NATIONAL TAXPAYERS UNION A NONPARTISAN, NONPROFIT ORGANIZATION DEDICATED TO THE PUBLIC INTEREST 325 PENNSYLVANIA AVENUE, SOUTHEAST WASHINGTON, DISTRICT OF COLUMBIA 20003 STATEMENT OF JILL LANCELOT TELEPHONE: AREA CODE (202) 543-1300 SUBCOMMITTEE ON THE ENERGY & ENVIRONMENT OF THE HOUSE COMMITTEE ON INTERIOR & INSULAR AFFAIRS On behalf of the National Taxpayers Union, I would like to thank you for this opportunity to testify today on the PriceAnderson Act. NTU is the largest non-profit, non-partisan organization representing the taxpayer. NTU is opposed to the Price-Anderson Act because it is based on the explicit assumption that the federal government will pay for all "uninsured" costs of a nuclear accident. We are also opposed to the Price-Anderson Act because it interferes with the normal checks and balances of the free market, and thus distorts our ability to evaluate the true costs and risks of nuclear power development. In 1957, the Price-Anderson Act was adopted as a temporary, ten-year indemnity program. It was viewed as a necessary measure to get a fledgling nuclear industry off the ground. After 27 years, the nuclear power industry should be mature. The industry has billions of dollars in assets, more than 80 power plants licensed, and over 700 years of commercial operating experience. The original reasons for the Price-Anderson Act that might have existed more than a quarter of a century ago, surely can no longer exist. The Heritage Foundation aptly summed-up the situation in it's Agenda '84 report: THE AMERICAN TAXPAYER ACTS THROUGH NTU "Price-Anderson, passed originally in 1957 to provide insurance to the nuclear industry in the early days when risk could not be assessed, has outlived its usefulness. Today, it is essentially only a subsidy that, by limiting nuclear accident liability to $560 million, provides utilities with below-market insurance." No other industry has ever been so thoroughly insulated from financial risks, and indeed, no industry should. NTU strongly believes that when markets are allowed to work, without federal interference, everyone will benefit. Society traditionally requires businesses engaged in hazardous activites to be held financially responsible for their actions. This is the market's way of regulating hazardous enterprises. If society's professional risk assessors--the private insurance industry-refuse to insure an activity, or require such high premiums that the activity is prohibitively expensive, this is the market mechanism for limiting that activity. By forcing the development of nuclear power before it was ready to meet the tests of the marketplace, the Price-Anderson Act has provided an enormous subsidy for nuclear power, and undermined the safety of the nuclear industry. I will briefly address the subsidy issue, and then go on to discuss the benefits of repealing the Price-Anderson Act. The Price-Anderson Act As A Subsidy The question of how, and to what extent, Price-Anderson subsidizes nuclear power has been the subject of intense debate for many years. With the recent phase-out of the direct federal indemnity portion of the $560 million pool, supporters of the Act argue that the federal subsidy has been eliminated. These very 2 same supporters argue that if the Price-Anderson pool is insufficient for compensation of the public, the federal government will provide financial aid for victims. In the event that a serious accident triggers the need for Price-Anderson, taxpayers are expected to pay whatever damages exceed the PriceAnderson "insurance" pool. The burden for compensating public damages is thus shifted to the taxpayer, regardless of the ability of the responsible party to pay. Furthermore, the artificial limit on liability relieves the nuclear industry of the costs of fully insuring against the risk of an accident. Every other industry assesses its potential liability, insures itself to a reasonable limit, and risks its assets if the insurance is inadequate. The cost of this insurance is a normal of cost of doing business, which is then reflected in the price of the product or service provided. If the potential for uninsured losses is large, investors demand a higher rate of return on their financing. By eliminating the cost of purchasing adequate insurance, and removing a significant portion of the investment risk, the Price-Anderson Act makes nuclear power appear cheaper than it would be in a free market. I would like to point out one more detail of the PriceAnderson Act that is often overlooked. If a utility defaults on the $5 million (per power plant) assessment after an accident, the NRC guarantees payment. NTU believes that this is totally inappropriate. The federal government should not be in the business of providing insurance which should be available from private sources. 3 The Benefits of Price-Anderson Repeal If the Price-Anderson Act were repealed, the nuclear industry would be required to stand up to the tests of the marketplace. All utilities with nuclear plants, manufacturers, and suppliers would purchase adequate liability insurance, or get out of the business. This would increase the safety of the nuclear industry, and have far-reaching benefits for taxpayers. The Price-Anderson Act very specifically "holds harmless" anyone who may be responsible for a nuclear accident. This is totally counter to the public interest. We need to make sure that anyone who causes a nuclear accident is fully accountable for any damages to the public. The nuclear industry needs to be given strong market-incentives for safety. To quote former AEC Commissioner William Kriegsman: "Do away with it [the limit on liability] and you'd probably see valves coming off the assembly line in better shape." . Some argue that the insurance industry is not able to fully insure nuclear power, and therefore, Price-Anderson is needed in order to guarantee survival of the the nuclear industry. We believe that the market can work. In those cases where it fails, it is for a good reason, and Congress should not force an immature technology on society. In the case of nuclear power, Congress has prejudged the market's ability to respond, and preempted the possibility of allowing the nuclear industry to survive on its own. Again, to quote the Heritage Foundation report: "If insurance cannot be provided and shutdown basic test in a free society: nuclear utilties Assuming that nuclear power would survive in a free market, there are many advantages of having private insurers actively underwrite the risks. As society's risk assessors, the insurance industry is in the best position to determine precisely what the risks of nuclear power are. The premiums charged for adequate liability insurance would either make nuclear power economically competitive, or undesirable as an energy source until such time as the costs of other competing sources increased. Another very important advantage is the role that insurers can play in regulating the safety of the nuclear industry. Rather than relying on NRC regulations for safety improvements, the insurance industry would provide strong incentives for increased attention to safety. For example, if a safety-related technological improvement is possible but expensive, insurers could provide an incentive in the form of a reduced premium to utilities that adopt the improvement. Similarly, if a utility is considering building a nuclear plant near a major city, the variation in insurance premium may encourage a decision to build at a more remote site. If the insurance industry has money on the line, on-site inspections with close attention to safety practices and operator performance would be much more meaningful 5 |