Chapter 1

Introduction

Principal Features of the Act

The Atomic Energy Act of 1954 (42 U.S.C. 2011) permitted-and encouraged private industry to develop and apply atomic energy for peaceful uses, such as generating electricity from privately owned nuclear power plants. Until then, the government had conducted atomic energy activities such as research, development, and production of nuclear weapons. Soon thereafter, government and industry experts identified a major impediment to accomplishing the act's objective of stimulating private industry participation in nuclear energy development. The impediment centered on the payment of damages resulting from a nuclear accident.

Although government and industry experts considered the chances of an accident with catastrophic off-site property damages and health effects exceedingly remote, they also recognized that if such an accident occurred, the resulting financial damages could be large. Unwilling to risk huge financial liability, private companies viewed even the remote spector of a serious accident as a roadblock to their participation in the development and use of nuclear power. In addition, since contractors performed much of the government's nuclear weapons development and production activities, they were concerned about accident liability.

At the same time, congressional concern developed over a second facet of the liability issue-ensuring adequate financial protection to the public. If private industry had moved forward with nuclear power development despite the liability risks, the public had no assurance that it would receive compensation for personal injury or property damages from the liable party in the event of a serious accident. Any compensation the public could receive would have depended on whether the liable party had sufficient insurance to pay for the damages or could pay them "out of pocket."

Faced with these concerns, and convinced that they constituted a major hurdle to encouraging private industry participation in nuclear energy development, the Congress enacted the Price-Anderson Act (42 U.S.C. 2210) in September 1957, which added section 170 to the Atomic Energy Act. The major provisions of the Price-Anderson Act are discussed in the following section.

The Price-Anderson Act has two underlying objectives: (1) to establish a mechanism for compensating the public for personal injury or property damage in the event of a nuclear accident and (2) to remove the roadblock to the private development of nuclear power. The act provides

Introduction

"umbrella" coverage and limits the liability for anyone (contractors, subcontractors, vendors, suppliers, architect-engineers, and transporters) who performs work in connection with commercial or government nuclear activities. In addition, the act prescribes a system of private insurance and government indemnity (reimbursement of liability) to cover the off-site consequences of a nuclear accident at commercial and government facilities.

For commercial plants, the Congress initially limited liability to $560 million per accident and established a two-step process to pay claims: (1) liability claims would first be paid from private insurance that each nuclear power plant licensee is required to carry-$60 million in 1957 and (2) amounts exceeding the insurance limit would be paid by the government up to $500 million.

In 1975 the Congress enacted a major change in liability for commercial activities by creating a third source of funds to pay accident damages— a retrospective premium or secondary insurance plan. This amendment authorized NRC to require each commercial licensee to pay a retrospective premium of up to $5 million per operating plant if public liability exceeds the amount of private insurance available (private insurance had increased to $160 million). NRC, by regulation, has established a maximum amount of $10 million per year, per plant (two accidents). The amendment also provided for increasing the liability limit, and established a new limit of $560 million or the amount of financial protection required of licensees, whichever is greater.

The effect of these changes has been that (1) the government's indemnity was essentially phased out when the Nuclear Regulatory Commission (NRC) licensed the 80th plant ($160 million of private insurance + 80 plants x $5 million = $560 million), and (2) the liability limit has increased as the number of operating plants increased. Further, the 1975 amendment authorized NRC to establish requirements it deems necessary to ensure the availability of funds to meet any assessment of the retrospective premium. In this regard, NRC, by regulation, requires that each utility carry a secondary insurance policy on each reactor that provides up to $30 million per accident if the utility cannot make or is required to make more than its $5 million contribution per plant.

Because the funds available to pay damages resulting from any single nuclear power plant accident now total $695 million ($160 million of private insurance + 107 plants x $5 million), the government would pay liability claims only if a utility cannot meet its retrospective premium

Introduction

obligation and the aggregate premium for all of the utility's reactors exceeds the $30 million of secondary insurance. By the early 1990s, when NRC expects to license 13 other plants, the limit will increase to $760 million.

Should damages exceed that limit, the 1975 amendment specified that the Congress will thoroughly review the accident and take whatever action it considers necessary and appropriate to protect the public. However, this provision does not obligate the Congress to authorize or appropriate additional funds.

In addition to the ceiling for commercial nuclear activities, the act limits liability for government contractor activities to $500 million in government indemnity plus private insurance. Since the Department of Energy (DOE) has generally reimbursed contractors for all costs of doing business with the government, DOE has not required its contractors to obtain private insurance. In addition, the Congress has not changed the liability limit for DOE's nuclear activities-the limit remains at $500 million, set in 1957.

Further, because the Congress wanted to review periodically the effectiveness and continued need for liability protection, the act limits NRC and DOE indemnity authority to 10 years. However, the act stipulated that any agreements negotiated with commercial plant operators and government contractors during that time were to remain in effect over the life of the licenses and/or contracts. The Congress has amended the act three times and extended the agencies' authority to indemnify licensees and contractors through August 1, 1987.

If the Congress does not act by that date, expiration of NRC's indemnification authority would have no direct effect on commercial nuclear power plants that have NRC construction or operating licenses as of that date. These plants would continue to be covered until their licenses expire. However, NRC would lose its authority to indemnify nuclear power plants licensed after August 1, 1987.

In addition, all DOE contracts that include indemnity arrangements that are in effect on that date would continue to be covered until the contracts expire. Similar to NRC, DOE would lose its authority to indemnify new contractor activities after that date. However, expiration of the act's indemnity authority could have a more direct and immediate impact on DOE's nuclear activities since DOE renegotiates its contracts every 5 years. Without the indemnity authority of Price-Anderson, DOE