As a whole then, the Act makes available up to five hundred sixty million dollars to compensate the public for each covered event, and limits liability to that amount.

Public protection comes from more than simple assurance that funds will be available. The Act provides for specific and effective procedures to assure prompt and equitable payment of claims, under court supervision if necessary. A 1966 amendment to the Act provided that, on motion of the Commission or any defendant, all damage claims may be transferred to a single federal district court. That court is empowered to consider comprehensive plans for a fair distribution of the available funds submitted by the Commission or any interested person. Moreover emergency assistance payments may be made immediately following a nuclear accident.

In addition, the 1966 amendment required that the indemnity contracts and the private insurance policies must provide that in cases of an "extraordinary nuclear occurrence"-which the Commission has defined in implementing regulations as any offsite radiation causing significant injury to persons or property-the defendants waive the potentially important defenses of lack of negligence, assumption of risk, contributory negligence, any short statute of limitations bar, and charitable or governmental immunity. Each of these defenses might otherwise be raised against a claimant. The practical effect of this “waiver of defenses” feature is to provide the public with “no fault” insurance for such a nuclear accident, should one occur. All a claimant need show is the fact of injury and a causal relationship between the injury and the licensed activity.

The amendment makes special provision for the possibility of latent injuries which might not manifest themselves for several years. Claims may be filed in court as late as ten years after an accident, and the court must set aside an appropriate amount to compensate any latent injury claimants. The net effect of these public protection features is prompt and certain payment of claims.

When the Price-Anderson Act was initially adopted and when it was extended in 1965, the government's involvement as an indemnitor was seen as a temporary necessity, eventually to be terminated without reducing the protection accorded the public. The industry was ultimately expected to make independent insurance arrangements to cover the risks of its operation. The Nuclear Regulatory Commission supports the present bill as effective legislation toward accomplishment of that objective.

The current proposal would substitute, on a phased basis, a private mechanism of liability coverage for the present governmental guarantee. In addition, the proposed legislation would permit raising the limit on liability as more nuclear facilities are licensed. At first, the bill would establish a three-tier system of financial protection for commercial nuclear reactors in place of the present twotier system. The first tier would be provided, as now, by private insurance pools. These pools now supply $125 million in coverage, $65 million more than the $60 million first provided when Price-Anderson was enacted.

The second tier of coverage would also operate primarily through the private pools, but would be based on the concept of a deferred retrospective premium. The bill would direct the Commission to establish a premium between $2 and $5 million for each licensed facility. This premium would be payable by the licensees to the insurance company pools, but only whenever an accident caused damage not covered by the first protection tier. In that event, the pools would collect the premium, or the portion of it necessary to compensate for damage, from each facility. A representative of the insurance pools testified before this committee last year that if some of the licensees were unable to make the necessary payments when called upon, the pools expect to be able to assume responsibility for a reasonable amount of such defaulted premiums themselves. So long as reactor experience remains good, he said, the pools expect initially to be able to absorb some $30 million of any such losses, with increases possible over time. We are sure an appropriate amount can be agreed upon. The government would make up any remaining defaults, thus assuring financial protection for the public. The Commission would have power to establish regulations to help assure that funds are available from the licensees; and, if required to supply funds at this second stage, the government would have certain remedies, such as liens, against the defaulter.

So long as the combined funds available under the first two tiers are less than $560 million, the third tier, government indemnity as we have known it for 20

years, would provide the remainder, still subject to the same absolute dollar limit on liability per accident. But as more facilities are licensed over time, this third tier would diminish and eventually disappear, following which the limit on liability per accident would be raised to the total amount available under the first two tiers.

This new system would apply to facilities covered under the present system as well as to those receiving construction permits after July 31, 1977. The efficacy of the proposed new system would be severely hampered if the older facilities could not be required to participate in it. Unless existing licensees are included, the second tier pool would begin at zero, so that much more time would have to elapse before the government's obligation would be phased out and the liability limit raised. But if existing licensees are included in the new system, the beginning second tier deferred premium would be at least $2 million times the number of such licenses, and possibly as much as $5 million times that number.

Some critics of the government indemnity feature of present Price-Anderson argue that the system should simply be allowed to expire. That course would serve neither the objective of eliminating the government's participation in nuclear accident insurance nor that of protecting the public. Expiration of present law will not alter the government's obligation as respects the up to 190 nuclear power projects which either are or might be covered by indemnity contracts executed under the present law before it expires. Those licensees will have what the courts have called "vested rights," which Congress may not abrogate consistent with the constitutional prohibition of taking property without just compensation. Most of these existing agreements extend over a period of forty years, into the next century. Availability of public protection should not depend upon a largely fortuitous event-licensing of a plant before or after July 31, 1977.

The primary defect of this alternative, however, is its failure to afford the public either a secure source of funds or a firm basis for legal liability with respect to new plants. While in theory no legal limit would be placed on liability, as a practical matter the public would be less assured of obtaining compensation than under Price-Anderson. Establishing liability would depend in each case on state tort law and procedures, and these might or might not provide for no-fault liability, let alone the multiple other protections now embodied in Price-Anderson. The present assurance of prompt and equitable compensation under a pre-structured and nationally applicable protective system would give way to uncertainties, variations and potentially lengthy delays in recovery. It should be emphasized, moreover, that it is collecting a judgment, not filing a lawsuit, that counts. Even if defenses are waived under state law, a defendant with theoretically "unlimited" liability may be unable to pay a judgment once obtained. When the defendant's assets are exhausted by earlier judgments, subsequent claimants would be left with uncollectable awards. The prospect of inequitable distribution would produce a race to the courthouse door in contrast to the present system of assured orderly and equitable compensation. Moreover, to the extent that "uncovered" liability-liability not covered by equitable cost allocation of the PriceAnderson nature must be absorbed by an individual utility, the result can impact on its consumers through impaired service or added economic burdens. Factors such as these led the independent study conducted by Columbia University's Legislative Drafting and Research Fund to its firm conclusion that the alternative of expiration simply fails to meet the criterion of efficient and equitable cost allocation. Issues of Financial Protection in Nuclear Activities (The Legislative Drafting Research Fund of Columbia University, 1973), at 3-1 through 3-13, reproduced in Selected Materials On Atomic Energy Indemnity And Insurance Legislation (Joint Committee on Atomic Energy, 1974), at 98-110.

The proposed system makes three important advances toward the twin goals of increased public protection and termination of the government's idemnity role. First, it maintains as a minimum the level of protection now available. At least $560 million will continue to be available per accident. Furthermore, the Congress has previously expressed its intention, and we urge it to do so once again, to consider making additional public funds available in the extremely unlikely event of an accident causing damage in excess of the liability limit. Second, the proposed system will immediately diminish and eventually eliminate the government's commitment to indemnify. When this legislation takes effect. the Commission will fix, but not collect, retrospective premiums for the operating facilities, currently estimated to be 74 at that time. Even the minimum

premium allowed by the bill, of $2 million per facility, when added to the privately available $125 million, brings the combined first- and second-tier total to $273 million. That figure will increase, with a corresponding decrease in the government's obligation, as new facilities come within the system or if the Com. mission assesses a greater fee. For example, a $5 million premium, the maximum allowable, would create an imediate first- and second-tier total of $495 million. Furthermore, the bill authorizes the Commission to alter the amount of the retrospective premium in the future if the Commission, following appropriate Administrative Procedure Act procedures, deems such a change desirable.

Finally, the proposed system contemplates raising the present ceiling on liability without government obligation. After the total funds available under tiers one and two exceed $560 million, tier three ceases to exist and the liability limit will increase in an amount equal to that excess, thus providing greater public protection than has been available heretofore.

It bears repeating that these twin features, increased financial resources for public compensation and elimination of government financial obligation, would apply not only to power reactors for which construction permits are issued after August 1, 1977, but also to all the reactors which are or will become entitled to the insurance-indemnity protection offered under present law. By contrast, present law not only provides less protection to the public, but also requires the government to act as indemnitor to a much greater extent.

The Commission recognizes that under this bill both the goal of increasing public protection and that of terminating the government's obligation to indemnify will be effected in a phased manner. We believe, however, that the bill will achieve those desirable results over a reasonable period of time, and in a manner which assures continuous financial protection to the public. At the same time, it preserves the important procedural protections of the present Act.

A question has been raised regarding adequate compensation to the public for damages which could arise from possible diversion of nuclear materials. When last year's bill was under consideration, Senator Ribicoff introduced an amendment designed to provide Price-Anderson coverage in such situations. Although the amendment was adopted in the Senate, it was deleted by the Conference Committee, which stated its expectation that the Atomic Energy Commission would study and report on the problem. As successor to the Atomic Energy Commission's responsibility for administering the Price-Anderson system for licensed activities, the Nuclear Regulatory Commission prepared a staff study of the problem, which I forwarded to this Committee in June,

The report found that the present law, as implemented in the insurance and indemnity agreements, would cover damage caused by illegal acts on-site, including acts in the course of transportation over a planned route. The report also found, however, that the present system would not cover damages that might flow from successful diversion of nuclear material, where the damages emanated from an off-site location. As the staff report explained, the Ribicoff amendment would have broadened present coverage to include damage after a successful diversion, but only if the material involved could be traced to a particular covered licensee.

We believe that the public ought to be protected in appropriate fashion from the risks posed by the possibility of a nuclear diversion. As the staff study explained, however, there are a number of possible approaches to the problem. For several reasons, we do not believe that the Congress should address that issue as part of its consideration of the present bill.

A basic question underlying resolution of the diversion-public compensation problem is where to place the cost. As our staff study pointed out, although it is reasonable to expect a matured private industry to assume the risks of accidents in the normal course of its operations, it may not be reasonable to require the industry to bear the burden of loss due to illegal acts of sabotage and theft. Indeed, traditional tort law does not impose liability on an individual or business if damage was caused by the illegal act of third party. The possible unreasonableness of placing the entire burden on the industry is heightened if the circumstances of the incident are such that the diverted material cannot be traced to an industry source.

Related to the question of cost allocation is the question whether basic safeguards functions should be performed, as now, by private industry, or directly by the government. If the government is to perform these functions, then it may be reasonable that the government assume at least some of the risks of loss should it fail to prevent a diversion. We believe that the ongoing Congressional

mandated study of a federal safeguards force will present important information on this question. That study, however, though well under way, will not be completed before next January, and the Congress would need time thereafter for careful consideration of its recommendations. In contrast, we strongly believe that the present session of Congress can and should act on the pending bill, We are of the view, in summary, that the safeguards matter is more properly dealt with as a separate question. Extension of Price-Anderson would, of course, be one part of the background relevant to such later Congressional consideration.

In conclusion, as the Commission will recall, Congress' approval of last year's bill occurred shortly after the draft version of an exhaustive study of reactor safety, "An Assessment of Accident Risks in the U.S. Commercial Nuclear Power Plants," commonly known as the Rasmussen Report, became available. We expect that the final report of this study will be available in late October. To maintain the study's independence, the Commissioners have not been directing its conduct or the preparation of the report. What we have been advised about the report's progress suggests no reason to delay extension of the Price-Anderson system. If the committee wishes, we would be pleased to submit supplemental testimony after we have had time to study it. We expect to be able to express our views in November.

Senator MONTOYA. The next witness will be Robert Fri, Deputy Administrator. Energy Research and Development Administration. Do you wish to read your entire testimony or submit it for the record. Mr. Fri?

STATEMENT OF HON. ROBERT FRI, DEPUTY ADMINISTRATOR, ACCOMPANIED BY HUDSON RAGAN, ACTING GENERAL COUNSEL, ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION

Mr. FRI. I have a relatively short statement, Mr. Chairman. I think, perhaps, I could read most of it. Let me try to go through it quickly and submit the balance of it for the record. There are a few points that I want to make that are somewhat different from the points that have been made earlier today.

I have with me Mr. Hudson Ragan, our Acting General Counsel.

I am pleased to have the opportunity to appear before the Joint Committee today to present ERDA's views with respect to the committee's consideration of extension of the Price-Anderson Act.

Up to this point, Mr. Chairman, Price-Anderson indemnity has been discussed by other witnesses primarily in the context of licensing activities. However, as the committee is aware, the Price-Anderson indemnity also plays a very important part in contracting and operating activities of the Engery Research and Development Administration. The Atomic Energy Commission, a predecessor agency to ERDA, from its inception, carried out a major portion of its operational activities by means of contractual arrangements with industrial organizations and educational institutions. This continues to be the situation with ERDA.

Many of these contractual arrangements are on an allowable cost basis under which, with very limited exceptions, ERDA assumes the financial risk of any liabilities which may result from such activities.

Prior to the enactment of Price-Anderson, the Atomic Energy Commission, in recognition of the significant financial risks in connection with such contractual activities, provided its contractors with limited indemnification for nuclear-type hazards. These arrangements, for the most part, were of necessity made subject to the availabity of appropriations and were specifically inapplicable in the case of gross neglig

ence, willfull misconduct, or bad faith of specified representatives of the contractor.

Further, the Atomic Energy Commission could not, due to a lack of any direct contractual relationship, enter into any form of indemnification arrangement with the many subcontractors and suppliers who provided the Atomic Energy Commission and its contractors with vital services and equipment related to the construction, operation, and maintenance of the Atomic Enegry Commission's facilities.

These subcontractors, under the theory of products liability, were potentially subject to significant financial risk, totally out of proportion to the relatively small dollar value of their subcontracts, and for which adequate insurance could not be obtained.

As a consequence, not only were these suppliers and subcontractors extremely reluctant to participate in contracts with the Atomic Energy Commission because of this potential liability exposure, but, more importantly, the general public could not be assured of adequate financial protection from damage that potentially might result from the Atomic Energy Commission's contractual activities.

Thus, the Congress, in considering indemnity legislation, believed it was extremely important that such legislation should be applicable not only to those participating in the civilian development of atomic energy under the license program, but also to those organizations participating as Atomic Energy Commission contractors, subcontractors, and suppliers in the atomic energy programs with a commensurate broad scope of protection for the public.

It was for these reasons that the Congress included section 170 (d) in the original Price-Anderson legislation.

Those reasons are still valid. In implementing the discretionary authority to indemnify certain contractors under Price-Anderson, the Atomic Energy Commission generally gave contractual indemnities to its contractors for construction or operation of production and utilization facilities and other activities under risk of a substantial nuclear incident.

This contractual indemnity protection is one with which the contractor community is familiar, is comfortable with, and which has a proven track record for encouraging participation by industry in the Atomic Energy Commission, and new ERDA, contract activities.

Commensurate with the basic implementing objective that the full protection of the Price-Anderson Act should be extended to eligible contractors, the AEC-ERDA contractual indemnity agreements provide liability coverage to contractors for any nuclear incident, no matter what the cause, that arises out of or in connection with the contractual activity and occurs at a contract location, or in transit to or from a contract location.

Coverage is also extended to contracts and joint projects with other agencies of the Government.

Senator MONTOYA. Are you speaking of the prelicensing period? Mr. FRI. No. I am talking about the contractors who operate ERDA facilities; for example, Richland and Idaho Falls where we have operating production or testing reactor as well as other contractors performing certain types of work for ERDA.

Senator MONTOYA. How many of those do you have?

Mr. FRI. There are 86 contractors so indemnified.

Senator MONTOYA. How many outside the United States?