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amendments, to perfect the third, and voted 9 to 1 to report the bill favorably to the Senate.

II. HEARINGS

Public hearings on the possible modification or extension of the Price-Anderson Act were held on January 31, March 27 and 28, 1974, and hearings on H. R. 14408, S. 3254 and S. 3452 were held on May 9, 10, 14, 15, and 16, 1974. An informal planning committee, drawn from the Joint Committee staff, the Atomic Energy Commission, the legal profession, the commercial power and insurance industries, and public citizen groups, assisted the Committee and staff in regard to the scope of the hearings and potential witnesses.

The following witnesses from the Atomic Energy Commission appeared before the Joint Committee to present testimony or to assist in the development.of the record: Dr. Dixie Lee Ray, Chairman; William O. Doub, Commissioner, Marcus Rowden, General Counsel; L. Manning Muntzing, Director of Regulation; and Jerome Saltzman, Deputy Chief, Office of Antitrust and Indemnity, Directorate of Licensing.

Other non-governmental witnesses who appeared one or more times.

are:

Elmer Dee Anderson, Private Citizen, Valparaiso, Indiana.

Dr. W. H. Arnold, Jr., General Manager, PWR Systems Division, Westinghouse Electric Company.

George K. Bernstein, Federal Insurance Administrator, HUD.
Arthur C. Gehr, Atomic Industrial Forum.

Frank P. Grad, Director, Legislative Drafting Research Fund, Columbia University.

Harold P. Green, Professor of Law, National Law Center, George Washington University.

Gerald R. Hartman, Professor of Insurance and Risk, Temple University.

Joseph F. Hennessey, Bechhoefer, Snapp and Trippe, Washington, D.C.

Larry Hobart, Assistant General Manager, American Public Power Association.

Mrs. Judith H. Johnsrud, Central Pennsylvania Committee on Nuclear Power.

Dr. Chauncey Kepford, York, Pennsylvania, representing the Environmental Coalition on Nuclear Power.

Hubert H. Nexon, Senior Vice-President, Commonwealth Edison Company, representing Edison Electric Institute.

Norman C. Rasmussen, Department of Nuclear Engineering, Massachusetts Institute of Technology.

Charles A. Robinson, Jr., Corporate Counsel, National Rural Electric Cooperative Association.

Mrs. Laurie R. Rockett, Greenbaum, Wolff and Ernst, New York City, New York.

Ms. Ann Roosevelt, New York, on behalf of Friends of the Earth. Richard A. Schmalz, Hartford Insurance Group, representing Nuclear Electric Liability Insurance Association.

Chauncey Starr, Electric Power Research Institute.

Mark Swann, New Park, Pennsylvania.

Martin Victor, V. P. and Secretary, Babcock & Wilcox Company. Richard Walker, Partner, Arthur Andersen & Company.

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Bruce L. Welch, Director Environmental Studies, Friends Medical Science Research Center, Inc.

III. PROVISIONS OF CURRENT ACT

The Price-Anderson Act is incorporated in the Atomic Energy Act in Sections 2, 11, 53, and 170. Its major provisions are described below. The Atomic Energy Commission must require as a condition for certain licenses, including those for nuclear power plants, that the licensee maintain financial protection for payment of third party liability claims in the event of a nuclear accident, in the amount required by the Commission. The AEC may also at its discretion require the protection for its contractors and other types of licensees. For any power reactor with an electric capacity of 100 Mwe or more the Commission must require financial protection equal to the maximum available from private sources. Currently this is $110 million.

The Commission is also required to execute an indemnity agreement with its contractors and with each licensee required to maintain financial protection, agreeing to indemnify the licensee and any other parties liable for claims arising from a nuclear incident above the amount required, up to $500 million. The indemnity agreement extends for the life of the license (usually 40 years for power reactors). The aggregate liability for damages arising from a nuclear incident is limited to $560 million within the U.S. and $100 million plus the financial protection required of the licensee for incidents occurring outside the U.S. All vendors, architect-engineers, subcontractors, and other parties are protected from liability by the omnibus feature of the licensee insurance and the Government indemnity.

Non-profit educational institutions licensed to operate reactors are exempted from the financial protection requirement and are indemnified by the Commission for payment of claims exceeding $250,000, in an amount up to $500 million.

Damages to offsite property of the licensee are covered by the insurance and indemnity.

The Commission may require the inclusion in any insurance contract or other proof of financial protection and in its indemnity agreements of provisions waiving any defenses based upon conduct of the claimant or fault of the indemnified person, charitable or governmental immunity, or statutes of limitations which are shorter than a specified duration. The waivers apply in any instance where the Commission determines there has been an extraordinary nuclear occurrence, as defined by the Commission.

Provisions are also included for prompt payments to injured parties and for consolidation of all claims into a single Federal district court.

IV. STUDIES

Various groups have studied the problem of nuclear insurance and indemnity in the past year, and several reports and proposals were reviewed by the Atomic Energy Commission and the informal planning Committee headed by former AEC Commissioner James T. Ramey, serving as a consultant to the Joint Committee. The studies and proposals and related material are included in a Joint Committee Print of March 1974 entitled, "Selected Materials on Atomic Energy Indemnity and Insurance Legislation."

The major studies were those by the Atomic Energy Commission and by the Legislative Drafting Research Fund of Columbia University. The latter, an independent study, resulted in a report December 12, 1973, entitled "Major Issues of Financial Protection in Nuclear Activities". Among the proposals which are included in the Joint Committee print and which were discussed in the AEC and Columbia studies was a proposal by the nuclear liability insurance pools for a retrospective premium insurance plan. This plan, modified somewhat, became the basis of legislation submitted to the Congress by the Atomic Energy Commission, subsequently introduced by Chairman Price in the House as H.R. 14408, and by Vice Chairman Pastore in the Senate as S. 3452, and which was further modified by the Joint Committee into the bill now being reported.

Other proposals included a Commission staff study proposal for a contingent fee system, and proposals by former AEC General Counsel Joseph Hennessey, Professor Harold Green, and former Pennsylvania Insurance Commissioner Herbert S. Denenberg. These proposals are not discussed in this report, but can be found in the committee print described above, and were discussed during the hearings.

Senator Gravel's bill constituted an additional proposal which was considered in developing this legislation.

V. NEED FOR LEGISLATION

The Price-Anderson Act applies only to licenses issued prior to August, 1977. Nuclear power plants now in the planning and design. phases would not receive construction permits until about 1977-1978. Thus there is uncertainty as to whether these plants would receive protection in the form of Government indemnity. Reactor manufacturers and architect-engineers are already requiring escape clauses in their contracts to permit cancellation in the event some form of protection from unlimited potential liability is not provided. Action is required soon to prevent disruption in utility plans for nuclear power. The study by the Columbia University Legislative Drafting Research Fund examined the situation that would prevail if the Price-Anderson Act were to be allowed to expire. The study concluded that the resulting legal situation in the event of a nuclear incident would be chaotic. Injured parties would be subject to whatever tort law prevailed in the State in which the incident occurred or in which they suffered harm. There would be wide variation in the grounds for recovery, the standards of proof, and the defenses available to the defendants. Recovery would be uncertain and could be delayed for many years. The potential for unlimited liability might drive smaller manufacturers, architect-engineers, and component suppliers out of the nuclear business and could serve as a deterrent to entry by other firms. The report's conclusions were summarized as follows:

The primary defect of this alternative is its failure to afford adequate protection to the public in terms of providing either a secure source of funds or a firm basis of legal liability. While it does have the theoretical advantage of placing no legal limit on amount of protection available, as a practical matter, the public would be less assured of compensation than under the Price-Anderson Act. Adoption of this alternative would also,

for the reasons discussed in Chapters 3 and 4, tend to dis-
courage the participation of industry in the nuclear field. If
in other respects Congress adopts a policy of continued en-
couragement, inaction with respect to financial protection
will not advance, and will probably impede, this policy.

Assuming no significant change in the insurance patterns
of the industry, this alternative also fails to meet the cri-
terion of efficient and equitable cost allocation through risk
spreading. With the possible exception of the approximately
100 million dollars insured by the insurance pools, the entire
risk of an accident would fall, under the law of most states,
either on the victim who was barred from recovery by a
technical defense, failure of proof, or inability of the defend-
ant to pay a judgment, or on the particular utility involved
and possibly its contractors or suppliers, and on their con-
sumers. And the entire cost would arise after the accident
had occurred. This alternative thus makes use of little, if
any, intertemporal and, initially, virtually no interpersonal
spreading. Interpersonal spreading might be achieved later
as the companies held liable shifted the cost onto their con-
sumers. Although the allocation of liability to the industry
does appear to meet the third criterion of internalization, to
the extent that victims of an accident are unable to recover
from the industry, even this criterion is not met. Finally,
because of the potential problems plaintiffs may encounter
in seeking damages under state law, recovery is likely to
involve excessive time and expense. In sum, this alternative
meets only one of the four basic criteria, that of internal-
ization of costs, and meets that only in part.

The Joint Committee has received numerous letters from companies and organizations in the nuclear industry, urging extension of the Price-Anderson Act in its present or a modified form. These letters as well as testimony at the hearings have stressed the importance of the Act in removing a deterrent to development of the nuclear industry, and the need for prompt action to clarify the situation that will prevail after 1977.

VI. DISCUSSION OF BILL

The bill provides for a ten-year extension of the Price-Anderson Act and for three major changes-(1) phase out of Government indemnity, (2) increase in limit of liability and (3) extension of indemnity coverage outside the territorial limits of the United States for certain limited activities.

The details of the bill are described below.

A. PHASEOUT OF GOVERNMENT INDEMNITY

Deferred Premium System

The bill provides specific authorization for the commission to establish by rule, regulation or order the terms and conditions of the financial protection required of nuclear licensees. AEC is directed, under this authority, to require participation, by licensees who are

required to maintain the maximum amount of financial protection, in an insurance retrospective rating plan whereby in the event of a nuclear incident resulting in damages exceeding the base layer of insurance, each licensee would be assessed a deferred premium which would be a prorated share of the excess damages. A maximum amount would be established which the retrospective premiums for each facility could not exceed. If, for instance, at some time in the future, a maximum level of $3 million per reactor were set and a total of 100 reactors had been licensed up to that time, then $300 million would be available at that time to provide for payment of damages in this secondary layer over and above the base insurance. As more reactors were licensed, the secondary layer would increase proportionately. The Commission will set the maximum premium by rule.

The Commission would continue to provide indemnity for payment of damages exceeding the combined primary and secondary layers, up to a total of $560 million. As the secondary layer increased, it would gradually phase out the government indemnity. The date at which this would occur would depend on the amount set as the maximum premium and on the rate at which reactors were licensed. The tables in the appendix to this report illustrate how this phase out would occur for various premium levels.

The Joint Committee expects the Commission to require present licensees to enter into the retrospective premium plan under its authority to establish the maximum financial protection required. The committee believes that this authority is sufficient to require the participation of such licensees in the plan. Exclusion of these licensees would result in confusion and would delay the date at which Government indemnity can be eliminated.

The Joint Committee has from the time of the inception of the PriceAnderson Act endorsed the concept of the assumption by the nuclear industry of the risks associated with nuclear incidents. The industry in its early stages of development, however, was not capable of assuming this unique risk, which has generally been considered to have extremely low probability but potentially large consequences. While the probabilities of severe nuclear accidents appear now to have been over estimated, the industry is just now reaching the point where the government's role can be phased out without the possibility of unduly disrupting the industry's development or of leaving the public with inadequate provision for relief from the highly improbable severe nuclear incident which the Act is designed to protect against. The Commission's proposal as embodied in the Joint Committee bill is considered the most expeditious means for the transfer of responsibility. An abrupt termination of Government protection is not considered appropriate at this time, in light of the still relatively small number of nuclear reactors now licensed.

Premium Amounts

The Joint Committee desires that the Government indemnity be phased out as soon as is reasonably feasible. Consequently, the bill provides that the Commission must set the level of the standard maximum deferred premium at no less than $2 million per facility. The bill also establishes an upper level for the premium of $5 million per facility. This limitation was considered necessary to assure that smaller utilities are not hampered in efforts to raise capital by a too

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