Before the

Senate Environment and Public Works Committee

Subcommittee on Transportation, Infrastructure and Nuclear Safety

United States Senate

January 23, 2002

Chairman Reid, ranking member Inhofe and distinguished members of the subcommittee, I am Marvin Fertel, senior vice president of the Nuclear Energy Institute. I am pleased to have this opportunity to testify regarding the renewal of the Price-Anderson Act.

The Nuclear Energy Institute coordinates public policy on issues affecting the nuclear energy industry, including federal regulations that help ensure the safety of the 103 commercial nuclear power plants operating in 31 states. NEI represents nearly 275 companies, including every U.S. utility licensed to operate a commercial nuclear reactor, their suppliers, fuel fabrication facilities, architectural and engineering firms, labor and law firms, radiopharmaceutical companies, research laboratories, universities and international nuclear organizations.

For 45 years, the Price-Anderson Act has been a proven framework for providing the most effective third-party liability protection in the world. Given this proven record, Congress should renew it indefinitely. The industry supports renewing the Act without changing current processes applicable to commercial nuclear power plants. The industry also supports adding a provision to the law that would address new smaller, highly efficient modular reactors under consideration to meet the growing energy needs of the United States.

Even with indefinite renewal, Congress can, at any time, reopen the law if modifications are needed. In addition, Congress can request updates on the status of Price-Anderson Act implementation from the Nuclear Regulatory Commission in order to provide a basis for change if necessary.

The Price-Anderson Act ensures the availability of more than $9.5 billion to appropriately compensate members of the public as the result of a nuclear incident. It establishes a simplified claims process for the public to expedite the filing of claims and provides immediate reimbursement for costs associated with evacuation that may be ordered near nuclear facilities.

Congress Should Renew Price-Anderson Act Indefinitely

The industry recommends an indefinite renewal of the Price-Anderson Act. If in the future Congress wants to reconsider and amend the law it can do so at any time. The industry encourages Congress to hold periodic oversight hearings on the Act, and, if required, modify the law accordingly.

The industry believes that the retrospective maximum annual payment requirement should remain at $10 million per nuclear plant (or more than $1 billion in aggregate). In 1998, the NRC recommended that the retrospective premium be increased to $20 million, based in part on the assumption that 25 nuclear plants would close without relicensing, and that the money available annually to pay for third-party liability claims would decrease as a result. However, most, if not all, nuclear plants are expected to pursue relicensing. NRC Chairman Richard Meserve, in a May 11, 2001 letter to members of Congress, retracted the 1998 recommendation based on the number of plants seeking license renewal. To date, eight U.S. reactors have renewed their licenses and 14 are in the NRC’s license renewal queue. Given this change in the marketplace, the NRC no longer believes that the increase in the retrospective premium to $20 million is necessary.

Price-Anderson Act Proven Effective Over 45 Years

The Price-Anderson Act of 1957, signed into law as an amendment to the Atomic Energy Act, provides for payment of public liability claims related to any nuclear incident. In its 1998 report to Congress, the Nuclear Regulatory Commission said that the Price-Anderson Act has “proven to be a remarkably successful piece of legislation” that has grown in depth of coverage and that proved its viability in the aftermath of the Three Mile Island accident.

Since the inception of the Price-Anderson Act, the law has been extended three times for successive 10-year periods, and in 1988 it was extended for 15 years. Unless Congress renews the Price-Anderson Act, it will expire on August 1, 2002.

The Price-Anderson Act is a proven law that works in these important ways:

§ Ensures the availability of billions of dollars to compensate citizens affected by a nuclear incident.

§ Establishes a simplified claims process for the public to expedite recovery of losses.

§ Provides for immediate emergency reimbursement for costs associated with an evacuation of residents near a nuclear power plant.

§ Establishes two tiers of liability protection for each nuclear incident involving commercial nuclear energy, and provides a guarantee that the federal government will review the need for compensation beyond that explicitly required by law.

For the primary level of coverage, the law requires nuclear power plant operators to buy all nuclear liability insurance available or provide for an equal amount of financial protection. That amount of insurance is $200 million at each nuclear power plant site.

For the second level, power plant operators are assessed up to $88 million for each accident that exceeds the primary level at a rate not to exceed $10 million per year, per reactor for a total of $9.3 billion. Industrywide, the NRC increases the aggregate amount required for inflation every five years. An important feature of the law is that it creates an industrywide obligation for providing the insurance by spreading the liability for a major accident across the entire industry. In addition, Congress may establish more assessments on the industry if the first two levels of coverage are not adequate to cover claims. The Price-Anderson Act framework provides the same level of protection for the public near DOE facilities as for the commercial sector.

Research and smaller power reactors are also required to partially self-insure against nuclear incident, with the federal government providing additional indemnity. Further, the Act also provides public protection liability insurance for research and university reactors¾which maintain the United States’ leadership position in the development of new nuclear technologies, medical research and other advanced technologies.

The groundwork is being laid to license smaller, modular, more cost-effective and even safer reactors in the United States. Price-Anderson Act renewal should recognize this development and include these reactors in its protocols. The industry believes that provisions should be added to provide public liability protection for these smaller reactors. Specifically, we recommend that for purposes of the secondary financial protection requirements of the Price-Anderson Act, modular reactor facilities containing modules of between 100 megawatts to 300 megawatts, up to a total of 1,300-megawatts, be treated as a single facility.

The cost of Price-Anderson coverage is included in the cost of electricity; it is not a federal subsidy. That means the nuclear industry bears the cost of insurance, unlike the corresponding costs for some major power alternatives. For example, risks of dam failure and flooding at hydroelectric facilities are borne directly by the public, not the hydropower facilities.

In the history of the law, no taxpayer funds have been paid out for commercial losses under Price-Anderson. Of the approximately $180 million paid in claims since the Price-Anderson Act went into effect¾including the $70 million from the Three Mile Island accident¾all have been paid by the private insurers and the industry. In fact, Price-Anderson has resulted in payment of $21 million back to the government in indemnity fees.

Energy Department, Nuclear Regulatory Commission

Recommend Renewal

The NRC and DOE recommend renewal of the Price-Anderson Act. The NRC, in 1998, said that “the structured payment system created to meet the two objectives stated in the Price-Anderson Act has been successful. The Commission believes that in view of the strong public policy benefits in ensuring the prompt availability and equitable distribution of funds to pay public liability claims, the Price-Anderson Act should be extended to cover future as well as existing nuclear power plants.”

The Department of Energy, in 1999, said that the indemnification “should be continued without any substantial change because it is essential to DOE’s ability to fulfill its statutory missions involving defense, national security and other nuclear activities…”

The House of Representatives endorsed renewal of this important law on November 27, 2001 when it approved H.R. 2983, bipartisan legislation extending the law for 15 years.

The Price-Anderson Act has withstood court challenges dating back to 1973 when the Carolina Environmental Study Group, the Catawba Central Labor Union and 40 individuals brought suit against Duke Power Co., which was building nuclear power plants in North and South Carolina.

Overview of Nuclear Power Plant Performance

Nuclear power produces 20 percent of the nations’ electricity—supplying power to one of every five U.S. homes and businesses. The commercial nuclear industry is a dynamic, growing sector that for decades has played a key role in the economic growth, environmental protection and energy security of our nation.

Continuing a decade-long trend, U.S. nuclear power plants achieved record safety and reliability levels in 2001. The industry has sustained that trend and as a result of an increased capacity factor and outstanding reliability, the industry is on track to exceed the record 754 billion kilowatt hours (kWh) of electricity produced in 2000 based on the following:

· through September 2001, nuclear power plants generated more than 578 billion kWh of electricity, 1.2 percent above the record pace during the same period in 2000

· based on this trend, full year 2001 nuclear generation is projected to be more than 762 billion kWh

· through September 2001, U.S. net electricity generation was 2,886 billion kWh, roughly 1 percent higher than the same nine-month period in 2000. Coal-fired plants produced more than half (51.5 percent) of this electricity, followed by nuclear (20 percent), natural gas (16.7 percent), hydro (5.7 percent), oil (4 percent) and renewables (2.3 percent).

The industry's performance has been outstanding, and we believe it will continue to improve. The increased electricity generation from nuclear power plants in the past 10 years was the equivalent of adding 22 new, 1,000-megawatt plants to our nation’s electricity grid.

The nation’s nuclear energy plants are fully subject to, and in compliance with, the requirements of Price-Anderson, which is why it should be renewed indefinitely. The industry last year announced Vision 2020—a strategic plan to build 50,000 megawatts of new nuclear power generation during the next 20 years. This new nuclear power generation is essential to meet our increasing electricity demand and to maintain the 30 percent share of emission-free electricity generation today.

Many Americans are just beginning to focus on our increasing energy needs, including the vital role nuclear energy has played in protecting our air quality. Between 1973 and 2000, nuclear plants avoided the emission of 33 million tons of nitrogen oxide and 66 million tons of sulfur dioxide¾a vital role in meeting Clean Air Act Standards¾and roughly 2.8 billion tons of carbon.

Nuclear energy is our only expandable large-scale source of emission-free electricity and is responsible for nearly 70 percent of voluntary carbon reductions as part of DOE’s climate challenge program. Reports from the Energy Department's Energy Information Administration have made a direct connection between increased production from U.S. nuclear plants and the fact that greenhouse gases and other emissions increased less than they otherwise would have in the United States.

Conclusion

Electricity is the engine that drives our economy. Therefore it is essential that the United States maintains its diverse domestic energy supply, which maximizes efficiencies and provides environmental benefits. Nuclear energy is the second-largest source of electricity in the United States, and the only widely used source that is both emission free and readily expandable. The industry's safety record, reliability, efficiency and price stability make nuclear power a vital energy source for the future.

One need only look at our recent energy situation in the United States, marked by thinning capacity margins and volatile prices for fossil fuels, to see why nuclear energy is so important to our nation's energy mix.

In the future, as electricity demand continues to rise, nuclear energy will be even more important to American consumers, and to our nation's economy as a whole. Our industry has proven over the past two decades that nuclear energy is a reliable, efficient and safe source of electricity for our nation's economic growth. I urge the members of this committee to continue to support the role of nuclear energy as part of the United States’ diverse energy policy.

The Price-Anderson Act has been an effective law for more than four decades. Congress has renewed it three times and should once again renew the Price-Anderson Act to provide appropriate compensation to the public in the unlikely event of a nuclear incident and to ensure the availability of new nuclear power plants.

Thank you for giving me this opportunity to share the industry's perspective on oversight of nuclear facilities and related matters.