DOE's statutory missions in research and development, production, defense and other nuclear fields, and protection of the public. Indeed, as DOE indicated, there would be strong reluctance on the part of existing and potential contractors to do nuclear business with the Department if DOE's authority to enter into Price-Anderson indemnity agreements were discontinued. This would lessen competition and otherwise increase costs to the Government. The strong reluctance also would extend down tier lines to subcontractors and equipment suppliers, including many small businesses throughout the country, who might be liable for a serious accident but not have the financial resources to cover that liability or the defense costs associated with such litigation. While the the Federal Government's own nuclear activities (which usually are carried out by contractors) have had an extraordinary safety record, the possibility of a serious accident resulting in damages to the public unfortunately cannot be eliminated totally. Price-Anderson provides an assured and exemplary system of protection for the public in case that unlikely event ever happens.

Indemnification against nuclear risks has been provided since the days of the Manhattan Engineer District of the War Department in the early 1940's. Subsection 170a by its terms merely supplements other authority DOE has to indemnify its own contractors. Price-Anderson, however, rounds out that authority so as to assure better the protection of the public at large. Contractor coverage prior to the Price-Anderson Act often was incon

3

sistent, subject to individual contract idiosyncracies, inapplicable to subcontractors, and subject to the availability of appropriated funds. Subsection 170d was carefully designed to correct many of these deficiencies and to provide a uniform system of public protection. We agree with DOE's conclusion that Price-Anderson should be extended. Later at the conclusion of our study, we should be able to comment at greater length on the details of proposed modifications of the system.

We do have a few comments now on the two legislative proposals now being considered to amend the Price-Anderson Act as a whole: If either H.R. 421 or H.R. 3277 were adopted, it would have an adverse impact on the DOE contractor program. We especially question the legality of the provision (Section 6) of H.R. 421 that would have the bill apply retroactively to existing DOE contractors. Both bills would eliminate the limitation-on-liability provision that is a fundamental feature of the Price-Anderson system. We believe that, instead of eliminating the limitation entirely, Congress should consider increasing the $500 million indemnity and limitation for DOE contractors to some appropriate figure. We are not prepared to suggest a number, but our tentative conclusion is that it need not necessarily be the same for government contractors as for power plant licensees, since different public policy considerations may come into play in the assumption of financial responsibility for Government activities. Nevertheless, we believe careful consideration should be given to developing an increased figure that would protect all parties by providing

a readily available source of funds without eliminating the Congressional pledge embodied in the present Act that, in the event of an incident involving damages in excess of the statutory limit, Congress will take whatever action is deemed necessary to protect the public.

H.R. 421 and H.R. 3277 each also would eliminate the "extraordinary nuclear occurrence" feature added to the Act in 1966 and require licensees and contractors to agree in advance to waive certain ordinarily available legal defenses for all "nuclear incidents". Congress considered and rejected this idea in 1966 on the ground that it would encourage nuisance suits. We believe that the 1966 reasoning was sound and still applies today. The purpose of the "extraordinary nuclear occurrence provision was to give added protection to the public in the event of a significant accident by requiring the waiver of certain ordinarily available tort law defenses. That statutory protection now exists and should not be changed. If the threshold for determining whether a particular release constitutes an "extraordinary nuclear occurrence" is considered to be too high, it can be amended administratively. A statutory amendment that would be advisable is one to extend the "extraordinary nuclear occurrence" provision to waste management facilities as suggested by DOE and the State of New Mexico.

In conclusion, after nearly thirty years of Price-Anderson Act indemnification, private industry has assumed, as Congress intended, a larger role in assisting the Federal Government in carrying out its own nuclear activities without any significant damage or injury to the public. In other words, Price-Anderson contractor indemnification is a system that has worked well. It should be extended again in substantially its existing form.

I would be happy to answer any questions you might have. Thank you again for this opportunity to appear before your Subcommittee.

STATEMENT OF

AMERICAN NUCLEAR INSURERS

AND

MUTUAL ATOMIC ENERGY LIABILITY UNDERWRITERS

BEFORE

THE SUBCOMMITTEE ON ENERGY AND THE ENVIRONMENT

OF THE

HOUSE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS

June 11, 1984

I am Richard Schmalz, Counsel to American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters, the two Nuclear Pools known as ANI and MAELU. My associates are Michael O'Connell, Manager of MAELU; William Metzgar, Director of Aetna Life & Casualty Insurance Company and Chairman of the Pools' Liability. Underwriting Committee; and Joseph Marrone, Vice President and General Counsel of ANI.

We appear today on behalf of the two Nuclear Pools, whose combined membership includes several hundred stock and mutual insurance companies in the United States, with most of the major companies represented. We are grateful for the opportunity to give this Committee the views of a broad segment of the insurance market on a most important subject -- the insurability of our nuclear power program.

As nuclear insurers, the members of the Pools play but a minor, secondary role. We are, nevertheless, interested in the development of nuclear power. We think that it can be done safely, and we want to provide as much insurance as we can. We have a somewhat broader concern because nuclear safety, liability and insurance issues tend to have a spill over effect on our members' other lines of business.

We would like to talk briefly about nuclear power today from three points of view --- economics, safety and insurance. Each of these is a complex subject in itself even when restricted to its insurance aspects. So we will not attempt to do more than touch on what seem to us to be key points. We are in the course of preparing more comprehensive materials and studies that we think will be helpful to this Committee and others who are reviewing our nuclar power program. We will be glad to make them available to the Committee as soon as they are at hand.

I

The Need for Consensus

Paul A. Samuelson, as well as many other prominent economists, have pointed out that ours is a "mixed economy" in which both public and private institutions exercise economic control. 1/ Usually this system works quite well. But at times, the signals from two masters do get mixed up, and the message becomes confused.

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We believe that, unfortunately, such is the case with nuclear energy. In the last few years we have seen a promising source of electric power and an important technology wither while our principal alternatives are showing signs of serious problems. Our mixed economy seems unable to respond to this dilemma satisfactorily.

Staunch defenders of pure laissez faire markets, rare though they are today, may be tempted to say: "Let the market decide! If nuclear power cannot swim on its own, let it sink!" And that, according to strict theory, would give the correct answer, because the market, when confined to pure economics, normally makes the best choice.

Tempting, but this is not in our view the appropriate way to make the decision. The market, in this case, cannot make the best choice, even on strictly economic grounds, because the economics of nuclear power, nuclear safety and nuclear insurance are not the creatures of the market alone. And of course in a mixed economy there are other considerations beyond pure economics. We cannot fall back and trust the guidance of an "invisible hand."

II

Arriving at a Consensus

The economics of nuclear power are extraordinarily favorable, except for one factor: the pervasive effect of the remote, but unextinguishable possibility of a catastrophic nuclear incident. The financial consequences of the maximum conceivable accident could bankrupt the largest private organizations. It is beyond the power of the human mind to quantify accurately the dollar value of this risk.

Under these circumstances, a pure market economy would not go forward with the development of nuclear power. And there are no doubt some who would not want to go forward in any event. But many nations around the world have gone forward nevertheless, preferring to assume this unquantifiable risk and to deal with it in a non-market manner.

In 1957 we, in the United States, also took this course. The Price-Anderson Act was the vehicle we used to provide the incentive to private organizations to do what they otherwise would not have done and to protect the public against the financial consequences of the remote, but possible, catastrophic accident that might result. The responsibility for ensuring adequate safety standards was placed in the hands of the Federal Government.

It strikes us as circular reasoning to suggest, as some have done, that the Price-Anderson Act amounts to nothing more than an unwitting "subsidy" that allows private industry to make a profit out of nuclear power. If there were no incentive to devote its resources to nuclear energy, industry would have sought to make a profit by committing those resources to something else. But the public would have had no chance to realize the benefits of a nuclear power program unless the Federal Government undertook to develop nuclear power itself.

Suppose the Government had undertaken to do so directly or through contractors. Members of the public at large would have been in essentially the same position