Energy Contractors Price-Anderson Group [Bechtel National, Inc. BNFL, Inc. BWX Technologies, Inc. Duke Engineering & Services, Inc. Fluor Corporation Johnson Controls World Services Corporation Newport News Nuclear Nuclear Fuel Services, Inc. Raytheon Engineers & Constructors, Inc. Stone & Webster Engineering Corporation] Response to U.S. Department of Energy Notice of Inquiry Concerning Preparation of Report to Congress on The Price-Anderson Act 62 Fed.Reg. 68272 (December 31, 1997) January 30, 1998 2 I. Introduction The ad hoc Energy Contractors Price-Anderson Group is submitting the comments and recommendations herein in response to the U.S. Department of Energy (DOE or the Department) Federal Register "Notice of Inquiry concerning preparation of report to Congress on the Price-Anderson Act" (Notice) of December 31, 1997.1 Such Notice requested public comments concerning the continuation or modification of the provisions of the Price-Anderson Act (the Act). The Notice indicated these will assist the Department in preparation of a report on the Act to be submitted to Congress by August 1, 1998, as required by Section 170p of the Atomic Energy Act (AEA). The ad hoc Energy Contractors Price-Anderson Group (the Group) is composed of: Bechtel National, Inc. BNFL, Inc. BWX Technologies, Inc. Duke Engineering & Services, Inc. Fluor Corporation Johnson Controls World Services Corporation Newport News Nuclear Nuclear Fuel Services, Inc. Raytheon Engineers & Constructors, Inc. Stone & Webster Engineering Corporation Each member of the Group has a vital interest in continuation of the nuclear hazards liability coverage provided by the Price-Anderson Act, either as a DOE prime contractor, subcontractor or supplier covered by one or more nuclear hazards indemnity agreements entered into under the Act. The Price-Anderson indemnity system should be continued in substantially its present form beyond August 1, 2002 to ensure protection of the public and furtherance of DOE's statutory missions in research and development, production, environmental restoration and waste management, defense and other nuclear fields. The Department reached the conclusion the unique umbrella protection afforded by Price-Anderson continued to be "indispensable" and that cessation of the contract indemnity system would not be in the public interest in its 1983 Report to Congress.2 DOE should do so again in the new Report to be submitted to Congress later this year. 162 Fed.Reg. 68272. 2DOE, The Price-Anderson Act - Report to Congress as Required by Section 170p of the Atomic Energy Act of 1954, as Amended, at 3-4 (Aug. 1, 1983) [hereinafter cited as 1983 DOE Report]. 3 While the Federal Government's own nuclear activities (which usually are carried out by contractors) have had a good safety record, the possibility of a serious accident resulting in damages to the public unfortunately cannot be eliminated totally. Price-Anderson provides an assured and exemplary system of protection for the public in case that unlikely event ever happens. During consideration of the last extension, five Congressional Committees with oversight of DOE's nuclear activities (Senate Energy and Environment, and House Energy, Interior and Science) supported renewal of the Department's Price-Anderson indemnification authority. For example, the Senate Energy Committee summarized the need for Price-Anderson as follows: In general, failure to extend the Price-Anderson Act would result in substantially less protection for the public in the event of a nuclear incident. In the absence of the Act, compensation for victims of a nuclear incident would be less predictable, less timely, and potentially inadequate compared to the compensation that would be available under the current Price-Anderson system.3 The General Accounting Office (GAO) also recommended renewal of DOE's Price-Anderson authority.4 Protection of the public has been the principal purpose of the Price-Anderson Act since its adoption in 1957. The statutory scheme of indemnification and/or insurance has been intended to ensure the availability to the public of adequate funds in the event of a catastrophic, yet unlikely, nuclear accident. Other benefits to the public include such features as emergency assistance payments, consolidation and prioritization of claims in one court, channeling of liability through the "omnibus" feature (permitting a more unified and efficient approach to processing and settlement of claims), and waivers of certain defenses in the event of a large accident ("extraordinary nuclear occurrence") (providing a type of "no-fault" coverage). If a very large accident were to happen, Congress recognized in 1957 (and again at the time of the 1988 3S.Rep. No. 100-70, Calendar No. 166, 100th Cong., 1st Sess. (June 12, 1987) at 18; reprinted in [1988] U.S. Code Cong. & Ad. News 1424, 1426 [hereinafter cited as 1987 Senate Energy Committee Report]. See also S.Rep. 100-218, Calendar No. 435, 100th Cong., 1st Sess. at 4 (Nov. 12, 1987), reprinted in [1988] U.S. Code Cong. & Ad. News 1479 [1987 Senate Environ- ment Committee Report]; H.Rep. 100-104, Part 1, 100th Cong., 1st Sess. 5-7 (May 21, 1987) [hereinafter cited as 1987 House Interior Committee Report]; H.Rep. 100-104, Part 2, 100th Cong., 1st Sess. 3 (July 22, 1987) [hereinafter cited as 1987 House Science Committee Report]; H.Rep. 100-104, Part 3, 100th Cong., 1st Sess. 15, 17 (July 22, 1987) [hereinafter cited as 1987 House Energy Committee Report] (noting the House Energy Committee viewed the need to extend the Act as "urgent" and that the impact of expiration "would be most severe" with respect to DOE). 4GAO, Nuclear Regulation - A Perspective on Liability Protection for a Nuclear Plant Accident, GAO/RCED-87-124 (June 1987) at 5-6, 28-30 [hereinafter cited as 1987 GAO Report]. 4 Amendments) that a private company (such as a DOE prime contractor or subcontractor) probably could not bear the costs alone. The company could be forced into bankruptcy, leaving injured claimants without compensation.5 Price-Anderson was seen as a means of preventing this from happening by providing "a comprehensive, compensation-oriented system of liability insurance for Department of Energy contractors and Nuclear Regulatory Commission licensees operating nuclear facilities."6 Another Congressional purpose in 1957, which remains valid today, was to encourage private participation in nuclear development. Without the Price-Anderson system's indemnification and limitation on liability, private industry would be very reluctant to do even vital nuclear business with DOE. This is largely because private insurance, if available for some risks, would not protect against all nuclear hazards, especially when they involve work at older government facilities (part or all of which may be classified for reasons of national security), and currently is limited to $200 million. (Even if private insurance were available for some DOE nuclear activities, it is more cost effective for the Government to continue to self- insure.) Contractor indemnification against the risks of nuclear incidents has been provided by the U.S. Government since the early 1940s. Contractor coverage prior to the Price-Anderson Act, however, often was inconsistent, subject to the individual contract idiosyncracies, inapplicable to subcontractors, and subject to the availability of funds. Price-Anderson was carefully designed to correct many of these deficiencies by providing a uniform system of contractor indemnification and public protection. Enhanced criminal and civil penalty provisions were added in 1988 to further encourage DOE "contractor accountability" after Congress rejected any subrogation provision tied to such legally imprecise terms as "gross negligence" and "willful misconduct." If the Price-Anderson Act were amended to add such exclusions, contractors would have to assume they essentially would have no nuclear hazards liability coverage. 5See, e.g., S.Rep. No. 296, 85th Cong., 1st Sess. 15 (1957) [hereinafter cited as S.Rep. No. 296], reprinted in [1957] U.S. Code Cong. & Ad. News 1803, 1816-1817; H.Rep. No. 435, 85th Cong., 1st Sess. 15 (1957) [hereinafter cited as H.Rep. No. 435]; L.R. Rockett, Financial Protection Against Nuclear Hazards: Thirty Years' Experience Under the Price-Anderson Act, Legislative Drafting Research Fund of Columbia University at 57-58 (January 19, 1984); 103 Cong. Rec. H9560 (daily ed. July 1, 1957) (statement of Rep. Van Zandt). 61987 Senate Energy Committee Report, supra note 3, at 14, 16-18, reprinted in [1988] U.S. Code Cong. & Ad. News 1426, 1428-1430 (also noting the need for extending the Price-Anderson Act then was essentially the same as in 1957, i.e. the amount of private insurance available was insufficient and compensation to victims of a nuclear accident, in the absence of the Price-Anderson Act, therefore would be seriously limited). 5 DOE, by regulation, by the contractual provisions it imposes on contractors and/or by the degree of supervision it exercises over their activities, currently possesses adequate authority to encourage appropriate accountability on the part of its contractors. In addition to civil penalties, DOE long has had various other mechanisms to influence contractor behavior, including criminal penalties, fee reductions, nonrenewals, debarments, terminations, etc. After over forty years of indemnification, private industry has maintained a large role in assisting the Government in its own nuclear activities without significant damage or injury to the public and with only one substantial settlement for nuclear damage (about $73 million at Fernald in 1989). In other words, Price- Anderson contractor indemnification is a system that has worked well. The only fundamental change since the original adoption of Price-Anderson in 1957 (other than the effects of passage through inflationary periods of time) has been the revolutionary change in the American tort system, most of which has occurred over the last twenty-year period. This change has increased greatly the unpredictability of the probable dollar damages resulting from any major accident, whether it be nuclear or non-nuclear in nature. This makes a system such as Price-Anderson only more essential for the period beyond 2002. II. Legislative History of Government Contractor Indemnification Under the Price- Anderson Act The Group has prepared an updated Legislative History of Government Contractor Indemnification Under the Price-Anderson Act to serve as a reference, since many issues that may arise (including several raised in the Notice) have been considered by past Congresses. A copy is attached as Attachment A, so that it may be included with the materials the Department will be making available on the Internet and in the Freedom of Information Reading Room. III. Responses To DOE List of Questions The DOE Notice contains a list of questions representing the Department's "... preliminary attempt to identify potential issues that might arise in responding to the section 170p. mandate that DOE report `concerning the need for continuation or modification of the provisions of [the Act] taking into account the condition of the nuclear industry, availability of private insurance, and the state of knowledge concerning nuclear safety at that time, among other relevant factors.'"7 The Group's responses to DOE's specific questions are as follows: 1. Should the DOE Price-Anderson indemnification be continued without modification? 762 Fed.Reg. at 68276-68278. 6 The DOE Price-Anderson indemnification authority should be continued after August 1, 2002. As addressed in more detail in response to Questions 13, 16, 18, 19, 20, 21 and 22, it is recommended that the DOE Report to Congress urge a few modifications or clarifications to improve the Act further: The $100 million limit set in 1962 for nuclear incidents outside the United States should be increased to at least $500 million (Question 13), and made to apply in more circumstances (Question 20). Additionally, the Act's applicability to DOE "cooperative agreements" and "grants" (Question 16), waste sites (Question 18), "mixed waste" (Question 19), the United States "territorial sea" (Question 21), and the United States "exclusive economic zone" (Question 22) should be clarified. 2. Should the DOE Price-Anderson indemnification be eliminated or made discretionary with respect to all or specific DOE activities? If discretionary, what procedures and criteria should be used to determine which activities or categories of activities should receive indemnification? The 1988 Amendments for the first time made DOE Price-Anderson coverage for contractors mandatory for all activities that involve risk of "public liability."8 This provision (first suggested in the 1957 Congressional hearings9) was added in order to make coverage apply in more situations, and to avoid requiring DOE to determine administratively whether a particular activity presents a "substantial" nuclear risk. DOE Price-Anderson indemnification should not return to being discretionary. Prior to the 1988 Amendments, DOE regulations permitted routine issuance of Price-Anderson indemnity only when it was determined by the Head of a Procuring Activity that there existed a risk of damage to persons or property due to the nuclear hazard of $60 million or more.10 Such a determination often was very distasteful for DOE to make from a political and public relations standpoint, with the result that both the general public and the particular contractor may have been subject to significant uninsured risk 8Pub.L. No. 100-408, §4(a)d(1)(A); 102 Stat. 1068 (codified at 42 U.S.C. §2210(d)(1)(A)). 9Appearing on behalf of the New York City Bar Association, Arthur W. Murphy said he thought the legislation should contain a direction to the Atomic Energy Commission (AEC) to indemnify Government contractors in any case in which financial responsibility would be required if the activity involved were licensed. Hearings Before the Joint Committee on Atomic Energy, 85th Cong., 1st Sess. 162-163 (1957) [hereinafter cited as 1957 Hearings]. He further said he thought that indemnity should be available for any activity carried on by contractors which were not of a type that might be carried on by a licensee, if the Commission thought there was a danger of a "substantial" accident. He added the AEC contractor provision should be mandatory, rather than permissive. Id. at 176. A similar statement was made by Dr. Lee L. Davenport, President, Sylvania-Corning Nuclear Corp. Id. at 250. 10See DOE Procurement Regulation 41 C.F.R. §9-10.5005(b) (1983), reprinted in 1983 DOE Report, supra note 2, at B-3. 7 if that determination proved to have been overly optimistic. For example, DOE's discretion became a significant issue for the State of New Mexico in connection with the Waste Isolation Pilot Plant (WIPP) Project in the early 1980s. At the time, DOE stipulated that it then was the Department's "current intention" to include a Price-Anderson indemnity article in any WIPP operating contract, but DOE said it could not "stipulate away its discretion in this regard."11 In 1987, the Senate Energy Committee indicated it felt that the protection afforded the public by the Price-Anderson Act was important enough to justify removing DOE's discretion.12 The House bill (H.R. 141413) also eliminated the substantiality test, and required DOE to indemnify all contractors.14 3. Should there be different treatment for "privatized arrangements" (that is, contractual arrangements that are closer to contracts in the private sector than the traditional "management and operating" contract utilized by DOE and its predecessors since the Manhattan Project in the 1940's)? Privatized arrangements can include but are not limited to fixed-priced contracts, contracts where activity is conducted off a DOE site, contracts where activity is conducted at the contractor's facility located on a DOE site, or contracts where a contractor performs the same activity for DOE as it does for commercial entities and on the same terms. There should not be different Price-Anderson treatment for "privatized arrangements" being contemplated by DOE. The work under these arrangements still will be done for the benefit of the Government, and presumably would cost more if contractors had to self-insure or purchase private insurance (if even available). Lack of Price-Anderson protection would lessen competition by eliminating most, if not all, well-capitalized, competent bidders. Using "judgment proof" contractors that might be willing to do the work would diminish protection of the public. It presumably also would make it more difficult for contractors to finance projects privately, because would-be lenders would be concerned about the borrower's ability to pay claims and to repay the loan at the same time. (This would be in addition to lenders' current concerns about the availability of appropriations over the long period of time contemplated 11Supplemental Stipulated Agreement Resolving Certain State Off-Site Concerns Over WIPP, State of New Mexico, ex rel. Bingaman v. DOE, No. 81-0363 JB, at 5-6 (D.N.Mex., Dec. 29, 1982). See also Opinion of the DOE General Counsel on Application of the Price-Anderson Act to WIPP at 13- 15 (Dec. 9, 1982). 121987 Senate Energy Committee Report, supra note 3, at 19, reprinted in [1988] U.S. Code Cong. & Ad. News 1432. 13100th Cong., 1st Sess. (1987). 141987 House Interior Committee Report, supra note 3. at 12-13. See also 1987 House Science Committee Report, supra note 3, at 9-10. 8 by privatized arrangements.) Public protection would be decreased without Price-Anderson coverage. 4. Should there be any change in the current system under which DOE activities conducted pursuant to an NRC license are covered by the DOE Price-Anderson indemnification, except in situations where NRC extends Price-Anderson coverage under the NRC system? For example, (1) should the DOE Price-Anderson indemnification always apply to DOE activities conducted pursuant to an NRC license or (2) should the DOE Price-Anderson indemnification never apply to such activities, even if NRC decides not to extend Price-Anderson coverage under the NRC system? There should not be any change in the current system under which DOE activities conducted pursuant to an NRC license are covered by the DOE Price-Anderson indemnification. Again, the work under these arrangements still is done for the benefit of the Government, and presumably would cost more if contractors had to self-insure or purchase private insurance (if even available). Lack of Price-Anderson protection also would lessen competition by eliminating most, if not all, well-capitalized, competent bidders. Again, using "judgment proof" contractors that might be willing to do the work would diminish protection of the public. Furthermore, as a practical matter, NRC has provided Price-Anderson coverage only to nuclear power plants, plutonium processing and fuel fabrication plants, and spent fuel reprocessing plants.15 Therefore, there are few situations where NRC extends Price-Anderson coverage to commercial entities under the NRC system, and none have involved work under DOE contracts. 5. Should the DOE Price-Anderson indemnification continue to provide omnibus coverage, or should it be restricted to DOE contractors or to DOE contractors, subcontractors, and suppliers? Should there be a distinction in coverage based on whether an entity is for-profit or not-for-profit? DOE Price-Anderson indemnification should continue to provide "omnibus" coverage, and there should not be a distinction in coverage based on whether an entity is for-profit or not-for-profit. The public should be protected whether or not the entity liable is for-profit or not-for-profit. The Price-Anderson system's "omnibus coverage" for "anyone liable"16 (often referred to as 15See 10 C.F.R. §§140.11(a)(4) (nuclear power plants) and 140.13a (plutonium processing and fuel fabrication plants); 39 Fed.Reg. 43867 (Dec. 19, 1974) (noting that Price-Anderson coverage was provided on an "interim" basis for NRC-licensed reprocessing plants at Barnwell, South Carolina; West Valley, New York; and Morris, Illinois). 16See AEA, Section 11t, 42 U.S.C. §2014t (defining "person indemnified"). See also (continued...) 9 "economic channeling") would facilitate claims handling by eliminating the usual disputes among various parties potentially liable for an accident17 (e.g., the prime contractor, its subcontractors, suppliers, vendors, architect-engineers, etc.). The Price-Anderson indemnification now covers "anyone liable", not just the entity with whom the indemnity agreement is executed. A typical DOE contractor-subcontractor relationship could potentially involve many different companies. Omnibus coverage has been a fundamental feature of the Act since 1957. Before the passage of Price-Anderson, indemnity agreements had to be negotiated at each tier of the contractor scheme. If construction and development of several nuclear facilities occurred, the number of contractors and subcontractors that faced possible risks due to a nuclear mishap could reach into the "thousands."18 Moreover, the different scopes of coverage caused by contract negotiations at each tier could result in haphazard protection of the public. Price-Anderson corrected this deficiency, ensuring the availability of funds to cover damages and creating a uniform level of coverage among contractors, subcontractors, suppliers and anyone else who might be liable.19 Because of its omnibus feature, Price-Anderson coverage is easier to administer contractually, and therefore presumably more cost-effective for the government. Without omnibus coverage in the case of a company with limited assets, this could mean that funds (...continued) S.Rep. No. 1677, 87th Cong., 2d Sess. (1962), reprinted in [1962] U.S. Code Cong. & Ad. News 2207-2222. 17The breadth of Price-Anderson's "omnibus" coverage is illustrated by an often-quoted example in the legislative history of the Act (in fact, cited again in the DOE Notice, 62 Fed.Reg. at 68274, note 18): In the [1957] hearings, the question of protecting the public was raised where some unusual incident, such as negligence in maintaining an airplane motor, should cause an airplane to crash into a reactor and thereby cause damage to the public. Under this bill the public is protected and the airplane company can also take advantage of the indemnification and other proceedings. S.Rep. No. 296, 85th Cong., 1st Sess., [1957] U.S. Code Cong. & Ad. News 1818. 18Operations Under Indemnity Provisions of the Atomic Energy Act of 1954: Hearings Before the Subcomm. on Research, Development, and Radiation of the Joint Committee on Atomic energy, 87th Cong., 1st Sess. 49 (1961); 103 Cong. Rec. S13724 (daily ed. August 16, 1957) (statement by Sen. Anderson); 1983 DOE Report, supra note 2, at 1 (there then were over 100 DOE contracts containing Price-Anderson protecting about 50 prime contractors and 70,000 subcontractors and suppliers). 19See, e.g., Government Indemnity for Private Licensees and AEC Contractors Against Reactor Haz- ards: Hearings Before the JCAE, 84th Cong., 2d Sess. 76-85 (1956). 10