Price-Anderson removes that. They channel economic liability. Even if it is this little guy who is liable, Price-Anderson says financial responsibility for that liability goes to the licensee.

Then it sets up a system of what you call enterprise liability. We are talking about whether or not Price-Anderson is a disincentive to safety. I do not know of another industry where they have accepted industrywide liability for the actions of any one of its members.

That is a great demonstration of the confidence of the industry in the safety of nuclear reactors. So, we have the economic channeling, which has recreated a very substantial fund.

The terms of the insurance coverage if we did not have that economic channeling, in other words, if the only one who had to go out and get insurance was not the utility, but it was the utility plus the pump manufacturers and the architect/engineer, the vendors, and so on, this $180 million of liability which is now available 100 percent in the case of a nuclear accident would have to be spread among potential defendants and instead of having $180 million, soon to be $200 million available, as I understand it, you would only have a portion of that because everybody would have to have their own insurance and that $200 million would be spread out.

So that is where your economic efficiency comes in in two ways. You have maximized the industry's insurance protection available to the public, and you have provided enterprise liability.

That creates a very, very substantial fund, which I am not aware is available in the case of any other industry where they have taken that approach.

Price-Anderson is a very creative act and at a time when Congress is grappling with ways to deal with mass torts in other areas, asbestos, Superfund, where they are trying to construct similar types of mechanisms to say how do we create a fund here and spread the financial responsibility for that, so that we can create a big fund available to protect the public, why would you want to destroy that in the case of Price-Anderson?

It does not make sense. But it is that very limitation on liability that permits that.

If you remove that limitation on liability, you have destroyed an economically efficient system. You have spread the insurance among a number of potential claimants and you have no basis any longer for asking the entire industry to accept a liability for any one of its members.

It simply does not make sense. It is that very limitation that makes that possible. So we oppose the NRC proposal with respect to removing the overall limitation.

Now, let us address their proposal for an annual $10 million assessment. I guess if you were going to have unlimited liability that would be one way of handling it, but there is no study in the NRC report which would support the economic viability of a $10 million. annual limitation.

There simply is no justification for it whether it should be $5 million, $20 million or whatever, so we reject that approach.

NUCLEAR INDUSTRY PROPOSAL

We did not come here to tell you what we are against. What are we for? Price-Anderson is designed to provide compensation to the public. Currently, it is $585 million, and it goes up in $5 million increments.

The $500 million originally, plus the $60 million of original insurance was designed as an arbitrary number to say, this is a fund which will provide immediate compensation so that the public will not go without compensation.

And it was always considered to be the starting point for further compensation and that is explicitly spelled out in the act today.

If Congress were addressing Price-Anderson today for the first time, would they have pegged $500 million or would they have tagged some other number? Well, we do not know, but it would be an arbitrary number, because there is no actuarial basis for establishing it.

We continue to think that the floating ceiling which we now have provides that type of adequate starting point. So we would recommend leaving it the way it is.

If Congress in its wisdom decides that something further is required, the Edison Electric Institute is on record before this committee as supporting a doubling of the retrospective premium assessment, which would put you up to about $1 billion, and they considered that to be a manageable amount.

EXTRAORDINARY NUCLEAR OCCURRENCE

Let me address briefly the ENO question.

I think there is a great deal of confusion on this point. The fact is that the ENO does provide a substantial benefit to the public in its current form.

If we did not have the ENO provision, you would be thrown back on existing State tort law under which these defenses would be available to potential defendants, so the ENO really represents a liberalization of the State tort law, and it is one that makes sense and benefits the public.

It has this threshold that you have to reach in order to eliminate potential frivolous claims, and we think that makes sense, because without it, you would dissipate a lot of your resources in terms of litigating frivolous claims.

We do not support any legislation changing it. We would support the recommendation of the majority of the NRC Commissioners that they have a new rulemaking. Indeed, there are some problems in the present criteria, and we would support their rulemaking and cooperate with them in terms of trying to straighten those things

out.

ECONOMIC EFFICIENCY

Let me just anticipate what I know some of the later panelists are going to say. Isn't Price-Anderson really a subsidy to the nuclear industry? Doesn't it externalize the cost of nuclear power so that we are getting by with cheaper nuclear power than we would have in the absense of it?

You know, there really is no yes or no answer to that question, because what is one man's subsidy is another man's benefit, but the fact is that Price-Anderson has never cost the Federal Government a penny so far as I know, in terms of the licensee system.

In fact, they have collected something in the order of $30 million in fees as a result of the indemnity agreements. But if you define a subsidy as a special set of rules that apply to a group other than the public in general, then indeed, Price-Anderson is a subsidy both to the public who achieve benefits which they would not have in the absence of Price-Anderson and in a sense, to the industry. But that is really a diversionary issue.

To get back to the beginning of my statement, is there a better economically efficient system which can be devised to handle the potential for serious nuclear accidents than the one we have now, and I do not see one, and I think that Congress, looking at the other mass tort areas that they are involved in now, are probably going to construct a similar system to the one we have in PriceAnderson.

SAFETY INCENTIVES

And finally I guess, Mr. Seiberling, you have asked several times today, isn't Price-Anderson a disincentive to safety and that sort of is the cornerstone, I guess, of the bill that you have introduced, and again, we will hear some testimony on that later.

Way back 50 years ago, or whatever it was, we crossed the bridge with respect to the availability of insurance, whether or not insurance was a disincentive to safety. There were good public policy reasons put forward for not permitting people to go out and buy insurance.

The same reason it is a disincentive to safety and so on. We have crossed that bridge. Insurance today is an accepted part of the commercial world. Here we have an insurance scheme. We do not have an imdemnity program any more.

We have an insurance scheme that has two layers of insurance, and nobody has ever proven that insurance is a disincentive to safety, certainly not the nuclear industry, where the whole industry is on the line for the actions of any one its parties.

Finally in the case of Three Mile Island, we see that the biggest loser in the case of a nuclear incident is the utility itself. The utility suffered losses of over $1 billion. Now, if that type of liability is not sufficient to assure the highest standards of safety with respect to these facilities, I do not see how unlimited liability is going to add to that, particularly when unlimited liability only means recovering to the extent you have assets.

Unlimited liability does not mean full recovery, and if the alternative to a scheme like Price-Anderson is bankrupting the utility, that does not insure any greater compensation to the public, and probably less than you have under Price-Anderson.

So I would stop right there, Mr. Chairman. I think those are the major points that I would like to make.

The CHAIRMAN. We are going to have to break shortly. I was hoping to finish this panel before lunch.

Mr. Johnson.

Mr. JOHNSON. My name is M.G. Johnson, special counsel with Bechtel Power Corp., appearing here today as chairman of the Coordinating Committee of the Price-Anderson Contractors Policy Issues Study sponsored by the American Nuclear Energy Council. I am accompanied today by Omer Brown of the Washington law firm of Schaffer, Brown & Cooper, counsel for the study.

I would like to submit my written report, testimony, to be incorported in the record.

Mr. SEIBERLING. So ordered.

Mr. JOHNSON. And then I would like to just quickly run through a few of the points that have been raised here, and a few additional points not mentioned in that testimony.

First, I am testifying with respect to the 170(d) portion of PriceAnderson Act, namely, the Government-contractor portion-not that part relating to licensed activities.

PURPOSE OF INDEMNITY AGREEMENTS

It is important to realize that 170(d), by its nature, covers a wide variety of operations, not all of which are predictable. The 170(c) indemnity in Price-Anderson coverage, which covers licensed power reactors and other activities licensed by the MRC, presents an opportunity for Government regulation and coordination of the insurance with the operation of the facility.

The Government contracts is a little bit different. We are talking about the operations of the U.S. Government, not of a power company. We are talking about a broad variety of facilities which presumably are serving the public good.

The Government, of course, needs the assistance of contractors to obtain that, all the services necessary.

Now, again, it is not just the contractors. Prior testimony this morning by DOE indicated, I think, that some 75 contractors are covered by Price-Anderson indemnity issued by DOE.

However, we are also talking about contractors, subcontractors, and suppliers. We are talking about anyone who may be held liable for the nuclear incident arising out of the Government facility.

So that we are not talking just about 75 companies that are beneficiaries of the protection of the act. We are talking about in a minimum hundreds and probably thousands of companies, many of them small businesses throughout the United States, many of whom do not even know that their product is somehow or another being used in that particular facility.

There may be several layers of wholesalers between the manufacturer and the ultimate consumer who incorporates that product in the facility, and yet in the event of a major nuclear incident, it is very obvious that the supplier-manufacturer of every product is going to become a defendant.

Incidentally, the defense costs of that kind of a suit can be enough to break any supplier or contractor.

SAFETY INCENTIVES

I would like to address briefly the argument that the indemnity leads to carelessness. That is a wrong way to paraphrase the argument.

I would like to point out that the Price-Anderson system protects the negligent party only against certain kinds of risks and damages. I do not know how it is possible for any businessman to conduct his business so that he can be careless in terms of producing some radioactive consequences without at the same time exposing themselves to liability for nonnuclear events.

If he is careless, he is going to have liability out there and it is not going to be entirely in the radioactive arena.

Also, I think it is totally unfair to suggest that businesses are going to be safe or not safe depending upon whether some part of their losses may be covered by Government indemnity.

EXTRAORDINARY NUCLEAR OCCURRENCE

One other point I would like to clarify, I think there has been some confusion on it this morning here. And that has to do with the extraordinary nuclear occurrence. It is not necessary, it is not a prerequisite to coverage under Price-Anderson that an extraordinary nuclear occurrence be determined to have occurred.

All that the determination that an ENO has occurred will do is simplify life for the plaintiff in the lawsuit. It will eliminate certain defenses the defendent otherwise might have presented.

The nonexistence of an ENO, that is the finding that there is no ENO, will never deprive any valid claimant of his right to compensation and his right to full compensation.

I think there is some misunderstanding. I heard some expressed today. There is somehow or other a feeling that the presence of the ENO provisions will somehow or another work against a valid claim.

And that is clearly not the case. And that, I think, concludes the items that I want to discuss at this time.

Thank you.

AMOUNT OF RETROSPECTIVE PREMIUMS

The CHAIRMAN. All right. Just for my own layman's edification here, this $10 million figure-how does this compare with the typical utility, medium sized or large utility as a percent of operating revenues or cash flow. Is $10 million a lot to take away from the revenue generated by a nuclear reactor, or is it a relatively small item?

Mr. GLEASON. You know, in Congress they say $1 billion here and $1 billion there, and it soon adds up to a lot of money. The study which accompanies the NRC report and updates an earlier study indicates that for selected utilities that were representative, that the $10 million figure is manageable, and they went in increments to $20 million, and indicated how the various utilities-some of the utilities would have trouble managing that type of figure.

Of course, for your largest utilities, like your Dukes and Commonwealth Edisons, it clearly is less of a problem than it is for your smaller utilities. On the other hand, utilities such as Duke and Commonwealth Edison have a number of reactors.

So, it is $20 million per incident per reactor. It adds up to hundreds of millions-however many reactors you have. I have trouble dealing with billions and millions.

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