ML19354A744

SECY-81-253: Financial Protection for TMI Units 1 and 2

ML19354A744
Person / Time
Issue date:	04/24/1981
From:	Dircks W NRC/EDO
To:	Commissioners NRC/OCM
References
SECY-81-253
Download: ML19354A744 (34)

Text

April 24, 1981 SECY-81-253 RULEMAKING ISSUE (Affirmation)

For: The Corrmissioners From: William J. Dircks Executive Director for Operations

Subject:

FINANCIAL PROTECTION FOR TMI UNITS 1 AND 2

Purpose:

To request that the Commission complete the implementation of financial protection requirements at Three Mile Island.

Background As the staff discussed in SECY-79-617, American Nuclear-Insurers ( ANI) and Mutual Atomic Energy Liability Under-writers (MAELU), the two nuclear liability insurance pools, informed the Commission early in 1979 that they were increasing the amount of primary nuclear 1 i ability insurance available from $140 million to $160 million. In accordance with the provisions of subsection 170b. of the Atomic Energy Act, the Collll1i ss ion increased the amount of primary financial protection required for facilities having a rated capacity of 100 electrical megawatts or more from $140 million to $160 million. This change was published in the Federal Register on April 6, 1979 (44 Feg. Reg. 20632) and became effective May 1, 1979.

On May 1, 1979, ANI and MAELU informed the Co111Tii ssi on and the licensee that because of the March 28, 1979 accident at TMI, they were unwilling at that time to make $160 million in nuclear liability insurance available for the Three Mile Island site despite the licensee's request for such increased coverage. The pools' principal reason was their desire to limit clearly to $140 million their potential liability for claims and claims expenses arising out of the March 28

• accident.

Contact:

Ira Di nitz Ext. 492-9884

' I In SECY-79-617, the staff recommended and the Commission approved a requirement that the 1 i censee maintain the same level of financial protection of $160 million for Unit 2 as for Unit 1 and that the licensee's financial protection include the reinstatement of funds paid out for claims arising out of the March 28 accident.

The staff notified the licensee of these requirements in January 1980 {see Appendix "A" for exchange of letters between the licensee and the Commission). The staff con-tinued to work ~1th the licensee, its insurance broker and the insurance pools following this notification to implement the Commission's requirements.

The licensee's efforts have focused on attempting to persuade the insurance pools to provide $160 million for TMI-2 (the pools had advised the licensee earlier than they were willing to provide $160 million for TMI-1). The licensee has also been working with its insurance broker in soliciting interest from the domestic and foreign insurance markets {outside of the pools themselves) in providing the additional $20 million in insurance for Unit 2.

In its letter of May 30, 1980, the licensee indicated that the insurance pools would provide, under; certain conditions, the additional $20 million in insurance for both Unit l and Unit 2, as well as reinstate the approximately $1.7 million that had been expended for claims and claims expenses. The licensee also stated that its insurance broker had not been successful in obtaining nuclear liability insurance through other domestic or foreign insurance companies. Endorsement No. 43 would reinstate the liability limit to $140 million as of June 1, 1980 .

.Endorsement No;.- 44 *submitted hy the insurance pools would. pro-vide an additional $20 million for Un1t 1* and for Unit 2 as of Ma..v 1, 1979-* in a- si.tuati0n whe*l:'e a- new acci-dent at Unit 2 were declared by the Commission to be an "extraordinary nuclear occurrence" (ENO). The pools insist on this ENO provision for Unit 2 to provide assurance that there is a distinct, new acci-dent to which the additional $20 million would apply and that the new sum could not be used to satisfy public l i abilty cl aims associated with the March 28 accident.

In view of the fact that the insurance endorsements contained the ENO qualification, the staff requested in a letter dated June 13, 1980, that the licensee provide information on

' I whether alternatives other than insurance had been thoroughly investigated. The licensee responded to the Corrmission in a letter dated Jtily 14, 1980. The staff has evaluated that letter and considers that the endorsements submitted would be in compliance with the required financial protection for the reasons described below.

First, from a practical standpoint, the effect of allowing the licensee to use the pools' endorsement with the ENO limitation provision will be of significance only if another nuclear accident occurs at Unit 2 that, combined with the previous accident, resulted in public liability exceeding

$140 million and the new accident were not declared an ENO.

In such a situation, the secondary financial protection layer (consisting of a retrospective premium of up to $5 million per reactor applied to 72 reactors) would come into play and other power reactor licensees would make up the $20 million difference through the retrospective premium assessment by contributing at an earlier point (i.e.,. in excess of $140 million) to their share of the damages than would be the case if the accident had occurred at some other site with $160 million in primary insurance. If the damages exceeded both primary and secondary financial protection layers then government indemnity would make up for the increment of $20 million. The total protection to the public would be unchanged. Moreover, it is difficult to visualize a new accident at TMI that combined with the March 28, 1979 accident, would exceed $140 million in total damages and yet would not be declared an ENO.

Second, the staff believes that although the Cormiission could legally require the licensee to provide a third party guarantee, such as a letter of credit, to provide financial protec-tion in the event that damages arising from a non-ENO accident at Unit 2 exceeded $140 million, this would be an unadvisable course of action. Given the present state of the licensee's finances and its present needs for cash flow from all possible sources, such a requirement for an addi-tional guarantee could adversely affect the licensee's ability to continue its clean-up activities and to provide service to its customers.

Finally, as the staff indicated in SECY-79-617, Unit 2 is not presently operating nor could it possibly be operated for the foreseeable future. Therefore, the 1ike-1 ihood of a major accident would also be reduced considerably.

If Unit 2 were to operate again, the licensee could at that time be required to provide the maximum primary finan-cial protection that is available to all other power reactor licensees.

It is for these reasons that the staff recommends granting the licensee an exemption from the requirements of 10 CFR 140.ll(a)(4) which would otherwise require the licensee to maintain $160 million for the TMI site in all instances.

The legal question of whether an exemption to 10 CFR Part 140. 11 is "authorized by law" (140.8) was explored in a memorandum from the General Counsel to Chairman Ahearne dated January 15, 1980. The issue centers on the language of subsection 170b of the Atomic Energy Act, which requires that "the amount of financial protection required shall be the maximum amount available at reasonable cost and on reasonable terms." Historically, this amount has been fixed by the Commission in its regulations as the amount made available by the pools at any given time. Prior to TMI, this amount was always uniform for all power reactor licensees. The proposed exemption would permit the TMI licensee to maintain a lesser amount than other utilities under certain circumstances.

The General Counsel concluded that, while the issue was a close one, the better legal view permitted a varying level of coverage, i.e., "maximum amount available" means the maximum level available to a utility which has, to the Commission s satisfaction, 1

made a reasonable attempt to acquire private insurance from all possible sources including the pools. The General Counsel also concluded that, on policy grounds, the Commission should attempt to enforce uniform coverage. ELD concurs in this analysis.

At this juncture the Commission has made clear its intent to enforce a uniform level of coverage, and the licensee has, in the staff's view, made a valid attempt to comply. As discussed above, it is not advisable at this time to force the company to financial extremes to obtain this coverage, when public protection is not affected and the funds are needed for cleanup operations. If the Corrunission agrees with the OGC/ELO legal position, the staff believes that sound policy now favors the granting of an exemption.

Recommendation: that the Commission

1. Approve publication of a proposed FEDERAL REGISTER notice (Appendix B) that would modify the licensee's indemnity agreement and

{a) add an endorsement to be effective June 1, 1980 to the licensee 1 s Facility Form insurance policy furnished as proof of primary financial protection that would increase the liability limit to $160 million at the TM! site but provide that the supplemental $20 million for Unit 2 would apply only if an accident at Unit 2 occurs on or after May l, 1979 and is determined by the Commission to be an "extraordinary nuclear occurrence 11 ; and (b) add an endorsement to be effective June l, 1980 that would restore the funds paid out and claims expenses arising out of the March 28, 1979 accident, but only *;f new damages resulted from an extraordinary11 nuclear occurrence" occurring on or after May 1, 1979.

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William J. Dircks Executive Director for Operations DISTRIBUTION Commissioners

Enclosures:

Commission Staff Offi 1

1. Appendix II A11 - Exchange of letters Exec Dir for Opera ti 01 between TM! licensees and NRC ACRS

2. Appendix 11 8 11 - Proposed Federal ASLBP Register Notice Secretariat Commissioners' comments or consent should be provided directly to the Office of the Secretary by c.o.b. May 11, 1981.

Commission Staff Office comments, if any, should be submitted to the Commissioners NLT Monday, May 4, 1981, with an information copy to the Office of the Secretary. If the paper is of such a nature that it requires additional time for analytical review and comment. the Commissioners and the Secretariat should be apprised of when comments may be expected.

This paper is tentatively scheduled for affirmation at an open meeting during the week of May 18, 1981. Please refer to the appropriate Weekly Commission Schedule, when published, for a specific date and time .

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~CCe'"l&."1-,1" that would provide ~140 rJillion 1r, pr1t.il.ry insure.r.ce to both Three ::ilc Island Vnfts land 2 with an additional t20 million for Unit 1.

On a related matt~r, Article II, rarugrc:.ph 2 of Inde:-:~nity ,;grecmcr.t C-~4 that you t,eve executed \':ith t~1e Co;--r.*.ission ra:-;uircs that in the event of payr..ents made by the insurers u=idcr an insurance policy used as financial protection which r&d:.,c~s the ar~reg;te l i~i t of tha pol icy, the licensee r:ust _a pply to its insurers fc,r reinstate:1:~nt of :he ar.10unt of these payrr:t:nts. l-!e understand th~t you have re~uested reinstatement of the approximately $1.3 million paid out for claims and claims expenses arising out of the f*Sarch 28 acci*dent. I0sur911ce pools representatives hc:.ve 1nfonn~1 the Co:.-mission staff that they have decided not to rainstate these funos for Unit 2 altl;ouah thev will reinstate them for Unit 1

• through a separate suppl:~E:nt5ry insurance pol icy. The pnctical efftct of r.ot reinstatir.9 the funds pc.id out for the ;~v.rcli 2F. accident is tl;:it if there ~ere another accident at Unit 2, there ~ould not be the full ari'Ju:,t of r,rimary lfobility insurance to pay [H!~lic liability clair.s resulting from such iln accid~~t.

• Th:r\:fore, \*: ith re$f,:.ct to Units 1 and 2 iJ 1:ill be n$Ccssary for _yc:.i to dcr:ionstr~te ,:ithin sixty days fro~ receipt of th1s letter th~t* you are

.,...._ _-:,, , -.7 in co:'.':pl iance with our re;ulati'.:lns by providin;i evidence to the ;;~c that

$160 riillion in prfo-3ry financial protection is in place as of :;ay 1, 1979. This evidence should include a copy of the sep:1rate su~ple:~::nt2ry

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policy reinstating the $1. 3 rd 1lion in cla k :s .a!'ld cla ins ex;:>cnses for both units, and providing for fiecessary incra-lses in coverage every thirty days for increased al:iounts beyond the $1.3 million if the total ar.;ount not reinstated by the .:;-,ols rises beyond that figure. This evidence of primary financial i=rotection e~ual to a total of $160 r.i 11 ion c,an be th~ugh ir;s:..irancc or so::;~ other forr.t of third party guarantee. or a co;-:-:~foation th2reof v,hich provides ?,11 or the operable provisions of the fucil1ty fcrr.: of nuclear liability insurance.

Harold R. Denton, Director Office of f-:uclear Reactor Reflulat1on APPROVED BY ALL C0Mi~ISSI0t1ERS BY l-~8*10 cc: Harry F. Gt:rety, GPU .. ,;; DATED 1/22/80 bee: Charles Bollrr:an, :Marsh & rktennan ..-'6 Burt Proom. ANI \ \ \/}) See att~ched list for distribution.

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.to ~r ~ht.le. Hc~i;Hty_ cl~_µ:& T'e:!!Dltini fr~. nudur- ineid:nt.

CPO s~rvke Co::pcn1 1 on b"h.ctf ot t-'~tro?oHt~ri Edho;, ~~. !ts, thre:.::;:S tto tnsa.r-cn~~ ~rc?.ert, ~r-cb '* t::Le~tt. tsUne 9tf;ps to cbte:tn the r-tc-..':l cc... .:..:e of {uur-&?tc* ""nikble frc:i pri"t"~te eou?'ces t:ic! ts p*T'*ese:rtl,* ceti~ly r-.:::-:::t!!..ej

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of the e~f.l~bU!ty ot cuch t:odH tend i>rl v.ete !osurtiaee. our bro:.c!'C: c:~.ce c t!:.:.t 1_()0! ~=4H!onsl ...Ht::! l>eyor.6. AprU. l, 1980, the d&te set forth iD re-.= I.c:ter, till be ne-ce:,c.rr. "r'hi* "'*Ul El 10"~ u, both to survey edditio:-:.sl pt"o:c:t£~:i fro:; ,~~rc::::i

~uclur !tu11:Jrer11 a'l;d liutual Atoc.k t'.Mrgy L!~Hlit"' tr.::leri.-.itcn c:,.! fra:J i~4Lvid~l tr.sure~~. ro~ th{$ f)\lrpose. ve r~~cst an ~=t~r::;;.to~ of tic.:) to ec::::-;lr froc Apr-11 J. 1°80 tt> JUflt' J. 1!180. T'bh Tequ~i1t applies to both tha 11~1Uonal

$20 ctllicm rrln:!ry lasu~ance and reinstatecent af the $1.l ctllic:i i~ etci:::s end !ntrE.u*.:- !ctr additional Paf"ur.t!I raid ~nd not rdnstet~.

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l~etropo1 i t:.n Edi son Compc.ny Post Office Sox 430 lH d:11 etown. PA 17057

Dear Hr. Herbein:

Your request for

\:e have received your 1 etter of l*~arch 25. 1930.

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an cxt~r.sion of tiwe to June 1, 19SO to *co::-.ply with . the _Price-.~nderson fi ::~nci a 1 protection requirc.-::c.rits for the T!".r~e  :-:i le Isl and Unit 2 r:::ct.or is granted. \:e e:xpect t:-.at ad*i itfo:-,?l £x~e:.sfons \..'ill not t,e .

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;:;ursu1ng other than ir.sur=.nce a1:~rr.:.tives for :::teti:i9 the r:a:,t ue \;.:,rl*.c:ble.

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Metropolitan Edison Company Post Office Box 480 Middletown. Pennsylvania 17057 717 944-4041 .

Writer's Direct Dial Number May 30 , 1980 TLL 256 Office of Nuclear Reactor Regulation Attn: Harold R. Denton, Director U. S. NuclearRegulatory Commission Washington, D.C. 20555

Dear Sir:

Three Mile Island Nuclear Station, Units I and II (TMI-1 and TMI-2)

Operating License Nos. DPR-50 and DPR-73 Docket Nos. 50-289 and 50-320 Financial Protection The following information *is submitted in response to your letter of April 8, 1980 concerning financial protection.

We have been informed by our insurance broker, Marsh and McLennan, that the nuclear liability insurance pools have advised the NRC that they hav.e received appro'ltal to provide an additional $20 million prbary insurance for TMI-II as well as reinstate approximately $2.5 million that has been expended for claims and claims expenses.

We are enclosing a letter from Marsh and McLennan, advising that they have used all their efforts to obtain nuclear liability insurance for TMI-II and that none is available other than that offered by the nuclear insurance pools. In vi.ew of this, we trust that the NRC will accept the additional insurance being provided by the pools as evidence that THI-II is in compliance with NRC regulations under Section 170 of the Act pertaining to evidence

in:rj4 of financial protection.

G. Herbein Vice President TMI-I JGH:LWH:hah Enclosure cc: J. Saltzman J. T. Collins 80060503(/G, Metropolitan Edison Company 1s a Member of rr---e ~era! Put: 1c U::',t;es System

May 27, 1980 . *****15 . *

~:...*r. . *:; . * ~

-::~:~{~- ~*

Kr. Barry Gerety Manager* ~ , Clrd-N .1

• GPO Service ~rp. *::

100 Int:erp&ce Parkway ** * .. --~-- -:-*_:__ .,..,_.. .- .. .. ****-******.., .... ...

P4%'.Sippany, 8.J .. 07054 ..

2wll'!I T; 19iliN11

'f?p~~

-oeu Three Mile Island - Pi:nancial Prot&etion M.J:. Ganty!

Harsh , Mcte.zman has attempted to datemine the extent

- and cost: of uailable inaua.noe capacity to fulfill the Nuclear Regulatory comrd ssion

• s- financial - p?Qtection requirement fo~ Three M.ii. Ialand Nuclear Station unit 2. . . . --- - * .

Bvery major insurer, both American a1'ld foreign, vu c:ontactad as well &s a* representative c:oas-section of lesser markets. X&rk$ts were ulec:tad vi th cueful attention to their !iz:iauci&l atruqth and the likelihood that they would ba c:apableol studi:ag bebind a long term commitmt to a. fom of ~ - in vhic:h ultimate liabi-lities iMY take many years to mature. Iuurars were ulced to ameider provi~ coverage u broa.d u that usually afforded by the Pool.a u veil a.s on a basis of supple- .

msnti.nq the more limited coverage approach that: tlla POou have proposed.

Our inve.sti<J:a~_iona .revealed th&~ virtually all insurers which pa.ticipate ill the- American Pools were unvilli.ng -to make their capacity avail.Able through_ any other mechanism.

t?wse inaurera who do net participate in t.ha A,iariean Pools do not do so either because they are illel1gill1e or because they have made underwriting or :sanagaDant decisions not to insure t.be nualau huud.

In those few ihstances**vt1en* insurers**expr~ssed any interest at all in providing capacity, it vu on the basis of exor-bitant premiums or narrower coverage than that proposed by the POola.

~J.

CTB:ag

JUN 1 3 ESO Docket Nos. 50-289 50-320 Mr. J. 6. Herbein Ytce President Hetropo11 tan Ed tson Company P.O. Sox 480 Middletown, PA 17057 Deal" Mr. Herbefn:

We have received your letter of May 30,. 1980 to H.lrold Denton concerning cornplilnce with ftnancfal protection requirements for Three H11e Isl~nd Unit 2. Although the Marsh and Mclennan letter states that the only adequate insurance available would be thot provided by the 1nsunnce pools, thert are still a number of questions that must be answered about the 1nsurance endorsement and about a 1 tern* t1 ves other than 1nsun,nce that may be available.

First, since - have not as yet received & copy of the endors~t prov1d1ng the additional $20 zillion, we cannot determine whether this endorsement fully complies with our regulations. We trust that }'01;! will provide us with the endorsement as soon u 1t becomes 4n1la.b1e. We understand, hcwevcar. from the pools that this supplemental limit endorse-ment would 1pply only where

• MW accident at un*tt 2 were declared an

• extraordf nary nuclear oceu~" (ENO). While we understand the reasons for the pools' 1ns1stence on thfs 1fmit1ng con4ft1on, the endorsement could be viewed as providing the pub11c with less protection at Unit 2 than at any other reactor 1n the country (1.e., with respect to poss1b1e further acc:fdents that are not extraordinary nuclear occurrences but are 1n excess of $140 m1111on).

In our letters of J&nuary 29, 1980 and Aprtl 8, 1980, we 1ndfcated that primary financial protection could be provided through insurance or some other form of third party guarantee. In vte. of the fact that the supplemental insurance endorsement contains the ENO qua11f1cat1on to coverage we would like 1nfonnatfon on whether altefflattves other than insurance h£Ye been investigated and what the rtsults of your* 1nvest1gat1on were.

Hr~ J. G. Herbein JUN 13 bSO What the staff' must determine. hued largely on information that you provide. 1s whether the 1uuruce policies proposed to be made available:

by you from the pools provide tbe 11U1rua protectttm to the public that 1$ available from private soun:es or whether f1nanc1a1 protection 1n some other form 1s liON appropriate. We hope that you,- reply will fum1sh a fully-developed discussion on vhY'~ 1n the opinion of Metropolitan Edison. t h e ~ po11c1es fT011 the pools should be accepted by the Com1ss1oa 1n meeting the f1nanc1&1 protection requirements of 1ts regulat1 ODS.

We would be pleased to discuss uy questions you may have so that we can satisfactorily resolve this problem at the earliest possible time.

5!;ned. Jerome D. Saltzmafl

~ Saltzman, Chfef Utility Finance Branch D1Y1s1on of Engineering Office of Nuclear Reactor Regulation cc: Harry Gerety. GPU D1stribu~:... ~ .

nu File -..~

UFB Reading UFB -I.D1n1tz PDR LPOR TERA NSIC D. Muller D. Nash J. Saltzman E. Jatel NRR:UFB NRR:UFB NRR:UFB oao ID1n1tz: na DNash JSaltzman 'EJakel

-. *~ I", '°"

Metropolitan Edison Company Pos i Off ice Box 480 MidGle'.ovr.i. Penns ylvan ia 17057 717 9-l4-4041 Writer's D,rect Dial Numoer July 14, 1980 TLL 332

~Lility Finance Branch Attn: J. Saltzman, Chief Oi:ice of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission

~ashington, D.C. 20555

Dear Sir:

Three Mile Island Nuclear Station, Units I and II (TMI-1 and TMI-2)

Operating License Nos. DPR-50 and DPR-73 Docket Nos.

• 50-289 and 50-320 Financial Protection Requirements This letter is in response to your letter of June 13, 1980 requesting additional caterial with respect to the compliance with the financial protection provisions of the Atomic Energy Act for Three Mile Island Unit II.

i.'ith respect to the insurance available from the pools; you requested a copy of the endorsement proposed by the pools. By letter of June 12, 1980, Mr. John L. Quattrocchi of ANI forwarded the proposed endorsement to you for your consideratior This had apparently not arrived when you wrote to us. I am enclosing a copy of that letter and the proposed endorsement in the event you did not receive your copy.

~~ith respect to your comment as to the pools' having limited this endorsement so as to apply only where a new accident at TMI-II were declared to be an "e~traordinary nuclear occurrence" (ENO), we would, of course, prefer that the endorse-:nent not be so limited. For reasons we will describe, ho'l.'ever, ;.re do believe this endors_ement, even with the limitation, meets . the statutory criteria by providing the maximum insuran.c e available at reasonable cost and en reasonable terms from private sources.

If T}1I-II were to be permitted co continue to be licensed *1.:ith the liability insurance provided by the pools, the only way in which the limitation could become significant is if there were to be another nuclear accident at THI-II

~hich, when combined with the effects of the March 28, 1980 accident, resulted in liability which exceeded $140 million. In that event, in our vie~. the se~ondary financial protection layer would come into play at this $140 million level. The licensees would simply contribute to their share of the damages at a lower amount than would be the case if the accident had occurred at some other site which did not have this limitation. If, then, ~oth the primary a.:.d secondary protection layers were to be exceeded, the potential governmental bcea.T1ity would make up the $20 million. The total protection for the public f./100(

~ould be unchanged. We believe this discussion to be particularly relevant to c*:-:e statement in your letter of June 13 that the endorse-::ient "could be vie-wed $

1lt

J. Saltzman TLL 332 as providing the public with less protection at Unit II than at any other reactor in the country ... ".

It is relevant to the consideration of the endorsement that TMI-II is not now operating and will not be operating for the foreseeable future. The Commission could review the availability of additional coverage in the future when the unit is again ready for operation.

It would be possible for the Commission to require the licensee to provide a bank instrument, such as a letter of credit, or to segregate $20 million of its existing credit to provide protection in the event of a non-ENO for which liability exceeds $140 miliion. In the case of the GPU Companies, this would be exceedingly burdensome and, perhaps, impossible to accomplish. As the Commission knows from material submitted to it, the GPU Companies have a limited amount of credit available in the form of a Revolving Credit Agreement under which there is a limit for the GPU 'System and sublimits applicable to each of the three operating companies (which are the joint owners/licensees to TMI-II). That credit is necessary to support the ongoing utility activities of the Companies, so as to be able to continue to provide safe and adequate service to their customers, while, at the same time, continuing to support the clean-up activities at TMI-II. While the Companies are in a significantly better cash position as a result of rate orders received in the spring of this year and have better prospects with respect to their cash position, the Companies continue to be limited with respect to the availability of credit and will be limited in their access to long term capital markets. It is unlikely that the Companies could both segregate and reserve $20 million of credit and know that they could continue their necessary utility and clean-up activities with an adequate margin of bank credit available. If the companies were, for instance, to attempt to segregate some of their limited credit for this purpose at this time, it could impact their ability to continue to protect the"public health and safety through their clean-up activities at TMI-II.

The licensees are continuing to ex--plore the insurance markets to attempt to proyide a better protection for this purpose. One avenue which is being reviewed is to provide insurance for some or all of the secondary financial protection layer of $30 million. The Commission has already, by letter dated April 8, 1980, det:ermined that the anticipated cash flow of Metropolitan Edison Company individually and General Public Utilities Corporation consolidated is satisfactor; to meet the requirements -0f 10 CFR Section 140.21. If insurance can be obtained for the secondary financial protection retrospective assessment, the Companies would vie~' the cash flow, previously determined to be satisfactory to meet this obligation, as being available in the event it were necessary to deal with its uninsured liability for non-ENO liability at T.-11-II in excess of

$140 million up to $160 million if the secondary financial protection provided by assessment of other licensees were not available for this purpose. ~e will continue to explore this possibility and will report to you on its progress.

In the light of the above discussion, and the materials submitted to you on May 30, 1980 advising as to the efforts of our insurance ~rokers, we believe the insurance policies proposed to be made available by the licensees frc::i the

_ pools provide the rr.aximum protection to the public that 'is available fro:-, pri\*a:e

J. Saltzman TLL 332 sources and that no additional protection in some other fonn is more appropriate .

In the light of the above, we believe. the proposed policy should be accepted by the Commission to meet the financial protection requirements of its regulations.

Sincerely, Vice President TMI-I JGH:DGM:hah Attachment cc: R. W. Reid B. H. Grier D. Diianni H. Silver J. T. Collins B. J. Snyder

APPENDIX usu

[7590-01]

APPENPIX 8 11 11 NUCLEAR REGULATORY COMMISSION 10 CFR Part 140 FINANCIAL PROTECTION REQUIREMENTS AND INDEMNITY AGREEMENTS AGHlCY: U.S. Nuclear Regulatory Commission ACTION: Request for public comment

SUMMARY

The Commission requests comments on whether the proposed endorsements to Metropolitan Edison's Facility Form liability insurance policy meet the financial protection requirements of subsection 170b. of the Atomic Energy Act of 1954, as amended.

DATE: The public comment period expires [30 days from date of publication].

ADDRESSES: Comments should be sent to the Office of the Secretary U.S. Nuclear Regulatory Commission, Washington, D.C., 20555, Atten:

Chief, Docketing and Service Branch. Copies of all comments received will be available for examination in the Commission's ~L;tilic Docul"lent Room, 1717 H Street, tl.\-l., \s/ashington, O.C.

FOR FURTHER H!FORMATION CONTACT: Ira Oinitz, Utility Finance Branch, Division of Engineering, Office of Nuclear Reactor Regulation. U. S. Nuclear Regulatory Comf!lission, Washington, D. C. 20555, Telephone (301) 492-9884 SUPPLEMENTARY INFORMATION: American Nuc1 ear Insurers (AMI) and Mutual Atomic Energy Liability Under;.,riters (MAELU), the two nuclear liability insurance pools, informed the Commission early in 1979 that they were increasing the amount of primary nuclear liability insurance available Apoendix 11 B11

from $140 million to S160 million. In accordance with the previsions of subsectio~ 170b. of the Atomic Energy Act, the Commission increased the amount of primary financial protect ion required for faci 1 i ti es ravi nq a rated capacity of 100 electrical megawatts or more from Sl40 million to $160 million. This change was published in the Federal Register on April 6, 1979 (44 Fed. Reg. 20632) and became effective May 1, 1979.

On May 1, 1979, AMI and MAELU informed the Commission and the licensee that because of the March 28, 1979 accident at Three Mile Island, they were unwilling at that time to make $160 million in nuclear liability insurance available for the TM! site despite the licensee's request for such increased coverage. The pools' orincinal reason was their desire to limit clearly to Sl40 million their potential liability for clair1s and claims expenses arising out of the March 28 accident.

In a January 1980 letter, the Commission notified the licensee of the reouirement that it maintain the same financial protection level of SHiO million for Unit 2 as for Unit l, and that the licensee's financial protection include the reinstatement of funds paid out for claims arisinq out of the March 28 accident.

In a letter to the Commission dated May 30, 1980 the licensee indicated that the insurance pools v10uld provide, under certain conditions, the additional S20 million in insurance for Unit 2 under Endorsement ~lo. 11,4 to its facility form policy as well as reinstate the ar,proxir1ately51.7 million that had been expended for claims and claims exaenses through Endorsement

~!o. 43. The endorsements submitted by the insurance pools provi<ling an additional S20 riillion for Unit 1 and for Unit 2 1*JOuld aroly only in a situation 1\ o oe nci i x 8 11 11

where a new accident at Unit 2 were declared by the Commission to be an "extraordinary nuclear occurrence" (EHO). The pools insist on this EHO provision to provide assurance that there is a distinct, new accident to which the additional $20 million would apply and that the new sum could not be used to satisfy public liability claims associated with the March 28 accident.

In view of the fact that the insurance endorsement contained the ENO qualification, the Commission requested in a letter dated June 13, 1980 that the licensee provide information on whether alternatives other than insurance had been thoroughly investigated. The licensee responded to the Commission in a letter dated July 14, 1980. The Commission has evaluated that letter and considers that the endorsements submitted would be in com-pliance with the required financial protection for the reasons described below.

First, from a practical standpoint, the effect of allowing the licensee to use the pools's endorsement with the ENO limitation provision will be of significance only if another nuclear accident occurs at Unit 2 that, combined with the previous accident, resulted in public liability exceeding S140 million and the new accident were not declared an ENO. In such a situation, the secondary financial protection layer (consisting of a retrospective premium of up to $5 million per reactor applied to 72 reactors) would come into play and other power reactor licensees would make up the $20 million difference through the retrospective premium assessment by contributing at an earlier point (i.e., an excess of $140 million) to their share of the damages than would be the case if the accident had occurred at some other site with $160 million in primary insurance.

If the damages exceed both primary and secondary financial protection layers then government indemnity would make up for the increment of 520 million.

Appendix "B"

The total protection to the public would be unchanged. Moreover, it is difficult to visualize a new accident at TM! that combined with the March 28, 1979 accident would exceed $140 million in total damages and yet would not be declared an ENO.

Second, the Commission believes that although it could require the licensee to provide a third party guarantee, such as a letter of credit, to provide financial protection in the event that damages arising from a non-ENO accident at Unit 2 exceeded $140 million, this would be inadvisable. Given the present state of the licensee's finances and its present need for cash flow from all possible sources, such a requirement for an additional guaran-tee may impact adversely on the licensee's ability to continue its clean-up activities and to provide service to its customers.

Finally, Unit 2 is not presently operating nor will it possibly be opera-tional for the forseeable future. Therefore, the likelihood of a major accident would also be reduced considerably. If Unit 2 were to operate again, the licensee could at that time be required to provide the maximum primary financial protection that is available to all other pO\oter reactor licensees.

Pursuant to 10 CFR 140.8, the Commission is proposing to grant an exemption from the requirements of 10 CFR 140.ll(a)(4). For the reasons discussed above, the licensee will provide S160 million for Units 1 and 2 in primary insurance subject to the ENO .condition described above. Pursuant to

§140.9, the following changes are proposed in Indemnity Agreement ~lo. B-64 between the Metropolitan Edi son Company and the Commission.

Appendix 8 11 11

1. Article II, Paragraph 8 is revised as follows:

8. \~ith respect to any common occurrence arising out of an accident under DPR-50, or with respect to any common occurrence arising out of an ac-cident under DPR-73 subsequent to May l, 1979, which is detennined by the Commission to be an "extraordinary nuclear occurrence** (a) If the sum of the limit of liability of any Muc1ear Energy Liability Insurance Associa-tion policy designated in Item 5 of the Attachment and the limits of liabi-lity of all other nuclear energy liability insurance policies (facility form} applicable to such commmon occurrence and issued by ~!uclear '::nergy Liability Insurance Association exceeds S12A,OOO,OOO, the amount of financial protection specified in Item 2a and b of the Attachment shal 1 be deemed to be reduced by that proportion of the difference bet\<1een said sum and S124,000,000 as the limit of liability of the Nuclear Energy Liability Insurance Association policy desir.:inated in Item 5 of the Attachment bears to the sum of tl1e limits of liability of all nuclear energy liability insurance policies {facility form) applicable to such conmen occurrence issue-d by !Juclear Energy Liardlity Insura : ,: : .',ssociaticn:

{b) If t 11e sur: of the li nit of liabilit of any :*utua1 Ptcr.lic Enerry 1

Liability Unden,1riters policy designated in Iter1 'i of the .1.ttach1;1ent and the lirnits of liability of all other nuclear energy liahility insurance oolicies (facility form) aoolicable to such corHnon occurrence and issued I * '

by Mutual Atoriic Ener9y Liability UndeY'\lffiters exceeds S36,0IJO,OOO, the amount of financial orotection specified in Iter1 2 a and b of the Htachrrent shall be deeried to be reduced by that oroport ion of the difference hetv,een said sum and $36,000,000 as the limit of liability of the ~utual Atonic Energy Li abil (ty Underttriters policy designated in Item 5 of the 1ittachrnent t,orendix 110 II 1.:

bears to the sum of the limits of libility of all nuclear energy liability insurance policies (facility form) applicable to such common occurrence and issued by Mutual Atomic Energy Liablity Under.,1riters:

(c) If any of the other applicable agreements is with a oerson v-1ho has furnished financial protection in a form other than a nuclear energy liabiility insurance policy {facility form) issued by Nuclear Energy Liability Insur1rnce Association or Mutual Atomic Energy Liability Unden,;riters, and if also the sum of the amount of financial protect ion es tab 1i shed under this aareement and the amounts of financial protection established under all other applicable aqreements exceeds and amount equal to the sum of S160,000,000 and the amount available as secondary financial protection, the obligation of the licenseee shall not exceed a greater proportion of an amount equal to the sum of S160,000,000 and the amount available as secondary financial protection, than the amount of financial protection established under this agreement bears to the sum of such amount and the aIT!ounts of financial protection established under all other applicable agree~ents.

(d) As used in this para9raph 8, Article II, and in Article III, "other apolicable aareements" means each other agree~ent entered into by the Commission pursuant to subsection 170c of the Act in which agreement the nuclear incirlent is defined as a "corimon occurrence." As user! in this paragraph 8, Article II, "the obligations of the licensee" means the oblio.a-tions of tre licensee under subsection 53e(8) of the Act to indemnify the United States and the Commission from public liability, together with any nublic liability satisfied hy the insurers under the policy or policies

\ p oe nd i x "B 11

designated in the Attachment, and the reasonable costs of investigating and settling claims and defending suits for rlamage.

2. A ne-v4 Paragraph 9 is inserted in Article II to read as follows:

9. \.Jith respect to any common occurrence arising out of an accident under DPR-73 subsequent to May 1, 1979, which is not detennined by the Commission to be an "extraordinary nuclear occurrence" (a) If the sum of the limit of liability of any Nuclear Energy Liability Insurance Associa-tion policy designated in Item 5 of the Attachment and the limits of liability of all other nuclear energy liahility insurance policies (facili-ty form) applicable to such commmon occurrence and issued by ~!uclear Energy Liability Insurance Association exceeds S108,500,000 the amount of finan-cial protection specified in Item 2a and b of the Attachment shal 1 be deer.1ed to be reduced by that proportion of the di fferer.ce bet.... een said sum and $108,500,000 as the limit of liability of the Nuclear Energy liability Insurance Association policy designated in Item 5 of the Attachment hears to the sum of the limits of liability of all nuclear energy liability insurance oolicies (facility fonn) applicable to such co,11r1on occurrence issued by ~!uclear Energy Liability Insurance Association:

(b) If the sum of the limit of liability of any 11utual Atomic Ener~y Liability Under,,iriters policy designated in lten S of tre Attachment and t he limits of liability of all other nuclear energy liability insurance r,olicies (facility form) applicable to such corr.man occurrence and issued by Mutual Atornic Energy Liability Underwriters exceeds S31 ,500,0DO, the arnr,unt of financial protection specified in Item 2 a and h of the Attachment shal 1 be deemed to be r educed by that prooorticn of the difference bet,*ieeri said su1;1 Annerdix 11

~

11

and $31,500,000 as the Hmit of liability of the Mutual Atomic Energy Liability Underwriters policy designated in Item 5 of the Attachment bears to the sum of the limits of 1ibility of all nuclear energy liability insurance policies (facility form) applicable to such crnnmon occurrence and issued by Mutual Atomic Energy Liablity Underwriters:

(c) If any of the other applicable agreer,ents is with a person who has furnished financial protection in a form other than a nuclear energy liability insurance policy (facility form) issued by f,l uclear Energy Liability Insurance Association or Mutual .A.tomic Energy Liability Under-writers, and if also the sum of the amount of financial protection estab-lished under this agreement and the amounts of financial protection established under all other applicable agreements exceerls and amount equal to the sum of S140,000,000 and the amount available as secondary financial protection, the obligation of the licenseee shall not exceed a greater oroportion of an amount equal to the sum of Sl~0,000,000 and the amount available as secondary financial protection, than the arnount of financial protection established under this agree~ent bears to the sum of such amount and the amounts of financial protection established under all other applicable agreements.

(d) As used in this paragiaph 9, Article II, and in ~rticle III, 11 other apolicable agreer.ents 11 means each other a0reernert entered into hy the Commission pursuant to subsection 170c of the Act in which agreement the nuclear incident is ctefined as a "common occurrence." As used in this paragraph 8, t,rticle I!, "the ohligations of the licensee T'ieans the 11 obligations of the licensee under s ubs ection 53e(2) of Act to indemnify 1'\ D pe nci X 8 11 11

the United States and the Commission from public liability, together vdth any puublic liability satisfied by the insurers under tl1e policy or policies designated in the Attachemnt, and the reasonable costs of investigating and settling claims and defending suits for damage.

3. Article II, paragraph 9 is renumbered as paragraph 10 and reads as foll O'r/S:

10. The obligations of the licensee under this Article shal 1 not be affected by any failure or default on the part of the Commission or the Governnent of t11e United States to fulfill any o;

• of its obli9ations

, ., "I under this agreement. Bankruptcy or insolvency of any oerson indemnified other than the licensee, or the estate of any person indemnified other than the 1 i censee, shal 1 not relieve the 1 i censee of any of his obl i ga-tions hereunder.

4. Article III, paragraph 4(b) is revised as follows:

4. (b) Hi th respect to a comrr,on occurrence ari si ni:i out of an accident under DPR-50, or with respect to any cof':mon occurrence arising out of an accicient under DPP.-73 subsequent to May 1, 1979 \.;hich is detenriined by the Cor.1 rnis-sion to be an "extraordinary nuclear occurrence,° the obli(Jations of the Cornmi ssion under this agrement s!'lal 1 a::,nly only vii th respect to such public liability, such damage to property of oersons legally liable for the nuclear incident (other than such property described in the rroviso to paragraph 2 of this Article), and to such reasonable costs described in oaragraoh 3 of this Article, as in the aggregate exceed whichever of

.-\prendix "B"

the following is lower: (1) The sum of the amounts of financial protection established under this agreement and all other applicable agreements; or (2) an amount equal to the sum of Sl60,000,000 and the amount avail able as secondary financial protection.

5. A nev1 paragraph 4{c) is added to Article III, to read as follows:

4.(c) \*Jith respect to a common occurrence arising out of an accident under DPR-73 subsequent to May 1, 1979 .,.ih ich is detenni ned by the Commi s-sion not to be an 11 extraordinary nuclear occurrence, 11 the obligations of the Commission under this agrement shall apply only with respect to such public liability, such damage to property of persons legally liable for the nuclear incident (other than suet, property described in the oroviso to paragrach 2 of this Article), and to such reasonable costs described in paragraph 3 of this Article, as in the aggregate exceed whichever of the following is lower: (1) The sum of the amounts of financial protection established ~nder this agreement and all other applicable agreements; or (2) an ariount equal to the sum of S140,000,000 and the amount available as secondary financial protection.

The fol lovdng two endorser.ents have been sub111itted by American t:uclear Insurers, one of the two insurance pools to restore the clair.s expense lirriits for Units 1 and 2 and to add S20 million in insurance for Unit 2.

The other insurance pool, :\utual .A.tornic Energy Liability Under,iriters will issue an identical endorsement except fo r the dollar amounts.

The Cor1mission is publishing the follm*dng tvm endorserner.ts to Facility Fam pol icy t-lF-220 issued to the 1 icensee.

,ApDenci ix llr,11

,)

NUCLE.d.R EMERG Y LIABILITY H!SURANC E ASSOC IA TIO~l RESTORATION OF LIMIT OF LIABILITY ENDORSEMENT (Extraordinary ~luclear Occurrence)

It is agreed that:

1. On or about March 28, 1979 a nuclear incident originated (hereinafter called the March 28, 1979 incident) in connection with t~e ownership, operation, maintenance or use of the Unit 2 nuclear reactor situated at the location designated in Item 3 of the declarations.

2. Payments made by the companies under this policy with respect to the March 28, 1979 incident have reduced by Sl,786,863* the liP1it of the companies 1 liability stated in Iterri 4 of the declarations, as amended.

3. The original limit of liability stated in Item 4 and the respective amended limits of liability stated in Endorsements 15, 20 and 31 are hereby restored to the amounts shovm below but only .,..,i th resoect to obligations assumed or expenses incurred because of hodily injury or property damage caused by the nuclear energy hazard due to an extraordinary nuclear occurrence \<1h i ch happens during the period fran the effective date of this endorsement to the date of termination of the oo1icy and arising out of the ownership, operation, maintenance or use of one or more of the t~110 nuclear reactors situated at the location designated in Item 3 of the declarations; provided however, that such extraordinary nuclear occurrence is deterrni ned by the Nuclear Re9ulatory Commission to be an 11 extraordinary nuclear occur-rence11 pursuant to the provisions of its regulations and the Atornic Energy Act of 1954, as amended, and in effect en Hay 1, 1979:

Ori<Jinal limit stated in Item 4 S 1 , 0 0() , 0 00 Li~it stated in EndorseMent 15 85,250,000 Limit stated in Endorsement 20 96,875,000 Limit stated in Endorse~ent 31 108, 500,()00

4. The limits of liability, as described above and as restored to the extent provi~ed by this endorse~ent, shall not be cumula t ive; and each payment made by the companies after the effective rl.ate of this endorser1ent for any 1 oss or expense covered by the polic y shal 1 reduce by the amount of such oaynent each of such l ini ts of 1 i ability resard1ess of \'lhich li mit of liabi1ity aoplies ,..Jith Ar. pe nd i x 11 8 11

• Payments made as of 11 ay 31, 1980 .

respect to the bodily injury or property damage out of \vhich such 1 oss or expense arises.

Effective date of this Endorsement June 1, 1980 1-1hich fonns a part of riolicy tJo. nF-220 Issued to Metropolitan Edison Company, Jersey Central Power i light Company, and Pennsylvania Electric Company For the Subscribing Companies Date of Is sue By

- - ---,G,,.-e_n_e_r_a~l~r~

,:a_n_a_g_e_r_ _ _

Endorsement ~Jo - - -- 43 -- -- Countersigned by tJUCLEAR Ef-!E~GY LIABILITY H!SURAt!CE ASSOC IA TI Ot,~

SUPPLH*1Er1TAL LHHT OF LIABILITY EtlDORSEf*,~rnT (Apolicable Under Certain Conditions)

Hhereas, there are t1;10 nuclear reactors at the location desi9naterl in ltef:l 3 of the declarations kno.,., respectively as the Unit 1 nuclear reactor anct the Unit 2 nuclear reactor; and

\~hereas, the limit of liability stated in Item 4 of the declarations of the policy as amended by Endorserr*ents :-lo. 15, 20 anrl 31 applies jointl y anrl not severally to bodily injury and riroperty danage caused by the nuclear ener9y hazard and arisin~ out of the ownership, oceration, ~aintenance or use of both nuclear reactors, to9ether with all of t he ore~ises, land ,

f,ppe nc1i x ,, ,_:

buildings, and structures conprising tt1e facility ,iescribe<l in Iterr, 3 of the declarations of the policy and all property and operations at the locations designated therein; and

\,/hereas, such limit of liability, as amended, is reduced by each payT;1ent made by the comoanies for any loss or expense covered by the nolicy, all as more particularly provided by Condition 3 of the policy and Endorse-ments No. 15, 20 and 31; and

\lhereas, on or about March 28, 1979 a nuclear incident ori~inated (herein-after called the ~1arch 28, 1979 incident) in connection \*dth the ovmership, operation, maintenance or use of the Unit 2 nuclear reactor; and

\,/hereas, the cornoanies are ,,..lillinq to supoler.1ent under certain conditions such portion of such li r.1 it as may nm,1 or in the future be available with respect to bodily injury or property dariage caused by the nuclear ener~y hazard after giving effect to the provisions of Condition 3 and Endorsel'.1ents '.lo. 15, 20 and 31.

~!OVI , THEREFORE, IT IS AG REED THAT:

1. In the event the past or future payments by the com Danies for loss or expense covered by the policy exhaust the limit of liability stated in Item 4 of the declarations, as amended by Endorsements 15, 20 and 31, and as restored hy Endorsement 43, with resoect orly to obli1ations assumed or expenses incurred beca u se of bo~ily injury or prooerty dar:1age caused durinr: the period frcn r*ay 1, l C 7G

-* I -

to the date of termination of the nolicy by the nuclear energy hazard, the limit of the conoanies' liabilit_y shall be increas eci by Appendix 11[)11

,.- .r Sl~,son,nna; provided, however, that t~is increase in the limit of the companies* liability shall not apply to bodily injury or property damage arising out of the ownership, operation, maintenance or use of the Unit 2 nuclear reactor unless such bodily injury or property damage results from a nuclear incident which is determined by the Huclear Regulatory Commission to be an "extraordinary nuclear occurrence" pursuant to the provisions of its regulations and the Atomic Energy Act of 1954, as amended, and in effect on May 1, 1979.

2. Each payment made by the canpanies after the effective date of this endorsement shal 1 reduce such 1 imi t of 1 i ability and each of the ccxroani es*

limits of liability, as restored by Endorsement 43, by the amount of such payment in the manner orovided in Condition 3.

Effective Date of this Endorsement June 1, 1980, which forms a part of Policy No. HF-220 12:0 l A.M. Standard Time Issued to Metropolitan Edison Company, Jersey Central Power & Li ght Co~pany, and Pennsy l vania El ectric Company Date of Issue For the Subscribing Companies By:

Presirlent Endorsement No. 44 Countersigned by FOR THE ~-IUCLEAR REGULATORY COM~lISSIOtl Samue 1 Ch il k Secretary of the Commission Dated at Washington, DC, this day of 1981

.A.opendi x "B"