ML20136C299

TMI - Study of Regulatory Implications for Ratepayers

ML20136C299
Person / Time
Site:	Three Mile Island
Issue date:	06/12/1979
From:	Bodilly S, Kaufman A, Profozich R LIBRARY OF CONGRESS
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NUDOCS 7909190067
Download: ML20136C299 (22)

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THE LIBRMY OF CONGRESS

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Congressior.al Research Service

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• t TUEE MILE ISLAND -- A STL"JY OF THE RECULATORY IMPLICATI0 tis FOR RATE?AYERS

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Russell J. Profset r.

Analyst in Energy and Utilities i

Alvin ::auf=an Senior Specis'ist 0;alatory Econ:aics Mineral and 7 Susan J. Eodii. '

Research Assistan:

June 12, 1979 I

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The purpose of this report is to explore the regulatory i:nplications of major nuclear accidents of the type that occurred at Three Mile Island.

The types and magnitude of costs involved, and the possible metnods of te allocating those costs are analyzed.

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ThEEE h1LE ISl AND -- A STUOY OF THE EECU' ATCRY IMPLICA!!C:.5 FOR RATIPAU.,25 I

E Table of Contents

-en pa2e I.

Introduction...........

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II.

The Price-Anderson Indemnity Act

..... 2 III.

Insurance Coverage of Three Mile Island Unit :

I.

IV.

The Cost of Three hile Island Accident

.5 V.

Financial and Regulatory 1 plications of Three Mile Island 6

VI.

Tae Alloca: ion of Costs Resulting Fro: a Nuclear Accident

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U:ili:y Cos:s 10

1) The Allocation o f Utility Costs 11

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Purchasec Energy Cos:s 12 I

VIII.

F.egula:ory Cos:s

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Social Costs..

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1) The Allocation of social costs 15 Con:lusions 16 2

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I.

Introduction The accident that occurred cn March 28, 1979 at Three Mile Island has

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raised many quastions about the adequacy o f curren: Federal and State 6

regulatory =echods of dealicg with a =ajor nuclear reactor accident. The y

Federal Covernment and private insurance companies p rov id e for suostantial a=ounts of liaoility and da= age coverage for nuclear power plants. Eowever,

=any o f tne costs associated with the Three Mile Island a::ident are not covered ey tnese policies. Currently, the owner o f tne plant, General Fuolic Utilities Inc., and its three operating subsidiaries are bearing cost of the costs of the accident while 5: ate regulators are consicering how these costs snould be allocated trong sharenolders, ratepayers, and the general publi:. Also, the Chairman o f tne Pennsylvania Puolic Ctility Cc=r.ission nas called on :ne Feceral Covert =ent to snare t'.e financial c

a burden of cne a::ident.

This report considers tne types and ca;nitude of the costs involved in :ne Three hile island accident, and the :urrent Federal and State pre-cedurer available to deal with these cost s.

Utility re;ulation is basically a Sca:e sa::er, bu: the Federal Cotern=ent does provide for liability 6..suran:e : verage under the Price-Anderson Act (in addi:ian :o li:ansing e

naclear f a:.1; ies and regulating their safe:y), and may be:::e involved j

in staring the financial burden resulting from the a :icent The various a '. t e rna t ive s for all::ating :te types of cost s involved in the Three ::ile 1slens a::ident are also censidered.

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II.

The Price-Anderson Indemnity Act The Price-Anderson Indemnity Act was enacted as Public Law (P.L.)65-256 in septe=ber 1957 The major objectives of the Act are to assure s

cm the availability of funds to satisfy liability claims and to remove the growth deterrent to commercial development of nuclear power presented by the risk of unlimited liability claims in the event of a major nuclear 1/

accident." In it s original f orm, th e Ac t provided that each nuclear licensee acquire 360 million of private insurance to cover public liability clai=s against the licensee and its subcontractors; that the Atomic Energy Cc= mission ( AEC) provide indemnity protection up to $500 million for each nuclear incident (for which each nuclear licensee paid an annual fee) in addition to the 560 tillion of private insurance; and that the maximum liability for any nuclear incident not enceed a total of $560 =illion.

The original Act was to re=ain in effect for ten years (1957-1967), but in 1965 its life was extended to 1977. In 1973, legislation that amended i

the Act and extended its life to 1937 was passed by Congress and signed into law 2/

( P. L. 9'-197) on Oece=ber 31.~

The major previsions of this law provide that 1/ See: Direct and Indirect Benefits of the Price-Anderson Act fer Concercial ::uclear Power, by Cctl E. Eenrens, Analyst, Environ =ent and :;atural Resources Policy Oivision, Library of Ccngress, Congress-ional Research Servi:e, 'ove.ber 1977.

J/ See: :uclear Insurance /indenni fication: Th e Price-Ande rs on Act, Issae j

Erief - 13 75013, by Ceri S. Evarens, Environment and ::atural Resour es l

Policy Division, Library of Congress, Congressional Eesearch Service.

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CRS - 3 (1) The Covern=ent's indemnity protection be phased out by estab-

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lishing an insurance pool of retrospective premiums to be paid by each nuclear licensee. These premiu=s are deferred un:il public liability from a nuclear incident exceeds the amount of private insurance protection.

I As the number of nuclear power facilities increases,'the Covernment's

.s e indemnity protection is to decrease until it is entirely replaced by retroactive premiu=s and private insurance. The maximus a=ount of liability coverage for a nuclear tncident will increase above the S$60

• 9 million limit with the increase in the number o f nuclear licensees and the increase in available private insurance. The retrospective assessment is to be establisned by the AEC -- now the Nuclear Regulatory Ccmmission CNRC) i

-- at a level between 52 =illion and SS million per reac:or.

(2) The Covernment will be tne ultimate assurance to the publi:

that :he designated funds will be available in the event of a nuclear i

inciden:.

(3) There is no i:=ediate increase in the 3360 million li=it on liability. However, depending upcc the nu:bar of licensed reac: ors and the accan: cf the retrospective assess:ent, the upper liability li=it could float upwards.

(4) The :ime period during which a clai o f da: age could be made was ex: ended fic: :en years to twenty years af:er an extraordinary nuclear accident occurs.

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(5) The original provision that the cost of investigation, settlement and defense of claims be deducted from the $560 million liability limit I

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was eliminated.

During markup of the bill, the Joint Committee on Atomic Energy re-i emphasized the concept of congressional responsibility in case of an accident resulting in damage greater than the $560 million liability limit.

a i New language in the bill provided that

"...in the event of a nuclear in-cident involving damages in excess of that amount of aggregate liability, the Congress will thoroughly review the pe,rticular incident and will take whatever action is deemed necessary and appropriate to protect the public i

from the consequences of a disaster of such magnitude."

Ill. Insurance Coverate of Three Mile Island Unit 2 Liability insurance at Three Mile Island (TM1) Unit 2 is provided.for under the Price-Anderson Act.

As mentioned above, this Act limits liabililty

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for damages occuring as a result of a nuclear accident to $560 million. At i

the time of the accident, private insurance companies providqd $140 =illion I

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in liabililty coverage with another $335 million in coverage assessable thougn retroactive premiu=s of 55 million each against licensed nuclear reacters of the pool of utilities with nuclear plants. The remaining $85 million, needet to reach the $560 million limit, is covered by the rederal Government's indemnity program.

The TM1 plant also carries $300 millien in on site property darage cover-age, the maximum amount currently available from the insurance industry Inis O

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coverage includes tne cost of decontasination and replacement of damaged I

l parts of the facility. It does not include the cost.of any plant design modifications that may be necessary, nor does it include the cost of re-place =ent poker resulting from the plant's inoperability.

,j IV.

The Cost of the Three Mile Island Accident The exact cost of the nuclear accident at Three Mile Island is not kno wn a t enis ti=e.

Secause an accident of this magnitude has never occured at a U.S. nuclear facililty oefore, there is little infor-mation available on the nature and cost of repairs that might be neces-sary. Also, design modifications to the facility will almost certainly be necessary. Ine extent of enese mooifications will not be known until 1

some time in the future. Certain costs are known, however, and have been or are being incurred ' y tne owners of TMI or its insurers. These costs a

are outlined below.

(1) As o f April 24, A=erican Nuclear Insurers C3.,

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consortius that insures nuclear power plants, has reportedly paid

_ _ _$1.123,000 to f amilies wno evacuated their h =es near the T::I plant.

l This expense is covered under liasility insurance provided for under the Price-Anderson Act.

l (2) Ceneral Puolic Utilities Corp. (CPU) has stated that the ecst of purenasing replacement power for enat vnien would nave been produced by Ta! Unit 1 and Unit is $2a cillion per month.

Unit I was not damaged by tne accident wnich cccurred at Unit 2, however, Unit i has also been e

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snutdown pending cespletion of the investigation into the accident, t

CPU indicated tnat the cost of purchased power would be reduced by 1

aoout $14 =illion per conth once Tat Unit i returns to service. Unit 1 is expected to be out of service for the remaincer of tnis year, and while no exact time period can be determined at enis time, Unit 2 is expected to recain out of service for two or enree years. The cost of replacement power is not covered oy any insurance supplied to the a

ec pany by either private insurers er the Fpderal Government (3) Be:ause Thi Unit 2 is out o f se rvice, and as a result of cne Pennsylvania Puoli: Utility Co mission's suspension of a previously granted rate increase, the company is incurring approximately 53 million per sonth in fixed costs related to tne construction and finan:ing of tne plant These costs are not included in any insurante coverage of tne TPI facility.

nas Financial and Reculatorv 1:clications of Tnree Mile Island

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On April 19, twenty-two days after the accident at til, tne Penn-aylvania Puolic '.tility Cmnmission (?UC) suspended a S49 =illion rate g

increase it nad previously granted to P.etropolitan Edison Co., the oper-ator and partial owner of T:11 Unit 2.

(ThI Unit ; is owned by itetropol-itan Idison Co. (Met

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??nnsylvania Electric Co. --

23 percent; and Jersey Central Power and Lignt Co. -- 25 percent All tnree o f these utility ccmpanies are wholly-owned subsidiaries of Ceneral Puoli: Ltilities Corp.) The rate increase was ba>ed upon costa i

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associated with the construction and operation of TM1 Unit 2. Chairman

..tison Goode of the Pennsylvania PCC stated that "Until we find out w

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all tne facts, tnings snould stay the way they era.

There should be no enan3e until all the facts are in.'

i Th e Pennsylvania PUC also declined

.t request by GPU for an i=ced-late rate increase of approximately $5 cillion per month to help pay t

for replacement power purchases. A ca:sission sponesperson indicated, ac:ording to a May 11 Wall Street Journal article, that the agency will reccasiJer tne requeat after a f ull investigation of the accident is completed. In turning down ene request, the cecmissian stated that the ec pany has "neither alle:ed no r deconst rated any im=ed inte danger o f financial :ollapse. ' Ine commis s ton concluded that "it is ina.,p ro c r i a t e to atta=;c at tnis ti=e to atjust rates..before all t!.c f ac t s are kna -m and the recora is cc=plete '

Th e Wall Street Journal also reported in a May 3 artt:le that Jue

-4 to *he hign ca$n desands tne a: ident has plac ed cn CPU (i.e., purchased l

po-er costs), tne crapany is scesing Sa51 millien in ban A crdett lines.

i Tae neec to estaalisn firn lines of :redit is due mainly to tne t

e finan:ial c remunity's nervousnes s aoout the c om p a n y' s financiai condition. Up untt! tne day of the a::tdent, CPJ had 32:5 millian in inferral unsecured lines of credit After the acc id en t. the c ampany ned tais accunt increased t3 3465 millwn.

H> wever, the ban s that are ex-ten.in; these lines of :redit na<want f o rm al arranga=*nts, secured in par _ oy c?u assets. GPU Treasurer Ja::n G. Granaa sa ta tnat the c pany is neing asted to ple<t;e as securit for the lines of c reJ tt all of the s.

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cc :en stock of Pennsylvania Elec trte Co. and Jersey Central Power and Li;ht Co.

The banks also want Met. Ed. in the near future to sell enes up to $100 million in short-term conds in place of part i

i of the credit lines.

Mr. Granas esti=ated the e f fective cos: of J'

borrowing tne coney would oe aoout 12 per:ent to 13 percent.

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.sv Also in response to the 211 accident, the ilashict:on Po st reported on April 26 enat CPU announced it would cut its quar:erly dividend from 45 cents to 25 cents per share, and will cris salaries of of ficers and directors. These ac: ions were the first step, it uas announced, in a program to reduce operating and caintenance expenses by 10 per:ent.

The company also announced that it had suspended a::ivity on all 4

construction projects involving addi:ional generating and transmission fa:ilities, and is stopping all except the cost critical constru:: ion pre;rass at existin; stations and is pos:poning all nonessen:ial I

caintenance ac:ivi:y. Tne ecmpany has also placed a free:e on hiring ans postponec.:heduled pl:n: outages, Task for:es have been esta:>lished to seek, identidv and i plement ceans to reduce cos:s fur:ter.

I A Wasninat:n Post ar:icle on April 24 reported nat Willia: G.iLnns, cnair:an or 0?U, said :ha: :he invest =ent c::nuni: is likely to hi:

I nuclear u:ilities.ii:h a 20 percent increase in the ces; of new capi:21

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unless tne utilitie s are per itted to charge : heir cus:::ers for acciden:s i

!!ie 7:11. The extra ch2r es would be tne inves: ent :: : unity's pri:e for tne in:rease.1 ris k o f paying for :ne cost of a major nuclear c::iden;

ne sur:n=r;e cculd de $230 cilli:n a year indu:trv-e.r. r:a.na estizz:ed ina:

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I the cost anyway. The esti a:e assu es the tradi:ional pattern of a 510 billion. yearly construe: ion budge; and about $1 billion a year in finance charges.

The sa=e at:icle reported snat Carl Walske, president of :ne

+f A!ccic industrial Forum, stated that utilities have ordered nu; lear I

power plants on the assu ption enat consumers would handle all re-j pla:ecent power costs under the fuel adjust.=ent clause.

bw utilities i

are uncer:ain as :o wnetner they'll be sankrupted oy even a low-risi accident, ne said. As a result, ne sta:ed, you're unlike'y to see Core new orders of nu: lear power plants until this que stion o f risk is resolved.

In testi:any prepared for the Sena:e Subcommittee on :!uclear Reg-ula:icn, W. Wilson Goode, chairman o f :he P enn s y lv an ia ?:, said :ta:

-m tha ::s:s o f suos:::ute electri: pcwer and of serv.:in; the deot on the TML Uni: ; plan: will se too great for either the shareholders of i

C? or for Pennsylvania ratepayers :o bear.

Mr. Goode sug;ested several

.ays in ani:n :na Federal Governmen: could snare the financial burden i

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of : e March 25 accident. One way, he sagges:es, would be for :he Congress to pass legislation :nat uculd provide insurance to cover :ne

Os: of purenase poser. A more inmedia:e way to provide aid, ne said, would be to ex:end Federal ; rants or con:ritu: ions si=ilar to disaster aid or :o provide low-in:erest c r r.o-in t a r e s loans :o :he ccmpany to help meet i:s cos:s.

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v1. The Allocation of Costs Resultina From a r;uclear Accident Allocation of costs growing out of accidents and disasters is historic-i i

ally a concentious--indeed hazardous--undertaking, of ten resolved in the f

courts. The following is a broad application of certain ~ general regulatory 1

principles of cost allocations to nuclear accidents, where precedants are few.

certainly other reasoned approaches are possible.

A nuclear accident is a unique event, in the sense that it results from a man-made machine, yet can have an impact similar to a natural disaster. In this sort of catastrophe, there are elements of an electrical system blackout coupled to the kind of problems that result f rem floods, plus" hurricanes or earthquakes plus regulatory adjustments such as encountered in an aircraf t disaster. As a consequence the costs fall into several major classess utility, regulatory, and social. The utility costs include direct costs suen as those related to repair of the plant. as well as indirect costs such as purchased energy to replace the lost output fro-the plant. Regulatory costs are largely

-se future costs resulting from more stringent oversight, such as increased plant shu:fovns for safety assurance. Social costs are of a core br:ad-ranging type and relate to corollary problems. In general enese are of the type usually d

en:ountered in a major catastropne, such as eva:uation and disruption expenses.

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VII. Utiliev Costs t

Utility costs are those related directly to the reactor or the utility.

Included are ene following-(1) Costs of reasserting control over cne reactor, including the costs of federal intervention ana help, currently estimated at a minimum of $140 million in the case of the Three Mile Island Reactor; (2) Clean-up of the reactor area and possible centsminated areas arour.d the plant; 1

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(3) Restoration of the plan, ration; (4) Interest and other charges on a non-operating f acility; i

I (5) Movement of wastes to storage sites and acorage costs; (6) Cost of purchased energ,

• replacement of that lost from the nuclear plant, estimated t $288 million per year in the casa

"'*d of the Three Mile Island ident.

1) The Allocation of Utility C. 4--In the case o f Three Mile Island, t

.l utility coscs are covered by $300 ~illion in insurance. It is not kno n whether this will be sufficient to cover the costs of bringing tne reactor under control and repairing it, nor will these costs be known f or some time.

It is anticipated that the reactor cannot be ' inspected for at least a year i

due to radioactivity. Furthermore, costs such as interest char;as on a non-o;erating plant and purchased power costs are not covered by insurance.

t Those costs not covered by insurance will have to be borne by the participents in the event (i.e. the utility, its contractor, and its customers), unless regulators deter =ine some cethod to allocate all or part of these cost to the general public.

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In general, equity considerations would deem that non-insured utility

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costs should be covered by those respcnsible for the probles. That is, if the l

contractor created a f aulty plant of the operators made an error, or both, then the contractor or tne ecmpany or both should pay the costs not covered by insurance. The consuter has arguably already paid his share by centributin; to the insuran:a presium threu;h his rates and should not be asked to pay again.

1 The cenpany could ar;ue that sic:e the nuclear plants have contributed to Icwer rates than etheruise would have been attainea, the consumer should now return a portion of these savings. Cc=pany calcolations indicate a $700 millien consumer savir.;s as the result of nuclear generation. This, ho.ever, s

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ts a tenuous ar;ument in the sense that the utility is suppused to provtce ddequate arrvice at the lowest possible cost consistent with environmental I

and safety considerations. Therefore, the rebuttal runs, the consumer has saved nothing; he has only received what he has supposed to receive. Ucr is the consumer supposed to be carrying the risk.

In the first place, nuclear plansa are generally built amid public statements on behalf of the utility

.I and its contractor that indicate these plants are safe.

Thus, t n* consume r is unaware that there is risk to be assumed and should not be asked to carry it in retrospect wnen things go awry.

Of greater importance, however, is the fact that the s toc knold er plac es h i s money a t' r isk.

As be quid pro quo for assuaing the risk, the stockholder recaivas a return on his investment.

Therefore, it is arguably the stocL1 older who snould carry this risk.

In the event the plant is no longe r usable, regulatory principles indi-cate that it should be removed from the rate bas, so that the c c:pany dens not continue earning a rate of return on it, la such a case, the apportion-cent of risk a:eng :ne parties concerned should take account of sno is at

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fault.

Those responsible should bear tne cajor share of tne ei:k. The cor-t su:er i s no rm ally ex p*c t ed to carry a f ortion of the risk only if the atticent is cremed to be an "Act of God."

Su:h an approacn coul! :nrow a utili; into s

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!ankrsptcy. khtle not en* optimal situation, still it is unlikely that a l

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could would pernit the company to cesse operatiens. It is e.ost likely enat the co:cany would centinue to crerste undar c;urt-appainted trustaas, mu.-

in the manner in which :ne ?*nn Central Failroad c on t inue<1 tu operata durin a

s par t ad o f it s bankrup tc y.

Taus, tne c onsumer ould still receive serv.:e, althouzh of a patentially Lower quality.

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2) Purchased Energy Costs--Utility costs includa purchased anergy to replace generation lost as a result of the accident. The cost of purchased power is a unique item, in that a cost must be incurred in order to replace the lost ener2y from the failed plant.

In a sense, this replacement is to n

the consumer's bene fit, and one could argue that he should pay the full cost.

In this regard, we need to make it clear that there is no argument about who pays the base cost, i.e. the cost the consu=er would have paid for energy f rom the original plant if it were still operating. The customer snould continue to pay this portion of cost.

The argument is over ene incre: ental cost.

That is, the difference between the cost the consumer was paying when the plant was operating and the cost of purchased power to replace that energy.

The latter can defensibly again be apportioned according to responsibility.

If, for example, the a::ident were caused by poor design or construction, n+n efforts should be undertaken to recover the incre= ental cost from the contra: tor.

On the other hand, if the company was in error, than the company

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snould absorb the in:re: ental purchased powe r cost s. If both *.ere at fault, then betn snould carry the incremental costs. Onl in the case of an "Act of I

Cod" is the consumer no rmally called upon to pick-up ene incremental cost s.

VI!!. Revulatorv Cc3ts i

i Regulatory costs are thos* flowing f rem decisions induced by tne a:: 1-dent.

These affect both the specific utility and the industr~ as a whole.

These include:

(1) increased future regulatory costs to assure safety; (2) Possible in: easas in plant shutd:-as for safety reascas, th;s lowering the oparating rates and in:reasing aparatin; costs, 1

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(3) Potential increase in financing costs due to greater risk percep-tion on the part of investors. For exa=ple, shortly after the Three Mile Island crisis, Vepco issued a series of bonds, and was required to pay a 50 per:ent premium for distribution fee, plus an i

intere se rate 0.2 percentage points higher than originally antici-pated. These higher costs are attributed by so=e to ba a result of Thre? Mile Island.

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These costs would not be covered by insurance. That is, if the t2C, as a result of its investigation of the accidpat, ordered plant codifications to prevent a recurrence, the cost of such changes would not be insured, and the ccmpany, its centractor and/or the custemers would have to pay.

The question is, once again, who should be required to pay? Regulatory costs can be con-sidered as a form of internalizing external costs in the light of additional knowledge. Such costs would generally be undertaken for the consumer's pro-te: tion. Under this line of r.soning, the customer would bear these in the j

l case of plant modification and higher interest rates. In most instances, the 6

cost shift to the consu=er would automatically o: ur througn the nor=al workings of the rate-making procedures.

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In the case of plant shutdowns, a regulatory decision might be necessary to apportion the costs depending on why the shutdown occured. For example, I

if the shutdown resulted f rom design error, faulty maintenan:e, etc., then i

tne responsi^ ole party should pay the bill in:1uding the incre=*ntal cost of 1

I pur:hased power.

,I IX.

Occial Costs The social costs are rather broad and pri=arily third-party costs.

That is, they are incurred by persons not involved witn the operation of the

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nt and largely innocent of any conr.ection with the utility other than as a :ustomer anJ through proxicity to the nuclear plant. Inese costs include;

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(1) Evacuation expenses such as the movement o f pregnant woman and preschool children frca the araa; (2) Interruption costs such as schoul and airport closuras; (3) National costs incurred as a result of delay in nuclear expansion; (4)

Da= age costs, sucn as property damaga, reduced tourist business and lost business due to public reluctance to buy products f rom the area, possible crop contamination, reduced proparty values, increased processing costs to ensure safety.

In the TMI case, for example, the Hershey Chocolate Company has reportadly been

.i converting purenased milk to con:entrate and storing it until any traces of radioactive iodine would have decayed, approxi=ately eight days; (5) Future health costs--it is estimated that over the next twenty years as a result of TM1, there will be one to ten additional cancer deaths and ten additional non-fatal can:er illnesses; (6) Litigation :osts; and (7) Cost to society of increased regulation ( a.g.

in:reased regu-laccry b_dgats and higher energy costs).

~ha evacuation and damage costs are currently esticated at approxi=ately 51 =illion.

Four major suits have been filed, how*ver, each asking for a ie;41 caxi:um o f $ 5 5' nillie n.

Actual costs are, tnerefore, uninr.n.

The social costs, depending on the severity of the a:cident, can be l

catastro;ai:. Even in the case o f Three Mile Island, w,ere a full scale 4

ac:ident was avoidec. unen all of the court cases hava been settled, the

>::iai :osts may be quite substantial i

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1) The Alloc ation o f Sc:ial Cast s--Liabilit in the event o f a nuclear a::ident is limited by law (Pri:c-Anderson) to S55] rillica par in:ident

• ne liaollity is covered by insurance, an assass.+nt at up t o $3 millis, par ru: lear plant in the v.5.,

and a contribution, if ne:+ssarv, by the Federal covernment In tha case o f T:!, in which tne util t carrie; sil.0 =illion in insurance, the assassmant would raise 5335 mil' ion, and tne Federal Treasury would have to centribute $35 million.

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The limitation on liability is a contingent subsidy.

!;;a t is, by s'

limiting the liability, the Congress is providing a subsidy to nuclear power

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whi:h is only payable in the event o f a probica. The cost of the subsidy would be paid by those victims, if any, of a nuclear accident wno were not

.w reimbursed for their troubles, rather than by the general public. Further, the assessment of cost s to all nuclear plants throup.h ratrospectiva payments tends to spread the risk to all owners of such plants. Asmuaing tne assesscent is permitted as a cost by ragulf tors aad tnus is passed-through to the utility custcmer, all users of electricity are paying part of the liadility bill.

!=pli:it in this arrangament is the assumption that nuclear po er is in the national interest, otherwise, sny provsce a suostjy? and Lnj seek to spread the risk thrJugh0ut the United 3tates.

It it it t r.e ju:icant o f tne Congress that the development o f nuclear energy is in the national interest, then the social costs o f a naclear catast ropie,it could be argued, should ta c0varad by all of the people o f the 'Jn i t ed States.

In any case, the U.S. Covernnant is pr bably the only antity larga e

i enougn to carry the bur:an. Further, enere will be a need f quick ac t ion

allevista distress and only a goverrmantal bcdy, - r au, ts vartaus e

dtsastar and did programs, is in a posician to sa ac.

ac lea r ca tastropn.s,

larg. or snall, shoul be treated in the acer way t hat one sno J treat a

• !;oc disaster, That ia, ent,ugn rocilt:stion a: the disase-* ra!; f a;encies of a particular caemuntty, many a t wt,9 a-already funJed to a c rsiderable extent bv Ene Fadarst Cu.-rn. ment Assu:tng nuclear po.ar is deemed to be in the 3 ional interest, tha innocent Victims of a nu0 lear Catastrophe shoulc.* be askej da cerry the Ti s

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CRS-17 i

full burden for the United States. There fore, the liabilit y limit cight defensibly be maintained at the current level with damages above ene limi:

being covered by the Federal Covern=ent as a for= of disaster relief. '* Lenin 1

I the limit, the full burden would be carried by the itility through insurance plus a risk-spreading device among all nuclear plant owners. Under this i

.45 ra:ionale, damages below the legal lisit would not be covered by United Sta:es.

.I Althougn the U.S. Coverr=ent will probably have to provide disaster i

relie f i =ediately, all costs up to cne limit can be billed back to the nuclear power owing utilities. Costs above tha limit would be spread acon; all taxpayers in the event of a major catastrophe just as costs for flood relief ec=e fees tax revenues.

l This leaves us with a major problem, nowever; how to take care o f future a

health cos:s? The health ces:s will not be apparent un:il ion; after the there ' ill inevitas'y event -nen :he nacional sympathy has cooleo down.

Yet te sui:s filed years later : hat will require compensation. By then the liabil.:y lini:s may well have bean exnausted and di2 aster relief will be t

over.

Yet so=e co:pansation will probaoly be needed far the ::a;aa :o ni:h I

hese people have been subje::ed, and some way o f a::: plishin; this compar-4 i

sa: ion is r* quired f o r lon;-te rm vi::izs ho are no: reidily ap;arer: earl >

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on.

This can be handled :o an exten: :hrou;n various devices, such as a ca:astropne : rust fund suppor:ed by a tax on nuclear ;owar ou:put, or by

rovidin; tha

the utilities must pay One first par. of any jud;nent ren-cere: by :he :ourt, say !!] lllion, with :ne r-naining cos: borne by rhe United Sta:es, either ou: o f ganeral ravanuas or tha catastrop9a tres: fun <

These payment s would be above :ha liability limit Ine trust fund.ould e

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result in the internalizing of so:ial costs since the tax would be passed en to the censu=er as part o f the price of electricity.

Another alternative would be for the U.S. to uaderwrite and subsidize I

tne cost of nuclear health insurance for those living within the potential danger zone of a nuclear plant. Those buying would ba fully covered for i

all costs resulting from a nuclear incident, including long-run health costs, loss of income over the long te rm, e tc. Those not purchasing the insurance i

would be covered only up to the Price-Anderson liability limits and would not be eligible for further aid.

Within this context, some arrangement would be required to nrovide insurance to tnose wnose income levels wara such as to preclude t heir being able to purchase the coverage on their own.

This mignt be done through the J

existing welf are system with soecial funding fron t.Me Federal Govern: ant or through the catastropha trust tund or some other similar mechanism.

X.

Conclusions Tc.rse Mile Island nas brougn intreasad attention to the man" costs u.

associated witn a cajar nuclear accident, and will tarce f urther regulatory examinstion of these costs and their proper allocation to tna industry, its a

custo=ers, and the genaral publi:

aciaar reactor accidents o f the type enat occurred at TMI involve three i

6 Lind s o f cost s.

Utilit y cost s are those related diractly to the resecar or tha utility and include clean-up and rapair o f the facilit interest and o t t.c r fix.aa :narges, and raplacemant power cost s.

Since a nuclear ac:idant is rot an " Ac t o f God,' a cenvantignal case can be =ade that tbese costs should ba borna by tha utility ecmpany, its construction contractor, and/or its stockholdats. To require ratepayers to bear thasa costs is to assign a 4

Y s

e

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CRS-19 If utili:ies major por: ion of corporate responsibility onto tn cus:c=er.

I are to be expected to cake decisions that are in the best interest of their custcmers and to operate ef ficiently, then regulations need to consider the 6

l principle tha: utilities snould be held responsible for the consequences of T

~;

tneir decisions if thing s go awry.

Regulatory costs are those resulting from increased regulatory sctivity, be:n for Three Mile Island and for the nuclear power industry in general,

• t resulting froc the accident. Insof ar as these costs are desi;ned to provide benefits to the consc=er in ter=s of increased safety and reliability of f acilities, cost of these costs would be born.e by rate-payers.

Social costs are pri=arily third-party cost s incurred by individuals society in general through close proxi=i:y to the nuclear plant or and through " ripple e f fects" of the accident. Such costs include evacuation ex;enses; icst work days; lost produ:: ion; health c ost s ; and litigstion cost s.

Tnese types of costs are si=ilar to enose uhich would occur in a natural d;sas:er, and thus it can be argued that a cajor ;ortion of social costs

)

..,m should ce borne by the general publi: through Federal prc; rams. This point of I

view assuces : hat nuclear power provides a benefit to societ and, therefare, s

a por: ion o f :he cost s o f nuclear energy =i;h: also De borne by socie:y.

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