some 3,100
families without requiring a liability waiver of any kind.
We responded as quickly as we did because we had prepared for
emergencies in advance. Emergency drills were conducted periodically,
and an emergency claim response manual helped guide our response.
Checks and other claim forms that had been pre-printed and stored for
emergencies were immediately available to us. The insurance industry
received high praise for its quick response at TMI. In responding as we
did, the insurers helped to alleviate some of the fear and dislocation
of those affected by the accident.
POLICY COVERAGE AND CLAIMS EXPERIENCE
The nuclear liability policy written for nuclear site operators is
designed to respond to an insured's liability for damages because of
bodily injury or offsite property damage caused by a large, sudden
catastrophic accident. However, it can also respond to allegations of
injury from very small amounts of nuclear material. That bears
repeating. In addition to providing coverage for catastrophic events,
we are providing coverage for alleged offsite damages from normal plant
operations.
All of our insured facilities release very small amounts of
material within acceptable regulatory limits. But the public perception
of what is ``acceptable'' and what constitutes ``damage'' is a moving
target. Indeed, almost all of our claims allege injury or damage (or
fear of future injury or damage) from little or no documented radiation
exposure. And, with the exception of the accident at Three Mile Island,
few of the claims from members of the offsite public are the result of
a clearly identifiable event. Instead, our claims experience is more
related to routine releases and the latent injury phenomenon now
popular at least in the U.S. in the toxic torts arena. The alleged
damages usually involve somatic, psychosomatic or genetic effects from
exposure to radiation at de minimis levels.
From inception, ANI has handled some 207 reported claims or
incident notifications. We've paid just over $200 million for indemnity
and legal defense and have incurred losses of $482 million, all through
December 31 of last year. The difference between the paid and incurred
loss figures represents what is reserved for indemnity and defense on
outstanding claims.
Radiation claims are costly to defend and there is often no
relationship between the amount of radiation alleged and the expense
necessary to defend the claim. While the judicial process is expensive,
it does expose claims that have no basis in scientific fact. Given the
finite resources available to compensate truly injured victims, it
serves no one's interest for insurers to compensate claims without
merit. The importance of the legal framework established in the Act,
including the cost of defense within the system, cannot therefore be
overstated.
NRC'S REPORT TO CONGRESS . . . PRIMARY LIABILITY LIMITS
In its 1998 Report to Congress on the status of the Act, the NRC
strongly supported reauthorization of the Price-Anderson Act and
offered eight recommendations. In the interest of time, and because the
subcommittee is, I'm sure, familiar with the report, I will focus
particular attention on just one of the recommendations specifically,
that Congress discuss with insurers the potential for increasing the
primary liability insurance limit. The NRC indicated in its report that
an increase to roughly $350 million would at least keep pace with
inflation since 1957.
As was noted earlier in my testimony, the Act requires power
reactor licensees to maintain primary financial protection equal to the
maximum amount of liability insurance available from private sources at
reasonable terms. But for this provision, it is doubtful that limits at
the levels written could have been sustained without interruption or
fluctuation for more than forty years. To illustrate the point, when,
in the mid-1980's, liability insurance became unavailable at almost any
price for conventional lines of business, nuclear liability insurers
continued to provide a stable market for their limited customer base
thanks, in part, to this provision.
Liability limits have been increased periodically from $60 million
in 1957 to $200 million presently. The limit was last increased to its
present level in 1988 coincident with the last renewal of the Act. The
attached Table of Limits outlines the history of primary liability
limits from 1957.
We believe an increase in the level of primary insurance coverage
would benefit the system and enhance public protection for a number of
reasons:
(1) The existing limit has not changed since 1988 and its value
has, in fact, been eroded by inflation. When measured against the rate
of inflation from 1988 to June 1998, the limit would have grown to
roughly $275 million. When measured against inflation from 1957 to June
1998, the limit would have increased to about $350 million.
(2) An increase in the primary limit to reflect the impact of
inflation is consistent with inflationary increases mandated by the
Price-Anderson law in the second layer. Section 170.t. of the Act
requires that the maximum retrospective premium in the second layer be
adjusted at five-year intervals. The maximum retrospective premium in
the second layer has, in fact, been increased twice since 1988 to
reflect the impact of inflation.
(3) A higher primary limit would provide an added buffer between
loss in the primary layer and retrospective assessments on utility
operators in the second layer. Sound funding for the remote, but
nevertheless possible, nuclear catastrophe calls for pre-funding a
substantial portion of the costs of that accident. The higher the
potential retrospective liabilities on the nuclear industry in the
second layer, the more desirable reasonable increases in the primary
insurance layer become.
(4) The number of reactor licensees can be expected to decrease in
the coming years as reactor units are sold to a relatively smaller
number of buyers. The effect of this would be to substantially increase
the maximum potential retrospective assessment on those remaining
operators at a time of severe economic stress for nuclear utilities
generally that is to say, following a large-scale nuclear accident. In
these circumstances, a higher primary liability limit would provide a
better balance between pre- and post-funded layers of accident
protection, in effect enhancing the protection to the public.
(5) Deregulation of the electric utility industry may hamper a
utility's ability to pass on to ratepayers the cost of a retrospective
assessment. A higher primary limit would reduce the chances of, or at
least delay, an assessment in the second layer.
Consistent with the long-standing objective of Congress to provide
the most financial protection possible to compensate the public, we
will work with our members and reinsurers to develop higher primary
insurance limits coincident with a satisfactory renewal of the Act. Any
effort on our part to increase the primary limit would also have to be
balanced against the needs and desires of our customer base. If these
needs can be balanced, our goal would be to develop only capacity that
is financially secure and committed for the long term. In testimony I
delivered before Congress in June of last year, I indicated that a
reasonable goal might be a primary limit in the range of $300 million,
again assuming a satisfactory renewal of the Act. While this remains
our goal, I now have to qualify my remarks by indicating what should be
obvious the events of September 11 will make it much more difficult for
us to achieve the goal. The issue of terrorism is addressed in more
detail later in my testimony.
POSSIBLE NEW PROTECTION IN THE SECOND LAYER
In the unlikely event that retrospective premiums in the second
layer need to be assessed because of a severe nuclear accident, those
assessments will be levied at a time of great political and financial
stress. The pressures on the utility that suffers the accident will, in
all likelihood, be the most severe. For that reason, we have begun to
discuss with the industry a potential new coverage under the existing
Secondary Financial Protection (SFP) program that would pay up to one
full retrospective premium (currently up to $88.095 million) on behalf
of the utility at whose site the accident occurs. Payment of this
retrospective premium would be made on a guaranteed cost basis that is
to say, we would not expect to be reimbursed.
We envision that coverage would be added by endorsement to the
existing SFP program for an additional per reactor premium. We would
prefer that coverage be purchased on a voluntary basis and not made
part of the financial protection requirements. For the coverage to be
viable, at least half the number of reactor units in the SFP program
would have to participate.
I have to again stress one point. Since coverage under the
potential new product would apply on a guaranteed cost basis, we would
have to secure additional capacity over and above whatever additional
capacity might be developed for the primary layer. And, as with a
possible increase in the primary limit, my comments about a possible
new product in the second layer have to be qualified. The events of
September 11 will make the development of any new product that requires
additional capacity very difficult to accomplish. And, in any event,
our first priority is to focus on our goal of increasing the primary
liability layer.
PRICE-ANDERSON AS A SUBSIDY?
Some have argued that Price-Anderson is a subsidy for the nuclear
industry. For what it's worth from our perspective as independent
insurers, that view is clearly inaccurate. We are not aware of any
payments made by the Federal Government to private licensees under
Price-Anderson. Indeed, the industry not only pays the cost of the
insurance required by the Act, it has paid millions of dollars in
indemnity fees and has assumed more than $9 billion in potential
retrospective assessments to compensate injured accident victims all of
this at no cost to the government.
Some argue that the Act's limitation on liability is a subsidy for
the industry in that it limits potential recoveries of accident
victims. The fact is, however, that, in exchange for the limit on
liability, the Act provides for a large, ready source of funds for
accident victims that would not otherwise exist.
Insurers have a great deal of experience handling litigation that
is ``unfettered'' by limitations on liability. No case stands out in my
mind more than the Bhopal accident in India in 1984. As many as 4,000
people died and another 500,000 were injured. After years of
litigation, Union Carbide settled with the Indian Government for $470
million or roughly $1,000 in compensation for each of those killed or
injured.
The simple fact is that there is always a limit on liability that
limit equal to the assets of the company at fault. Those who helped
shape the Price-Anderson Act understood that fact. It was their belief
that those who share in the benefits of nuclear energy should also
share in the risks through a system of solid financial protection
provided by industry and by government.
Beyond serving the public interest, the limitation on liability
enables insurers to quantify their potential liabilities. Without the
limitation, suppliers and others who might incur potential nuclear
liabilities would be forced to seek separate insurance protection for
their own accounts, in turn, exposing insurers to unacceptable
accumulations. In these circumstances, the level of available liability
insurance might well diminish.
ACTS OF TERRORISM
The tragic events of September 11 are having a profound effect on
the worldwide insurance industry. While most insurers are absorbing the
losses, insurance capital is obviously finite. We understand that
future acts of terrorism have now been excluded under most commercial
property and casualty reinsurance contracts. In turn, insurance
companies that directly write commercial property and casualty policies
are either seeking to exclude terrorism entirely or are reducing policy
limits to their own net capacities. Premiums have also risen
significantly.
As a joint underwriting association, ANI is a reflection of the
insurance and reinsurance companies that comprise our membership.
Indeed, for nuclear insurers, the risk assessment associated with
terrorism has added significance since nuclear plants are said to be
potential terrorist targets. In response to these developments, ANI
took two actions effective on January 1, 2002 that are intended to
maintain the long-term stability of the nuclear liability program and,
at the same time, enable us to continue to provide coverage for
terrorism. First, premiums were increased by 30% to reflect, at least
in part, an exposure not otherwise contemplated prior to September 11.
Second, while we have decided not to exclude terrorism at this time,
our policies are now subject to one shared industry aggregate limit of
$200 million for liability arising out of terrorist acts. This
aggregate limit for terrorism can be reinstated at our option depending
on prevailing risk circumstances and the status of the reserves we
maintain. The SFP program will continue to apply to loss that exceeds
the underlying primary limit. This action was necessary to assure our
capacity providers that their exposure to terrorist acts is quantified
and capped.
As noted earlier, ANI is a reflection of its member companies and
reinsurers. These companies have been hit hard by September 11 as has
the entire insurance industry. The availability of insurance capacity
worldwide has tightened considerably as a result, and will likely
become tighter in the coming months. In the absence of some intervening
solution, we think our goal of higher insurance limits will be
difficult to achieve.
CONCLUSION
To the best of our knowledge, the financial protection that the Act
provides the public far surpasses the performance of any other system
in place in the United States. The essential fact is that the public is
far better off with this system of financial protection than without
it. For us as insurers, its provisions make an otherwise difficult risk
insurable. We therefore urge the members of this subcommittee to
support expeditious renewal of the Act, with little if any change, as
recommended by the NRC report to Congress and the Administration's
National Energy Policy released last year. In terms of the legislation
pending before this subcommittee, ANI supports in general S. 1360, as
introduced by Senator Voinovich and cosponsored by Senator Inhofe and
others.
We are grateful to the subcommittee for the opportunity to express
the views of insurers on this important issue.
______
Attachment to Testimony of John L. Quattrocchi
Table of Limits
History of Maximum Nuclear Liability Insurance Available from 1957 to
Present Liability Limits
------------------------------------------------------------------------
Liability
Limits ($ Percent
Year in Increase
Millions)
------------------------------------------------------------------------
1957.......................................... $60
1966\1\....................................... 74 23.3%
1969.......................................... 82 10.8%
1972.......................................... 95 15.8%
1974.......................................... 110 15.8%
1975\1\....................................... 125 13.6%
1977.......................................... 140 12.0%
1979.......................................... 160 14.3%
1988\1\....................................... 200 25.0%
------------------------------------------------------------------------
\1\Coincident with the renewal of the Price-Anderson Act.
______
Responses by John L. Quattrocchi to Additional Questions from Senator
Voinovich
Question 1. Price-Anderson's only use came in 1979 with the
accident at Three Mile Island. Could you explain why the insurers were
able to respond and mobilize so quickly? Were all claims arising out of
the Three Island Mile accident fully paid? Were there any defaults?
Response. As indicated in the testimony I presented before the
subcommittee on January 23, we had representatives in the area making
emergency assistance payments within 24 hours of the Governor's
evacuation advisory. We were able to accomplish this because we
prepared in advance. Emergency response drills were conducted
periodically. An Emergency Claim Response Manual was drafted prior to
the accident and helped guide our response. Claim forms, checks and
other office supplies were pre-packaged and ready to go. In short, we
were able to respond as quickly as we did because we planned in advance
and were fully prepared to respond.
Approximately $1.3 million in emergency assistance payments were
made to some 3,100 families without requiring a release of any kind. In
1981, we settled claims for economic loss to businesses and individuals
within 25 miles of the site for $20 million. As part of that same
settlement, we paid another $5 million to establish a public health
fund to study the health impact, if any, on people living in the area.
Then in 1985, we paid $14.25 million to settle consolidated claims for
bodily injury and emotional distress involving some 280 people.
While it was clear from the data that no one was actually
physically harmed as a direct result of the accident, our agreement to
settle the initial batch of bodily injury cases was a business decision
that reflected the uncertainty of liability for physical harm induced
by emotional distress. Shortly after that settlement was announced, an
additional 2,200 claims were filed against the site operator and others
alleging radiation-induced bodily injury, emotional distress and other
damages. Those claims were considered to be without merit and have been
vigorously defended. As the Federal District Court for the Middle
District of Pennsylvania noted in granting summary judgment in favor of
the defendants, and I quote:
`` The paucity of proof alleged in support of plaintiffs' case is
manifest . . . If the most eminent scientists in the world are
unwilling to do more than speculate as to the casual link between
radiation exposure and cancer induction at doses below 10 rems, no
rational jury, confronted with identical evidence, could find it more
likely than not that radiation induced a given neoplasm.''
Insurance capital is obviously finite. In the final analysis,
therefore, it serves no one's interest for insurers to compensate
claims that have no basis in scientific fact. I might also point out
that the Act applies to nuclear incidents generally and has, in fact,
been employed as the legal mechanism to respond to a number of public
liability claims regardless of the severity of the nuclear incident.
Finally, I assume that your question regarding ``defaults'' is a
reference to possible defaults on the part of any of our participating
member companies or reinsurers in responding to TMI claims. Assuming my
interpretation of the question is correct, I would make two points in
response. First, there were no defaults by any of our member companies
or reinsurers. Second, all claim payments for indemnity and defense
were made from an established loss reserve fund in which we set aside
roughly 75 percent of each premium dollar to pay loss and expense, or
refunds to policyholders.
Question 2. From this experience and your knowledge of the
insurance industry, which system is more likely to provide the public
prompt and significant amounts of compensation following a nuclear
accident: a no-fault system like Price-Anderson in which the insurers
and all the utilities pay or a traditional tort law system that
requires the negligent party to pay?
Response. In the event of an Extraordinary Nuclear Occurrence
(ENO),\1\ insurers and insureds are obligated under the Act to waive
most standard legal defenses normally available to them under state
law. The effect of this is to create strict liability for a severe
nuclear accident. To be compensated, claimants would have only to show
that the injury or damage suffered was caused by the release of nuclear
material from the insured facility. Fault on the part of a particular
defendant need not be established in these circumstances.
---------------------------------------------------------------------------
\1\Defined in Section 11.j of the Atomic Energy Act of 1954, as
amended. Without citing all the specifics, the term refers to a
significant nuclear incident that results in severe offsite
consequences.
---------------------------------------------------------------------------
Beyond this, the Act effectively channels economic liability to the
plant operator.\2\ This is done simply and effectively by the omnibus
insurance provisions of the financial protection requirements. This
helps assure that injured parties will be able to establish liability
for a nuclear accident that will be backed by solid financial resources
to respond to those liabilities. Channeling of liability to the plant
operator is made possible by the Act's limitation on liability\3\
which, in turn, makes possible the retrospective premium\4\ payable by
reactor operators in the event losses exceed the primary insurance
layer.
---------------------------------------------------------------------------
\2\The Atomic Energy Act of 1954, as amended, Section 11.t. and
170.c.
\3\The Atomic Energy Act of 1954, as amended, Section 170e.(1)(A)
and Section 170.o.(1)(E).
\4\The Atomic Energy Act of 1954, as amended, Section 170.b(1).
---------------------------------------------------------------------------
When these provisions are taken together, there is very little
question that the Act provides the public with far more protection than
would the traditional tort law system.
______
Responses by John L. Quattrocchi to Additional Questions from Senator
Inhofe
Question 1. Testimony at the hearing raised concerns about the
standard nuclear exclusion in homeowner's insurance policies. Why does
the conventional insurance policy contain a nuclear exclusion?
Response. While Homeowner's insurance policies contain nuclear
exclusions, it is incorrect to say that the homeowner is not covered
for radioactive contamination damage caused by an accident at a nuclear
power plant. Through the Price-Anderson Act, the Federal Government
requires liability insurance to be provided by nuclear plant operators
that, in fact, would respond to such damages at no cost to the
homeowner. The protection afforded under the Act currently amounts to
roughly $9.5 billion per incident, the first $200 million of which is
written by ANI at each operating power reactor facility in the U.S. For
loss that exceeds that primary layer of $200 million, utility operators
are subject to retrospective assessments of up to roughly $88.1 million
per reactor, per incident. The retrospective assessments are payable by
utilities under a Secondary Financial Protection program, which ANI
administers.
The nuclear exclusions in Homeowner's insurance policies exist for
several reasons. First, insurers are channeling their maximum available
capacities for the nuclear risk through ANI and would therefore be
exposed to an undue cumulation risk if the same coverage were also
provided under other policies they write. So, while radioactive
contamination is excluded from individual Homeowner's policies,
universal coverage is afforded under the policies written by ANI. Each
of ANI's member insurance companies pledges a stipulated dollar amount
and thus each knows in advance its maximum exposure for the nuclear
peril. Without nuclear exclusions in conventional policies, ANI's
member companies would be unable to determine their maximum nuclear
exposures, which, in turn, would result in significantly reduced
insurance capacity for nuclear risks.
Second, the nuclear peril is a classic example of one that presents
low frequency but high severity loss potential. And it lacks credible
predictability. The problem becomes apparent if you consider that the
probability that any particular home will be damaged by fire is
essentially random and predictably much the same for any policyholder
during a given period of time, with some variations due to construction
differences, proximity to water sources and so forth. Conversely, the
risk that all policyholders in a given area will all have fires during
the same period is very small. Where the opposite is true, that is,
where a single loss can result in multiple large losses as, for
example, in the case of floods or radioactive contamination, these
perils are excluded under conventional insurance policies. As noted
earlier, the nuclear peril presents even more of a problem than does
flood because, while there is some statistical basis for predicting
floods, there is no real basis for predicting nuclear occurrences.
Third, as with floods, the small number of customers who might be
interested in radioactive contamination coverage presents insurers with
the problem of adverse selection, that is, only those at greatest risk
would have an interest in coverage, which, in turn, violates the
principle of spreading risk over a large customer base. Since a basic
principle of insurance is risk-spreading, this presents a genuine
problem for insurers. The market simply would not bear premiums large
enough to support each individual risk, and it would be unfair to ask
the many who have no interest in or perceived need for coverage to
subsidize the few who may.
With regard specifically to the nuclear peril, these problems were
recognized early on by insurers and by Congress. At Congress' urging
that insurers find a way to insure the nuclear risk, the insurance
industry helped develop the Price-Anderson system which channels
liability to a single operator. The industry also chose the ``pooling''
technique to spread the risk of a small number of insured facilities
over a large number of insurance companies. To achieve the goal, the
nuclear peril had to be excluded under conventional insurance policies
because insurers are channeling their capacities through the pooling
system.
Any suggestion that there is no insurance against radioactive
contamination of homes stemming from an accident at a nuclear power
plant is based on misinformation. Insurance is, in fact, provided
efficiently under nuclear liability policies written by ANI and
purchased by reactor operators, and again at no cost to the homeowner.
Question 2. Mr. Peter Bradford stated in his testimony that the
Price-Anderson Act provides a subsidy to a nuclear powered electric
generating plant that is not available to other fuel forms of electric
generating power plants therefore reducing the nuclear industry's cost
of capital. He also states that with Price-Anderson protection new
nuclear power plants have a disincentive to build the safest plants. Is
Price-Anderson a subsidy to nuclear plants or a mandate for payment
that is not imposed on other energy forms? Is the Act a disincentive to
building the safest nuclear power plants?
Response. A ``subsidy'' is generally defined to mean a grant of
money by a government to a private person or organization. In the
Price-Anderson context, the Federal Government has never made any
payments to or on behalf of private NRC licensees. Indeed, payments
have been made in the reverse sequence that is, from private licensees
to the Government as fees for indemnity. Moreover, the nuclear industry
not only pays the cost of the insurance required by the Act, it has
assumed more than $9 billion in potential retrospective assessments to
compensate potential accident victims all this at no cost to the
Government.
Some argue that the Act's limitation on liability represents a
subsidy for the nuclear industry. The simple fact, however, is that
there is always a limit on liability that limit equal to the assets of
the company at fault. Limitations on liability through bankruptcy
proceedings are frequent occurrences. Those who helped shape the Price-
Anderson Act understood that reality. In exchange for a statutory cap
on liability, the Act provides a large, ready source of funds that
would not otherwise exist.
Experience clearly shows that relying on the tort system to
compensate victims of a major accident often results in less rather
than more protection for the public. Few, if any, negligent parties
especially one that has suffered a major accident would have assets
sufficient to pay $9.5 billion in claims. Rather than functioning as a
subsidy, the Act serves the public interest and provides an incentive
for private industry to assume the financial risk of pursuing a complex
technology that benefits society as a whole.
Question 3. Are terrorist attacks covered under both the primary
layer and the secondary financial protection layer of Price-Anderson?
Response. Liability arising out of a terrorist act at one of our
insured reactor facilities is covered under both the primary and
secondary financial protection layers. However, as a result of the
tragic events of September 11, coverage under ANI's primary liability
policies is now subject to one shared industry aggregate limit of $200
million, which can be reinstated depending on prevailing risk
circumstances. This change was necessary to assure our capacity
providers that their exposure to terrorist acts is quantified and
capped. The secondary financial protection layer will continue to apply
to loss that exceeds the primary limit and will drop down above any
diminished primary limit.
______
Responses by John L. Quattrocchi to Additional Questions from Senator
Reid
Question 1. In your testimony you state: ``Sound funding for the
remote but nevertheless possible, nuclear catastrophe calls for pre-
funding a substantial portion of the costs of that accident. The higher
the potential retrospective liabilities on the nuclear industry in the
second layer, the more desirable reasonable increases in the primary
insurance layer become.'' Currently the private insurance industry
provides $200 million in insurance. You indicate in your testimony the
private insurance industry may be willing to provide $300 million. You
have also indicated that you may be willing to cover the secondary
premiums that plants must pay if a nuclear catastrophe occurs. What
other provisions would you recommend for the Price-Anderson Act to pre-
fund a significant portion of the industry's total liability in the
event of an accident?
Response. The primary insurance layer constitutes the pre-funded
portion of the total financial protection available under the Act. The
current primary insurance limit of $200 million represents a ``working
layer'' of protection through which insurers can immediately respond to
the consequences of a nuclear accident, as was the case at Three Mile
Island. Since the current primary limit has been in place since 1988,
an increase would help offset the effects of inflation, and provide a
better balance between pre-and post-funded layers of protection. As
indicated in my testimony our goal is to increase the primary layer to
$300 million, assuming a satisfactory renewal of the Act.
While one cannot discount the possibility of a severe nuclear
accident, the probability is very remote. Conservative estimates place
the probability of a core-damaging accident in the U.S. coupled with a
containment failure at approximately 1 in 10,000 years. Given these
remote probabilities, it would be economically inefficient to require
reactor operators to pre-fund any portion of their retrospective
premium obligations. Again, however, a reasonable increase in the
primary insurance limit would serve the same ``pre-funding'' purpose
and provide more of a buffer between loss in the primary layer and
retrospective assessments in the second layer. The key in all of this
is balance. The Price-Anderson Act's pre-funded primary layer and its
post-funded second layer appear to strike a reasonable balance for
responding to a remote risk that lacks credible predictability.
Incidentally, my testimony indicates that we have begun to discuss with
our customer base a potential new coverage in the second layer that
would pay up to one (emphasis added) full retrospective premium
(currently $88.095 million) on behalf of the utility at whose site the
accident occurs. I also pointed out that the events of September 11
will make that very difficult to accomplish and that, in any event, our
first priority is to focus on our goal of increasing the primary
insurance limit.
Question 2. Do you know of any other industries in which companies
contribute to a pool (either prospectively or retrospectively) that can
be used to pay damages caused by an accident for which most of the
contributors are not responsible? What are the liability limits, if
any?
Response. We know of no other industry that has agreed to assume a
shared financial responsibility for accidents that occur at a facility
owned and operated by a separate and distinct business entity. It is
the Price-Anderson Act that makes this possible with its system of
``checks and balances.'' Care needs to be taken to avoid upsetting the
balance, in which case the system will likely unravel.
__________
Statement of Marvin S. Fertel, Senior Vice President-Business
Operations, Nuclear Energy Institute
Chairman Reid, Ranking Member Inhofe and distinguished members of
the subcommittee, I am Marvin Fertel, senior vice president of the
Nuclear Energy Institute. I am pleased to have this opportunity to
testify regarding the renewal of the Price-Anderson Act.
The Nuclear Energy Institute coordinates public policy on issues
affecting the nuclear energy industry, including federal regulations
that help ensure the safety of the 103 commercial nuclear power plants
operating in 31 states. NEI represents nearly 275 companies, including
every U.S. utility licensed to operate a commercial nuclear reactor,
their suppliers, fuel fabrication facilities, architectural and
engineering firms, labor and law firms, radiopharmaceutical companies,
research laboratories, universities and international nuclear
organizations.
For 45 years, the Price-Anderson Act has been a proven framework
for providing the most effective third-party liability protection in
the world. Given this proven record, Congress should renew it
indefinitely. The industry supports renewing the Act without changing
current processes applicable to commercial nuclear power plants. The
industry also supports adding a provision to the law that would address
new smaller, highly efficient modular reactors under consideration to
meet the growing energy needs of the United States.
Even with indefinite renewal, Congress can, at any time, reopen the
law if modifications are needed. In addition, Congress can request
updates on the status of Price-Anderson Act implementation from the
Nuclear Regulatory Commission in order to provide a basis for change if
necessary.
The Price-Anderson Act ensures the availability of more than $9.5
billion to appropriately compensate members of the public as the result
of a nuclear incident. It establishes a simplified claims process for
the public to expedite the filing of claims and provides immediate
reimbursement for costs associated with evacuation that may be ordered
near nuclear facilities.
Congress Should Renew Price-Anderson Act Indefinitely
The industry recommends an indefinite renewal of the Price-Anderson
Act. If in the future Congress wants to reconsider and amend the law it
can do so at any time. The industry encourages Congress to hold
periodic oversight hearings on the Act, and, if required, modify the
law accordingly.
The industry believes that the retrospective maximum annual payment
requirement should remain at $10 million per nuclear plant (or more
than $1 billion in aggregate). In 1998, the NRC recommended that the
retrospective premium be increased to $20 million, based in part on the
assumption that 25 nuclear plants would close without relicensing, and
that the money available annually to pay for third-party liability
claims would decrease as a result. However, most, if not all, nuclear
plants are expected to pursue relicensing. NRC Chairman Richard
Meserve, in a May 11, 2001 letter to members of Congress, retracted the
1998 recommendation based on the number of plants seeking license
renewal. To date, eight U.S. reactors have renewed their licenses and
14 are in the NRC's license renewal queue. Given this change in the
marketplace, the NRC no longer believes that the increase in the
retrospective premium to $20 million is necessary.
Price-Anderson Act Proven Effective Over 45 Years
The Price-Anderson Act of 1957, signed into law as an amendment to
the Atomic Energy Act, provides for payment of public liability claims
related to any nuclear incident. In its 1998 report to Congress, the
Nuclear Regulatory Commission said that the Price-Anderson Act has
``proven to be a remarkably successful piece of legislation'' that has
grown in depth of coverage and that proved its viability in the
aftermath of the Three Mile Island accident.
Since the inception of the Price-Anderson Act, the law has been
extended three times for successive 10-year periods, and in 1988 it was
extended for 15 years. Unless Congress renews the Price-Anderson Act,
it will expire on August 1, 2002.
The Price-Anderson Act is a proven law that works in these
important ways:
Ensures the availability of billions of dollars to
compensate citizens affected by a nuclear incident.
Establishes a simplified claims process for the public to
expedite recovery of losses.
Provides for immediate emergency reimbursement for costs
associated with an evacuation of residents near a nuclear power plant.
Establishes two tiers of liability protection for each
nuclear incident involving commercial nuclear energy, and provides a
guarantee that the federal government will review the need for
compensation beyond that explicitly required by law.
For the primary level of coverage, the law requires nuclear power
plant operators to buy all nuclear liability insurance available or
provide for an equal amount of financial protection. That amount of
insurance is $200 million at each nuclear power plant site.
For the second level, power plant operators are assessed up to $88
million for each accident that exceeds the primary level at a rate not
to exceed $10 million per year, per reactor for a total of $9.3
billion. Industrywide, the NRC increases the aggregate amount required
for inflation every five years. An important feature of the law is that
it creates an industrywide obligation for providing the insurance by
spreading the liability for a major accident across the entire
industry. In addition, Congress may establish more assessments on the
industry if the first two levels of coverage are not adequate to cover
claims. The Price-Anderson Act framework provides the same level of
protection for the public near DOE facilities as for the commercial
sector.
Research and smaller power reactors are also required to partially
self-insure against nuclear incident, with the federal government
providing additional indemnity. Further, the Act also provides public
protection liability insurance for research and university reactors
which maintain the United States' leadership position in the
development of new nuclear technologies, medical research and other
advanced technologies.
The groundwork is being laid to license smaller, modular, more
cost-effective and even safer reactors in the United States. Price-
Anderson Act renewal should recognize this development and include
these reactors in its protocols. The industry believes that provisions
should be added to provide public liability protection for these
smaller reactors. Specifically, we recommend that for purposes of the
secondary financial protection requirements of the Price-Anderson Act,
modular reactor facilities containing modules of between 100 megawatts
to 300 megawatts, up to a total of 1,300-megawatts, be treated as a
single facility.
The cost of Price-Anderson coverage is included in the cost of
electricity; it is not a federal subsidy. That means the nuclear
industry bears the cost of insurance, unlike the corresponding costs
for some major power alternatives. For example, risks of dam failure
and flooding at hydroelectric facilities are borne directly by the
public, not the hydropower facilities.
In the history of the law, no taxpayer funds have been paid out for
commercial losses under Price-Anderson. Of the approximately $180
million paid in claims since the Price-Anderson Act went into effect
including the $70 million from the Three Mile Island accident all have
been paid by the private insurers and the industry. In fact, Price-
Anderson has resulted in payment of $21 million back to the government
in indemnity fees.
Energy Department, Nuclear Regulatory Commission Recommend Renewal
The NRC and DOE recommend renewal of the Price-Anderson Act. The
NRC, in 1998, said that ``the structured payment system created to meet
the two objectives stated in the Price-Anderson Act has been
successful. The Commission believes that in view of the strong public
policy benefits in ensuring the prompt availability and equitable
distribution of funds to pay public liability claims, the Price-
Anderson Act should be extended to cover future as well as existing
nuclear power plants.''
The Department of Energy, in 1999, said that the indemnification
``should be continued without any substantial change because it is
essential to DOE's ability to fulfill its statutory missions involving
defense, national security and other nuclear activities ``
The House of Representatives endorsed renewal of this important law
on November 27, 2001 when it approved H.R. 2983, bipartisan legislation
extending the law for 15 years.
The Price-Anderson Act has withstood court challenges dating back
to 1973 when the Carolina Environmental Study Group, the Catawba
Central Labor Union and 40 individuals brought suit against Duke Power
Co., which was building nuclear power plants in North and South
Carolina.
Overview of Nuclear Power Plant Performance
Nuclear power produces 20 percent of the nations' electricity
supplying power to one of every five U.S. homes and businesses. The
commercial nuclear industry is a dynamic, growing sector that for
decades has played a key role in the economic growth, environmental
protection and energy security of our nation.
Continuing a decade-long trend, U.S. nuclear power plants achieved
record safety and reliability levels in 2001. The industry has
sustained that trend and as a result of an increased capacity factor
and outstanding reliability, the industry is on track to exceed the
record 754 billion kilowatt hours (kWh) of electricity produced in 2000
based on the following:
through September 2001, nuclear power plants generated
more than 578 billion kWh of electricity, 1.2 percent above the record
pace during the same period in 2000
based on this trend, full year 2001 nuclear generation is
projected to be more than 762 billion kWh
through September 2001, U.S. net electricity generation
was 2,886 billion kWh, roughly 1 percent higher than the same nine-
month period in 2000. Coal-fired plants produced more than half (51.5
percent) of this electricity, followed by nuclear (20 percent), natural
gas (16.7 percent), hydro (5.7 percent), oil (4 percent) and renewables
(2.3 percent).
The industry's performance has been outstanding, and we believe it
will continue to improve. The increased electricity generation from
nuclear power plants in the past 10 years was the equivalent of adding
22 new, 1,000-megawatt plants to our nation's electricity grid.
The nation's nuclear energy plants are fully subject to, and in
compliance with, the requirements of Price-Anderson, which is why it
should be renewed indefinitely. The industry last year announced Vision
2020 a strategic plan to build 50,000 megawatts of new nuclear power
generation during the next 20 years. This new nuclear power generation
is essential to meet our increasing electricity demand and to maintain
the 30 percent share of emission-free electricity generation today.
Many Americans are just beginning to focus on our increasing energy
needs, including the vital role nuclear energy has played in protecting
our air quality. Between 1973 and 2000, nuclear plants avoided the
emission of 33 million tons of nitrogen oxide and 66 million tons of
sulfur dioxide a vital role in meeting Clean Air Act Standards and
roughly 2.8 billion tons of carbon.
Nuclear energy is our only expandable large-scale source of
emission-free electricity and is responsible for nearly 70 percent of
voluntary carbon reductions as part of DOE's climate challenge program.
Reports from the Energy Department's Energy Information Administration
have made a direct connection between increased production from U.S.
nuclear plants and the fact that greenhouse gases and other emissions
increased less than they otherwise would have in the United States.
Conclusion
Electricity is the engine that drives our economy. Therefore it is
essential that the United States maintains its diverse domestic energy
supply, which maximizes efficiencies and provides environmental
benefits. Nuclear energy is the second-largest source of electricity in
the United States, and the only widely used source that is both
emission free and readily expandable. The industry's safety record,
reliability, efficiency and price stability make nuclear power a vital
energy source for the future.
One need only look at our recent energy situation in the United
States, marked by thinning capacity margins and volatile prices for
fossil fuels, to see why nuclear energy is so important to our nation's
energy mix.
In the future, as electricity demand continues to rise, nuclear
energy will be even more important to American consumers, and to our
nation's economy as a whole. Our industry has proven over the past two
decades that nuclear energy is a reliable, efficient and safe source of
electricity for our nation's economic growth. I urge the members of
this committee to continue to support the role of nuclear energy as
part of the United States' diverse energy policy.
The Price-Anderson Act has been an effective law for more than four
decades. Congress has renewed it three times and should once again
renew the Price-Anderson Act to provide appropriate compensation to the
public in the unlikely event of a nuclear incident and to ensure the
availability of new nuclear power plants.
Thank you for giving me this opportunity to share the industry's
perspective on oversight of nuclear facilities and related matters.
______
Responses of Marvin S. Fertel to Additional Questions from Senator
Voinovich
Question 1. The bankruptcies of Enron and Pacific Gas and Electric
have highlighted the inability of companies to meet their obligations.
During the hearing, several witnesses raised this issue as an argument
against Price-Anderson. Do you agree with this argument?
Could you explain the effect bankruptcies and potential
bankruptcies have on the nuclear industry in regards to liability
compensation with and without Price-Anderson?
Response. First, let me say that I completely disagree with those
witnesses that profess that the bankruptcies of Enron and Pacific Gas
and Electric can be used as an argument against the renewal of Price-
Anderson. In this regard, it is important to recognize that Enron does
not operate any nuclear plants. In fact, one likely contributing factor
to the company's financial problems is that it primarily relied on
trading, absent hard assets, to generate large quantities of revenue.
In contrast, Pacific Gas and Electric has continued to serve its
electric and gas customers in California as it goes through its
bankruptcy proceeding. A major factor in restoring the financial health
of Pacific Gas and Electric is the excellent performance of its two
nuclear units at the Diablo Canyon Nuclear Power Station, which are
generating a significant amount of revenue, cash-flow, and related
``profits'' for the company. While bankruptcies clearly have
significant negative impacts on bondholders, shareholders, creditors
and employees of a company, those witnesses that raise the specter of
bankruptcy as a threat to the financial ability of a nuclear plant
operator to meet its obligation under Price-Anderson are clearly
missing the fact that in a bankruptcy situation the company has less
obligation to pay certain creditors, actually making more money
available to pay obligations that cannot be foregone. In the case of
its Price-Anderson obligation, failure to meet that obligation could
result in the Nuclear Regulatory Commission (NRC) suspending the
plant's operating license, which would result in the loss of revenue
from the plant--a loss of about $300 million per year for a 1000-
megawatt plant operating in a competitive electricity market. The $10
million maximum annual obligation is about 3 percent, a small portion
of the plant's annual revenue generation. Good business sense, and just
plain common sense, clearly shows that bankruptcy, as undesirable as
that may be to certain stakeholders and employees, does not threaten
the ability nor the desirability of a nuclear plant operator to meet
its Price-Anderson obligation.
This business-focused argument is further bolstered by the rigorous
regulatory requirements imposed by the NRC.
The NRC regulations require that an owner/operator of a nuclear
power plant have the financial ability to carry out the
responsibilities to meet the obligations of the retrospective premium.
These requirements are found in 10CFR140. This information is updated
annually per the requirements of 10CFR140.21. The NRC reviews the
annual submissions to assure the owner is able to carry out the
necessary payments if called upon. If a nuclear plant operator incurs
financial difficulties, the NRC reviews the conditions and requires the
operator to provide assurance on how it would meet its obligations
under Price-Anderson.
Therefore, under a bankruptcy situation, Price-Anderson obligations
would be fully satisfied for both business and regulatory reasons. In
the event the law was not renewed, the same business arguments for
being able to meet the financial obligations are still true. However,
if Price-Anderson were not renewed, new plants would not be subject to
the regulatory requirements currently imposed on existing plants by the
Price-Anderson Act, and the actions the NRC could take would be more
limited than those required if the law were in effect.
______
Responses of Marvin S. Fertel to Additional Questions from Senator
Graham
Question 1. You state in your testimony that Price-Anderson has
been an effective law for more than four decades and that it should be
renewed indefinitely with few changes. However, the NRC has testified
that the renewal period should be shortened from 15 to 10 years to
allow for review of how the law effects a constantly changing industry.
If the legislation were to be renewed indefinitely, how would you
modify it to allow for flexibility within a rapidly changing industry?
Response. Our recommendation to renew the law indefinitely is based
on the fact that the law has been renewed three times and has proven to
be the most effective third-party liability insurance program in the
world. As such, it doesn't seem necessary, nor desirable to sunset the
law.
We do recognize, however, that the program has been improved as a
result of congressional reviews over the almost five decades it has
been in effect, and that both new information about liability programs
and changes in the industry can necessitate a need to modify
requirements in the law. With regard to the rapidly changing
electricity industry, since the NRC issued its report, what has become
clear is that most, if not all, of the nation's existing 103 nuclear
plants will be renewing their operating licenses--thereby operating for
an additional 20 years or on average for another 40 years. These
decisions are predicated on the excellent performance of the plants and
the fact that they are the lowest cost source of base load electricity
in the United States. Therefore, while the electricity industry will
continue to be restructured and consolidated, it seems very clear now
that nuclear generation will remain a very stable and significant part
of our generation mix, possibly seeing a significantly increased role
as our nation's need for new base load electricity grows and our
commitment to meeting clean air goals dictate the need for non-emitting
generation like nuclear energy.
Given the comments above, we would propose that the law be renewed
indefinitely and that it be modified as described below.
Currently the Act requires that the NRC make a report to Congress 5
years prior to it expiring. If the Act were to be renewed indefinitely,
the NRC should be required to provide reports to Congress on a set
frequency such as every 5 years. Congress could use the submittal of
the report and its associated analyses and recommendations to hold
oversight hearings concerning the need to amend Price-Anderson.
Obviously, even without the NRC report, Congress could always hold
oversight hearings and take actions it deems appropriate as a result of
those hearings.
______
Responses of Marvin S. Fertel to Additional Questions from Senator
Inhofe
Question 1. In past years there have been a number of studies that
predict losses of life and massive property damage. These studies put
forth numbers that are in the range of $59 billion to over $300
billion.
For what purpose were these studies conducted and what relevance do
they have to liability coverage provided by the Price-Anderson Act?
Response. The study that is generally referenced is one performed
for the Nuclear Regulatory Commission by Sandia National Laboratory
more than 20 years ago. As is the case for all types of risk assessment
studies, this study included a number of scenarios. Over the ensuing
decades since this study was prepared, the NRC has instituted a number
of regulatory requirements and initiatives, including the industry's
commitment to a severe accident management program, which have
addressed and mitigated the relevance of accident scenarios evaluated
in the study. Of significant importance the results of ongoing
research, particularly related to the TMI accident, have resulted in a
much better and more realistic understanding of what the ``source
term'' characteristics would be in the event of an accident. The
results of this research significantly reduce the projected offsite
consequences, both health effects and economic impacts, associated with
even unrealistic worse case scenarios.
In reviewing and discussing studies like the Sandia study, it is
important to recognize that in worst-case scenario analyses, it is
assumed that anything that can go wrong will go wrong, and that none of
the mitigation equipment and actions are taken or, if taken, are
effective. As mentioned above, this provides the upper limit of adverse
consequences, ignoring the probability of their occurring and as such
the real risk to the public.
Therefore, while studies like the Sandia study do provide valuable
insights into how safety can be improved and have been used for that
purpose, their worse case, unrealistic analyses are not useful
indicators of consequences or offsite impact.
We recognize that, since such studies do produce quantitative
estimates of what appear to be potential consequences, it is
understandable that some would look to these purported estimates as
potentially relevant to Price-Anderson. We reject their relevance for
the reasons stated previously and would encourage those looking for
more accurate indications for purposes of Price-Anderson to rely upon
information like (1) the experience from TMI; (2) the evolution of
regulatory requirements; (3) industry initiatives post-TMI; (4)
advances in accident analysis research that significantly reduce
offsite impacts; and (5) the excellent safety performance of the U.S.
plants taken in its totality. Recognizing the magnitude of the
obligation (i.e., $9.5 billion) currently imposed by the law, coupled
with all of the expedited process provisions contained in the law that
benefit citizens, we strongly believe the law, as is, is an exemplary
public policy.
In response to a question at the hearing, I spoke about the
industry's response to a recent NRC study on the potential hazards
associated with a fire in a spent fuel pool and offered to provide our
comments for the record. Attached is a copy of the letter we submitted
to the NRC that contains our comments on that study.
Question 2. Given the deregulation of electricity markets, can we
be reasonably assured that utilities can pay the retrospective
premiums? What would happen if a company declared bankruptcy, as did
Pacific Gas and Electric Company?
Response. The Congress and American people can be assured that
nuclear generators can and certainly will pay any retrospective
premiums required by the Price-Anderson Act. This assurance is
predicated on a number of key facts.
First, the worst nuclear accident in the history of our nuclear
program, TMI, has resulted in total cumulative payments over the last
23 years of under $200 million, or an amount covered by the primary
layer of insurance available at every nuclear power plant site.
Therefore, given our real experience with the TMI accident and the fact
that all U.S. plants are much safer today than in 1979, there is a very
low probability of having an accident, and if one occurred, there is a
further low probability of incurring large offsite impacts and
associated costs.
Second, a 1000-megawatt nuclear power plant produces about $300
million per year in revenue, assuming a competitive market with
relatively low average electricity costs. Given this revenue value, the
maximum annual retrospective premium is only about 3 percent of
revenue.
Third, failure to meet the obligation under Price-Anderson could
result in the NRC suspending the plant's operating license--costing the
company $300 million or more in revenue, versus a $10 million maximum
annual payment. Clearly, the ethical, regulatory and business forces to
meet the Price-Anderson obligation are compelling.
With regard to the impact of a company like Pacific Gas and
Electric declaring bankruptcy, Pacific Gas and Electric has continued
to serve its electric and gas customers in California as it goes
through its bankruptcy proceeding. A major factor in restoring the
financial health of Pacific Gas and Electric is the excellent
performance of its two nuclear units at the Diablo Canyon Nuclear Power
Station, which are generating a significant amount of revenue, cash-
flow, and related ``profits'' for the company.
While bankruptcies clearly have significant negative impacts on
bondholders, shareholders, creditors and employees of a company, those
witnesses that raised the specter of bankruptcy as a threat to the
financial ability of a nuclear plant operator to meet its obligation
under Price-Anderson are clearly missing the fact that in a bankruptcy
situation the company has less obligation to pay certain creditors,
actually making more money available to pay obligations that cannot be
foregone. In the case of its Price-Anderson obligation, failure to meet
that obligation could result in the Nuclear Regulatory Commission (NRC)
suspending the plant's operating license, which would result in the
loss of revenue from the plant--a loss of about $300 million per year
for a 1000-megawatt plant operating in a competitive electricity
market. The $10 million maximum annual obligation is only about 3
percent of the plant's annual revenue generation. Good business sense,
and just plain common sense, clearly shows that bankruptcy, as
undesirable as that may be to certain stakeholders and employees, does
not threaten the ability nor the desirability of a nuclear plant
operator to meet its Price-Anderson obligation.
This business-focused argument is further bolstered by the rigorous
regulatory requirements imposed by the NRC.
The NRC regulations require that an owner/operator of a nuclear
power plant have the financial ability to carry out the
responsibilities to meet the obligations of the retrospective premium.
These requirements are found in 10CFR140. This information is updated
annually per the requirements of 10CFR140.21. The NRC reviews the
annual submissions to assure the owner is capable to carry out the
necessary payments if called upon. If a nuclear plant operator incurs
financial difficulties, the NRC reviews the conditions and requires the
operator to provide assurance on how it would meet its obligations
under Price-Anderson.
Therefore, under a bankruptcy situation Price-Anderson obligations
would be fully satisfied for both business and regulatory reasons.
Question 3. Is it wise public policy to require utilities to pay
prospectively under the second layer?
Response. It is not wise public policy to require prospective
payments for funding the secondary layer under Price-Anderson. A key
aspect of the Price-Anderson Act that makes it such an effective public
policy is the creation, in effect, of an industry insurance pool to
implement the Secondary Financial Protection provisions of the law. No
other industry has such a large obligation, $9.5 billion, nor such an
effective mechanism for meeting that obligation imposed on it. The
assurance that this obligation will be met is founded in the law and
the rules and regulations promulgated by the NRC to implement the law.
Furthermore, the history of the Act demonstrates that, even for the TMI
event, the primary level of insurance, $200 million, was more than
adequate to provide for the necessary payments. Given both the legal/
regulatory framework, the real world experience with implementation of
the Act and the fact that the U.S. nuclear program is setting safety
and reliability performance records, there are no compelling reasons to
require utilities to pay prospectively under the second layer of the
Act. In fact, the only obvious reason to impose such a requirement
would be to increase the cost of electricity from nuclear plants and to
hurt electricity consumers and the economy by such an action. Such a
requirement would also increase the capital requirements for the
industry by forcing it to place $9 billion into an account that has a
very high likelihood of never being needed. To place this amount of
money out of circulation would neither benefit the public nor the
American economy, and would not be wise public policy.
Question 4. Mr. Peter Bradford stated in his testimony that the
Price-Anderson Act provides a subsidy to a nuclear powered electric
generating plant that is not available to other fuel forms of electric
generating power plants therefore reducing the nuclear industry's cost
of capital. He also states that with Price-Anderson protection new
nuclear power plants have a disincentive to build the safest plants.
Is Price-Anderson a subsidy to nuclear plants or a mandate for
payment that is not imposed on other energy forms? Is the Act a
disincentive to building the safest nuclear power plants?
Response. Clearly the Price-Anderson Act imposes a significant
financial obligation on the industry, mandating the payment of $9.5
billion. To my knowledge no other industry, or government program,
outside of those covered by the Price-Anderson Act, have mandated
obligations that even approach those covered by the Price-Anderson Act.
No other fuel form has a legal requirement to have the funding
available or the requirements established for responding to
catastrophic events.
Mr. Bradford's assertion that the Act provides a subsidy to nuclear
power that is unavailable to other fuel forms is blatantly wrong.
First, no other fuel form has explicit financial obligations for third-
party liability. Second, when one looks at nuclear energy, all of the
costs for externalities are internalized. For nuclear plants, in
addition to the Price-Anderson obligation, the cost of decommissioning,
waste disposal, regulatory costs are all paid by the operator of the
plant. The same cannot be said for any other form of electrical
generation.
With regard to providing subsidies, a subsidy is a grant of money
from the government to a private enterprise considered of benefit to
the public. Under Price-Anderson, no funds have been provided to the
commercial sector. In fact, the opposite has occurred as the industry
has paid the Federal treasury over $20 million in indemnification fees
during the early years the law was in effect. The payment from the
private sector to the government is certainly not a subsidy.
With regard to cost of capital, the obligation imposed by Price-
Anderson is reflected in the financial reports of nuclear operating
companies and to that degree it is considered by the financial
community. Again, no other fuel source reflects comparable liability as
part of its financial statement. In summary, we don't understand how
Mr. Bradford arrived at his assertion.
Mr. Bradford's other assertion that somehow Price-Anderson is a
disincentive to building the safest plants is wrong and difficult to
understand. First, the industry has spent hundreds of millions of
dollars over the last decade designing and licensing the most advanced
and safest reactors in the world. Currently the industry is working on
even newer, smaller modular gas-cooled reactors, which if demonstrated
to be economically and technically reliable, will be even safer than
our current designs. The industry has been and is continuing to commit
resources and money to enhancing the safety of future reactors. Mr.
Bradford must be unaware of this or wouldn't have reached the
conclusion he did.
In addition to the demonstrable evidence of the industry's
commitment to newer, even safer reactors, any nuclear power plants must
be built to meet stringent regulatory requirements, which ensure
adequate protection of the public health and safety. Finally, Mr.
Bradford seems to imply that the owner/investor in the plants would be
less concerned about safety and his investment because he has insurance
to pay third-party claims in the event of an accident. On its face,
this doesn't make sense. The plant is built by the owner as an
investment with an expectation of return on investment. If the plant
doesn't operate or is shut down by the regulator for issues of safety,
it is not fulfilling its purpose to provide electricity or to provide a
return on investment. Additionally, Price-Anderson covers third-party
liability, not other costs (property, business interruption, etc.) that
would be incurred by the owner if an accident occurred. In conclusion,
Price-Anderson is certainly not a disincentive to safety, but rather is
an excellent public policy for compensating the public in the very
unlikely event of an accident.
__________
Responses of Marvin S. Fertel to Additional Questions from Senator Reid
Question 1. According to the Nuclear Regulatory Commission
regulations, nuclear power plants are only required to provide evidence
that they can meet $10 million of the retrospective premium. What
financial means do the owners use to demonstrate the ability to pay?
Does this take into consideration the changing financial situation that
may result from a catastrophic nuclear accident?
Response. Nuclear power plant owners demonstrate the ability to pay
in a number of ways, including: Surety Bond, Letter of Credit,
Revolving Credit/Term Loan Arrangement, Maintenance of Escrow Deposits
of Government Securities, Annual Certified Financial Statement showing
either that cash-flow (i.e., cash available to a company after all
operating expenses, taxes, interest charges, and dividends have been
paid) can be generated and would be available for payment of
retrospective premiums within three (3) months after submission of the
statement, or a cash reserve or a combination of cash-flow and cash
reserve, or such other type of guarantee as may be approved by the
Commission.
The $10 million is the annual obligation per reactor and NRC
regulations require the licensees to demonstrate their ability to meet
this annual obligation.
Even in the event of a catastrophic accident, it is unlikely that
the offsite consequences would necessitate payment of the full
obligation. However, if it did, the only facility that would be
severely financially handicapped would be the one that had the
accident. Under that situation, the company owning the facility could
still be able to make the required payments, or it is possible that the
company would have ``insurance'' provided by American Nuclear Insurers
to meet that obligation, or it is possible that the rest of the
industry would ensure that the full amount required under the Secondary
Financial Protection Program was paid.
Question 2. Have these financial assurances been affected by the
recent problems at Enron?
Response. Since the financial assurances required by the NRC
represent either real financial instruments (e.g., surety bonds) or
financial analyses based on cash-flow from actual plant and company
operations, it is unlikely that the lessons-learned from the Enron
situation would impact the veracity of these assurances.
__________
Statement of Peter A. Bradford, Visiting Lecturer in Energy Policy and
Environmental Protection, Yale University
Thank you very much for the invitation to testify regarding the
renewal of the Price-Anderson Act. This is the second time I have done
so, having testified also in 1985, on the last occasion that Price
Anderson came up for renewal. Aspects of the law have provided for a
system of self-insurance by the nuclear industry for some 45 years.
While these provisions can and should be strengthened to assure funding
in the event of a serious nuclear accident, the underlying concept is
sensible.
However, the electric industry has changed significantly since
Congress last renewed Price-Anderson. These changes undermine the
wisdom and the fairness of applying the liability limitation provisions
to new nuclear units and perhaps also to units whose licensed life is
extended beyond its original term.
The most significant change is the opening of the electric power
market to competition among all forms of power generation. A national
policy requiring competitive electric power supply was achieved through
the enactment of the Energy Policy Act of 1992 and subsequent
proceedings of the Federal Energy Regulatory Commission. Pursuant to
this national policy, all power plants should now have an equal
opportunity to sell into the wholesale electric market based on their
costs and other operating characteristics. The basis for this policy is
the belief that marketplace competition will produce lower prices and
greater customer satisfaction than did the power plant selection
process based on utility and governmental forecasts that prevailed when
Price-Anderson was enacted and renewed.
In a competitive power generation market, capacity from nuclear
plants must compete with capacity from fossil fuels and from renewable
resources, none of which enjoy any type of federally mandated liability
limitation. Under these circumstances, the liability limitation has two
anticompetitive effects. First, new nuclear capacity appears cheaper
than it really is relative to other sources, or--for that matter--
relative to investment in energy efficiency. This is because its cost
of capital does not reflect the risk of having to pay for damages in
excess of $9 billion, when estimates of worst-case accident or sabotage
scenarios are much higher than that. Second, any nuclear design that is
truly inherently safe or that is at least incapable of doing more than
$9 billion in damage does not enjoy the benefit of its improved safety
in competition with those nuclear plants that do benefit from the
liability limitation. Indeed, the liability limitation ultimately is
less a subsidy of nuclear power than of nuclear catastrophe. As such,
it removes market incentives for--for example--remote siting,
underground siting and inherently safe designs. Companies offering
designs that have such advantages would be well advised to volunteer to
forego the liability limitation and the public skepticism that it
engenders.
The risk of an accident that exceeds $9 billion in damages is in no
way diminished by the Price-Anderson Act. The Act merely requires
that--whatever that risk is--it will be borne either by those who
suffer the damage or by the nation's taxpayers. In the wake of
September 11, the possibility of a disaster involving nuclear energy
and costing many times $9 billion is clearly not as low as we had
thought. Rather than underwrite industry costs in the event of such an
accident, it would seem wiser for Congress to adopt a framework that
encourages the deployment of energy sources--conceivably including
inherently safe nuclear sources--that do not carry with them the
potential for inflicting such large damages.
No connection exists between the upper limit on liability and the
more desirable features of Price-Anderson. Removal of the limit coupled
with a provision extending the retrospective annual premium until all
damages had been paid would provide more assurance to the general
public than the present law. Indeed, most of the witnesses who
testified in favor of Price-Anderson renewal in the House last year
made little or no mention of the liability limit for nuclear power
plants[1]. Their testimony urged retention of the mutual-insurance
scheme and other aspects of the law. If they saw Price-Anderson as
essential to future nuclear plants, to nuclear relicensing, to
increasing the licensed output of nuclear power plants, they did not
say so. Even the two witnesses who endorsed the liability limit offered
no proof that it is still needed[2]. The most vehement claim that the
liability limit is essential to the future of nuclear power was made by
a witness opposing renewal[3].
The fact is that other industries--marine oil transport comes to
mind--are required to provide a mutual insurance framework independent
of any liability limit that may exist. And the Price-Anderson mutual-
insurance requirement need not be modified if the liability limit were
removed.
The Price-Anderson limited liability principle was originally
adopted as part of a bargain that included detailed requirements for
public participation in the nuclear licensing process. Over the years,
those protections have been substantially eroded, usually on the basis
of arguments that nuclear technology had substantially matured and no
longer required so substantial a set of intervenor protections[4].
Furthermore, probabilistic risk assessment has been introduced into
many aspects of nuclear regulation, again based on the rationale that
the technology and risk assessment methodology have matured to an
extent now adequate to provide informed judgment about accident
probability[5].
What then are we to make of continued insistence on liability
limits? Can it really be that all of this maturing, all of this
increased database only counts when it is being used to reduce aspects
of NRC safety oversight? That it counts for nothing in the context of
reconsidering the liability limit?
Such a result is indefensible. If the technology is mature enough
to cut public hearing and information rights to the vanishing point, if
it is mature enough to circumscribe regulatory scrutiny with
probabilistic risk assessment, then it is too mature to need a
limitation on its liability for catastrophic accidents.
The justification for the limit dates from a time when other
alternatives to fossil fuels did not exist. Now, however, at a time
when competitive markets are actually providing as many or more new
renewable megawatts worldwide as new nuclear megawatts, this argument
is out of date. If nuclear law is to be updated--as industry witnesses
urge--to take account of changes in the 1990s, then Congress should
take all of those changes into account. Congress should let nuclear
power compete within a framework that will reward its safest designs to
the fullest. Congress should not continue a framework that encourages
facilities with a remote potential for extreme catastrophe to
substitute for facilities that can provide or conserve energy in safer
ways.
At the very least, those who support renewal of the liability
limitation can hardly oppose measures providing support for renewable
energy and energy efficiency as part of restructuring legislation. The
liability limitation is a specific override of an asserted free market
outcome--the unwillingness of private insurers to cover the full
potential costs of a nuclear accident. If such a countermarket subsidy
is to be offered to one technology, then the least that can responsibly
be done is to ascertain its value and offer a comparable subsidy to
other technologies that offer the same advantages of domestic supply
and diminished air pollution, especially since these technologies
really are in the startup phase that was said to justify the Price
Anderson Act when first it became law, 45 years ago.
Thank you again for the invitation to testify.
[1] For example, Chairman Meserve of the NRC and Mr. Fertel of the
Nuclear Energy Institute barely hint that they are testifying in favor
of a liability limitation.
[2] Testimony of George Davis on behalf of Westinghouse and of John
Quattrocchi on behalf of American Nuclear Insurers.
[3] Testimony of Anna Aurilio on behalf of the U.S. Public Interest
Research Group.
[4] For indication that this process continues, see NRC's proposed
``Changes to Adjudicatory Process'' (RIN 3150-AG49), 66 FR 19609-19671
(April 16, 2001).
[5] See, for example, the October 11, 2000, letter from the
Advisory Committee on Reactor Safeguards to Chairman Richard Meserve,
stating, ``In over two decades of development following the Reactor
Safety Study, PRA reached a level of maturity that allows it to be used
to identify unnecessary regulatory burden, as well as additional safety
improvements''. In his House testimony on Price-Anderson, Chairman
Meserve noted, ``Improved probabilistic risk assessment techniques
combined with more than four decades of accumulated experience with
operating nuclear power reactors has led the commission to realize that
some regulations may not achieve their intended safety purpose and may
not be necessary to provide adequate protection of the public health
and safety.''
______
Responses of Peter Bradford to Additional Questions from Senator Reid
Question 1. Do you concur with the written testimony of Mr.
Quattrocchi that the sale of reactor licenses to a relatively smaller
number of buyers would have the effect of ``substantially increasing
the maximum retrospective assessment at a time of severe economic
stress for nuclear utilities generally--that is to say, following a
large scale nuclear accident?"
Response. Mr. Quattrocchi is right that the concentration of
ownership of nuclear power plants will result in the retrospective
premium being collected from fewer owners of nuclear power plants.
Perhaps more importantly, the nuclear units are likely to represent a
larger portion of the total assets of the companies (or corporate
subsidiaries) that own them. Given the near certainty of financial
stress for nuclear plant owners in the event of an accident serious
enough to trigger assessment of the retrospective premium provisions,
this means that the potential impact of such an accident on the owners
of nuclear plants is likely to be greater than in past.
Question 2. What if the accident were the result of a terrorist
attack?
Response. Assuming that a terrorist attack triggers the
retrospective premium, I don't think that fact that the precipitating
event was a terrorist attack makes much difference. The pressure to
shut down other plants and the regulatory and financial perturbation
would be similar. If anything, the overall financial turbulence and
therefore the pressure on the creditworthiness of all electric
companies would be greater. In light of the legislation assisting the
airlines in the wake of September 11, Congress should expect to be
asked to assist the electric industry to a comparable degree.
Question 3. Would you expect--as we saw following the September 11
attacks--a slowdown in the industry comparable to what we saw with the
airline industry? Is it wise to require the majority of the coverage to
come at a time when the power companies may be least able to afford it?
Response. I would expect substantial public demand for the closure
of all nuclear units in the wake of a successful terrorist attack on
any one of them. Following Three Mile Island, all of the other Babcock
and Wilcox were shut down for several months. Depending on the severity
of the damage and the uniqueness of the circumstances, something
similar would follow a successful terrorist attack on a nuclear plant.
However, the impact on the airline industry was caused in large part by
the reluctance of the public to fly. While energy conservation would
perhaps be among the public responses to an attack on a nuclear plant,
no comparable fall of in demand seems likely, so the impact would be
less driven by public reluctance to continue to consume the product of
the afflicted industry.
Question 4. Do you know of any other industries in which companies
contribute to a pool (either prospectively or retrospectively) that can
be used to pay damages caused by an accident for which most of the
contributors are not responsible? What are the liability limits if any?
Response. For the reasons set forth above, prefunding of some part
of the insurance requirement seems wise. Both domestic and
international law provide for prefunding to be used to clean up and
compensate for oil spill damages. The United States Oil Pollution Act
of 1990 provides for an Oil Spill Liability Trust Fund to be used to
cover removal costs or damages resulting from discharges of oil. The
primary source of revenue for the fund is a five-cents per barrel fee
on imported and domestic oil. Additional sources include interest on
the fund and penalties of various sorts assessed against those
transporting oil in U.S. waters. In addition, States are permitted to
go beyond the Federal law, and several (for example, Maine, Florida,
Washington and Texas) have done so. Liability under the Federal law is
limited, but I don't know the present limit.
As described by Susan Bloodworth in an article in the 1998 Florida
State Journal of Land Use and Environmental Law entitled ``Death on the
High Seas: The Demise of TOVALOP and CRISTAL'', ``the International
Convention on Civil Liability for Oil Pollution Damage (CLC) provides
uniform rules and procedures for determining questions of liability and
adequate compensation for oil pollution damage caused by vessels. The
CLC imposes strict liability on shipowners for damages from an oil
spill and for the costs of any action taken to minimize that damage.
Compensation is keyed to the weight of the vessel. . . . To qualify for
the limitation, the owner is required to keep on deposit a sum
representing the limits of his liability. Additionally, any ship
carrying in excess of 2,000 tons of oil in bulk as cargo is required to
obtain a certificate attesting to its financial security.
The International Convention on the Establishment of an
International Fund for Compensation for Oil Pollution Damage (Fund
Convention) resulted from the CLC. Contributions to the fund are made
by all persons receiving more than 150,000 tons of oil during the
calendar year within a contracting State. The Fund Convention
specifically provides for relief to claimants where vessel owners are
not liable, are financially incapable of meeting their obligations, or
where damages suffered exceed the owner's liability allowed under the
CLC''.
__________
Statement of Dan Guttman, Fellow, Center for Study of American
Government, Johns Hopkins University
I am an attorney in private practice. I am a Fellow at the
Washington Center for the Study of American Government at Johns Hopkins
University and of the National Academy of Public Administration. I
appear on my own behalf as a citizen, but am privileged to draw on
experience relating to the operations of nuclear power plants, the
nation's nuclear weapons complex, and Cold War related exposures of
citizens, nuclear weapons workers and ``atomic veterans'' to radiation
risk.\1\
---------------------------------------------------------------------------
\1\The experience includes: (1) counsel to municipally and
cooperatively owned electric systems in the purchase of nuclear power
plant ownership shares and power supply, and related decommissioning
costs;(2) special counsel to Senator David Pryor in oversight of
Department of Energy contracting; (3) Executive Director, President
Clinton's Advisory Committee on Human Radiation Experiments; (4)
Commissioner, U.S. Occupational Safety and Health Review Commission;
(5) counsel, nuclear weapons workers union (OCAW, and its successor
PACE) on matters including the environmental cleanup of the weapons
complex, the privatization of the U.S. Enrichment Corporation, and the
Energy Employees Occupational Illness Compensation Act; (6) adviser to
Nye County, Nevada, on matters related to the potential Yucca Mountain
repository; (7) adviser to the special delegation to the United States
of the Chancellor of Austria regarding the Temelin nuclear power plant.
---------------------------------------------------------------------------
Summary
In the interim since the 1988 Price-Anderson Act amendments,
Federal court decisions construing the law, electric utility industry
restructuring, and inquiries and enactments treating revelations of
Cold War era radiation exposures to citizens, soldiers, and nuclear
weapons workers have highlighted issues which merit attention in
current Congressional consideration of the Price-Anderson Act. This
testimony will seek to identify some of these questions, which, of
course, are now framed by the events of September 11, 2001.
Courts have agreed that the 1988 Price Anderson Act Amendments
fundamentally restructured the law by: (1) creating a federal cause of
action (``public liability'') for claims related to nuclear incidents;
where such claim exists, state law based claims on the facts are, with
limited exception, precluded;\2\ (2) providing that the legal
principles, or rules of decision, for determining public liability are
rooted in state law. However, in the context of this agreement, and
with further developments since 1988 in mind, issues that warrant
current attention include:
---------------------------------------------------------------------------
\2\For example, the Court of Appeals for the Third Circuit stated
in In Re TMI, 940 F. 2d 832 (3d Cir. 1991), cert denied, 112 S. Ct.
1262 (1992):
The Amendments Act creates a federal cause of action which did not
exist prior to the Act, establishes federal jurisdiction for that cause
of action, and channels all legal liability to the federal courts
through that cause of action...Congress clearly intended to supplant
all possible state causes of action when the factual prerequisite of
the statute are [sic] met.
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(1) What conduct will trigger, and require, Price Anderson Act
jurisdiction?
Court decisions call into question: (a) whether the Act covers
conduct that is intentional (as well as conduct that is accidental);
(b) whether the Act requires that the defendant(s) be party to an
indemnification agreement with the government; (c) whether the Act
reaches into disputes regarding common commercial products; for
example, watch dials.
Congress may wish to resolve conflicts or misunderstandings on the
basis for, and scope of, Price-Anderson Act jurisdiction raised by
court decisions.
(2) Are Acts of Terrorism Covered by the Act?
The Price Anderson Act (through the definition of ``public
liability'') excludes claims ``arising out of acts of war,'' raising
obvious questions about the Act's coverage of damage and injuries
stemming from acts of terrorism.
Congress may wish to consider whether the Price-Anderson Act should
be amended to expressly address terrorist acts. Does Congress intend to
cover ``acts of terrorism?'' If so, is the current statutory wording
clear enough to embrace this intent? If the intent is not to cover
nuclear accidents caused by acts of terrorism, how will they be
covered? Assuming the intent is to cover such acts, what kind of
finding or declaration will be required to trigger the Act--- and who
shall be empowered to make this finding?
(3) Will The Retrospective Unit Owner Funding Required by the Act be
Available in the Deregulation Era?
The Act relies on nuclear unit owners to make ``retrospective''
(i.e., post-accident) contributions where the initial tier of insurance
is exhausted by an accident. Under the Act's present terms, and given
the current number of operating units, this obligation may be in the
range of $80-90 million per unit--or over $9 billion. The
``retrospective'' nuclear plant owner obligation, in short, is relied
on to provide the lion's share of funding for relief in a major
accident.
Since 1988, the utility industry has undergone profound
restructuring, hallmarked by nuclear unit divestitures, corporate
restructuring, and the consolidation of nuclear unit ownership. This
restructuring, particularly when coupled with the well-known financial
difficulties of major California utilities and Enron, raises questions
about the premises of retrospective funding. The basic concern was
identified in the NRC's 1998 Price-Anderson report to Congress, and it
has just been underscored by a December, 2001 GAO report, which found
that NRC reviews of license transfer applications did not provide
adequate assurance that new corporate owners will have sums needed to
provide for future decommissioning costs.
Indeed, the form restructuring is taking may render the public
particularly vulnerable to funding shortfalls. As the GAO report
observed, nuclear units are being consolidated under a limited number
of ``fleet'' owners. This consolidation may yield important benefits in
safety, reliability, and accountability. On the other hand,
consolidation of ownership raises the possibility that the owner may
have to bear retrospective payment burden measured in the hundreds, not
tens, of millions, and the further possibility that the ripple of
effects of an any nuclear accident on any utility system may cause
cross-the-board unit shutdowns that will leave the ``fleet'' owner
without revenue sources to pay retrospective commitments.
Congress should act to assure that industry restructuring does not
come at the cost of the integrity of the Act's funding, whether by
assuring that NRC license transfers provide for the needed commitments,
specifying particular commitments (e.g., prepayment or reserve for
Price Anderson obligations as condition for license transfer), or
providing for a review and further steps thereafter.
(4) Should There be Clear and Consistent Treatment of Willful or
Reckless Misconduct?
Potential liability for willful or reckless misconduct appears to
differ depending upon whether the actor is a NRC licensee, a Department
of Defense contractor, or a Department of Energy contractor. In the
first case, courts have indicated that actors may, to some degree that
itself may benefit from clarification, be liable for punitive damages;
in the second case, procurement rules provide for limitation on
indemnification in the case of willful misconduct, in the third case
there is no evident limitation on indemnification.
Congress may wish to consider whether there is reason for the
differing set of rules and, if not, to provide for a clear and
consistent set.
(5) When Should State Established Duty(ies) of Care be Preempted?
Courts agree that the 1988 Amendments create a federal cause of
action that is rooted in state law rules of decision, but have
generally held that the duty of care owed by Price-Anderson defendants
is that stated in Federal dose exposure regulations, to the exclusion
of state law duty of care standards.
Congress may wish to consider whether this exception to the Act's
reliance on state standards is warranted, particularly where the state
standard may supplement, but not conflict with, the federal standard of
care.
(6) What is the Burden of Proof to Show Causation of Injury Where
Records are Inadequate?
In order to obtain Price-Anderson compensation, an individual may
need to show not only that he or she was exposed to radiation hazard
and that he is now sick, but also that the exposure caused the
sickness. The difficulties of determining that harm to a specific
individual (e.g., cancer) was caused by a specific exposure(s) to
radiation are well understood, particularly when the injury manifests
itself years after the exposure. We now know that when the government
(and its contractors) exposed citizens, soldiers, and workers to
radiation during the Cold War those responsible for exposures too often
failed to keep the records, and provide for the monitoring, that might
help determine cause and effect--and provide for compensation--at years
remove. In light of this new understanding, Congress and the Executive
branch have adopted the principle that where injured citizens show that
they were likely exposed to potentially injurious amounts of radiation,
the government (or contractors or further designees) bears the burden
of providing exposure and monitoring data needed to defeat claims that
the injury was caused by the exposure.
Congress may wish to consider the express incorporation into the
Price-Anderson Act of the principle that those who expose citizens to
radiation risk without providing for recordkeeping and monitoring bear
the burden of showing that their conduct is not the cause of resulting
injury.
(7) Is Justice Done by Current Statutes of Limitations Provisions Which
May Preclude Recovery Where Injury is Latent for Years?
At least one court has indicated that adherence to the letter of
the Price Anderson Act required it to do injustice by dismissing a case
involving an alleged ``nuclear incident'' because of the failure of the
state statute of limitations to contemplate injury from radiation
exposure--i.e., injury that may be latent for many years before visible
manifestation..
Congress may wish to revisit the workings of Price Anderson Act
statutes of limitations where state law does not adequately contemplate
the reality that some radiation injuries may be hidden for years before
discovery.
Jurisdictional Requirements
1. Is an Indemnification Agreement a Prerequisite to the Triggering
of Price-Anderson Jurisdiction?
Is an indemnification agreement a prerequisite for the triggering
of Price-Anderson?
In Gilberg v. Stepan Co., 24 F. Supp 2d 325 (D. N.J. 1998) the
court found that the existence of a Price-Anderson indemnity agreement
with the government is key to the determination of whether a radiation
release is covered by Price Anderson.
The case dealt with alleged contamination of the surrounding
community from thorium tailings at a chemical plant that operated from
1918 to 1956. The court noted that the Atomic Energy Act authorized the
NRC to license the production and possession of nuclear materials.
Price Anderson did not mandate, as it does in regard to power plant
licensees, that these further licensees be subject to assured pools of
coverage. The Stepan court concluded that an ``occurrence'', under the
definition of ``nuclear incident,'' ``can only be an event at the
location of or the contract location as those terms are defined as an
applicable indemnity agreement.'' In the absence of such agreement, the
court found, Price Anderson does not apply.
The Court explained:
While it is true that any thorium or thorium tailings at the
facility may have been the subject of AEC or NRC licenses for source
and/or byproduct materials...licenses for these types of materials have
never been subject to Price-Anderson's financial protection provisions.
Therefore, neither the AEC nor the NRC would have entered into an
indemnification agreement covering activity conducted under such
licenses. In the absence of an indemnification agreement, entered into
under 42 U.S.C. Section 2210 and covering the activities which give
rise to the liability alleged, there can be no ``occurrence,'' that is
no event at the site of ``licensed activity'' that would constitute a
``nuclear incident.'' Without a nuclear incident, there is no claim for
public liability, and without a claim for public liability there is no
federal jurisdiction under Price-Anderson.[fns. Omitted]
Stepan's conclusion was embraced in Heinrich v. Sweet, 62 F. Supp.
2d 282 (D.Mass. 1999), which involved claims related to human radiation
experiments conducted by doctors and universities under Atomic Energy
Commission contract.
However, Stepan's conclusion has been rejected elsewhere,\3\
including at least one case--Carey v. Kerr-McGee, 60 F. Supp 2d 800
(N.D. Ill. 1999)--which followed Stepan. Carey concerned allegations of
contamination from thorium tailings at Kerr-McGee's West Chicago plant.
Plaintiffs argued that for Price Anderson to apply there had to be a
release of radioactive material from a facility which is both (a)
licensed by the NRC and (b) covered by an indemnification agreement
with the NRC. Because the facility, while subject to certain licensing,
was not signatory to an indemnification agreement, plaintiffs contended
that there was no ``occurrence,'' as provided for by the Act and
therefore it did not apply. The court, noting that the Act does not
define occurrence, looked to Webster's dictionary and found that an
occurrence had been alleged.
---------------------------------------------------------------------------
\3\Stepan notes that the vast majority of litigated cases either
dealt with indemnified facilities (e.g., power plants) or did not
address the issue of whether indemnification was a requisite to Price-
Anderson jurisdiction. Stepan addressed two prior cases, including
Kerr-McGee Corp. v. Farley, 115 F. 3d 1498 (10th Cir. 1997), cert
denied 118 S. Ct. 880 (1998) discussed below, which appeared to find
Price-Anderson jurisdiction commensurate with NRC licensing authority.
---------------------------------------------------------------------------
Is Intentional, in Addition to Accidental, Conduct Covered by the Act?
In re Cincinnati Radiation Litigation, 874 F Supp 796, 830-832 (SD
Ohio 1995) involved claims of injury caused by human radiation
experiments conducted by government supported experimental treatments
of cancer patients. The court found that a ``public liability'' claim
requires unintended, or accidental, conduct. Thus, even though
radiation might have caused injury, there was no Price Anderson claim.
The decision explained:
While the alleged conduct of the experiments and the alleged
failure to inform the subjects of the experiments may be reprehensible,
the operation of the Teletherapy Unit was an application of nuclear
medicine. Thus, in this case the nuclear source at issue was employed
as intended and cannot give rise to a claim under the Price-Anderson
Act. Moreover, liability under the Price-Anderson Act turns on the
existence of a ``nuclear incident,'' which does not occur when there is
no unintended escape or release of nuclear energy.
See also McCafferty v. Centerior Service Company, 983 F. Supp. 715
(N.D. Ohio 1997) (``all of Plaintiffs claims which arise as a result of
their unintended exposure to radiated materials are preempted by the
Amendments Act, and must be analyzed for inconsistencies with that
legislation.'')
In a subsequent human radiations experiment decision, Heinrich v.
Sweet, 62 F. Supp. 2d 282 (D. Mass. 1999), the court determined that
Price-Anderson jurisdiction was not governed by the intentionality of
the conduct, but by whether the alleged conduct is subject to an
indemnification agreement. Responding to the decision in In re
Cincinnati Radiation Litigation, the court explained:
Several reported cases, however, appear to undermine this
interpretation of the statute. See Day v. NLO Inc., 851 F. Supp. 869
(S.D. Ohio 1994)(Act applies to claims of occupational exposure to
radiation not alleged to have been caused by accidental release);
Sawyer v. Commonwealth Edison Co., 847 F. Supp. 96 (N.D. Ill. 1994)
(Act applies to claim for injuries resulting from alleged ongoing
occupational exposure); Coley v. Commonwealth Edison Co., 768 F. Supp.
625 (N.D. Ill. 1991)(same); Building and Constr. Trades Dep't v.
Rockwell Int'l, 756 F. Supp. 492 (D. Colo. 1991) (Act applies to
intentional and tort claims related to occupational exposure.)\4\
---------------------------------------------------------------------------
\4\See also, Bohrmann v. Maine Yankee, 926 F. Supp. 211 (D. Maine)
where the court found that an intentional tort theory, as provided by
Maine law, could be pursued under Price-Anderson. (``There is no reason
apparent to this Court to believe that Congress intended that a
defendant be insulated from liability for intentional acts solely by
complying with the federal safety standards...); Caputo v. Boston
Edison Co., 924 F. 2d 11 (1st Cir. 1991)(worker injury claim for
intentional infliction of emotional distress removed to federal court
pursuant to Price Anderson Amendment Act of 1988, dismissed for lack of
factual support).
---------------------------------------------------------------------------
Following the analysis in Stepan, as discussed above, the Heinrich
court held that the determinative issue was not intentionality, but
indemnification.
Is Price Anderson Coverage Commensurate with the Use of Atomic Energy,
or NRC Licensing Jurisdiction?
Some courts appear to find that Price-Anderson jurisdiction broadly
attaches to activities that are, or may be, within NRC jurisdiction.
Kerr-McGee Corp. v. Farley, 115 F. 3d 1498 (10th Cir. 1997), cert.
denied,118 S. Ct. 880 (1998) involved Navajo Tribal Court jurisdiction
over a claim that tribe members had been injured by exposure to
radioactive and toxic materials released from a Kerr-McGee facility on
land leased from the tribe. Those alleging injury claimed that because
there was no indemnification agreement, Price-Anderson jurisdiction did
not apply (and, therefore, there was no question of whether the case
had to be in Federal court, not tribal court). The court rejected the
claim:
Nothing in [the Supreme Court's Silkwood decision] suggests that
the absence of an indemnity agreement makes [the Act's] jurisdictional
provisions inapplicable. Furthermore, as quoted...the jurisdictional
provisions of [the Act], as amended by the 1988 Amendments, appear
broad enough to create a federal forum for any tort claim even remotely
involving atomic energy production.
Gassie v. SMH Swiss Corp., 1998 U.S. Dist. Lexis 2003 (E.D. La.
Feb. 17, 1998) was a class action claiming injury from the leak of
tritium (a radioisotope used to produce luminescence) from Swatch
watches. The defendant was an NRC licensee. The Court found that the
claim was a public liability claim arising out of a nuclear incident--
and, under Price Anderson, therefore subject to removal from state to
Federal court and treatment under the Act:
Although the words ``any nuclear incident'' were employed by
Congress to convey the broad scope of the jurisdictional grant, there
is little support in the legislative history or in other legal
precedent for the idea that a products liability case, such as the one
Plaintiffs have filed in this one, to conclude that the leaking of
tritium from Swatch Watches constitutes a nuclear incident in terms of
the Price-Anderson Act. However, there is also little support to negate
Defendants' argument that Plaintiffs' claims constitute a public
liability action arising from a nuclear incident. In fact, the
unambiguous words of the Price-Anderson Act indicate that Plaintiffs'
claims do constitute a public liability action arising from a nuclear
incident.
The court concluded that Price-Anderson would apply to tritium
leaks from watches, unless Plaintiffs could establish (which the court
found they did not) that the NRC permitted regulatory control of
byproducts to be assumed by the State ( Louisiana in the case at hand).
II. Post-September 11: Are Acts of Terrorism Covered by the Act, or Are
they Excluded as ``Acts of War''?
After September 11, there is obvious need to consider the
applicability of Price-Anderson to nuclear incidents stemming from
terrorist activity. It is not clear whether, and under what
circumstances, the Act would cover damage and injury resulting from
terrorist conduct.
The Act's definition of ``public liability'' excludes ``claims
arising out of an act of war.'' See 42 U.S.C. Section 2014(w)(ii).
Thus, depending on the definition of ``Acts of War,'' the Price-
Anderson Act may include or exclude the consequences of terrorist
activity.
Congress should consider whether it wishes to revisit the ``acts of
war'' exclusion, to provide clarification of what is intended in light
of recent events. For example:
Does Congress intend that the ``acts of war'' exclusion is also
intended to exclude ``terrorist'' conduct? If so, does the Act
currently make this clear? If Congress intends the Act to provide for
terrorist accidents, does the current language make that clear? Where
there is uncertainty about particular ``terrorist'' conduct, who (e.g.,
Congress and/or the Executive or the court) will be responsible for
determining the scope of the exclusion, and by what means (e.g.,
Presidential directive, NRC review)? In the absence of clarification,
the answers to such questions may fall by default to the courts, which
would plainly benefit from Congressional guidance.
III. Is The Act's Reliance on Retrospective Funding Reliable in Light
of Utility Industry Restructuring?
Retrospective premium payments comprise the lion's share of
potential funding in the case of a severe accident. Given current
industry deregulation, there is need to assure that these payments will
be available if needed.
Price-Anderson creates a two-tier system to provide funding to the
current liability limit of approximately $9.4 billion. Pre-paid private
insurance set at $200 million is to be supplemented by retrospective
deferred payments on each unit in the event of an accident requiring
additional sums. The deferred payments are based on a formula where
reactor owners each provide an equal amount per unit per accident to
the limit of $9.4 billion. (For example, assuming 110 reactors are
operating, a per unit payment of $83.9 million would yield $9.23
billion).
At the time of the 1988 Amendments, the landscape was still
dominated by vertically integrated utilities with names that likely
incorporated the name of the locality or region long served.
Since 1988, names and corporate structures have changed beyond
ready recognition. Some vertically integrated utilities have divested
themselves of nuclear units, others have sought to build fleets of
units, and new entrants into the business have considered purchasing
units. Moreover, as experiences in California and with Enron show, the
once unthinkable prospect of the bankruptcy of a purveyor of electric
``utility'' service has now become quite thinkable.
In theory, the NRC will assure the continued adequacy of funding
through reviews conducted in the transfer of unit licenses to new
owners. In December 2001 the General Accounting Office (``GAO'')
reported on the adequacy of NRC oversight of decommissioning funding in
the restructuring environment.\5\
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\5\``NRC's Assurance of Decommissioning Funding During Utility
Restructuring Could be Improved,'' GAO-02-48, December 2001.
---------------------------------------------------------------------------
The GAO found that ``for the most part'' NRC reviews of new owners'
financial qualifications ``enhanced the level of assurance that they
will safely own and operate their plants in the deregulated
environment.'' (Report, at 6). However, the GAO found substantial basis
for concern that financial reviews may not be adequate where the
transfer is not predicated on the precomittment of the amounts
potentially required. Thus, in the case of the NRC review of a merger
that has yielded the nation's largest ``fleet'' of nuclear units, the
GAO found (report at 6):
The new owner did not provide, and the NRC did not request,
guaranteed additional sources of revenue above the market sale of its
electricity, as other new owners had. Moreover, NRC did not document
its review of the financial information--including revenue projections,
which were inaccurate--that the new owner submitted to justify its
qualifications to safely own and operate 16 plants.\6\
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\6\The GAO elaborated, at page 21: ``. . . when plant owners
requested that their operating licenses for eight plants be transferred
to a contractor, NRC maintained the existing level of assurance by
continuing to hold the plant owners responsible for collecting
decommissioning funds. In addition, when NRC approved requests to
transfer licenses related to the sale of 15 plants, decommissioning
funding assurances were increased because the selling utilities prepaid
all or most of the projected decommissioning costs, and either the
sellers or the new owners provided additional financial guarantees for
those projected costs that were not prepaid. However, when NRC approved
requests to transfer licenses in which the new licensee intended to
rely on periodic deposits into external sinking funds for
decommissioning, it did not always obtain the same level of financial
assurance...Among other things, NRC approved two requests to transfer
ownership of 25 plants without verifying that the new owners would have
guaranteed access to the decommissioning charges that their affiliated
entities would collect.
---------------------------------------------------------------------------
The GAO concluded (at 34):
NRC's inconsistent review and documentation of license transfer
requests creates the appearance of different requirements for different
owners or different types of transfers...While its standard review plan
offers a sound basis for obtaining consistency, NRC is clearly not
consistently achieving the desired results.
Moreover, the 1998 NRC report to Congress records that, even prior
to deregulation, studies showed that utilities could not be expected to
``afford'' retrospective payments in excess of $32 million (in 1996
dollars).\7\ The report pointed out that deregulation might reduce this
amount further:
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\7\``The Price-Anderson Act: Crossing the Bridge to the Next
Century a Report to Congress,'' Prepared by ICF Incorporated for the
U.S.Nuclear Regulatory Commission. See Appendix A.
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the current deregulatory environment, which may lead to
restructuring within the nuclear power industry, may impact the ability
of some nuclear power entities to handle a $20 million annual
retrospective premium assessment.\8\
---------------------------------------------------------------------------
\8\
---------------------------------------------------------------------------
[8] The report explained: ``The 1979 NRC staff study determined
that assessments at the $10 million level were manageable but that
problems might arise at the $20 million, and higher, assessment levels.
The 1983 Report to Congress, using financial data from 1981,
demonstrated that assessments at the $50 million level per reactor
could pose major problems for all four of the utilities and especially
for the two with more than one reactor each. It also showed how
utilities began to evidence financial distress at assessment levels
ranging between $10 and $20 million. That finding supported the 1979
NRC staff study's findings that recommended limiting the maximum
assessments to $10 million per year, because higher assessments could
cause financial distress. Using the Melicher method to evaluate the
four utilities, this analysis concludes that the maximum annual
assessment that all four utilities could afford seems to range between
$20 and $50 million. This is consistent with the previous analyses'
findings concluding that the maximum assessment level utilities could
afford was between $10 and $20 million, which equal $16 and $32
million, respectively, in 1996 dollars when adjusted for inflation.
However, the current deregulatory environment, which may lead to
restructuring within the nuclear power industry, may impact the ability
of some nuclear power entities to handle a $20 million annual
retrospective premium assessment.''
Indeed, the form restructuring is taking may render the public
particularly vulnerable to funding shortfalls. As the GAO report
observed, nuclear units are being consolidated under a limited number
of ``fleet'' owners. This consolidation may yield important benefits in
safety, reliability, and accountability. On the other hand,
consolidation of ownership raises the possibility that the owner may
have to bear retrospective payment burden measured in the hundreds, not
tens, of millions, and the further possibility that the ripple of
effects of an any nuclear accident on any utility system may cause
cross-the-board unit shutdowns that will leave the ``fleet'' owner
without revenue sources to pay retrospective commitments.\9\
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\9\For example, a ``fleet'' owner may face the shutdown of much or
all of its fleet if an accident elsewhere is caused by a design flaw
common to the fleet units. When nuclear unit ownership was relatively
dispersed, it might be hypothesized that individual utilities could
offset the impact of cross-the-board nuclear unit shutdowns by
generation (and related revenues) from other generation sources; will
this be the case under restructuring?
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In sum, Congress should act to ensure that industry restructuring
does not render the retrospective payment obligation's that is at the
core of Price-Anderson an illusion. In substance, as well as form, NRC
reviews of nuclear unit ownership changes must provide assurance that
the new owner(s) will be capable of making such Price-Anderson payments
as may be called for. If, as the GAO report on decommissioning funding
indicates, the NRC cannot uniformly provide this assurance, then
Congress should consider alternatives, perhaps including demonstration
of guaranteed availability of Price-Anderson funding.
IV. Punitive Damages: How Should Willful or Reckless Misconduct Be
Treated?
An actor whose willful or reckless misconduct causes harm may be
treated differently depending upon whether the actor is a Department of
Energy (``DOE'') contractor, a Department of Defense (``DOD'')
contractor, or an NRC licensee. In the first case, under present laws
and rules government will generally pick up the costs of all litigation
and damage paymentsBregardless of the actor's culpability. In the
latter cases, the actor who engages in willful or reckless misconduct
is on notice that it may be responsible for payments in its own right.
The standard nuclear indemnification clause applied by DOD (under
50 U.S.C. Section 1431), provides, in part:\10\
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\10\See, Federal Acquisitions Regulations--Part 52; Solicitation
Provisions and Contract Clauses; 52.250-1--Indemnification Under Public
Law 85-804 (Apr 1984).
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(d) When the claim, loss, or damage is caused by willful misconduct
or lack of good faith on the part of any of the Contractor's principal
officials, the Contractor shall not be indemnified for--
(1) Government claims against the Contractor (other than those
arising through subornation); or
(2) Loss or damage affecting the Contractor's property.
Thus, DOD contractors (many of whom, of course, are also DOE
contractors) are not completely off the hook for damages stemming from
``willful misconduct or lack of good faith.''
Similarly, courts have found that NRC licensees may themselves be
liable for punitive damages in cases where the sums involved are beyond
those which the Federal government is obligated to pay.
In Silkwood v. Kerr-McGee, 464 U.S. 238 (1984)--which directly
involved the question of federal preemption of state causes of action
and did not directly involve Price-AndersonB the Supreme Court held
that punitive damages under state laws would not frustrate the federal
scheme for regulation of nuclear matters. The 1988 amendments,
addressing the Silkwood decision's provision of punitive damage,
expressly limited punitive damages.\11\ However, some post 1988 court
decisions provide that punitive damages may still be in order when, in
essence, they do not come out of the government's hide.\12\
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\11\42 U.S.C. Section 2210(s) provides: ``No court may award
punitive damages in any action with respect to a nuclear incident or
precautionary evacuation against a person on behalf of whom the United
States is obligated to make payments under an agreement of
indemnification covering such incident or evacuation.''
\12\Court decisions that indicate that punitive damages are still
available make plain that punitive damages cannot be had against the
government, but make less plain what this means. For example; (1) if
punitive damages must come from funding other than that provided by the
government, what does this mean when the government stands as ultimate
indemnitor? (2) is the test whether the funding comes from the first or
second tier of payments, and, if so, by what rationale does one
determine which pot the punitive damages come from? (3) are punitive
damages always available from those who are not directly indemnified by
the government (e.g., a contract supplier to an indemnified utility)?
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In Re: TMI, 67 F. 3d 1119 (3d Cir. 1995), the Court of Appeals
considered the availability of punitive damages in light of the 1988
amendments. The court concluded that ``it is clear from the unambiguous
language of those [1988] Amendments that Congress did not intend to
change the result the Supreme Court had reached in Silkwood.'' The
Court elaborated: The Court of Appeals noted that in enacting the 1988
Amendments Congress ``did not hesitate'' to overturn ``certain court
decisions, but only partially limited Silkwood's holding.'' The Court
also reviewed the legislative history of the 1988 Amendments, finding
``lucid declarations'' of Congressional intent to allow punitive
damages.\13\
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\13\The Court concluded: ``Because there is no conflict between
the Amendments Act and the substantive laws of Pennsylvania which allow
punitive damages, we will instruct the district court to proceed with
the litigation of these matters in a manner consistent with this
opinion. In so doing, we emphasize that the district court has
authority to prioritize the various claims if punitive damages are
awarded and that the Price-Anderson Act's tri-level insurance scheme is
easily adaptable to such a prioritization of claims. It cannot be
gainsaid that ``if there is a limited fund, priority should be given to
compensating those who have been injured rather than conferring
windfalls on those who have already been compensated.''.. We see
nothing in the Act that precludes a district court from using its
discretion to limit or even preclude punitive damages in accordance
with the financial constraints of the fund and the Act's prohibition
against punitive damage awards being paid out of the federal layer of
insurance. However, we do not express any view as to whether the
district court should so exercise its discretion.''
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See also, Smith v. General Electric, 938 F. Supp 70 (D.
Mass.1996)(``a claim for punitive damages may be asserted directly
against a defendant who 'supplied materials or services' to a nuclear
power plant so long as such an award is authorized by the law of the
forum'');\14\ Corcoran v. New York Power Authority, 935 F. Supp. 376
(S.D.N.Y. 1996)(denying motion to dismiss claims against non-licensee
because ``it is incongruous to argue that contractors cannot be subject
to suit simply because they may be indemnified [by the licensee].''\15\
---------------------------------------------------------------------------
\14\In Smith v. General Electric 938 F Supp 70 (D.Mass 1996), the
court explained in denying General Electric's Motion to dismiss the
claims against it: ``The purpose of the channeling provision of the
Price-Anderson Act is to make third party vendors like GE indemnitees
of nuclear plant operators like Boston Edison. The Act does not
exonerate GE of its legal liability, it merely shifts the obligation to
pay damages to Boston Edison. The distinction between an indemnitee and
a party immune from suit is critical, especially in a punitive damages
context...As the Third Circuit pointed out in TMI...the limitation on
punitive damages in the 1988 Amendments Act applies only when the
United States is an indemnifying party . . .''
The basis of plaintiff's punitive damages claim is the allegation
that GE knowingly and recklessly sold defective fuel rods to Boston
Edison. While it is true that Price-Anderson will eventually require
Boston Edison to indemnify GE for any damages, to dismiss GE at this
stage as a party would hinder plaintiffs from developing proof of
knowing or reckless conduct on GE's part.
\15\Perhaps by contrast, in O'Conner v. Commonwealth Edison, 13 F.
3d 1090 (7th Cir. 1994)(pipefitter sues utility) the Seventh Circuit
noted, in dicta at footnote 13: ``Silkwood's holding regarding damages
was overruled by the Amendments Act which specifically bars punitive
damages.'' See, for the same language, footnote 5 to Nieman v.NLO
Industries, 108 F. 3d 1546 (6th Cir. 1997).
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In sum, by contrast to the DOD rules and the potential for punitive
damages awaiting NRC licensees, it appears that the current operations
of the Price Anderson and procurement law may provide some deterrence
(and/or post accident punitive damages) where an NRC licensee or DOD
contractor engages in willful misconduct, but no such deterrence or
relief in the case of a DOE contractor. If this is so, what basis is
there for permitting DOE contractors to continue to be the exception to
the rule?
V. Duty of Care: Should Federal Numerical Dose Regulations be the Duty
of Care to the Exclusion of State Standards?
A predicate to recovery under tort law is a finding that the
defendant has breached its ``duty of care.'' The majority of courts
have found that the duty of care is measured by the applicable federal
numerical dose regulations, to the exclusion of further duty(ies) of
care provided by normally governing state tort law.\16\
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\16\The courts have further held that the Federal standard to be
applied is the applicable numerical standard, and not ALARA (the ``As
Low as Reasonably Achievable'' principle). See, e.g. In Re: TMI, 67
F.3d 1103 (3d Cir. 1995)(Awe note that no court appears to have
actually applied ALARA as part of the duty of care.'') Carey v. Kerr-
McGee, 60 F. Supp. 2d 800 (N.D. Ill. 1999) identifies McCafferty v.
Centerior Service Comm 983 F Supp 715, 718 (N.D. Ohio 1997) as a
decision which finds ALARA to be applicable. However, that decision
agreed that the occupation dose limits--not ALARA--defines the standard
of care.
---------------------------------------------------------------------------
The exclusive application of the Federal duty of care appears to be
in conflict with underlying Price Anderson Act policy that, while
federal courts will have jurisdiction over claims arising from nuclear
incidents, principles of state law are to be applied in determining
compensatory damage claims. There is obvious wisdom in assuring that
federal nuclear safety standards are not undermined by conflicting
state law. However, the question is whether this principle should
govern without consideration of whether state standards are in conflict
with federal standards.
The tension between state law standards and federal safety
standards was crystallized and addressed in the seminal Karen Silkwood
case, Silkwood v. Kerr-McGee, 464 U.S. 238 (1984), In that case the
Supreme Court permitted claims for damages, even punitive damages, to
proceed even where the Plaintiff did not claim that maximum radiation
exposure levels had been exceeded.\17\ The Supreme Court observed
[fns.omitted]:
---------------------------------------------------------------------------
\17\The Supreme Court recorded that the NRC had ``determined that
Kerr-McGee's only violation of regulations throughout the incident was
its failure to maintain a record of the dates of two urine samples
submitted by Silkwood.''
---------------------------------------------------------------------------
Although the Price-Anderson Act does not apply to the present
situation, the discussion preceding its enactment and subsequent
amendment indicated that persons injured by nuclear incidents were free
to utilize existing tort law remedies.
In sum, it is clear that in enacting and amending the Price-
Anderson Act Congress assumed that state law remedies, in whatever form
they might take, were available to those injured by nuclear incidents.
This was so even though it is well aware of the NRC's exclusive
authority to regulate safety matters. No doubt there is tension between
the conclusion that safety regulation is the exclusive concern of the
federal law and the conclusion that a State may nevertheless award
damages based on its own law of liability. But as we understand what
was done over the years in the legislation concerning nuclear energy
Congress intended to stand by both concepts and to tolerate whatever
tension there was between them....It may be that the award of damages
based on the state law of negligence or strict liability is regulatory
in the sense that a nuclear plant will be threatened with damages
liability if it does not conform to state standards, but that
regulatory consequence was something that Congress was quite willing to
accept.
In the interim since the 1988 Amendments, however, courts have
generally found that federal standards govern to the exclusion of state
standards--without need for analysis of the potential for conflict
between the two.
For example, in Roberts v. Florida Power & Light, 146 F. 3d 1305
(11th Cir. 1998), the plaintiff--a former nuclear power plant worker
suffering from terminal cancer--alleged, among other things, that
Florida Power & Light (``FPL''):
``unreasonably exposed him to more radiation than was necessary,
that the company did not help him take precautionary steps, such as
buying appropriate clothing, and that FPL did not warn him of the
danger of working at the plant.''
The plaintiff alleged that these failures were violations of duties
owed to him under the common law of the state of Florida. FPL
successfully sought to dismiss Mr. Roberts' suit on grounds that Mr.
Roberts did not plead that the FPL plant had exceeded federally-
determined radiation standards.
A related question is whether a plaintiff in a case where there is
no extraordinary nuclear occurrence determination must show that his/
her exposure exceeded the federal numerical dose limit,
In In Re: TMI, 67 F.3d 1103 (3d Cir. 1995), the court considered
whether individual plaintiffs had to show that they were exposed in
excess of the permissible level. Defendants argued that even where the
defendant admittedly violated the permissible level, each plaintiff had
to show that he/she was exposed in excess of the permissible level The
court held that: ``the duty of care is measured by whether defendants
released radiation in excess of Section 20.105 or 20.106, as measured
by the boundary of the facility, not whether each plaintiff was exposed
to those excessive radiation levels.'' The court added that ``[o]f
course, plaintiffs must still prove causation and damages before they
may recover.''
In Roberts v. Florida Power & Light, however, as the court of
appeals summarized, the district court found that: ``[s]ince there was
no extraordinary nuclear occurrence involved in this case, the district
court concluded that under the Amendments Act, the plaintiffs must
allege and prove that the defendant breached its duty of care by
exposing Bertram Roberts to an amount of radiation in excess of
federally defined permissible radiation dose standards.'' This holding
was affirmed by the court of appeals: ``[a]s plaintiffs have failed to
allege that FPL breached its duty of care by exposing Bertram Roberts
to an amount of radiation in excess of the permissible amount allowed
by federal regulation, they have failed to state causes of action for
negligence, strict liability or loss of consortium.''\18\
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\18\Similarly, in Lokos v. Detroit Edison, 67 F. Supp. 2d 740
(E.D. Mich. 1999)(individual claim of cancer related to occupational
and community exposure to Fermi Power Plant), the court stated that:
``[t]o prevail in their PLA, plaintiffs must prove two essential
elements: (1) Mrs. Lokos' exposure exceeded the federal numerical dose
limits; and (2) such overexposure caused her to suffer a compensable
injury under the Amendments Act.'' The plaintiff, pointing to the TMI
decision, argued that a breach of duty occurs whenever excessive
radiation is released, whether or not anyone is present in the area
exposed. The Court stated that in TMI defendants admitted that the
permissible levels were exceeded at the site boundary, and there was no
such evidence in the case at hand.
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In sum, Congress may wish to consider whether state law duty of
care standards should support claims where they are not in conflict
with the numerical standards set by the Federal government.
VI. Who Bears the Burden of Proof of Causation in the Absence of
Adequate Records?
As the Cold War recedes into history, there have been new inquiries
into the radiation exposures of ``Cold War Veterans,'' those workers,
servicemen, and further citizens who served in the development,
production, and testing of nuclear weapons. It is useful to place the
Price-Anderson scheme in the context of the findings of these
inquiries, and the evolving burden of proof principles that they have
led to.
In 1995 the President's Advisory Committee on Human Radiation
Experiments reported that from the 1940's to the early 1970's numerous
citizens were unknowingly exposed to radiation risk by virtue of being
made subject to human radiation experiments. In a nutshell:\19\
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\19\The committee's report is available as The Human Radiation
Experiments: Final Report of the President's Advisory Committee
(Oxford, 1996)(``Final Report'').The Final Report contains a
``Citizen's Guide'' to accessing the documents and other materials
reviewed by the committee. Page references in this testimony are to the
Oxford edition.
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1. From the 1942-43 dawn of the Manhattan Project, the government,
its contractors, and biomedical researchers were well aware that
radiation posed potential risk to weapons workers, and that such risk
had to be understood and monitored;
2. At its 1947 creation, the Atomic Energy Commission and its
contractors engaged in a long hidden policy and practice of hiding
risks from affected citizens to avoid liability and embarrassment--even
where national security itself did not require secrecy. The committee
recommended, and the Administration accepted, that where such coverup
occurred, research subjects (or survivors) be compensated even in the
absence of physical injury.
3. The Advisory Committee found that the hidden policy and practice
of keeping secrets to avoid embarrassment and liability applied to
workers, and their communities, as well as to experimental subjects.
Ongoing disclosures show that the policy and practice was not
effectively countermanded, and continued well past mid-century.
4. The Advisory Committee found that government and its contractors
were well aware that radiation risks might be latent for years, with
injury occurring long after exposure. However, they failed to provide
for monitoring and recordkeeping sufficient to assure that risk would
be minimized and that its dimensions could be known at years remove.
This finding, recent disclosures show, applies to weapons workers as
well.
The committee recommended, and the Administration accepted, that in
circumstances where citizens are exposed to nontherapeutic radioactive
risk and the government (and/or private entities assisting it) fail to
provide or withhold the information needed by citizens to protect
themselves, there should be a presumption of compensation where: (1)
the individual can demonstrate that he or she was present within the
zone of exposure; (2) injury that is potentially related to the
exposure is shown.
The Advisory Committee's findings and the consequence for the
burden of proof were part of the underpinnings of the fall 2000 Nuclear
Workers' compensation Act.
First, the Act finds:
(2).... workers were put at risk without their knowledge and
consent for reasons that, documents reveal, were driven by fears of
adverse publicity, liability, and employee demands for hazardous duty
pay
(3) Many previously secret records have documented unmonitored
exposures to radiation and beryllium and continuing problems at these
[nuclear weapons complex cites].
Second, in light of these findings, the Act provides that, upon
finding that data is not adequate to render determinations with regard
to particular claimants the burden shifts to the government.\20\
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\20\Section 3626 (``Designation of Additional Members of Special
Cohort'') empowers an expert panel to determine whether there are
classes of workers ``who likely were exposed to radiation but for whom
it is not feasible to estimate with sufficient accuracy the dose of
radiation they received.
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In sum, it is well appreciated that contests over causation of
potentially radiation induced injury is often difficult, costly, and
controversial. Recent experience shows that it may be wise to give
notice that the burden of proof will be borne by those exposing
citizens to radiation risk without keeping records or providing
monitoring needed to show cause and effect at some later date.
VII. Statute of Limitations: Three years from discovery rule for
Nuclear Incidents?
At what point will Price Anderson Act claims be barred because they
are filed too late--even where those claiming radiation related injury
could not reasonably have known of their illness and its cause at an
earlier time?
In Lujan v. Regents of the U. of California, 69 F. 3d 1511, the
Plaintiff brought suit to recover for the death of her daughter, who
died at 21 as the result of recurrent brain cancers experienced since
she was 18 months old. The brain cancers were alleged to result from
releases from Los Alamos national laboratory. The suit was brought six
years after the death.
Following the New Mexico state rule that wrongful death actions
must be brought within three years of death, the district court
dismissed the case. The Court of Appeals recognized that the
application of the three year rule to radiation exposures was
potentially unjust, but concluded that it was dictated by Congress:
We recognize, as did the district court, that exposure to radiation
``can occur without the slightest indication of its presence and the
effects of such exposure may lie dormant for years.''..Congress was not
unaware of the potential for injustice in cases such as this...Yet it
chose not to extend the three-years-from discovery rule to all public
liability actions when it extended federal jurisdiction to cover all
such actions. It is not for us to correct Congress' alleged oversight.
Congress may wish to assure itself that the Price-Anderson Act does
not work to prevent the bringing of otherwise meritorious claims
because some state limitations statutes may not contemplate the long
term latency of radiation risk.
This concludes my testimony. Thank you very much.
______
Response of Dan Guttman to Additional Questions from Senator Voinovich
Question 1. In your testimony, you raised the issue of possibly
requiring companies to pre-pay their Price-Anderson obligations. Could
you explain how this might work?
Response. As indicated in the testimony, the question of prepayment
arises where, in light of the deregulation of the utility industry and
altered industry structure, there may no longer be comfortable
assurance that nuclear unit owners will likely have continuing
generation related revenues to make retrospective payments, when and if
needed. This might occur, for example, (1) where a company operated a
nuclear unit as a standalone entity, and the unit was not operating
follow an accident (either because it was the locale for the accident,
or because of cross-the-board unit shutdowns); (2) where a company had
a fleet of nuclear units, and an accident required cross-the-board
design review related shutdowns; (3) where a unit owner entered into
bankruptcy.
As the experience with decommissioning funding shows, a number of
possibilities may be employed to provide assured prepayment of funds.
The alternatives to be reviewed include, but not limited to:
requirement that the unit owner take out insurance for
the retrospective, as well as the initial tier, of Price-Anderson
obligations. In light of the 45 years of operating performance under
Price-Anderson, it would seem reasonable to test the market and
determine the price and terms on which such insurance would now be
available;
requirement that the new or current unit owner take out a
letter of credit or other secure arrangement to assure the availability
of fund;
requirement that, where a new owner cannot, for whatever
reason, provide appropriate pre-payment, the transferring utility
provide equivalent assurance as a condition to the transfer. (I note
that NUREG-1577, which is applied to financial reviews in license
transfers, refers specifically and at length to decommissioning costs,
but not to Price-Anderson costs);
provision that unit owners establish a separate fund to
set aside potential retrospective obligations, as is often done in
regard to decommissioning costs;
Congress may also wish to ask the NRC, in coordination with the SEC
and other relevant agencies, to provide protocol for assuring
availability of Price-Anderson commitments in case of a bankruptcy.
Question 2. In the past, we have had problems with trust accounts,
such as the Yucca Mountain Fund or the Superfund Trust Account, being
co-mingled with social security and Medicare funds.
If the government sets up another trust account for liability
insurance for nuclear power plants, how would we ensure that it would
not become co-mingled.
Response. I did not, and do not, suggest that the government set up
a government operated trust account. Rather, as indicated in response
to question 1, I suggest that the NRC assure that moneys will be
available in whatever nongovernmental fund or account best satisfies
the requirements of the unit owner and the public interest in assured
availability of Price-Anderson funding in a deregulated environment.
Question 3. Furthermore, since these funds have not been needed
over the last 45 years, what would become of the interest that is
generated, and is this a good use of capital funds?
Response. This question appears to contain two components; first,
why should money be set aside if it is not likely to be needed (and, by
that token, is this a good use of the funds)? second, assuming there is
money (or interest) left over, how should it be disbursed?
As to the first questions, ideally, the market provides the best
test of the value of setting funds aside for Price-Anderson purposes as
opposed to putting them to some other use. However, through Price-
Anderson the State has preempted the market. As the question suggests,
this would be a good time to put matters to the market test; it would
seem reasonable to determine whether the insurance industry is, in
light of the 45 years experience, prepared to offer insurance for the
retrospective component. If, as the question suggests, there is little
likelihood, as we all hope, that the funds will be needed in the
future, then the amounts needed to purchase insurance for this
contingency should be relatively small. In any case, the private
insurance market should provide a basis for assessing this likelihood.
Second, the treatment of any interest would seem to be a matter
resolved under longstanding utility regulatory principles. The utility
industry, as a capital intensive industry, has long and deep experience
with ``timing issues'' in the collection and disbursement of funds.
For example, generating facilities such as nuclear units cost large
sums to construct, these sums must be obtained by the utility in
advance of construction, there may be multiyear lead times before the
plant is in service, and those who receive the benefit of plant
operations years, even decades, after construction--may well have not
borne any cost for the construction of the facility that serves them.
The general principle is to match rewards to the class that
contributed the risk. While, under this principle, particular
individuals (be they customers or stockholders) may not gain the
interest from particular prepayments they made, on the average (because
plants will continue to be needed and each new generation of
stockholder and customer will make its contributions) equity will be
done. Thus, by way of applying these traditional principles to the
Price-Anderson context, if ratepayers prepaid the costs (whether
through insurance or otherwise), they should receive the interest; if
stockholders prepaid the cost, the interest should go to stockholders.
See the classic statement of the risk/reward principle in Democratic
Central Committee v. Washington Metropolitan Area Transit Committee,
485 F. 2d 786, 821 (D.C. Cir.1973) where the court explained:
The relevant principles can be stated simply. Consumers become
entitled to capital gains on operating utility assets when they have
discharged the burden of preserving the financial integrity of the
stake which investors have in such assets.
Finally, I note that the determination of who bears the risk, and
should reap the reward, may require appropriate adjustment in the
transition from cost of service to market based rate regulation.
__________
Statement of Christie Brinkley, STAR Foundation, East Hampton, NY
Mr. Chairman and members of the committee, my name is Christie
Brinkley. I wish to thank you for the opportunity to appear here today.
I am here today as a member of the STAR Foundation, a non-profit
environmental group based in East Hampton, NY. STAR Foundation is
located at 66 Newtown Lane, East Hampton, NY. Phone: 631-324-0655.
Two individuals are joining me: The first is Robert Alvarez, who
spent several years dealing with nuclear issues as staff member to
Senator John Glenn, and served at the Department of Energy as Senior
Policy Advisor. He is the Executive Director at the STAR Foundation.
On my other side, is my favorite architect and the chairman of the
Board of Directors at the STAR Foundation Mr. Peter Cook. He is also my
husband.
Peter and I joined the STAR Foundation after we learned we were
raising our three children in the cross hairs of several very old and
troubled nuclear reactors. And we decided we had to learn everything we
could about the Oyster Creek Reactors to our south, the Indian Point
Reactors to our west, and the Millstone Reactors 11 miles north from
the area of Long Island that we call home. And we are not alone over 24
million people in the Greater New York City area live within this
radius of the three reactor stations.
Like many Americans, after the terrorist attacks of September 11th,
we became very concerned with the safety of our family and friends. We
attended public meetings with local emergency response officials, where
many questions were asked
How can we protect our children in the event of a nuclear
emergency?
What if it happens at night while we are sleeping?
How will we be notified to take shelter? Or should we
evacuate?
What are teachers supposed to do?
Do we rush to school?
Is it really possible to safely evacuate densely
populated areas like Long Island or New York City where there are few
and highly congested roads bridges and tunnels?
No clear answers were provided.
Unfortunately these questions are no longer abstractions given that
highly destructive acts of terror have become a reality in the United
States.
Price Anderson Fails to Adequately Protect Americans in the Event of an
Accident
Today this subcommittee is addressing a law the Price Anderson
Act--that deals with how Americans are going to be compensated after a
major nuclear accident. Before we go any further, I just have to say
what I think we all know in our hearts. No one could ever be truly
compensated for the loss of a loved one, or the loss of a birthplace, a
hometown, a way of life or peace of mind. This discussion today is
really about an industry owning up to its responsibilities.
I am not an expert on the Price Anderson Act, but what I do know
leaves me filled with questions and serious concerns. There are about
145 million people just like me who live within a fifty-mile radius of
a nuclear power station, and I'll bet they'd be interested to know that
if they took out their home-owners insurance policy they would see in
black-and-white that it does not protect them in the event of a nuclear
accident. You can get insurance against a meteor hitting your home, but
not one private insurance company in America will cover your home from
a nuclear power plant accident.
Instead, we are supposed to be compensated under the Price Anderson
Act, which sets a maximum limit of $9.4 billion in damages in the event
of a nuclear catastrophe a number which the history reveals was simply
pulled out of thin air.
The $9.4 billion limit does not match up with recent damage
estimates done by the Nuclear Regulatory Commission (NRC). A study done
for the NRC by Brookhaven National Laboratory in 1997 reported that a
spent fuel pool fire could contaminate a large area. It could cause
thousands of fatal cancers and cost about $59 billion in property
damage and economic loss. With your permission I would like to place
this study into the record of this hearing.
When reauthorizing Price Anderson, it is worth asking why the
liability limits set by the Price/Anderson Act are not based on the
cost of a major credible accident like the one identified by Brookhaven
Labs.
With the Advent of Deregulation and Limited Liability Corporations
Running Nuclear Power Plants, Price Anderson Should Replace
Retrospective Insurance with Prospective Coverage
Unlike private insurance, reactor owners do not have to come up
with over 98% of the $9.4 billion that they are supposed to pay out
until after major nuclear accident occurs. After an initial payment of
$200 million is made, the rest of the payments are limited to only $10
million per reactor per year--and this limited amount doesn't have to
be paid if the reactor owner can demonstrate it would be too
financially difficult. This is like having a homeowner's insurance
policy where most of the insurance premiums don't have to be paid until
after the house burns down!
With the advent of deregulation, limited liability corporations are
taking ownership of almost half of the fleet of the nation's nuclear
power reactors. Many of these limited liability corporations are thinly
capitalized. What guarantees are there the nuclear power generators
will come up with the necessary funds to pay claims if such a terrible
event arises? Or will taxpayers have to foot the bill?
Enron and Pacific Gas & Electric own nuclear power plants and in
bankruptcy. Can these bankrupt companies meet their obligations to
compensate victims in the event of a nuclear accident? Or will the
taxpayer have to bail them out?
The nuclear industry should not be allowed to avoid paying its
insurance premiums up front like all other American businesses and
families. The money to pay for an accident should be available with no
questions asked.
If the nuclear industry can't come up with the funds to compensate
victims because they can't afford it, is it really fair and reasonable
for the taxpayer to be stuck with the costs of paying for a major
nuclear accident?
Are Acts of ``Terrorism'' Included or Excluded from Price Anderson
Coverage?
After September 11th our world has unfortunately become a more
dangerous place, and nuclear power stations are now frequently reported
as being targets for terrorists.
In light of the greater dangers from terrorism in our country, it
is my understanding that the Price/Anderson Act excludes ``acts of
war'' from coverage for nuclear accidents. Does this mean that if the
nuclear power company asserts that a terrorist attack against a nuclear
reactor station is an ``act of war,'' then the nuclear power industry
does not have to pay? Were the acts of September 11 an ``act of war?''
Was the bombing in Oklahoma City an ``act of war?''
Nuclear Security Act of 2001
It is abundantly clear that radiation from a nuclear accident does
not follow arbitrary rules that say dangerous contamination will only
travel 10 miles and then stop. The Chernobyl accident is a tragic
reminder of the absurdity of this assumption. The STAR Foundation and
numerous groups around the country have repeatedly asked the NRC for
several years to expand its evacuation zone beyond 10 miles, but to no
avail.
It is also clear from the most recent government announcements,
that nuclear generating plants are potential targets of terrorism.
I extend my thanks to Senator Clinton from my home state, Senator
Reid, Senator Jeffords, and Senator Lieberman for introducing the
Nuclear Security Act of 2001, which strengthens safety and security at
nuclear power plants, and expands emergency response planning near
nuclear power stations from 10 miles to 50 miles.
These concerns may explain, in part, why Germany, Sweden and
Austria are turning away from nuclear power for safer energy
alternatives, and why England is now seriously reconsidering its
commitment to nuclear energy?
Summary
I hope that the committee will find the answers to these questions
and seek reasonable solutions. And I hope and trust that this committee
will also help insure that the risks and consequences of such terrible
acts are minimized. I wish once again to thank the members of the
committee for the privilege of appearing here today.
______
Supplemental Document to the Testimony of Christie Brinkley, STAR
Foundation
comments on nureg-1738 technical study of spent fuel pool accident risk
at
Decommissioning Nuclear Power Plants
Executive Summary
The Commission issued a Staff Requirements Memorandum dated
December 21, 1999, on improving decommissioning regulations for nuclear
power plants. The SRM states ``The Commission approved the development
of a single, integrated, risk informed decommissioning rule for
emergency preparedness, insurance, safeguards, operator training and
staffing, and backfit.'' The SRM goes on to direct the staff to ensure
all realistic scenarios for offsite consequences are appropriately
considered during the rulemaking process.
The approach taken in the staffs technical report for risk
informing the decommissioning regulations is not based on realistic
scenarios. In fact by compounding overly conservative estimates of
seismic :risk, pool fragility and the probability and magnitude of the
postulated zirconium fire and its consequent releases the report is a
worst case estimate. While, the report concludes that the risk is small
and that any releases are well below the quantitative health objectives
the decisions regarding the continued applicability of emergency
preparedness, financial protection and security must be made on the
basis of a realistic risk assessment.
Discussion
Overly conservative estimates of seismic risk, pool fragility and
the probability and magnitude of the postulated zirconium fire and its
consequent releases are compounded to derive what is in essence a worst
case estimate. The report also appears to establish a ``zero risk''
threshold for eliminating requirements for the spent fuel pool. For
example, item 3 of the conclusions in the executive summary states
``Insurance, security, and emergency planning requirement revisions
need to be considered in light of other policy considerations, because
a criterion of ``sufficient cooling to preclude a fire'' cannot be
satisfied on a generic basis.''
This approach is contrary to the Commission's Safety Goal Policy
that states PRA evaluations in support of regulatory decisions should b
e as realistic as possible. The Safety Goal Policy also states that
``PRA and associated analyses (e.g., sensitivity studies, uncertainty
analyses, and important measure;:,) should be used in regulatory
matters, where practical within the bounds of the state-of-the-art, to
reduce unnecessary conservatism associated with current regulatory
requirements, regulatory guides, license commitments, and staff
practices.''
The study provides sensitivity analyses but no effort was made to
derive a best estimate of risk. A good understanding of the underlying
phenomenology would greatly assist in defining mean estimates and
understanding the uncertainty in the estimates. Enclosure 1 provides
specific technical recommendations on considerations for deriving a
supporting phenomenology. Data is also referenced in the enclosure that
demonstrates that the risk of the cask drop damaging the pool
sufficiently to cause rapid drain down is likely zero, not one as
assumed in the technical report.
Commission actions to establish regulatory requirements based on
the staffs technical study may be precedent setting in that the study
uses bounding estimates of seismic risk as the basis for assessing the
need for continued applicability of emergency preparedness and
insurance. Extraordinarily low frequency accidents should not be used
as the predominant basis for regulations in an era of risk informed
regulations. Most of the seismic risk for draining the pool comes from
events with frequencies greater than one in a million years. The risk
from these low frequency events should be considered well below that
which can be reasonably required for adequate protection of public
health and safety.
Enclosure 2 provides a discussion of seismic risk and
recommendations on treatment of seismic risk where the risk is the
predominant contributor to the overall risk profile. None of the
operating plant requirements being considered, i.e., emergency
preparedness, financial protection and security, are underpinned with
explicit values for acceptable risk. However, if a realistic estimate
indicates that the risk of a zirconium fire is negligible then the
Commission's decision on whether to mandate these costly requirements
is very straightforward.
The report's descriptions of events and consequences could be
written more clearly. For example, the report compares risk from a
single event for operating plants (seismic) to a worst case estimate of
the total risk from the spent fuel pool. The reader can conclude that
pools pose a risk that is comparable to operating plants and therefore
should be expected to be subject to operating plant requirements,
specifically emergency preparedness, and financial protection.
Industry Recommendations
1. The report should be withdrawn and reissued when--the technical
basis has been corrected and the report has been subjected to an
independent peer review. Although the staff repeatedly emphasizes that
the risks are well below the safety goals, this conclusion is
insufficient. The informed decisions that must be made regarding the
applicability of emergency preparedness, financial protection and
security cannot be made without a realistic estimate of risk.
Accordingly, industry recommends that the staff develop a
phenomenological basis for the events leading to releases from the
postulated zirconium fire in spent fuel pools. These efforts along with
efforts to reduce unnecessary conservatism will support development of
mean estimates and a characterization of uncertainty that can be used
to establish a better estimate of the risk (see enclosure 1 for
specific recommendations). Enclosure 2 provides specific
recommendations on treatment of seismic risk.
2. A formal peer review should be performed. NRC has stressed to
the industry the importance of the peer review process to ensuring
quality PRAs. Taking this step for its own study is consistent with
R.G. 1.174, which is cited by NRC as the basis for the approach taken
in the study.
3. The report should only discuss the risk estimate and the
technical basis needed to support the risk estimates. The report should
avoid inferring policy decisions that the Commission will make on what
constitute,; negligible risk for the purpose of evaluating the
continued applicability of emergency preparedness, insurance and
security.
4. Once the study is revised it is still possible the study may be
limited in its usefulness because the generic study may contain many
assumptions that don't pertain to specific plant circumstances. The
report will only be useful in granting exemptions on a plant specific
basis (one of the stated objectives of the study) if the report
contains explicit criteria for application of generic risk insights on
a plant specific basis. Criteria to be considered, depending on what
contributes to the generic risk profile after the study is revised,
might include:
decay heat
the likelihood of draining the spent fuel pool given
realistic seismic events,
likelihood of cask drops damaging the pool sufficient to
drain the pool
likely configuration of fuel following an event that
could drain the pool
likelihood of cladding oxidation propagating beyond
assemblies with the
highest decay heat
time period over which postulated releases could occur,
and
recovery actions available to eliminate or mitigate
potential releases.
5. A clear discussion is needed in the report to characterize the
relative risk of spent fuel pools vis a vis operating plants. In
addition, the report needs to capture important differences between the
conclusions of the generic study and alternate conclusions that may be
reached on a plant specific basis when assumptions in the generic study
are not applicable at a given plant.
ENCLOSURE 1
Recommended Actions to Complete the Spent Fuel Pool Risk Study and
Support
Development of a Best Estimate of Risk
The staffs technical study of spent fuel pool accident risk was
portrayed as a scoping study or bounding estimate by the staff and the
ACRS at a recent Commission briefing (February 20, 2001). However, this
important distinction is not featured prominently in the report. The
use of bounding estimates does not provide a means to portray risk in a
risk-informed framework. As a result, decisionmakers are unable to use
these evaluations to make reasoned judgments. This appears to be
contrary to NRC Severe Accident Policy Statement as described in Reg.
Guide 1.174:
``The Safety Goal Policy Statement discusses treatment; of
uncertainties at some length. It stresses the need to consider
potential uncertainties in regulatory decisionmaking. While it adopted
mean estimates for implementing the quantitative objectives, it also
asserted the need to understand the important uncertainties in risk
predictions.''
It is recommended that the following actions be taken by the staff
to develop realistic estimates of the risk of the releases from spent
fuel pools for decommissioning plants.
1. Address the many conservative assumptions in the study that are
compounded
to arrive at a worst case estimate of risk. Examples, include:
The ``smart'' seismic event that drains the pool, but
only to the worst case configuration, i.e., within one-foot of the
bottom of the pool to block air intakes.
The radionuclide release that is used to characterize the
consequences is based on a fire engulfing 3.5 cores whereas the report
indicates that a maximum of two cores will be involved in the
postulated fire at times greater than 1-year following discharge of the
last core. Even the twocore calculation is strongly dependent on how
the fuel is stored, i.e., are the most recently discharged bundles
stored adjacent to each other or are they distributed throughout the
pool? Overall the combination of worst case assumptions from unique
plant configurations of highest fuel burnups permitted by regulation
and assuming that those high burnups are reached through one cycle in
the reactor ,Ls being used to create an ``extreme worst case''
configuration.
No characterization of probability is provided for the
assumption of 1 percent release of fuel fines. While the staff report
slates the inclusion leads to small increases in offsite consequences,
this assumption increases population doses by 50 percent.
The 100 cask lifts per year is provided as the basis for a yearly
risk of damaging the pool sufficiently to drain the pool. However,
based on the staffs estimate of the inventory of fuel in the pool for
BWRs and PWRs the entire inventory would be offloaded in from 30-60
casks, resulting in a maximum of 60-120 lifts for the life of the pool.
Accordingly this risk should not be treated as a recurring annual risk
factor.
2. Cask drop sequence was not adequately analyzed.
Analyses that have a fundamental impact on the probability and
consequences of the postulated zirconium fire should be performed. For
example, no structural analysis was performed to determine whether a
cask drop could actually damage the pool sufficiently to cause a large
leak. EPRI sponsored work at Sandia labs (Full-Scale Tornado-Missile
Impact Tests, EPRI NP-440, July 1977), NRC sponsored work (Summary and
Evaluation of Low-Velocity Impact Tests of Solid Steel Billets onto
Concrete Pads, NUREG CR-6608:, 1997) and full scale studies sponsored
by BNFL provide a significant technical lbasis showing minimal damage
from such drops.
Evaluation of the available data shows that a straightforward
criterion can be developed to determine if cask drop could cause a
rapid drainage of the spent fuel pool. Application of this criterion to
a cask drop through water in an existing fuel pool calculates a damage
condition that is an order of magnitude less than that necessary to
cause catastrophic failure of the concrete floor or walls. Therefore,
the probability of causing a failure that would rapidly drain a spent
fuel pool is zero.
3. Mechanistic evaluations are needed to realistically assess
consequences.
Mechanistic evaluations of consequences of the postulated zirconium
fire should be performed in a manner consistent with the available
experimental data base. For example, experiments have shown that the
degree to which the fuel oxidizes determines the amount and rate of
cesium and ruthenium releases. Sensitivity studies show that for fuel
that has been out of the reactor for one to 3 years, assuming a small
and large release of ruthenium, effects the consequences by two orders
of magnitude. Currently, the report merely provides the results of this
sensitivity analysis, i.e., shows consequences of negligible and one
hundred percent ruthenium release.
Data exists to permit a best estimate to be formulated. A best
estimate should be developed and reported in addition to the result.,
of the sensitivity analyses. The CODEX and TMI-2 data and MELCOR code
provide parts of the technical basis that can be used to estimate the
extent of oxidation that can occur before the fuel and cladding melt,
liquefy, and then slump. Once material relocation occurs the amount of
cladding and fuel exposed to further oxidizing by air or steam is
significantly reduced. Fission product release tests performed at ORNL
(Test VI-7) and Chalk River (Test H02) with irradiated fuel heated in
air indicate that all cladding and fuel must be oxidized before any
significant ruthenium releases are observed.
The TMI-2 experience indicates that a small fraction of fuel could
be left as small declad (without cladding) pieces/pellets on top of the
rubble bed. These would have an opportunity to be further oxidized.
Because the top of the bed would be subject to radioactive cooling any
oxidation occurring would take place at lower temperatures and
consequently would occur over a very long period of time, several days
to months.
4. Analyses are needed to establish a timeframe for potential
recovery actions.
Evaluations are needed to assess the leakage rates from the pool
following a cask drop or seismic event. Furthermore all mechanisms for
cooling, including the results of vaporization of water in the lower
regions of the pool and estimates of natural circulation through the
bundles at various levels of pool drain down should be assessed to
better represent the rate of fuel heat up for the postulated events.
Preliminary industry evaluations indicate that the postulated event
might evolve over very long periods of time, e.g., days to months.
Potential recovery actions should be evaluated commensurate with the
best estimates of time available.
ENCLOSURE 2
TREATMENT OF SEISMIC RISK
Introduction
The report's treatment of seismic risk should be re-evaluated. The
report characterizes risk of a zirconium fire in the spent fuel pool
based on bounding estimates of seismic risk. Further, because of the
inherent robustness of spent fuel pools; most of the seismic risk comes
from very low frequency initiators. Very low frequency initiators
should not be used as the predominant basis for regulations in an era
of risk informed regulations. At some point the frequency of seismic
events become so low that their consideration is below that which is
:necessary for adequate protection of public health and safety.
Accordingly, the prioritization of NRC and industry resources to
address these worst case accident sequences regardless of probability
may be an imprudent use of resources.
Regulatory Guide 1.174 states deterministic and probabilistic
approaches should be used in an integrated fashion. Although
deterministic approaches for evaluating the seismic hazard were fully
developed and included in appendices to the report, the report does not
make good use of the findings in characterizing the seismic risk for
the report's readers. Further, the report implies that industry would
incur large costs from application of a seismic checklist to confirm
that the pools have a high confidence of low probability of failing at
seismic events 2-3 times the safe shutdown earthquake. These costs do
not appear to confer commensurate benefit in terms of reduction of
costly emergency preparedness and financial protection requirements
that were in place when the plant was operating. By contrast, the staff
appears to be using a zero risk standard for evaluating the
applicability of these requirements.
Commission safety goals are based on quantitative numbers that are
a ratio of nuclear to non-nuclear risks (e.g., the probability of an
early fatality should not exceed 1/1000 of the ``background''
accidental death rate). The staff provided estimates of the amount of
collateral non-nuclear damage resulting from severe earthquakes that
could damage the pool in an appendix to the report, but the concept was
not included in the main body of the report where risk is discussed.
When criteria are developed for what constitutes negligible risk for
purposes of evaluating the need for protective requirements, these
criteria should consider the collateral non-nuclear damage that will
occur when very large, very low probability seismic events are the
predominant contributor to the overall risk.
Discussion
I. Estimates of seismic risk are bounding
The report states in several places that the EPRI and LLNL seismic
hazard curves are equally valid. However, the report also states that
sites on the east coast that don't meet the staffs pool performance
risk guidelines under the LLNL hazard estimate would be required to
perform additional analyses if those sites request exemptions from
emergency planning or financial protection. The staffs deferral to the
more conservative LLNL curves when the EPRI curves are stated to be
equally valid does not reflect the tenets of a risk informed approach
as directed by agency policy and guidance. The EPRI curves most likely
represent a very conservative estimate of seismic risk due to the
conservatism in the estimate of a generic pool fragility value and the
large amount of uncertainty inherent in predicting very low frequency
events. These low frequency events contribute 95 percent of the seismic
risk.
The staff extended LLNL seismic hazard curves beyond the return
periods typically used for evaluating seismic risk at operating plants
and requested that industry provide similar extensions for EPRI seismic
hazard curves for the purpose of the spent fuel study. Figures 1-3 show
the distribution of seismic risk across peak ground accelerations for
spent fuel pools at three sites on the east coast. Note that for the
Surry pool the 50th percentile of the annual probability of exceedance
is 1 in a million years between peak ground accelerations of .!5 and .6
g. In fact, the preponderance of the seismic risk is attributable to
very low probability very large seismic events. For Surry an
examination of Figure 3 reveals that 95 percent of the risk occurs at
levels in excess of 0.5 g, 3 times the safe shutdown earthquake (SSE)
for this plant; 60-plus percent of the risk comes from seismic events
exceeding 1.0g, 4-5 times the SSE for this plant.
The ability to address seismic events that are not expected to
occur is exacerbated by the fact that the tails of the curves are
driven by uncertainty. For example, an examination of Figure 4 reveals
that uncertainty increases from a factor of 10 in the realm of
plausible earthquakes to a factor of 1600 at earthquakes of 1.0g. The
diverging nature of the uncertainty curves means that real improvements
in seismic capacity will be masked by uncertainty, as seismic events
become larger, and more implausible. In addition, risk estimates are
likely to be highly overly conservative at the high ground motion
levels predicted for seismic events of this size.
Probabilistic analyses should be performed because these analyses
define the upper boundaries.' However, a lower limit based on curves
that are truncated at certain very low return frequencies, should be
employed for regulatory decisionmaking regarding the need for
protection requirements. For example, risk estimates for regulatory
purposes based on return frequencies not exceeding E4-E5 at the 50th
percentile makes it clear to stakeholders that very low frequency
events are outside the boundaries for practical decisionmaking.
II. Deterministic and probabilistic approaches should be used in
evaluating the acceptability of seismic risk.
The staff concludes that pools are inherently rugged and likely to
have seismic capacities beyond the 0.5g value used in the seismic
checklist developed to confirm robustness of pool designs. The report
concludes that the seismic risk upon successful implementation of the
checklist is acceptable: estimates of the mean risk for pools on the
east coast are 2 E-7 using EPRI curves and 2.E-6 using LLNL curves.
However, the finding that the risk is acceptable was never reconciled
with subsequent treatment of the risk. As noted above, in some places
the report appears to be applying a zero risk standard. In other places
the report states that plants not meeting the pool performance
guideline using the LLNL risk curves must perform additional analyses
as a basis for requesting exemptions to emergency preparedness and
financial protection requirements. The latter discussion implies that
the staff has established but not explicitly stated a non-zero risk
value that can be used to evaluate the necessity of emergency
preparedness and financial protection requirements. Clearly defined
criteria should be established by integrating the probabilistic and
deterministic insights,.
Any use of the seismic checklist developed by NRC needs to be
carefully evaluated. Application of the checklist as currently drafted
equates to requiring licensees to perform a slightly simplified
fragility analysis of their pools. Industry estimates the cost of this
simplified fragility analysis to be on the order of $50,000.00 per pool
evaluated. These costs do not include internal plant resources that
would be needed to support the consultant's efforts. To retain these
costly requirements and require a seismic evaluation when the plant
shuts down would be nonsensical and unsupportable. These requirements
(EP, insurance and security) were considered adequate to address a
range of accident events and sequences when the plant was operating. In
addition, the seismic capacity of the plant and pool were also
considered to be acceptable during plant operations. To retain these
requirements and require further seismic analysis for a single accident
sequence based on seismic risk that is several times higher than the
design basis of the plant is unsupportable.
1 We believe fewer insights are forthcoming from analyses using
expanded seismic hazard curves for spent fuel pools than might be
forthcoming for operating plants, i.e., the simple massive design of
the pool will fail beyond some level. Nonetheless, the analysis should
be performed.
III. Commensurate non-nuclear damage should be considered where seismic
risk from very low probability seismic events dominates the
risk profile.
This approach was used in past NRC policy documents. For example,
NUREG 1150, Severe Accident Risks: An Assessment for five U.S. Nuclear
Power Plants, October, 1990, did not provide consequences and risks for
large seismic events because of the non-nuclear offsite effects of a
large earl;hquakes. The report observes:
``The NRC, in its promulgation of safety goals indicated a
preference for quantitative goals in the form of a ratio or percentage
of nuclear risks relative to non-nuclear risks. . . . The NRC intends
to further investigate the methods for assessing losses from
earthquakes in the vicinity of the Surry and Peach Bottom sites with a
view of comparing the ratio of seismically induced reactor accident
losses with the overall :flosses. There has been at least one study
that suggests that the reactor accident contribution to seismic losses
is very small relative to the non-nuclear losses.''
Recommendations:
1. Efforts should be made to reduce the bounding nature of the
probabilistic risk estimates used in the report. The EPRI curves should
be employed to arrive at a more realistic estimate of seismic risk. In
addition, while the expanded seismic curves are useful to provide a
bounding estimate of risk, curves that are truncated at low
probabilities should be employed fir decisionmaking on the need for
additional protection requirements. Consideration of collateral
nonnuclear effects for large, low probability seismic events may
provide additional insights for determining where the risk curve should
be truncated for regulatory decisionmaking purposes.
2. Deterministic approaches should be integrated with probabilistic
approaches to more appropriately characterize seismic risk and to
clearly define criteria for evaluating the need for emergency
preparedness and financial protection and other protection requirements
applicable to operating plants. The maximum credible earthquake concept
should be utilized in this evaluation. Any requirement to apply the
seismic checklist should be counterbalanced by equivalent reductions in
other requirements.