Congress Considers Renewing Price-Anderson Act
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| This is a great fact sheet about the Price-Anderson Act, which Congress is now considering for renewal. |
PRICE-ANDERSON ACT
SPECIAL SUBSIDIES AND PROTECTIONS FOR THE NUCLEAR INDUSTRY
by Jill Lancelot
WHAT IS THE PRICE-ANDERSON ACT?
Originally enacted by Congress in 1957, the Price-Anderson Act is a federal law designed to shield the nuclear industry from full accountability for its actions. In the event of an accident the industry’s liability is dramatically limited. No other industry receives this type of protection.
HISTORY OF THE PRICE-ANDERSON ACT
Nuclear energy was first developed and used in the atomic weapons of World War II. After the war, Congress enacted the Atomic Energy Act of 1946, which established a federal government monopoly over all nuclear materials.
Stemming from President Eisenhower’s Atoms for Peace program, Congress passed the Atomic Energy Act of 1954 which included provisions that eliminated past restrictions and encouraged the commercial development of nuclear energy by private industry.
Nuclear powered electricity was thought to be a cheap and abundant new energy source but it became apparent that serious disincentives to private investment would impede the development of the nuclear power industry. The potential for a catastrophic accident that could have enormous financial impacts made companies unwilling to expose their assets and discouraged private insurance companies from underwriting the industry.
A vice-president from General Electric echoed the fears of the entire industry in testimony before Congress when he stated that his company would not build nuclear power plants unless they could be protected from full liability in the event of an accident.
In order to get this fledgling nuclear industry off the ground the Price-Anderson Act was passed by Congress in 1957 as a temporary, ten-year program.
Since its enactment, the Price-Anderson Act has been extended on three separate occasions. What was once portrayed as a “temporary” solution, now forty-four years later, has become a permanent crutch for the nuclear industry.
PRICE-ANDERSON ACT CURRENT STATUS
The Price-Anderson Act is set to expire on August 1, 2002. With the expiration of this legislation, existing reactors will continue to be covered under the Act. Price Anderson currently limits the nuclear industry’s liability at $9.43 billion.
Each utility is required to carry $200 million of liability insurance per reactor. If claims following an accident exceed that amount, all reactor operators must contribute up to $83.9 million per reactor. Currently, there are 103 operating nuclear reactors in the United States.
THE SPECIAL INDUSTRY PROTECTIONS IN THE PRICE-ANDERSON ACT
No other industry has ever been so thoroughly insulated from financial risks. Businesses that engage in activities with high liability risks are required to be held financially responsible for their actions. This is the market’s method of regulating hazardous enterprises. If the private insurance industry - the professional risk assessors-refuses to insure an activity, or requires 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 not only provided an enormous subsidy to the nuclear industry, but a unique protection as well.
The value of the subsidy has a range of estimates. The low range estimate of $3.45 million (2001 dollars) per reactor per year is cited in a report from the University of London, England authored by A. Heyes and C. Liston-Heyes entitled Liability Capping and Financial Subsidy in North American Nuclear Power; Some Financial Results based on Insurance Data. A high range estimate is $33 million (2001 dollars) per reactor per year according to a report by J.A. Dubin and G. S. Rothwell entitled Subsidy to Nuclear Power Through Price Anderson Liability Limit. With 103 currently operating plants, this is a total annual subsidy of $355 million to $3.4 billion.
Limit on Liability
The Price-Anderson Act limits the financial responsibility of the nuclear industry. Limiting the liability creates an inherent subsidy by relieving the nuclear industry of the costs of fully insuring against the risk of an accident. All other industries insure to a reasonable limit against potential liabilities and risk loss of assets if the insurance is inadequate. The cost of this insurance is a normal cost of doing business, which is then reflected in the price of the product or service provided. 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 if the hidden costs were internalized. The cost of any product or service should reflect the true costs of doing business.
Furthermore, although the Act is deliberately vague about who would pay in the event of an accident, it is highly likely that Congress would vote to help compensate victims. This raises a question: why should American taxpayers be forced to assume financial responsibility for the mistakes of private industry. The use of public money to protect the assets of the nuclear industry is inappropriate.
The time has come to shift the liability burden from the taxpayers to the nuclear industry where it belongs.
Department of Energy (DOE) Contractor Indemnification
The Price-Anderson Act also established a system of financial protection for DOE contractors, which apply regardless of the conduct of the person indemnified. Even in the event of a nuclear accident caused by gross negligence or intentional misconduct, these companies are entirely shielded from any financial accountability. Prior to the 1988 amendments to the Act, DOE had discretion to enter indemnification agreements with its contractors. However, the 1988 amendments made the indemnification mandatory.
DOE indemnification covers activities relating to a repository for civilian nuclear spent fuel including the transportation, storage or disposal of nuclear waste. Price-Anderson also covers any nuclear incident in the U.S. during the transport of nuclear material, including evacuation. Further, DOE indemnification also covers any incident regarding any cleanup activity at a DOE site cleanup which include the nuclear weapons sites.
These DOE contractors are indemnified up to a total of $9.43 billion by the federal government. This means that if there is an accident caused by any DOE contractor it is the taxpayers that will pay any damages. By removing this element of financial responsibility, a crucial incentive for contractor safety and accountability is lost. Taxpayers should not have to bear the costs of unsafe practices and activities.
Designers, builders and suppliers indemnified
The Price-Anderson Act places the limited burden of accident liability on the utilities, while exempting the designers, manufacturers and component suppliers. According to the investigations following the Three Mile Island nuclear reactor accident, both the manufacturer of the plant (Babcock and Wilcox) and the utility that operated the plant were at fault.
Non-profit institutions exemptions
The 1988 amendments to the Price-Anderson Act enabled DOE to assess civil fines and penalties against its contractors, but it specifically exempted DOE nonprofit contractors as well as their for-profit and nonprofit subcontractors and suppliers. According to a March 1999 U.S. Department of Energy Report to Congress on the Price-Anderson Act, the contractors currently exempt are: University of Chicago for activities at Argonne National Laboratory; University of California for activities at Los Alamos National Laboratory, Lawrence Livermore National Laboratory and Lawrence Berkeley National Laboratory; Universities Research Association, Inc. for activities at FERMI National Laboratory; Princeton University for activities at Princeton Plasma Physics Laboratory; and Battelle Memorial Institute for activities at Pacific Northwest Laboratory.
Conclusion
The Price-Anderson Act accomplished its purpose of removing the impediments to the private development of nuclear power. After forty-four years, this extraordinary protection of the industry is not necessary and should not exist. Reauthorizing this legislation will allow continued government interference in the free market, distorting the economics of nuclear power by hiding its true costs.
The federal government should not be in the business of picking winners and losers. Such decisions should be left to the marketplace. Nevertheless, recently Vice President Cheney stated, “We want to encourage investment in nuclear energy and to do that we must renew the Price-Anderson Act.” This statement alone demonstrates a lack of faith that the nuclear industry can stand on its own.
The Price-Anderson Act should be allowed to expire and not reauthorized. Existing reactors would still be covered, but new reactors would have to openly compete in the market in terms of their costs, benefits and risks. It is time that Congress allows the nuclear industry to be fully accountable for its actions.
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Jill Lancelot is Legislative Director of Taxpayers for Common Sense.
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