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81–721 PDF 2003

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

(

(II)

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

JAMES M. JEFFORDS, Vermont, Chairman

MAX BAUCUS, Montana

HARRY REID, Nevada

BOB GRAHAM, Florida

JOSEPH I. LIEBERMAN, Connecticut

BARBARA BOXER, California

RON WYDEN, Oregon

THOMAS R. CARPER, Delaware

HILLARY RODHAM CLINTON, New York

JON S. CORZINE, New Jersey

BOB SMITH, New Hampshire

JOHN W. WARNER, Virginia

JAMES M. INHOFE, Oklahoma

CHRISTOPHER S. BOND, Missouri

GEORGE V. VOINOVICH, Ohio

MICHAEL D. CRAPO, Idaho

LINCOLN CHAFEE, Rhode Island

ARLEN SPECTER, Pennsylvania

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

BOB GRAHAM, Florida

JOSEPH I. LIEBERMAN, Connecticut

BARBARA BOXER, California

RON WYDEN, Oregon

JAMES M. INHOFE, Oklahoma

JOHN W. WARNER, Virginia

CHRISTOPHER S. BOND, Missouri

GEORGE V. VOINOVICH, Ohio

LINCOLN CHAFEE, Rhode Island

(III)

CONTENTS

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

(1)

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

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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.

3

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:]

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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 preVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 81721 SENENV1 PsN: SENENV1
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cautionary 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 inVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 81721 SENENV1 PsN: SENENV1
17

creased 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.

18

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 acciVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 81721 SENENV1 PsN: SENENV1
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dent. 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:

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• 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.

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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 ComVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 81721 SENENV1 PsN: SENENV1
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mission 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

23

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.

24

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

25

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

26

$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.

27

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

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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.

29

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

30

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 PriceAnderson 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.

31

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 PriceAnderson, 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

32

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.

33

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

34

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.

35

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 PriceAnderson 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

36

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

37

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 PriceAnderson 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 conVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6601 81721 SENENV1 PsN: SENENV1
38

cerned 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.

39

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

40

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

41

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

42

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.

43

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

44

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

45

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 emissionsfree 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 PriceAnderson 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.

46

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 mustpass 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

47

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 milVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
48

lion 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 an- nual 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 reevaluate 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

49

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

50

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 safetyrelated 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

51

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.

52

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, §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 PriceAnderson 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 facilVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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ity, 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 fiVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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nancial 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 §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

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1Defined in Section 11.k. of the Atomic Energy Act of 1954, as amended.

2The Atomic Energy Act of 1954, as amended, Section 170.b.(1).

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 safetyrelated 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 PriceAnderson 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 Protection1 . . . In Two Layers

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 staVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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3Ibid.

4The Atomic Energy Act of 1954, as amended, Section 170.e. (1) (A) and Section 170.o. (1)

(E).5The Atomic Energy Act of 1954, as amended, Section 170.e. (2).

6The Atomic Energy Act of 1954, as amended, Section 170.e. (1) (A).

7The Atomic Energy Act of 1954, as amended, Section 11.t. and 170.c.

8The Atomic Energy Act of 1954, as amended, Section 170.n. (1).

9Defined 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. 10The 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. 11The Atomic Energy Act of 1954, as amended, Section 170.n. (2).

bility 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.

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).

Limitation on Aggregate Public Liability4

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.

Legal Costs Within the Limit6

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 Liability7

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 Defenses8

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.

Federal Court Jurisdiction in Public Liability Actions11

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

57

12Defined in Section 11.gg. of the Atomic Energy Act of 1954, as amended.

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 Evacuations12

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 twentyfour hours of the Pennsylvania Governor’s advisory for pregnant women and preschool 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.

58

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

59

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

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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

Year

Liability Limits ($ in Millions)

Percent Increase

1957 ................................................................................................................................................. $60

19661 ............................................................................................................................................... 74 23.3%

1969 ................................................................................................................................................. 82 10.8%

1972 ................................................................................................................................................. 95 15.8%

1974 ................................................................................................................................................. 110 15.8%

19751 ............................................................................................................................................... 125 13.6%

1977 ................................................................................................................................................. 140 12.0%

1979 ................................................................................................................................................. 160 14.3%

19881 ............................................................................................................................................... 200 25.0%

1Coincident 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

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1Defined 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. 2The Atomic Energy Act of 1954, as amended, Section 11.t. and 170.c.

3The Atomic Energy Act of 1954, as amended, Section 170e.(1)(A) and Section 170.o.(1)(E).

4The Atomic Energy Act of 1954, as amended, Section 170.b(1).

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.

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 liability3 which, in turn, makes possible

the retrospective premium4 payable by reactor operators in the event losses exceed

the primary insurance layer.

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.

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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

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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.

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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.

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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.’’

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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,

67

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.

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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.

69

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 PriceAnderson 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 difficulVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00073 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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ties, 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 PriceAnderson 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.

71

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 cashflow from actual plant and company operations, it is unlikely that the lessonslearned 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

72

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—re- mote 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

73

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 cirVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00077 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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1The 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.

cumstances, 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

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

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2For 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.

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:

(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 cov- erage 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 obli- gation 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.

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(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

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3Stepan 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.

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.

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 PriceAnderson 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

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4See 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).

(D. Colo. 1991) (Act applies to intentional and tort claims related to occupational

exposure.)4

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 PriceAnderson 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.

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5‘‘NRC’s Assurance of Decommissioning Funding During Utility Restructuring Could be Improved,’’ GAO–02–48, December 2001. 6The 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. 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. 8

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 liabil- ity 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

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

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:

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] 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

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9For 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? 10See, Federal Acquisitions Regulations—Part 52; Solicitation Provisions and Contract

Clauses; 52.250–1—Indemnification Under Public Law 85–804 (Apr 1984).

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 max- imum 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

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 PriceAnderson 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

(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, exVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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1142 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.’’ 12Court 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)? 13The 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.’’ 14In 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. 15Perhaps 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).

pressly 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

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

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

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?

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16The 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. 17The 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.’’

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

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]:

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

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18Similarly, 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. 19The 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.

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

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

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.

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20Section 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.

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

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 marVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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ket 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.

86

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.

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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

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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

89

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

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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 (FullScale 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.

91

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

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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 nonnuclear 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 deterVerDate 11-MAY-2000 16:01 Jul 25, 2003 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6621 81721 SENENV1 PsN: SENENV1
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mining 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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