INSURANCE INDUSTRY INSPECTOR

Mr. SEIBERLING. Does the insurance industry maintain any inspectors who inspect the insureds to see that they are doing everything they can to maintain a safe operation?

Mr. SCHMALZ. Yes, they do. We have both property and liability engineers who have regular inspection programs who coordinate these inspection programs with the local plant engineers and who coordinate and follow the NRC and its inspections.

But we have to recognize that the insurance inspections are devoted primarily to the insurability of the risk. Someone said this morning they would not want to have one of the insurance companies design and build a nuclear powerplant, and the inspection is the same way. The inspection elements are the elements that bear on the insurability of the risk.

If we find a condition that we believe is dangerous to the plant operation, we immediately call it to the attention of the plant management and the NRC, and we do have the authority under our policies to suspend the insurance.

Mr. SEIBERLING. Are the inspections of nuclear plants more or less frequent than of other electric generating plants?

Mr. SCHMALZ. I think in the main, the private insurance industry does not insure conventional powerplants, but I think it is fair to say that the inspection procedures for the nuclear powerplants are more regularly scheduled and followed through than might be the case with other industrial risks.

Certainly there has been a great emphasis by the pools on nuclear engineering.

Mr. SEIBERLING. Let me just ask a couple more. Through what agency are these inspections performed?

Mr. SCHMALZ. Some of them are performed, I believe all of them, are performed through employed inspectors of the pools.

Mr. SEIBERLING. Of the pools?

Mr. SCHMALZ. The pools now provide the inspections.

Mr. SEIBERLING. Are these infrequent inspections? They do not maintain somebody on the spot all the time, do they?

Mr. SCHMALZ. No, I do not think they maintain someone on the spot all the time, but they do have regular schedules which they try to meet for inspections.

The CHAIRMAN. Do you want to comment on that, Mr. Marrone? Mr. MARRONE. Just that the staff that provides the services for both pools includes about 110 employees, perhaps 75 percent of those are devoted to the engineering effort which is to gather information with respect to the risks for the underwriters to help them underwrite the risk and to the extent that we are able to enhance the risk as underwriters. So, though it is a large part of our total staff, it is still a large part of our small operation with an annual premium that is quite small.

CALCULATION OF INSURANCE PREMIUMS

Mr. SEIBERLING. Does the premium vary in accordance with the safety record or your findings as to the safety policies of the particular operators?

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Mr. MARRONE. The rating for reactors is judgment rated. There is a committee which undertakes to do the rating and receives information from the engineers that inspect the risk and that information is factored into the rating.

The CHAIRMAN. Let me get a question in here before we have to go vote. Is there anything that the nuclear industry could do that would increase your capacity for insurance above the $160 million? We talk about standardized designs. We talk about a lot of basic changes that might be made.

Mr. SCHMALZ. I think, of course, that standardized designs, if they prove to be advantageous, would be helpful because I think that what we would be driving at would be the safest, most easily maintained design that we could hit upon, so that certainly would be a favorable development for capacity.

Mr. SEIBERLING. Let me just ask the following question. If a standardized design can be developed which would make a core melt down almost impossible, would that greatly change the degree of insurance that the insurance industry would be prepared to give?

Mr. SCHMALZ. I think that anything that could reduce, the possibility of a catastrophic accident would be helpful. We would have to wait and see what the actual engineering evaluation of the design was, but it certainly would be a favorable factor or have a favorable effect on capacity.

Mr. SEIBERLING. Thank you.

The CHAIRMAN. Thank you, gentlemen. I appreciate your help here. We have a time problem with a whole series of votes coming up. I will get the next panel up here.

Mr. SEIBERLING. While they are getting there, can I ask one more question, Mr. Chairman?

Was the Zimmer plant visited by a pool inspector regularly? If you do not know the answer, maybe you could supply it for the record?

Mr. SCHMALZ. We will be happy to supply you with an answer on that.

Mr. SEIBERLING. If so, maybe you could explain how all those things could go on and still not be caught by the insurance industry.

Mr. SCHMALZ. We will respond.

[EDITOR'S NOTE.-At the time this hearing was printed this information had not been received. It will be inserted in the subcommittee's files when received.]

[Prepared statements of Jill Lancelot; Keiki Kehoe; and Ron Landsman may be found in the appendix.]

PANEL CONSISTING OF JILL LANCELOT, DIRECTOR OF CONGRESSIONAL AFFAIRS, NATIONAL TAXPAYERS UNION; KEIKI KEHOE, DIRECTOR, NUCLEAR ACCOUNTABILITY AND INSURANCE PROJECT, ENVIRONMENTAL POLICY INSTITUTE; AND RON LANDSMAN, GENERAL COUNSEL, NATIONAL INSURANCE CONSUMER ORGANIZATION

The CHAIRMAN. Our next panel is Ms. Kehoe, Mr. Landsman, and Ms. Lancelot.

We have a vote. We will have to leave in just a few minutes. Do one of you want to start off?

Ms. LANCELOT. I am Jill Lancelot. I represent the National Taxpayers Union. We are the largest nonprofit, nonpartisan organization representing the taxpayer.

We are opposed to the Price-Anderson Act because it is based on the explicit assumption that the Federal Government will pay for all insured costs of a nuclear accident. We are also opposed to the Price-Anderson Act because it interferes with the normal checks and balances of a 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 10year indemnity program. It was viewed as a necessary measure to get a fledging nuclear industry off the ground. After 27 years, the nuclear power industry should be mature now that it has billions. of dollars in assets 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. In fact, the Heritage Foundation aptly summed up the situation in its agenda 1984 report, and I quote:

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.

The CHAIRMAN. Let me interrupt you at that point. We will try to get back in a few minutes. There are five separate votes scheduled, and it might be half an hour or so before we can move on. We will stand in recess.

AFTER RECESS

The CHAIRMAN. The subcommittee will resume. I apologize for the delay, but there is not much we can do about it. We will hear from Ms. Lancelot, right?

Ms. LANCELOT. That is correct.

I had just started with a quote from the Heritage Foundation, and I will start from the beginning of it.

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.

The National Taxpayers Union strongly believes that when markets are allowed to work without Federal interference, everyone will benefit. Society traditionally requires businesses engaged in hazardous activities 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 this activity.

FEDERAL SUBSIDY

I would like to briefly discuss the subsidy issue and the benefits of repealing Price-Anderson. With recent phaseout of the direct Federal indemnity portion of the $560 million pool, supporters of the Act argue that the Federal subsidy has been eliminated.

The same supporters of this current system argue that if the pool is insufficient for compensation of the public, the Federal Government will provide financial aid for the victims. In the event that a serious accident triggers the need for Price-Anderson, taxpayers are expected to pay whatever damages exceed that insurance pool. Thus, the burden for compensating public damages is shifted to the taxpayer regardless of the ability of the responsible party to pay. In addition, the artificial limit on liability has two results. One, it eliminates the cost of purchasing adequate insurance; and two, it removes a significant portion of the investment risk. Thus, the Price-Anderson Act makes nuclear power appear cheaper than it would be in a free market.

One more detail of the act that is often overlooked is that if a utility defaults on the $5 million, which is assessed to each powerplant after an accident, the NRC guarantees payment. We feel that this is totally inappropriate. The Federal Government should not be in the business of providing insurance which should be available from the private sources.

If the Price-Anderson Act were repealed, the nuclear industry would be required to standup 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 hold harmless clause in the act hardly provides such incentives.

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 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, we feel this again sums up our position:

If insurance cannot be provided and shutdown occurs, nuclear power will have failed the most basic test in a free society: Nuclear utilities were unable to offer reasonable assurance that they could be responsible for their liabilities. The more likely result would be far different. Despite the reluctance of the insurance industry to provide coverage, either existing insurance companies would fill this void in the market or some other party would begin to offer such a service. The industry and its opponents would be shortsighted if they discounted the ability of a free market to respond to a demand for insurance for this type.

The position of the National Taxpayers Union on the issue of Price-Anderson is straightforward. We believe every person, and every industry, including the nuclear industry, should be fully accountable for the consequences of their actions. If one party causes another party to suffer personal injuries or property loss, the party at fault must be fully responsible for the financial consequences.

The Federal Government should not arbitrarily impose those costs on either the taxpayers or the victims.

The issue of the Price-Anderson Act should not be used as a forum to debate the merits of nuclear power. The fundamental issue before Congress is not "yes" or "no" to nuclear power; it is a question of whether the Federal Government should continue to insulate the nuclear industry from financial risk and subsidize it as an energy source to the detriment of other forms of energy.

The effort to end this subsidy will be a bipartisan one, and it will transcend the "pro versus anti" nuclear lines. We urge Congress to carefully scrutinize the Price-Anderson Act and reject a "businessas-usual" attitude toward this important legislation.

I thank you for allowing us to present our views, and I would ask that our entire statement be put into the record.

The CHAIRMAN. Without objeciton, so ordered.

Ms. Kehoe.

Ms. KEHOE. Thank you very much, Mr. Chairman.

Today I am here making a statement on behalf of the Environmental Policy Institute, the Union of Concerned Scientists, the Sierra Club, Environmental Action, Friends of the Earth and the Public Citizens Critical Mass Energy Project. I have a complete statement for the record, and I am going to very briefly summarize the points that I make in that statement.

The CHAIRMAN. Good.

Ms. KEHOE. To begin with, we find that the concerns that have been raised by the National Taxpayers Union, we agree entirely with what they have just said, on most of these issues we agree that Price-Anderson is a disincentive to safety and an unquantifiably large subsidy and that these should be addressed.

PUBLIC LIABILITY INSURANCE FUND

I would like to elaborate a little bit more on the public protection features of Price-Anderson. We believe that the public protection features of this act have been grossly overrated by the proponents of the Price-Anderson Act, and I am sure that as you more closely examine the arguments that I have made in my statement, you will agree.

The first point is that the $585 million limit would be totally inadequate. This is a number that came out of thin air and the basis of that number was discussed earlier, so I will not repeat it.

Second, there probably would not really be $585 million after an accident, first because a judge would be setting aside a certain portion of that fund to pay for latent injuries and late arising claims, and the second reason would be because the claims expenses, the cost of settlement and defending claims would all be taken out of that fund. So even though it looks like there might be $585 million of protection for the public, that would not be the case.

EXTRAORDINARY NUCLEAR OCCURRENCE

Third is that the ENO threshold is totally meaningless and the waivers of defense provisions are relatively superfluous. What we find is that in the event of a major nuclear accident, just about any State, if not every State, would hold the operators of that plant