The Price-Anderson Act, originally enacted by Congress in 1957, limits the liability of the nuclear industry in the event of a nuclear accident in the United States. At the dawn of the nuclear industry in the USA, no private insurance company willingly underwrote a nuclear power plant fully. The lack of financial security would have hindered the development of the nuclear industry. The federal government intervened with this amendment to the 1946 Atomic Energy Act (AEA).
The main purpose of the Price-Anderson Act is to ensure the availability of a large pool of funds (currently about $10 billion) to provide prompt and orderly compensation of members of the public who incur damages from a nuclear or radiological incident no matter who might be liable. The Act provides "omnibus" coverage, that is, the same protection available for a covered licensee or contractor extends through indemnification to any persons who may be legally liable, regardless of their identity or relationship to the licensed activity. Because the Act channels the obligation to pay compensation for damages, a claimant need not sue several parties but can bring its claim to the licensee or contractor.
The Price-Anderson Act requires Nuclear Regulatory Commission licensees and Department of Energy contractors to enter into agreements of indemnification to cover personal injury and property damage to those harmed by a nuclear or radiological incident, including the costs of incident response or precautionary evacuation and the costs of investigating and defending claims and settling suits for such damages. The scope of the Act includes nuclear incidents in the course of the operation of power reactors; test and research reactors; Department of Energy nuclear and radiological facilities; and transportation of nuclear fuel to and from a covered facility.
Extensions to the original Act
The Price-Anderson Act originally limited liability for any single nuclear accident to $500 million in government funds, plus the maximum liability insurance available in the private market—at that time, $60 million—for $560 million total. Congress has extended the act several times, making significant alterations.
The 1967 Revision. Congress extended the Price-Anderson Act for 10 years in 1967. A new provision introduced the concept of “extraordinary nuclear occurrence,” which it defined as an accident that would probably cause substantial damage to citizens or property off the plant site because of radioactive contamination. The NRC is responsible for making such a determination.
The declaration waives most normal defenses to tort liability. Anyone who makes a claim need only show 1) bodily injury or property damage, 2) the amount of monetary loss and 3) that the injury to persons or property and resulting loss were caused by the release of radioactivity due to the accident. Essentially, this is a no-fault insurance program. To date, there has been no such declaration.
The 1975 Revision. Congress extended the act for another 10 years in 1975, the year it established the two-tiered system now in effect. First-level coverage consisted of the liability insurance provided by two private insurance pools—then $125 million. Second-level coverage now would mandate a $5 million maximum assessment per reactor for each major accident, with a maximum of two accidents per plant per year. The federal government agreed to make up any difference between the amount of protection provided by the first two levels and the $560 million limit.
Effective May 1, 1979, first-level coverage reached $160 million. Secondary coverage reached $400 million when the United States licensed its 80th commercial power reactor in 1982. Combined, the two levels now totaled $560 million, reaching the threshold stipulated in the Price-Anderson Act at which the federal government would phase out its indemnity role.
The 1988 Revision. Congress extended the Price-Anderson Act for 15 years in 1988 and raised second-level coverage from $5 million to $66.2 million, plus adjustments for inflation at five-year intervals. It also increased first-level coverage to $200 million.
The 1988 revision set a per-reactor assessment limit, but it also included a provision stipulating that—if this limit is reached—Congress would determine whether additional compensation should be awarded, and who should provide the compensation. It also provided coverage for a precautionary evacuation in the event of an accident that posed an imminent danger to people or property around a plant site.
In August 1998, the maximum retrospective assessment was adjusted again for inflation and increased to $88.1 million per reactor. These assessments would be prorated and would not exceed $10 million per reactor per year.
2003: Congress Fails to Renew. Congress required the NRC to submit a report four years before the expiration of the act in 2002. The report, duly submitted in September 1998, described the public benefits of Price-Anderson. It also recommended that the act be extended for an additional 10 years. DOE submitted a report to Congress in March 1999, also recommending renewal of the act. Congress passed a 10-month extension of the act in February 2003 but failed to renew the measure by year’s end, although it did pass a similar measure extending coverage to DOE facilities through Dec. 31, 2006.
Energy Policy Act of 2005. The Energy Policy Act of 2005 reinstated and extended the Price-Anderson Act for another 20 years—the longest extension Congress has ever granted—with strong bipartisan support. The Act requires individual operators to be responsible for two layers of insurance cover. The first layer requires each nuclear site to purchase US$ 300 million cover from private insurers. The second layer is jointly provided by all US reactor operators. It is funded through retrospective payments, if required, of up to $96 million per reactor collected in annual installments of $15 million (and adjusted for inflation). Combined, the total provision comes to over $10 billion paid by the utilities. The DOE also provides $10 billion for its nuclear activities. Beyond this cover and irrespective of fault, Congress, as insurer of last resort, must decide how compensation is provided in the event of a major accident.
Payouts under the Act
More than $200 million has been paid in claims and costs of litigation since the Price-Anderson Act came into effect, all of it funded by the insurance pools. Of this amount, some $71 million went towards litigation costs following the 1979 accident at Three Mile Island, Pennsylvania.
In 1973, a group of plaintiffs challenged the Act’s liability limit. The Carolina Environmental Study Group, the Catawba Central Labor Union and 40 individuals brought a suit against Duke Power Co., which was building nuclear power plants in North and South Carolina. The plaintiffs, who lived near the plants under construction, sought a declaration that the Price-Anderson Act was unconstitutional.
The U.S. District Court for the Western District of North Carolina ruled in favor of the plaintiffs. Duke Power Co. appealed the decision to the U.S. Supreme Court. In June 1978, the Supreme Court upheld the constitutionality of the act. In an opinion written by Chief Justice Warren Burger, the court held that because the liability limit was created to encourage private-sector construction of nuclear power plants, it was neither arbitrary nor irrational.
Benefits of the Act
Supporters of the Act argue that it is a consumer- and public-oriented legislation. It provides a substantial amount of insurance protection paid by the commercial sector at no cost to the public or the government. The Act has removed the deterrent to private sector participation in nuclear activities presented by the threat of potential liability claims following a large accident.
By providing omnibus coverage, those who may be harmed are assured of the availability of funds to pay their claims, and firms that contribute in some manner to the design, construction, operation or maintenance of covered licensees are all protected. Many of these companies, support services and equipment suppliers likely would not have participated in the nuclear industry without some liability limitation.
Although the Act limits the total liability, it should be remembered that the right to file a lawsuit does not automatically mean the right to collect. Even if a claimant were to win a lawsuit, a utility or other defendant may be unable to pay a judgment. When a defendant's assets are exhausted, subsequent claimants would be left with uncollected awards. The Act provides for orderly and equitable compensation.
The Price-Anderson Act motivated the private insurance industry to develop a means by which nuclear power plant operators could meet their financial protection responsibilities. Pooling provides a way to secure large amounts of insurance capacity by spreading the risks over a large number of insurance companies. The American Nuclear Insurers (ANI), which currently writes all nuclear liability policies, retains about one third of the liability exposure under each policy and cedes the remaining two thirds to insurers around the world. This approach allows ANI to marshal the resources of the worldwide insurance community and spread the uncertainties of the risk over a large financial base. The Act has enabled insurers to provide stable, high quality coverage for nuclear risks.
In the 43 years of Price-Anderson protection, the nuclear insurance pools have paid a total of $151 million for claims. The Department of Energy has paid about $65 million during this same period.
Supporters also note that that the federal government provides similar insurance mechanisms for other types of disasters, such as floods; agricultural disasters; banks and savings and loan company failures; home mortgages; and maritime accidents. Liability limits also exist for oil spills; bankruptcy; worker's compensation; and medical malpractice.
The Three Mile Island accident
Supporters suggest that the Three Mile Island accident on March 28, 1979 provides a good example of how the Price- Anderson Act provisions work. Representatives of the insurance pools arrived in Harrisburg, Pa, the day after the accident and a local office was established on March 31. Advertisements were placed in local newspapers. The insurance paid for the living expenses of families who decided to evacuate, although evacuation was not ordered. On the first day of operations, the office made payments of almost $12,000. By April 2, the pools had advanced funds to 2400 persons. The payments increased daily and reached a per day peak of $167,286 on April 9. A total of about $1.2 million in evacuation claims were paid to 3170 claimants. The pools also paid over $92,000 in lost wage claims to 636 individuals.
Following the TMI-2 accident, numerous lawsuits were filed in State and Federal courts in Pennsylvania, alleging various injuries and property damages. These suits were consolidated into one suit before the Federal District Court in Harrisburg. In September 1981, a settlement agreement was signed, under which the insurance pools paid into a court-managed fund $20 million for economic harm to businesses and individuals within 25 miles of the plant and $5 million for the establishment of a public health fund in the area.
Although no health damages from the accident were substantiated, payments to more people took place in the following years amounting to a total of more than $70 million through 1997 ($42 million in indemnity settlements and $28 million in expenses). Payments were all from the primary insurance coverage and funds from the secondary insurance were not needed.
Opposition to the Act
Opponents argue that the Act represents a massive taxpayer subsidy of the nuclear industry that substantially reduces the cost of doing business. Some opponents claim that without the cap on liability damages, the industry could not survive.
Opponents note that the legislation was initially intended to provide investor confidence in what was viewed as a new and risky industry. But this is now a mature industry that should be fully accountable for nuclear accidents and should purchase risk insurance on the private market. However, over 40 years later, this mature industry still enjoys a subsidy that skews the true cost of nuclear power and potentially leaves taxpayers on the hook for damages from a severe nuclear accident.
A number of studies suggest that the Act does represent a substantial subsidy to the nuclear industry. A 1992 analysis of energy subsidies by the U.S. Department of Energy, Federal Energy Subsidies: Direct and Indirect Interventions in Energy Markets, describes Price- Anderson as, “A Federal regulation that continues to have a cost-reducing effect on the nuclear power industry.” According to the DOE analysis, conducted by the Energy Information Administration (EIA):
These [liability] limits provide a subsidy to the nuclear industry to the degree private insurance premiums paid by operators of individual plants are reduced. In a 1983 study, the NRC concluded that the liability limits were sufficiently significant to constitute a subsidy. However, a quantification of the amount of the subsidy was not attempted. At issue are the probability distributions for various kinds of accidents and valuations of the consequences of accidents, all done on a plant-by-plant basis. The amount of the subsidy would then be found by calculating the differential effect on the insurance premium of imposing the liability limits.
EIA determined that the subsidy to the nuclear power industry as a whole was valued at US$3.05 billion annually (US$1991).
- Nuclear Energy Institute Homepage.
- WNA paper on Civil Liability for Nuclear damage
- Nuclear Information and Resource Service. Price-Anderson Act: Unnecessary & Irresponsible.
- State of Nevada Nuclear Waste Project Office. Insurance Coverage for Nuclear Accidents: Price-Anderson Act Re-authorization.
- Taylor, Jerry and Nayak, Navin. 2003. "No Corporate Welfare for Nuclear Power." The Cato institute, June 21, 2003.