Who Should Pay for Nuclear Accidents?

With the Price-Anderson Act, we can't tell whether nuclear power is economically feasible.


As sure as the sun rises and activates solar energy devices throughout the land, the accident last spring at the Three Mile Island nuclear power plant has brought a swell of calls for increased federal regulation of and even an outright ban on atomic energy. The cries come not only from critics like Jerry Brown and Ralph Nader but also from others who have been less adamant about the demerits of nuclear power. One and all, they cite the Pennsylvania case as the latest evidence that nuclear power is technology-run-amok desperately in need of aggressive government control.

Even nuclear proponents acknowledge that tough times lie ahead for the industry. As a US senator put it, Three Mile Island "could be to the war against nuclear power what the Tet offensive was to the Vietnam war."

Given the record of government bungling of things nuclear, advocates of a federal crackdown appear naively optimistic indeed. Is the alternative, then, to let things be? The trouble with moving so fast is that there is more here than is revealed at first glance. Perhaps we suffer, not from too little regulation, but from an overdose of it.

NUCLEAR CORPORATISM The nuclear power industry in this country (and much the same can be said for other countries) is the classic welfare-state industry. It is the bastard son of the corporate state, conceived by the rape of the taxpayer. The military conducted the research during World War II for the development of nuclear-powered submarines and the atom bomb. When the war was over, the State pushed its baby on an unwilling market in an attempt to give atomic energy a good name. (Its name had been somewhat blackened at Hiroshima.)

Today, the government continues to subsidize the industry by providing research and development on problems like waste disposal and nuclear plant security. But perhaps the most insidious intervention is the Price-Anderson Act, which limits total liability for a nuclear accident.

In 1954 Congress passed the Atomic Energy Act, which permits private ownership of nuclear plants. Interested parties immediately wondered how such plants, with at least a remote chance for great destruction, would be insured. In 1956, the Joint Congressional Committee on Atomic Energy concluded that private industry could handle the matter. This set off a howl of protest from utilities and equipment makers, who feared that private insurance would be too limited or too costly. They took their cause to Congress, warning that the incipient private nuclear industry would wither if government didn't get into the act.

According to a Business Week story at the time, Willis Gale of Chicago's Commonwealth Edison and William Webster of Yankee Atomic Electric Co. "said flatly they'd drop plans for atomic plants rather than risk solvency of their systems to underwrite risks on their experiments. Gale suggested the solution might be a multimillion dollar government-supported atomic plant insurance program."

Westinghouse vice-president Charles H. Weaver joined in the chorus, telling the committee, "It appears to be virtually unanimously agreed that a legislative solution to the public liability problem is necessary if one of the principal purposes of the act—to encourage widespread participation in the development and utilization of atomic energy for peaceful purposes—"is to be possible."

Another utility executive said reassuringly, "We certainly don't believe such an accident will ever happen." Then came the catch: "But if it did," he continued, "the liability claims could put us out of business overnight. You just can't ask your directors and stockholders to take such a chance, however remote, without ample insurance."

ENSURING NUCLEAR This was clearly a crossroad for the new industry. Business Week reported that if the insurance costs were too high, the utilities would be "likely to decide in favor of conventionally fueled plants."

Obviously fearing that its atoms-for-peace plan might never get off the ground, the federal government wouldn't wait for the market to work out its own problems. In 1957 it intruded with the Price-Anderson Act, which shifted much of the nuclear risk from the industry to taxpayers.

Price-Anderson required operators to buy the maximum liability coverage available, $60 million (now $140 million), while, for a token premium, the federal government would indemnify them up to $500 million per accident. Currently, another $360 million in coverage comes from a cooperative arrangement among utilities, whereby each pledges $5 million per reactor owned to cover liability claims beyond the initial $140 million of insurance. As the number of reactors in service increases beyond the present 72 (there are 90 more in various stages of development), the size of this fund will continue to grow, up to the federally established ceiling, thus phasing out the taxpayers' share.

But although the 1975 revision of the act has the ceiling eventually growing from $560 million to over $1 billion, it remains a ceiling—even if actual losses were to be far higher. Various government studies have made estimates that a worst-case catastrophic reactor accident could cause anywhere from $7 billion to as much as $280 billion in property damage alone, not counting thousands of deaths and injuries. (Admittedly, the probability of such a catastrophe is extremely small.)

Further, the manufacturers of plant equipment are not required to purchase any insurance at all, since they are covered by the operators' policies. And while it provides "no-fault" coverage to claimants, the act shields manufacturers from any liability whatever! (Keep in mind that the Three Mile Island accident is attributed to human error and faulty parts.)

INDUSTRY THREATS The act was renewed in 1975 after hot congressional debate. "The minute that we cannot get Price-Anderson, it is the end of the nuclear industry in this country," said Sen. John O. Pastore, then chairman of the Joint Atomic Energy Committee. Interestingly, an official of Babcock & Wilcox, the firm that built the Three Mile Island plant, told the committee, "In the event of unfavorable Congressional action, we may well be forced to reconsider our role in the nuclear industry."

Opponents of renewal argued that the act is a subsidy giving the industry an unfair cost advantage over other energy forms and that the industry would exercise greater quality control if it were fully responsible for its actions. It needs no special protection, opponents said, citing nuclear expert Norman C. Rasmussen's estimate that the odds against an accident costing more than $560 million are about two in one million per reactor per year.

The industry replied that the mere possibility of a catastrophe would force manufacturers to abandon the field. And no one would call their bluff to find out.

Congress—backed by the Ford administration; the nuclear, electrical utility, and insurance industries; and the AFL-CIO—extended the act for 10 years, voting down amendments to allow injured parties to sue for damages beyond the limit. And although the act was amended to phase out government participation by a complex formula, the limitation on total liability remains.

ATOMIC SOCIALISM In 1977 the industry was shocked when a US district judge in North Carolina declared Price-Anderson unconstitutional in an environmental group's case against Duke Power Co. Judge James B. McMillan ruled that it limits an injured party's right to due process and violates the equal protection principle by placing costs on an arbitrarily chosen segment of society for the benefit of the rest.

"Without the protection of the Price-Anderson Act," wrote McMillan, "regardless of the desires of the nuclear power industry, power companies would probably not be able to obtain the necessary financing, supplies and architectural skills to build nuclear power plants and to maintain them once construction was complete." Here was an echoing of the industry's own claims, used to undercut Price-Anderson.

The decision touched off a panic. Ten appeals briefs for the industry were submitted when the case went to the Supreme Court. It was the same old song. "Removing the limitation on liability could cause utilities to refrain from completing pending projects or undertaking new projects, and, conceivably, lead to the shutdown of existing reactors," wrote lawyers for the Atomic Industrial Forum, Inc., the industry trade group.

In June 1978 the Court unanimously overturned the district court and upheld Price-Anderson. In his opinion Chief Justice Warren Burger rejected the due-process argument on grounds that the act "bears a rational relationship to Congress's concern for stimulating the involvement of private enterprise in the production of electric energy through the use of atomic power." This, Burger said, "is ample justification" for limiting potential nuclear victims' rights.

All this prompted Ralph Nader to taunt the industry about the "gathering storm of atomic socialism.…Giant mismanaged corporations are pushing Uncle Sam (alias small taxpayer) to bail them out by socializing their nuclear fission losses." He has a point.

Burger's opinion is a crystal-clear example of the conservatives' bankruptcy. At least outright welfare-statists are consistent in asking the government to take over or shut down the industry. But conservatives hypocritically defend private enterprise while asking the government to "encourage" it by redistributing market risks to innocent bystanders. This is the worst kind of socialism.

POLITICIZED PROTECTION Clearly, without Price-Anderson, one of two things would have happened. Either the industry would indeed have been aborted for lack of enough insurance, or it would have been prompted to certify its safety to the satisfaction of capital-risking interests. But either way, we'd be safer than we are now.

Just as Price-Anderson has been a disincentive for achieving nuclear safety, so federal regulation and inspection—another massive subsidy to the industry—has undercut safety. Without the combined package of government insurance and overseeing, the industry would be compelled by economic forces to write standards and have independent inspections performed. The capital market and insurance industry, seeking to protect their financial interests, would require this, as the utilities concede.

American Nuclear Insurance, holder of Three Mile Island's policy, says it performs standard underwriting inspections but relies heavily on the Nuclear Regulatory Commission. "We don't certify a plant is safe," said Charles Bardes, vice-president of underwriting.

Whose precautions would you rather have? Those of a protected political bureaucrat or of investors risking $700 million per plant? Ponder the question in the light of reports that the NRC is badly "politicized."

It was government regulation that provided the operators of Three Mile Island—Metropolitan Edison—at least two incentives to rush the plant on line, perhaps before it was as safe as possible. No one can read their minds to see if they were so motivated, but the incentives exist.

First, by opening the plant before December 31,1978, the owners were able to qualify for depreciation against federal income taxes for the full year. The company's annual report places the saving from the December 28 opening at $3.3 million.

Second, the owners had a rate increase pending with the Pennsylvania Public Utility Commission (PUC) that couldn't be granted unless the plant was operating. The day after the accident, the PUC granted a $49 million increase—$33 million of it for the reactor.

Without the tax laws and the PUC's power to grant monopolies and set rates, these incentives wouldn't have existed. It is because of Metropolitan Edison's state-granted monopoly privilege that it can get away with charging customers for the accident by raising its rates. In an unregulated, competitive utility market, however, hiking rates to pay for an accident would be a golden opportunity for one's rivals to step in with a better deal. So in order to stay in business, a company would have to be highly concerned with safety.

Critics of nuclear power should take heed: it is government regulation that got us into this mess. They should be calling down on the industry's head, not more government involvement, but what the industry fears most—a free market in the power-generation industry. For in an unhampered economy, genuine critics of nuclear power would find their objectives satisfied. We would either have no nuclear power, because it would be found to be too costly to produce it safely; or we would have safe nuclear power, because if it can be produced safely, it's sure that suppliers and insurers would want to get in on the act. What we would not have is a potentially dangerous industry propped up by a government that has a vested interest in preserving it, safety or no.

Sheldon Richman is a free-lance writer, teaches writing for a business-consulting firm, and is research director of the Council for a Competitive Economy.