[Senate Hearing 107-666]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 107-666

                   PRICE-ANDERSON ACT REAUTHORIZATION

=======================================================================

                                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
                                 ------                                

   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

                              ----------                              


                      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
---------------------------------------------------------------------------
     \1\Defined in Section 11.k. of the Atomic Energy Act of 1954, as 
amended.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
     \3\Ibid.
---------------------------------------------------------------------------
Limitation on Aggregate Public Liability\4\
---------------------------------------------------------------------------
     \4\The Atomic Energy Act of 1954, as amended, Section 170.e. (1) 
(A) and Section 170.o. (1) (E).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
     \5\The Atomic Energy Act of 1954, as amended, Section 170.e. (2).
---------------------------------------------------------------------------
Legal Costs Within the Limit\6\
---------------------------------------------------------------------------
     \6\The Atomic Energy Act of 1954, as amended, Section 170.e. (1) 
(A).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \7\The Atomic Energy Act of 1954, as amended, Section 11.t. and 
170.c.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
     \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \12\Defined in Section 11.gg. of the Atomic Energy Act of 1954, as 
amended.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \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:
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
    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?
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \10\See, Federal Acquisitions Regulations--Part 52; Solicitation 
Provisions and Contract Clauses; 52.250-1--Indemnification Under Public 
Law 85-804 (Apr 1984).
---------------------------------------------------------------------------
    (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\
---------------------------------------------------------------------------
     \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)?
---------------------------------------------------------------------------
    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.''
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \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\
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.

































































































































































































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