ML20246H212
| ML20246H212 | |
| Person / Time | |
|---|---|
| Issue date: | 12/19/1986 |
| From: | Stello V NRC OFFICE OF THE EXECUTIVE DIRECTOR FOR OPERATIONS (EDO) |
| To: | |
| Shared Package | |
| ML20244E570 | List: |
| References | |
| NUDOCS 8905160032 | |
| Download: ML20246H212 (59) | |
Text
n.
s.
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l For:
The Commissioners From:
Victor Stello, Jr.
Executive Director for Operations
Subject:
FINAL RULE T0 MODIFY THE REQUIREMENT THAT POWER REACTOR LICENSEES MAINTAIN PROPERTY DAMAGE INSURANCE
Purpose:
To obtain Comission approval for publication of a
~ final rule.
On November 8, 1984, a Notice of Proposed Rulemakin Discussion:
was. published-in the Federal Register (49 FR 44645)g' That notice proposed to (1) increase the amount of on-site property damage insurance required of commercial reactor licensees to $1.02 billion; (2) institute a priority on this insurance such that, when so ordered by the Director of the Office of Nuclear Reactor Regulation, proceeds from the insurance would be used first to decontaminate and clean up the reactor'after an accident; and (3) tequire certain licensees who are prohibited by their
, states from purchasing insurance either offered by mutual insurance companies or subject to retroactive premium assessments to provide alternate sources of funds for decontaminating after an' accident.
i The Comission received 35 comments on the proposed rule.
As indicated in the enclosed draft Notice of Final Rulemaking (Enclosure 1), most of these comments were from utilities or their counsel or representatives. Almost all focused most of their discussion on the issues of the decontamination priority or, in the few cases of direct impact, State
Contact:
Robert S. Wood, OSP 49-29885
& 160032 861222 NEETIk hP NRCC i
i 1 prohibitions of the purchase of certain types of insurance.
Very few commented on the amount of insurance proposed other than to suggest provisions that would prevent. licensees from being in noncompliance if a substantial reduction in insurance I
capacity were to occur.
]
As indicated in pages 22-39 of'the draft Federal Register notice, most utility commenters strongly oppose imposition of a decontamination priority.
They believe that a priority would (1) be unnecessary both because of the interest of utility management and investors to clean up a plant and return it to 1
operation, and because the NRC probably already has l
authority to impose such a priority; (2) conflict with existing indenture language that provides.that all property insurance proceeds are to be paid to an l
indenture trustee who represents bondholders; (3) discourage investment and increase the cost of capital; (4) be redundant because a decontamination priority already exists in the $550 million excess layer offered by NEIL-II; and (5) possibly lead to protracted hearings that could impede the cleanup process and adversely affect public health and safety. Utilities further suggested that, if a priority were imposed, certain modifications.such as a time limit on the length of the decontamination pricrity order would make the priority more acceptable.
Another commenter suggested that the priority would not assure that insurance proceeds would be used for decontamination; This commenter suggested that insurance proceeds should be paid to a third-party trustee apart from the bondholders' trustee.
The staff believes that, given the Commission's directions to draft a decontamination priority, the best approach is to modify the priority further to provide for time limits and other restrictions on the j
decontamination priority order.
The staff also proposes that the rule delineate the decontamination and decommissioning phases after an accident and tie I
decontamination limits to 10 CFR Part 20 standards for radiation protection. However, given (1) the l
many utility) problems with the decontamination priority, (2 the likelihood that it could be j
accomplished under existin NRC authority without 4
L further rulemaking, and (3 the possibility that it may not always prevent funds from being used for non-decontamination purposes, the Commission may wish to consider other alternatives described in Enclosure l
6.
Commission attention is particularly directed to Alternative 4 which would study the feasibility of seeking legislation to give priority to cleanup I
1
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expenses over other creditor claims in bankruptcy proceedings. This alternative could be used in conjunction with, or instead of, the alternative purposed in the enclosed Federal Register notice.
E OG'C has no legal objection to the staff's recommended-approach, but believes that a trust arrangement is preferable because it would provide greater assurance i
of availability-of funds for decontamination following a serious _ accident. As explained in the comments of the Association of the Bar of the City of New York, utf' bond indentures typically require insurance proceeds to be paid available pro s directly to ths
. denture trustee, not to the utility. This r..eans that in the event of a serious accident, the insurance policy proceeds will not be under the control of the utility.
If the NRC were to order the utility to spend all or part of the proceeds for protection of the public health and safety, the utility would be powerless to do so without asking for and receiving the proceeds from the trustee. But the trustee might not be willing or even legally able to release the proceeds. The trustee's obligation is not to the public health and safety, but to the bondholders, and the bondholders are interested in preserving their investment. Thus, utility indentures generally limit the trustee's ability to pay insurance policy proceeds to the utility to circumstances where the funds will be used for repairs to or replacement of the damaged property and the bondholders' interests will thereby be l
protected. And, most importantly, if a utility were forced into default because of the financial consequences of a serious accident, the trustee might be legally prohibited from paying policy proceeds to the utility. Thus, the staff's recommended approach--an NRC requirement that insurance policies include a' decontamination priority for protection of the public health and safety--may be totally ineffective in the situation when it is most needed.
And, as the Association points out and our own experience confirms, the NRC's ability under the Bankruptcy Code to get priority for expenditures of funds for safety is very uncertain.
For these reasons, 0GC believes that the Comission should b
adopt the Association's proposed approach to the decontamination priority and require that the policy proceeds be paid to a separate trust fund established j
I for the sole purpose of protecting the public health and safety.
Although the staff believes there is substantial merit in the approach approach posed by the Association of the Bar of the City of New York, it sees potential problems (as discussed in pages 39-41 of the FR notice and enclosure 6).
On balance, the 1
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.-4 staff has chosen to recommend a decontamination priority without insurance proceeds being paid into a u
separate trust.
Several commenters urged the Commission.to adopt special provisions for licensees subject to State prohibitions against the purchase of certain types of L
insurance.. Publicly-owned. utilities in Texas and perhaps Louisiana may be subject to such prohibitions e JR with reggrd to the purchase of insurance offered by-F NEIL-II.
In developing the proposed rule, the staff believed that these utilities would be able to obtain an equivalent amount of protection by alternate means of financial assurance. The staff therefore concluded that the Commission probably. lacked the
. authority to preempt these State prohibitions.
Based
-on the comments received, however,' it now appears that alternative means of financial protection would not be-available in an amount sufficient to meet the Commission's requirement.
The Office of the General Counsel has concluded that, based on these changed circumstances, the Commission's property insurance rule would preempt a conflicting State law.
Accordingly, the staff has determined that no special provisions to address these State prohibitions are required in the final rule.
The draft Federal Register notice discusses this conclusion in greater detail.
Recommendation:
That the Commission:
1.
Approve the final rule for publication in the Federal Register.
2.
Certify, in order to satisfy the requirements of the Regulatory Flexibility Act, 5 U.S.C.
605(b), that this final rule will not have a significant economic impact on a substantial number of small entities. This certification is in the enclosed Federal Register notice.
1NEIL's counsel has informed the staff that recent changes in NEIL-II bylaws may allow publicly-owned utilities in-Nebraska to purchase NEIL-II excess insurance consistent with Nebraska law.
The Nebraska Supreme Court is reviewing this interpretation, however, and a decision is expected soon.
On August 5,1985 the staff wrote to the Attorneys General of Texas and 1
Louisiana requesting their interpretation of the applicable law in their l
States. Despite several follow-up requests, no replies were forthcoming.
I
I 3.
Note:
a.
That appropriate Congressional Committees will be notified of the final rule.
b.
That the Commission has determined under 4
the National Environmental Policy Act of 1969, as amended, and the Commission's regulations in Subpart A of 10 CFR Part 51, that this rule will not be a major Federal action significantly affecting the quality of the human environment and therefore an environmental impact statenent is not required.
c.
That this final rule does not contain a new or amended information collection requirement subject to the Paperwork Reduction Act of 1980, d.
That a Regulatory Analysis and a Backfit Analysis have been prepared (Enclosures 2 and 5).
Because the proposed rule was published before the effective date of the backfit rule, the public has not had a-opportunity to comment on the staff's backfit analysis, although it has had an opportunity to comment on the regulatory analysis on which the backfit analysis was based.
e.
That this final rule requires no new NRC resources or reprogramming of resources.
~
f.
That the Chief Counsel for Advocacy of the Small Business Administration will be informed of the certification and the reason for it as required by the Regulatory Flexibility Act.
g.
That copies of this notice will be distributed to affected licensees and other interested persons by the Office of Administration and Resource Management.
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Scheduling:
No specific circumstance is known to staff which would require Commission action by any particular date in the near term.
Victor Stello, Jr.
Executive Direct r for Operations
Enclosures:
- 1.. Draft. Federal Register Notice
- 2.
Regulatory Analysis
- 3.. Ltrs fm G. Wayne. Kerr to Attorneys General of Texas and Louisiana 4.
List of property insurance coverage-t by utility
- 5.
Backfit Analysis' 6.
Alternative Approaches to a Decontamination Priority 3
)
._--_._._--__.-n_
n Scheduling:
No. specific circumstance is known to staff which would require Commission action by any
. particular date in the near term.
Victor Stello, Jr.
Executive Director for Operations
Enclosures:
1.
Draft Federal Register Notice 2.
Regulatory Analysis 3.
Ltrs fm G. Wayne Kerr to Attorneys General.of Texas and Louisiana 4.
List of property insurance coverage
.by utility 5.- Backfit Analysis 6.
Alternative Approaches to a Decontamination Priority DISTRIBUTION:
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- i Draft Federal Register Notice NUCLEAR REGULATORY COMMISSION p
10 CFR Part'50 Changes-in Property Insurance Requirements for NRC Licensed Nuclear Power Plants y
AGENCY:
Nuclear Regulatory Commission.
l ACTION:
Final rule..
SUMMARY
- - The Nuclear Regulatory Commission (NRC) is amending its-regulations reqL' ring licensees to maintain substantial amounts of on-site property.it turance to provide financial security for stabilizing and decontaminating their licensed reactors in:the event of an accident. These' changes'will increase the amount of insurance required to' $1.06 billion and will impose a modified decontamination priority:on any proceeds from such insurance.
All commercial reactor o
licensees'are subject to this rule.
EFFECTIVE DATE:
[60 days after publication.]
FOR FURTHER INFORMATION CONTACT:
Robert S. Wood, Office of State Programs, U.S. Nuclear Regulatory Commission Washington, DC 20555, Telephone 301/492-9885.
SUPPLEMENTARY INFORMATION:
I l'
I.
BACKGROUND i
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t On November 8,1984, a proposed rule was published in the Federal Register (49 FR 44645) which would increase the amount of on-site property damage insurance that commercial reactor licensees are required to carry pursuant to 10 CFR 50.54(w).
Operating reactor licensees are
'+
currently required to carry both (1) the maximum amount of property ins.urance offered as primary coverage by either American Nuclear Insurers / Mutual Atomic Energy Reinsurance Pool (ANI/MAERP) c,e Nuclear Mutual Limited (NML) -- currently $500 million -- and (2) any excess coverage in an amount no less than that offered by either ANI/MAERP --
$85 million -- or Nuclear Electric Insurance Limited (NEILaII) --
recently increated to $550 million.
Thus, the minimum currently required under the rule is $500 million primary coverage and $85 million 6xcess coverage.
By buying both excess layers, utilities are able to purchase a total of $1.135 billion in property insurance.
The proposed rule also provided for a modified decontamination priority on any proceeds from such insurance and sought comment on several related issues.
II.
SUMMARY
AND ANALYSIS OF COMMENTS The NRC has received 35 coments on the proposed rule to amend its property insurance regulations.
The comments may be classified as follows:
)
I
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3
,y'3 ur' it 21-Utilities
%e 5:
Counsel'to Utilities j'l M' '
3 Insurers / Insurance Trade Groups 2
Utility / Nuclear Trade Groups.-
u 2-Individuals 1
Bar Association Committee 1
Environmental Interest Group Because the' issues' considered in the rulemaking are complex'and affect-different utilities in different ways, the focus of the comments varied o
considerably 4 Nevertheless, the majority of utility commenters tended J
to endors'e t'he~ positions taken by two trade groups -- The. Atomic Industrial Forum and the Edison Electric Institute -- but chose to emphasize areas of their particular concern. The two individuals who commented tended to support the positions of those utilities with-smaller platts worried about being, required to carry more insurance than they believe is necessary. The set of comments from the environmental interest tirup supported most aspects of the NRC's proposal. The insurers provided a slightly different perspective from the utilities
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but made many of the same points. The Bar Association Committee comments provided the most distinct perspective on one aspect of the proposed rule -- the decontamination priority.
L a
What follows is a detailed discussion and analysis of the comments received arranged according to topic. The topics are: (1)amountof l
L insurance; (2) method of future adjustment of insurance; (3) site-wide vs. unit coverage; (4) State prohibitions against buying certain types I:
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f of insurance; (5) the decontamination priority;'and (6) other issues.
By far the greatest volume 'of coments was expressed with regard to the q
m i
fifth item, NRC's proposal to require insurance proceeds to be used l
first to decontaminate the facility when so required to protect public health and safety and so ordered by the Director of Nuclear Reactor Regulation.
1.
Amount of Insurance l
Summary of Comments:
Most of the commenters, including most utilities and their.
representatives, either supported the proposed coverage limit of-
$1.02 billion or at least found it acceptable or non-burdensome.
However, most of those who accepted the proposed limit in principle suggested that the rule be modified to reflect the potential for reductions in capacity because of changes in the insurance markets.
To avoid such a situation, several.commenters suggested that the rule be modified to require either $1.02 billion or, if that amount i
were not available, the total of the primary coverage offered by either ANI/MAERP or NML plus the total excess coverage offered by both ANI/MAERP and NEIL-II. Others suggested a modification to allow utilities that incurred property losses during a particular policy year to take reasonable steps to have their insurance reinstated so as not to be in technical violation of NRC's regulations.
To avoid this, commenters suggested that the NRC clarify its position that claims made by a utility which resulted
in a reduction in policy limits for that policy year would not be t
C considered aLviolation of NRC regulations. Alternatively, some proposed that $50.54(w) be amended to require a licensee to take reasonable steps to obtain reinstatement of insurance, an action keepingthatlicenseeincompliancewith.650.54(w).
Another commenter suggested that reductions in capacity could be handled by s
allowing a " cushion" of $50 million to $100 million between what is available and what the NRC requires.
Special action should be-required on reinstatement only if it affected public health and safety.
A-few commenters took issue with the amount established.
One suggested that the rule is not sufficiently flexible because it would require insurance to be purchased from all insurers offering this coverage, which tends to limit a utility's options.
It was alleged that this requirement might also lead to anti-competitive behavior. Another stated that the NRC should not be concerned with the full cost of restoring a reactor to service after an accident but rather with the costs associated with protecting public health and safety. This commenter suggested using decommissioning funds for cleaning up after an accident, and stated that, because of lessons learned from TMI, cleanup costs have been substantially reduced.
Another commenter suggested rounding off required coverage to $1 billion because of the lack of precision in establishing a required amount. A non-utility commenter suggested that the " enormous" premiums generated for property insurance are directly removed from expenditures that would otherwise be made for I
1,
nuclear. safety.
One commenter suggested that requiring a specific
. dollar amount, rather than all that is offered, would lead to the established' figure being considered by utilities a maximum as well as a minimum.
Several commented on the related issue of whether special provisions should be made for licensees of smaller reactors.
Most-who commented on this issue supported the NRC proposal of not specifically providing for smaller. reactors in the rule but rather treating them on an'ad hoc basis through the exemption process. A few commenters indicated their support for special provisions for smaller reactors based on physical size, core' inventory, etc.
Even those against special treatment of smaller reactors suggested.that existing exemptions should remain unaffected b.t the new rule and that the final rule should clarify that this interpretation is correct.
NRC response:
1.a. Issue: Amend rule to reflect reductions in available insurance through changes in insurance capacity.
Response: The NRC believes there is some merit in connenters' proposals to address in the rule the problem of reductions in capacity. To require more than what is available would be meaningless because licensees' only realistic alternative to buying insurance would be to self-insure which has been determined by the
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NRC as discussed under issue "4" to provide no additional t
h
'a ssurance.
Further, the Commission has traditionally never' required more. insurance than that generally available. Surety bonds, letters of credit and other methods of assurance may be available to'certain licensees in relatively small amounts, but would probably not be generally available especially if capacity shrank substantially.
Consequently, the NRC has modified the rule to allow the lesser of the specified amount or the maximum available from insurance sources. The Commission will continue to monitor the adequacy of the amount of property insurance that is available to reactor licensees.
The NRC also believes that there is justification for amending the rule to provide reasonable time for reinstatement of insurance when
.a clai:n filed by an insured causes coverage at a facility to be reduced during the remainder of the policy year by the amount of a
the claim.
Because a reduction would be for only the remainder of the policy year, after which the insurance would be automatically reinstated, the NRC does not believe a serious threat to public health and safety would exist.
It is highly unlikely that any single utility would face two large accidents within one year, at the same site. Therefore, the NRC has modified the rule to require that licensees take reasonable steps to obtain reinstatement of insurance within 60 days.
'1.b'. Issue: Change the amount of insurance required.
o j
i Response: Because most commenters supported the amount of coverage proposed in the rule, there was little discussion of whether that i
figure should be. changed. A few commenters stated that coverage was higher.than.necessary to protect public health and safety or too L.
. prone to-imprecision to be specified to the degree done in the L
rule. However, in proposing the rule, the rationale for the $1.02 billion required amount was not only that this was the most available at that time, but that it approximated the maximum l
I estimated in the PNL study to be necessary to completely clean up a reactor after an accident. The actual maximum required was estimated to be $1.06 billion.
The amount currently available is
$1.135 billion. The Comission believes that $1.06 billion should be required, because at least that amount is now availabk and because no other amount is as technically supportable.
3Technology, Safety and Costs of Decommissioning Reference Light Water Reactors Following Postulated Accidents, (NUREG/CR-2601), Pacific Northwest Laboratory, November 1982.
(See especially pages 2-26 to 2-28. The PNL study estimated that accident cleanup costs at a reference PWR following a scenario 3 accident would be approximately
$404 million.
However, additional costs that can appropriately be ascribed to such an accident include:
base operations and maintenance -
$124M design differences (when comparing to TMI-2) -
$84M cost escalation during cleanup -
$209M additional decontamination of the containment building - $100M net stabilization cost
$139M When these costs are added to the $404 million basic cleanup cost estimate, a total of $1.06 billion is derived.)
f t We do not believe that most utilities would have difficulty obtaining the slightly 'igher amount.since most choose to buy the maximum h
~
available. The NRC agrees that the process of detennining the actual amount needcd to protect public health and safety is imprecise and that the threat to public health and safety usually decreases as cleanup progresses.
Clearly, there is a sliding scale of effect on public health and safety so that after some undetermined point is passed, the contributions to public health and safety that additional amounts of insurance would make are less significant, although this problem is more fully addressed in the discussion on the decontamination priority..
Thus, there currently appears to.be no adequate basis for selecting any figure that would be better than the amount suggested in the PNL report.
We are not persuaded that there is any compelling reason to keep the
$1.02 billion originally proposed, or to round off to $1 billion, or to choose some figure other than the $1.06 figure derived from the PNL report.
The NRC is also not persuaded by the argument that requiring the purchase of insurance is unduly restrictive or may lead to anti-competitive behavior by forcing the purchase of insurance from i
all carriers.
Other carriers could conceivably enter the insurance market.
In fact, by requiring a specific dollar amount rather than insurance from specific carriers, NRC has removed a restriction on others from offering the insurance.
Similarly, NRC l
does not accept the argument that the 2-3 million dollars spent per reactor on insurance premiums each year represent a drain on a
1 licensee's expenditures on safety. These premiums represent only a small percent of a licensee's annual expenditures on operating the reactor safely. NRC also notes that the utilities did not state that they had been prevented from receiving ratepayer revenues to cover the insurance premium expenses.
The argument that a specified dollar amount will be considered a maximum as well as a minimum is beside the point.
The Commission has based its amount on what the PNL study has established would be needed for decontamination and cleanup following an accident.
Any amount above that has not been shown to be significant in protecting health and safety, but represents the economic replacement of the facility itself.
If a utility decides not to insure for the replacement value of its plant, that is its decision to make.
1.c. Issue: Clarify that exemptions already granted will not be affected by new rulemaking.
Response: The NRC agrees that the reasons for exemptions from the current rule have not been changed by the final rule.
Exemptions i
have been granted to four licensees of small reactors from carrying the full amount of insurance currently required by 10 CFR 50.54(w).
These exemptions were based on case-by-case analysis of accident l
costs at the specific plants.
Increasing the required amount of insurance based on general technical studies in no way l
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negates the' continued validity of the specific studies.upon which 1the existing exemptions were based.
Thus, the exemptions for amounts:of property insurance required should remain in effect.
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- 2. -
Method of Future Adjustment'of Insurance
~
Summary of Comments:
Almost all who commented on this issue suggested that future changes should be effecte'd by rulemaking based on a periodic assessment of need.
Some suggested updating the PNL report.
Commenters generally. argued that relying on some formula tied to measures of inflation or increasing insurance based on availability would not be appropriate. They believe that an-inflation-based formula probably would not reflect the actual needs for insurance necessary to protect public health and safety because decontamination cost changes could not be measured accurately by I
any existing cost index.
Additionally, changes in an index might lead.to property insurance requirements that would outstrip the availability of insurance.
Similarly, requirements based simply on the capacity available would not necessarily equal the amount
. necessary for decontamination.
Insurance capacity tends to increase based on the demand for it.
This demand is not only comprised of funds necessary for decontamination and debris removal, but also reflects the needs of insureds and their owners j
l for compensation to replace the facility, a concern beyond the province of the NRC.
3
I' 12 l
l U
One commenter suggested that insurers determine the future amount to be required, which presumably is akin to requiring whatever capacity is available.
NRC Response:
The NRC basically accepts the reasoning propounded by most.
commenters on this issue.
Property insurance capacity available now has apparently reached, if not exceeded, the maximum amount necessary to decontaminate and clean up a large. commercial reactor.
as determined by the PNL study. Although there may be cost increases in the future, no satisfactory formula.for measuring them i
exists. Unlike such measures as the Consumer Price Index or the
. Handy-Whitman construction index, measures of decontamination costs depend on a'very. limited universe of experience.- Furthermore, present trends suggest that growth in insurance capacity will outstrip decontamination cost escalation.
It can be expected that most licensees will purchase the maximum available notwithstanding changes in NRC requirements.
1 Of course, NRC resources might be required to perform periodic analyses to determine changes in accident recovery costs and possibly to conduct rulemaking based on such analyses.
Nevertheless, as one commenter has pointed out, any future rulemakings should be substantially less onerous and involved than the present one.
Even PNL technical studies should be substantially
' 13--
R less expensive _ if the. same cost estimation methodology were to' be used.
Thus, the costs to the NRC of any future rulemaking should
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b be lower. These costs would most likely be less than the excess premium ~ costs incurred by those few licensees who would be required L
to buy more insurance than they otherwise would because of any
. automatic upward escalation of insurance requirements as discussed l
'above.
3.
Site-Wide vs. Unit Coverage
' Summary of Comments:
-Very few commenters addressed this issue directly, although some
' discussed it in relation to the reinstatement considerations covered under issue "1" above. Consequently, most recommendations were concerned with allowing a reasonable period for licensees to obtain reinstatement of coverage for their facilities. One commenter suggested that some latitude be allowed so that different licensees sharing the same site would not be required to maintain a single insurance limit for the site. Most others strongly endorsed the NRC's acceptance of site-wide as opposed to-per-unit coverage.
NRC Response L
The NRC continues to believe that site-wide coverage is appropriate given that general per-unit coverage has not been and probably will not be available and that the chance of a second accident occurring at one site during a policy year prior to reinstatement of the full
= _ _ _ - _ _ _ _ _ _ - _ _ _ _ - _ _ _ _.
. _ _ _ l policy limits is extremely remote.. As indicated under issue "1"
/
.above, the NRC also believes there is some merit in revising the l
. rule to allow reasonable steps to be taken for reinstatement. With
' respect to the comments that provision be made for units of different licensees at the same site, the NRC agrees. Although
'per-site coverage is adequate where a single licensee is involved, the final rule ~ requires each licensee to obtain property damage insurance for its nuclear facilities. Thus, different licensees operating at the same site would each have to provide coverage for their nuclear facilities..
4.
State Laws Prohibiting the Purchase of Certain Insurance Summary of Comments:
u Relatively few comments were received on the issue of what should be done about those utilities subject to State laws or constitutional provisions prohibiting the purchase of mutual or retroactive insurance.2 All those commenting' on this issue insisted that the NRC must show greater flexibility to those 1
utilities prohibited from buying full insurance coverage.
l i
Commenterssuggestedthat650.54(w)(3)3 of the existing rule should i
2Prohibitions generally take two forms.
One prohibits public entities in some States from owning stock in private corporations.
Such prohibitions have been construed to include the purchase of insurance from mutual insurance companies whereby the insured becomes an owner of
)
the company. A second prohibits public entities from extending credit to private corporations, an action interpreted to include the payment of
{
retrospective premiums. The insurance offered by NML and NEIL-II is mutual insurance and may require the payment of retrospective premiums.
3This paragrapn reads, "When a licensee is prohibited from purchasing on-site property damage insurance because of state or local j
law, the licensee shall purchase the specific amount of such insurance found by the NRC to be reasonably available to that licensee, or to obtain an equivalent amount of protection..."
______-__-___-________-_a
-7 be retained.
This section provides some leeway for affected utilities either to obtain alternate coverage or to be exempted from unachievable NRC requirements..
Several commenters indicated that they have taken a variety of steps to attempt to purchase additional insurance.
One commenter described recent efforts to amend the sections of the Texas Constitution pertaining to the prohibitions against purchasing L
insurance. The only way the. Texas Constitution can be amended is by referendum.~ The proposal submitted to Texas voters in November 1984 was defeated. Another commenter indicated that the Nebraska Constitution prohibits public entities in the State from becoming "a subscriber to the capital stock, or owner of such stock, or_ any portion 'of interest' therein of any railroad, or private corpora-tion, or association" (Article XI,Section I). The New York Power Authority stated that NEIL-II excess insurance is unavailable to it at:the present time but did not explain why.
Some commenters indicated that they have made efforts to secure equivalent protection, including surety bonds or letters or lines of credit. However, instruments in the amount necessary to comply with the rule--$435 million when the rule was proposed--are not available.
Even if available, however, these commenters concluded that "the existence of such protection on a liability (however
)
contingent), backed by no assets and not covered by any current i
revenues, would effectively preclude them from future financing needed to maintain, improve, and expand their physical plant."
i
t Commenters conclu'ded,' therefora,'that they would be unable.to
.y.
furnish evidence of equivalent protection in accordance with'the l
proposed _. rule.
s Commenters suggested that three alternatives exist.
- First, affected utilities could' continue to explore with NEIL-II the possibility that through amendment to its by-laws and charter and to its current policies, NEIL-II could offer insurance structured to' comply with State law. Nebraska publicly-owned utilities have -
done this and are awaiting a favorable. decision by the Nebraska Supreme Court..Second, the relevant portions of State constitutions could be amended. However, as indicated above, this would be a protracted process with no assurance of success. Third, licensees could seek exemption.under 10 CFR 50.12 from the proposed amendments. Several commenters mentioned that if such
' alternatives were unavailable, they would probably be forced to shut down their reactors at enormous cost.
~.
Finally, one commenter suggested that one result of the NRC's proposal in this area was to inject itself into the regulation of terms and conditions of property insurance -- a result the NRC previously indicated it wished to avoid.
NRC Response:
The proposed rule was designed to allow utilities either to purchase the requisite insurance or to demonstrate an equivalent
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- amount of protection by alternate means. When the Commission
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published the proposed rule for public comment,-it believed that such alternate means of financial assurance would be available.
- This assumption formed the basis for the Commission's conclusion-that it probably'could not promulgate a rule that would preempt the State prohibitions at issue.
Based on the comments received, however, it now appears that alternate means of protection might-not be available to s'ome utilities. 'As noted above, these if utilities indicated that surety bonds or letters.or lines of credit are not available in the amount necessary to comply with the proposed rule. Self insurance, although discussed as a possibility in the legal analysis of the preemption question, would not be' acceptable because the potential liability would greatly exceed the net' assets of the affected utilities. Thus, a guarantee based on the financial strength of the licensee would be insufficient. A trust fund based on collections from customers would be
-prohibitively expensive if funded immediately, because it would require collecting the entire amount in advance.
If funded over a period of time, it would not meet the Commission's objective of providing financial assurance for decontamination and cleanup because an accident could occur before the full amount had been collected, In these circumstances, the Commission believes that a clear F
conflict exists between the requirements of Federal and State law.
The Commission has determined that $1.06 billion of nuclear property damage insurance is needed to stabilize, decontaminate and
___ = -. _ _ _ - _
clean up ~a reactor after an accident so as to mitigate potential threats to the health and safety of workers and the public and to the environment. Accordingly, the Commission is requiring reactor licensees to purchase such insurance.
State law prohibits certain licensees from purchasing mutual or assessment insurance.
No other insurance is available in an amount sufficient to comply with the Commission's requirement. There are no reasonable alternative means of financial assurance available to these licensees. Based on these changed circumstances, the Comission believes that its property insurance rule would preempt conflicting State laws.
There can be no doubt that this rule is concerned with reactor safety.
Indeed, in discussing the issue of whether to impose a decontamination priority in the proposed rule the Commission stated:
In fact, the Comission has no reason to impose a property insurance requirement other than to protect the public health and safety.
Proceeds from insurance would be used both to assure that contamination from a reactor immediately after the accident did not threaten public health and safety and the
{
environment and to eliminate delays and degradations to the cleanup process that could cause threats to health, satety and the environment over time.
i Thus, the rule operates in an area of exclusive Federal control.
Although the State prohibitions at issue de not attempt to regulate within this area, they prohibit what the Commission's rule j
l l
_____D
p i
L ';
)
E requires, They would, therefore, be preempted because they are in
' direct conflict with Federal law. -
t
.y It should be noted that "[f]ederal regulations have no less l
preemptive effect than federal statutes." Capital Cities Cable.
Inc.
- v. Crisp, 81 L.Ed.2d 580, 589 (1984), quoting Fidelity, Federal Savinas and Loan Assn. v. De La Cuesta, 458 U.S.141 (1982).
In addition, the State prohibitions concern insurance--a 4
matter that the states have traditionally regulated.
Accordingly, i
Congressional intent to preempt must be " clear and manifest." Rice
- v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). Such intent.
is present, however, when the requirement of Federal and State law are in conflict.
See Florida Avocado and Lime Growers v. Paul, 373 U.S. 132, 142-43; Ferebee v. Chevron Chemical Co., 736 F.2d 1529 (D.C. Cir.1984), cert. denied, 53 U.S.L.W. 3404 (No.84-491).
A conflict with Federal law arises when compliance with both Federal and State law is impossible or the State law frustrates the accomplishment of a Federal objective.
Pacific Gas and Electric Co. v.
State Energy Resources Conservation and Development Comission, 461 U.S.190, 204(1983).
In Capital Cities, supra, the Supreme Court held that an FCC regulation requiring cable l
television operators to carry certain broadcast signals without alteration preempted an Oklahoma constitutional provision l
prohibiting the advertising of alcoholic beverages within the State.
State law compelled deletion of wine commercials--an action that Federal law prohibited.
Cable operators who complied with Federal law were subject to criminal prosecution under State law.
{
x b f
The Court foun'd a conflict based on the' impossibility of complying
~
with both Federal and State law, as well as obstruction of the-Federal ' objective _ of. increased program diversity.
81 L.Ed.2d at 1
593-94. Similarly, it is. impossible for a ' reactor licensee to comply with both.the Commission's rule requiring the rurchase of
' nuclear property damage insurance and-the State constitutional provisions prohibiting the. purchase of that' insurance.
In addition, the State prohibitions interfere with the Federal objective of exclusive Federal regulation of reactor safety. Thus, E
the provisions of Federal and State law are clearly in conflict. -
1
'This. conclusion is consistent with recent Supreme Court decisions on Federal preemption under the Atomic Energy Act, notwithstanding the absence of a conflict in those cases.
In Pacific Gas, supra, the Court upheld California's moratorium on the certification of new nuclear power plants pending Federal approval of a demonstrated technology or means for the permanent disposal of high level radioactive wastes. The Court reasoned that, under the Atomic Energy Act, Congress provided for a system of dual regulation of nuclear-generated electricity in which the Federal government maintains complete control over reactor safety and the States exercise their traditional authority over economic questions, such as the need for power, type of facilities to be licensed, land use, and ratemaking. Because the moratorium was based on economic rather than safety concerns and did not conflict with Federal w--.-_--._______-___________
- __ - 1 I
safety regulations, the Court held that the California statute was not preempted. The Court relied on the fact that the moratorium i
i would only affect reactors at the planning stage, cautioning that l
"[s]tateregulationswhichaffectedtheconstructionandoperation of federally approved nuclear power plants would pose a different
]
case." 461 U.S. at 223 n.34.
The State prohibitions at issue here affect a reactor licensee's ability to comply with the Commission's safety requirements. Thus, they would affect the operation of a Federally licensed reactor and would not escape Federal preemption under the rationale of Pacific Gas.
4 i
In Silkwood v. Kerr-McGee Corp.,464 U.S.238, (1984), the Supreme Court held that the Atomic Energy Act does not preempt an award of punitiYe damages under State tort law for personal injuries or property damage from radioactive materials. The Court examined the legislative history of the Price-Anderson Act and found ample evidence that Congress had assumed that remedies under State tort law would continue to be available to persons injured by nuclear incidents. There was no conflict with Federal law because
)
licensees could pay both Federal fines and State-imposed punitive damages.
Citing a failure of proof, the Court declined to decide whether an award of damages could be so large as to conflict with the NRC's policy of avoiding penalties which would put a licensee out of business or have en adverse effect on safety. Thus, the Court did not preclude the possibility of Federal preemption in an appropriate case based on a conflict with Federal law.
l
l.
p i
Finally, the Commission rejects'the notion that a conflict with H
Federal' law could be avoided by'the licensee's option'of_ ceasing to operate the _ reactor.
Rather, the Commission believes that in-
)
analyzing this issue, a coiirt would conclude.that a conflict exists:
I where the licensee's only option' 15 to with' draw from its Federally-
+
c licensed' activities. This'is suggested not only by Pacific Gas, 1
supra, but;by other. Federal preemption cases. See, e.g.,'Ferebee,-
supra, 736 F.2d:at 1541; Douglas v. Seacoast Products Inc., 431 U.S.265(1977); Sperry v. Florida, 373 U.S. 379 (1963).
H i
The Comission believes that, where a reactor licensee has no 7
reasonable alternative to purchasing nuclear property damage insurance, the' State prohibitions at issue'would conflict with Federal law.. For all the foregoing reasons, the Commission concludes that its property insurance rule would preempt these State prohibitions.
5.
Decontamination Priority Summary of Comments:
i l
The great majority of comments received on the proposed rule focused on the NRC's proposal to require some form of L
W ga o
23.-
.q N
' decontamination. priority'-- that is, proceeds'from insurance should 0
1 be used to decontaminate and clean up after an accident before any 1
~
other purpose ~such as~. facility. restoration or-payment of investors.
?
'Although the rulemakir.g leading,to the original regulation evoked a similar degree of interest in' the issue ~of decontamination.
. priority, comments on the current proposal provide more detail and g
elaboration of the reasons for the extensive opposition to the NRC
. proposal.-
i The' NRC propo' sal'was drafted as a modified decontamination 4
gg
- priority with hope.that earlier objections by utilities could be I
ameliorated.
In the 1982 advance notice of proposed rulemaking.
-(June 24,'1982;47FR-27371),utilitieshadobjectedtoanabsolute
. decontamination' priority because such a priority: (1)would conflict with trust indenture language and fuel leasing agreements j
that require licensees in general to maintain sufficient insurance i
to protect bondholders and fuel lessors in case of damage to I
property; (2) would be unnecessarily restrictive in allowing j
utilities to respond to an accident and thus would inhibit an 1
expedited recovery and adversely affect public health and safety; l
i 1
4As proposed, paragraph 50.54(w)(3) read, "The proceeds of this insurance shall be used first to decontaminate the licensed reactors before any other purpose when and to the extent that such decontamination is required to protect public health and safety and is so ordered to be used by the Directcr of Nuclear Reactor Regulation."
L
-?4-
't (3) could, because of reduced investor protection, lead to reduced access to funds from investors or increased cost of funds; and (4) would be unnecessary because of the existing priority offered in the excess layer through NEIL-II, (This priority covers "... all expenses necessarily incurred in discharging the obligation or liability of the Insured (s) to remove debris of and to 4
- decontaminate the-property covered by.this Policy following direct physical-damage to such property caused by any peril-covered under the Underlying Property Policy..." (see NEIL's Decontamination Liability and Excess Property Insurance Policy, p.12)).
Many of these same arguments were raised again by commenters in response to the modified decontamination proposal.
Some commenters indicated that a modified priority, while not as seriously affecting finances as an absolute priority, would still have substantial adverse impact. This point was made most comprehensively by the Edison Electric Institute (comment 13) and endorsed by several other commenters.
It stated in part:
While the EEI recognizes that the Commission sought to afford utilities some financial flexibility to respond to any future accident by giving the Director of Nuclear Reactor Regulation the authority to require payments under the decontamination priority, the sole substantive standard guiding the use of this authority is that he may direct insurance proceeds be used 'to the extent that such decontamination is required to protect public health and safety.'
... While this approach provides more flexibility than an absolute decontamination priority, we continue to have serious concerns about this proposal.
In particular, there seems to be virtually no limit upon the discretion of the Director, other than the 'public health and safety' standard.
If an accident were to occur, we fear that the Director would immediately impose the decontamination priority for all insurance proceeds, whether or not all funds are necessary to protect 4
i i
l l
public health and safety since this step maximizes his future options.
,v Once this happens, there would be no administrative mechanism to cause a reconsideration of this decision. Moreover, the Director is likely to be under pressure from multiple sources to (1) require decontamination prior to other actions that may be appropriate to restore the property to operating condition and (2) manage the course 1
of repair and clean-up through his control of the insurance proceeds.
These factors cause EEI to fear that the broad discretion vested in j
the Director over the use of proceeds from the decontamination
{
priority may effectively deprive utilities of any of.the benefits of
{
property insurance.
In effect, the Director would become the ultimate manager of the decontamination and repair operation.
EEI believes one way to balance the need for flexibility to respond to an accident with the need to limit the Director's authority over property insurance proceeds is to restrict the time period in which any order regarding the use of proceeds from
. property insurance for decontamination remains in effect.
Limiting the duration of any such order will ensure that post-accident response decisions are periodically reevaluated as conditions change and new information becomes available.
EEI proposes that the Director's initial determination respecting use of the property insurance proceeds for decontamination shall expire at the end of three months.
At that time the Director may issue a new order regarding the use of such proceeds. This second order would remain in effect for no more than six months.
It could be followed by new orders which terminate every six months. All such orders should be final orders which are subject to judicial review.
Each should reveal the rationale, basis and record which are relied upon to support the Director's determination.
In addition, the Director should sequest [ sic]
only those portions of the insurance funds reasonably needed for decontamination so that funds also would be available to carry out other activities necessary to restore the utility's property.
Finally, EEI interprets the Cormiission's proposal to allow the Director to act expeditiously without holding hearings since that could seriously delay the decisionmaking process.
In order to avoid any confusion, we suggest the Conanission confirm our understanding of this process.
Other commenters suggested similar problems.
For example, by not establishing standards or criteria by which the Director of NRR is to order a decontamination priority, the resulting uncertainty would be L
as unsettling to investors as a more rigid priority.
Further, such an l
order would probably be subject to a protracted review process, open f
to intervention, and might so tie up funds that the cleanup process 1
could he hampered and public heaiu1 and safety adversely affected.
l
, I' One commenter stated that, although the NRC has authority to impose-
~
decontamination requirements on a licensee, it does not have authority.
"to dictate either to insurers or to indenture trustees how they are to deal with the insurance proceeds" (comment 15).
Similarly, another commenter suggested'that requiring a decontamination priority would i
preempt the coverages filed by ANI/MAERP with State. insurance departments and would thus be in effect a preemption of State law, a result the NRC sought to avoid (comment 7, p. 2).
Another commenter analyzed several scenarios in which an accident caused varying amounts of damages and the resulting actions that i
probably would be taken by the trustee (Comment 15, p. 2):
If the damaged plant can be reused, decontamination would be a necessary element of the repair, and the trustee would
. release insurance proceeds.. After initial decontamination, repairs would proceed simultaneously with decontamination.
The only effect of an order establishing a priority for t
decontamination would be to forbid use of the funds acquired from the trustee for anything but decontamination. This would presumably require the licensee to segregate and invest the portion of the insurance proceeds that would be spent on repairs rather than decontamination and to use other sources of funds for the repairs. When the priority i
order was lifted, the segregated funds could then be used to i
replace the funds spent on repairs.
In short, the priority I
order would cause some added bookkeeping without serving any
)
useful purpose.
If the damaged plant could not be restored to use, the trustee might refuse to release funds for decontamination on the ground that they would not be used for repairs or replacement. However, the utility could still obtain the funds if it could provide additional unbonded property.
i While the utility would probably use the funds for decontamination without compulsion, NRC could require it to do so even in the absence of the proposal in 650.54(w)(3).
l
l l- ]
vi n -
- ' Iflthe licensee did not have additional unbonded property to offer the trustee, it could obtain the proceeds only on 4 -
.the basis that it would use them to build or acquire new l
public utility property. Thus, an NRC priority order would require the use of the proceeds for decontamination while the indenture would forbid their use for that purpose, and the licensee might be_ unable to reach the proceeds.
This could push the licensee into insolvency and
.possibly_ bankruptcy. We doubt that reorganization would be appealing to NRC since it might find itself with the responsibility for the cleanup and the possibility that in the' post-bankruptcy period-it could not recover the cleanup costs from the licensee.
Absent a priority, the trustee, in its discretion, 4
could still refuse to relinquish the proceeds if the licensee was unable to substitute additional property. But this is not a position it would take lightly.
Such a step could also push.Se licensee into bankruptcy, and the l
trustee would run the risks that (i) its effnrts to use the proceeds to benefit bondholders would be automatically stayed and (ii) it would be forced to turn the proceeds over l
to the licensee or reorganization trustee for use in post-bankruptcy operations.
In the case of a possible bankruptcy, we believe that, as a practical matter, the licensee, its creditors and NRC would have a common interest in working out a plan that allowed the licensee to continue as an entity while decontaminating to the extent necessary to protect public i
l health and safety.
Our analysis is that the proposed priority would not facilitate that result and in some circumstances would impede it. We therefore urge that NRC reject 50.54(w)(3).
l A somewhat different conclusion was reached by another commenter.
This commenter suggested two approaches.
First, perhaps a licensee could " identify those decontamination costs which are not treatable as capital repairs and cause them to be insured separately or at least paid separately under existing insurance.
It may then be possible to conclude that such insurance is not l
property insurance which must be payable to mortgage trustees."
(Comment 20, p. 2-3) Such an approach would allow release of a significant amount of funds not subject to the control of the
)
I i
7 -
j L.: t i
l 4
trustee.
Second, funds would be released by the trustee if they
~
k
,o i
were to be used for repairs that would be treated as additions
" chargeable to plant' accounts in accordance with sound accounting-j practice." (Ibid, p. 3) However, this commenter concludes, To the extent that decontamination expenses do not i
constitute repairs so chargeable, the trustee may refuse to release the funds unless the Company happens to have
-available property additions which have not previously been tendered to the trustee.
There can certainly be no assurance that the Company will' have independently available property additions 'to tender to the trustee to obtain such release'.The Company simply may be unable to obtain release of funds to expend on decontamination, at least to the extent that such expenditures do not constitute repairs under the provisions of the mortgage. (Ibid, p.3)
Other commenters emphasized the impact on investor perceptions.
One commenter indicated that because of the lack of clear standards for imposing a decontamination priority, bondholders probably would not have a "significantly greater sense of security for their investment than they could have had under the 1982 proposal of an absolute priority."
(Comment 18, p. 4).
Further, " existing bondholders purchased their bonds with an j
understanding that Federal regulatory policy would allow utilities to protect their investment with insurance."
(Ibid,p.
5).
A letter from Morgan Stanley & Co. was enclosed with EEI's comments to support this view. This letter states that particularly since TMI investors expect that, "in the event of an accident, a portion of these insurance proceeds will be available to repair or replace their investment."
1
l 1-N Finally, the coment from the insurance pools suggested that they "were able.to pay the owner of_ TMI_ Unit 2 $68 million for loss-to p
their nuclear fuel, even though decontamination was barely commenced. This contributed to regaining financial stability and-made it more likely that the owners could adoress the long-range plans to' decontaminate the reactor." (Comment 31, p. 2).
Despite their strong reservations about a decontamination priority, several comenters proposed ways of making such a priority less burdensome.
Such revisions to the proposed rule would:
(1) provide specific criteria for determining when public
- health and safety'is endangered - such as by following limits used in.10 CFR Part 20; (2) establish " sunset" provisions so that the Director's order would last only for a specified time - e.g.,
three to six months subject to renewal; and (3) have the Director of NRR issue'a show cause order requiring the licensee to explain its prepared work plan and schedule and related expenditures are in the public interest.
Following a hearing on the show cause order, the Commission could issue a modification of the licensee's work plan or schedule. Until an order were issued, the licensee would be able to proceed with its work plan.
Others suggested that the term " decontamination" be defined.
These commenters argued that preparatory expenditures such as stabilization costs and purchase of equipment and other materials
'necessary for cleanup might not be included in the definition of
. _ _ _ - _ _ _ _ _ _ _ _ _ l 1
l decontamination priority. Similarly, the degrees of j
decontamination should be tied to avoiding " exposure of the i
)
off-site public to radiation levels exceeding those allowed by NRCregulations"(comment 18.p.6)orshouldotherwiseindicate the level above which health and safety is' endangered (comment 16, p. 3).
One comment addressed the specific issue of timing the implementation of a decontamination priority to coincide with the renewal dates of the policies.
Because policies issued by NML and NEIL-II are, in effect, bilateral contracts, changes would be difficult to make without mutual consent or without awaiting policy expiration.
In preparing the proposed rule, the NRC relied on comments and proposals submitted by the Association of the Bar of the City of New York (the Association) in response to the 1982 advance notice of proposed rulemaking. As indicated in the proposed rule (49 FR 44647, Col. 3), the Association determined that utility trust indentures do not in general give bondholders any vested rights to a given amount or type of coverage.
It also recognized that to respond properly to a nuclear accident, a licensee may be required to take a range of actions apart from decontamination and debris removal. Consequently, this commenter favored I
priority for payment of decontamination and debris removal expenses only insofar as it is "necessary to remove any
_______-_ 4 significant health or safety hazard." The Association suggested
- - this goal could be accomplished if a regulation were properly L
drawn, although it proposed no wording for such a regulation in E
its commen' 'u I
In responding to the proposed rule, however, the Association changed the focus of its comments. Although the Association indicated that it supported "in principle the form of decontamination priority which the Comission has proposed,' it believes that, "as now proposed, the amendments to the Comisslon's property insurara.e regulations may not effectively provide for the decontamination priority which the Comission desires to achieve... that in the event of a serious nuclear accident, the utility's indenture trustee may refuse to release property insurance proceeds for decontamination or debris removal purposes."
(Coment 12, p. 5).
'The Association believes that "only by restricting payment of insurance proceeds to the trustee can there be any reasonable assurance that the proposed decontamination priority will prove effective." (p. 6).
Such a restriction of payment would not be effective merely by payment directly to the utility because funds would still be vulnerable to creditor delays due to bankruptcy or insolvency.
The Association perceives a fundamental conflict between the Atomic Energy Act, NRC regulations, and the terms of the license on the one hand and the provisions of the Bankruptcy i
_ - - _ _ _. Code on the other. The Association presents a legal analysis and. synopsis of the arguments that the parties might use in obtaining property insurance proceeds and Io concludes from its analysis that "a decontamination priority can only be effectively.impleinented if the decontamination
[
proceeds are paid neither to the indenture trustee nor the L
utility itself but rather into a separate trust fund e
-previously established for that purpose. The proceeds under the insurance policy would be paid to the trustee of the trust fund and disbursed to pay for costs incurred in decontaminating the reactor and removing radioactive debris. The remaining amounts, up to the limits of the policies, would then be available to pay for property damage and these funds would be paid to the indenture trustee." (p. 13).
Finally, the Association believes that such an approach should not conflict with utility indenture provisions because such indentures generally require a utility to maintain property insurance to the same extent as companies similarly situated and operating like properties, and not a particular level of coverage.
Primary
. policies offered by ANI/MAERP and NML would have to be modified analogously to the NEIL-II excess policy, yielding a hybrid h
decontaminatica liability and property insurance policy.
NRC Response:
1
I L,
1.
The NRC disagrees that a decontamination priority would conflict with bond indenture language. As the Association indicated, such language typically would require a utility "to. insure its property against loss or damage to the same extent that property of a similar character is usually so insured by companies similarly situated and operating like properties."5 The NRC 3
agrees with the Association's conclusion that such language would o
allow the NRC'to impose a decontamination priority because all i
utility lic.ensees would face similar conditions, would be insured "to the same extent" and would thus comply with indenture language. More recently, the Association concluded that, after a large accident, conflict between the interests of bondholders as represented by their trustees on the one hand, and the NRC on the other, could seriously impede, in some circumstances, recovery from an accident. The Association's recommended solution --
i.e., to require all insurance proceeds to be deposited in a j
trust apart from the utility er bondholder's trustee -- would provide additional assurance that funds would be available for accident decontamination and cleanup but could exacerbate this conflict, if imposed.
50ne commenter indicated that its mortgage provisions require it to maintain insurance in "a reasonable amount against loss or damage by fire and from other causes customarily insured against by similar companies."
(Comment 20). This is not appreciably different from the language cited by the Association. The staff has attempted without success to obtain assistance from the Federal Energy Regulatory Commission (FERC) and others to determine the extent to which indenture language varies.
l
i The-ext'ent to which this conflict would' adversely affect investor perceptions and thus increase ~ utility cost of capital and reduce access to capital is speculative.
It is possible that utilities would incur some, perhaps significant, increased capital costs if a full decontamination priority'were imposed. However, there are a number of factors which should temper the rational investor's possible disquiet.
First, as some commenters pointed out, the NRC has the authority under sections 161,182(a), and other sections of the Atomic Energy Act to impose a decontamination priority after an accident whether or not such a priority is actually spelled out in 4
10 CFR 50.54(w). As such, it can be argued that a conflict existed all along, although perhaps not known to certain investors.
4 Second, investors now are covered for a relatively small portion of their investment, although it has increased from the maximum
$300 million coverage at the time of the TMI-2 accident. Because NEIL-II coverage has its own decontamination priority,6.the most coverage investors could currently expect is $585 million.
When compared to the $5 billion or more to construct the latest nuclear power facilities, an investor would be covered for 10% or less of the value of the investment. The NRC doubts that an investor would derive security from this limited coverage but would tend not to invest if an NRC decontamination priority were imposed.
l l
6The fact that NEIL-II itself has a decontamination priority raises i
l the question of whether NEIL-II's priority would not also conflict with bond indenture language. The comments directed to this area did not differentiate between the adverse effects that the NEIL-II priority and the NRC priority might have.
Third,'commenters essentially ignored in their comments the rapid growth in insurance capacity. ~The NRC cannot p
speculate on whether and to.what extent capacity will grow further.
Nevertheless, because of the shortfall in coverage as compared to facility value, it would be expected that demand for, if not supply of, insurance wil1~ remain high.
If capacity continues to grow at a pace that substantially exceeds possible increases in estimated facility decontamination costs, it would be expected that investors would find a' decontamination priority progressively less onerous, as more funds would be made available exceeding those subject to a priority.
Fourth, as some commenters have suggested, a decontamination priority is only necessary for a scenario in which a plant is completely written off and the interests of the NRC and indenture trustee would conflict to the extent that bankruptcy might occur.
Without a priority, some commenters argue that both the NRC and the trustee w'ould have incentive to work out a plan "that allowed the licensee to continue as an entity while decontaminating."
(Comment 15) Again, the NRC disagrees that a decontamination priority would destroy that incentive.
If the priority itself ever became an impediment to accident recovery and resulted indirectly in a threat to public health and safety, it could be rescinded or made part of e broader recovery framework as discussed by the commentar cited above. The NRC, no less than the investors, would not wish to precipitate bankruptcy and so impede accident recovery.
'l 4 0
~
The NRC rejects the argument that a decontamination priority would j
reduce flexibility in responding to an accident.
Obviously. the NRC would'not interpret a priority in so rigid.a manner as to precluoe prudent practices necessary to an orderly decontamination, j
such as equipment purchases, stabilization activities, etc. The decontamination priority was not meant to be applied sequentially in that.all expenditures on cleanup would have to be made before any others.
The priority has been worded to allow flexibility
' particularly after a reactor has been stabilized after an accident and, despite utility misgivings, it would be expected to provide the broadest range of actions necessary to protect public health and safety.
Further, it is meant to be invoked only when there would be serious concern over the availability of funds for decontamination.
Although most commenters opposed imposition of a decontamination priority, many did recommend changes to the wording of the priority that would make it less onerous. One change, suggested with slight variation by several commenters, would require that a definite time limit be established for an order by the Director of NRR.
Some suggested that a time limit, of tnree or six months duration, could be_ extended as necessary. The NRC is thus incorporating a variety of provisions in the final rule relating to duration of the priority.
However, the NRC believes that, as a practical matter, orders for decontamination priority would be extended as necessary to protect public health and safety.
Thus, the principal effect of sunset provisions would be to allow for additional consideration as each order was replaced or extended.
____a
< Concerning the matter of hearings, the mechanism for imposing the decontamination priority would be an order to show cause by the Director.of Nuclear. Reactor Regulation.
The Commission's rules in 10 CFR Part 2, Subpart B afford the licensee the right to demand a hearing when the NRC staff seeks to impose requirements by order..If the licensee chose'not to contest the Director's order, no proceeding would be instituted and there.would be no opportunity for'a member of the public to intervene.
If the licensee contested the order, a~ proceeding would be instituted and an opportunity for intervention would arise. Thus, the commenter's understanding of the proposed rule is' incorrect because the Director's ability to impose the priority without a hearing would depend on the licensee's response.
With regard to the commenter's concern about delay in the decisionmaking
, process, the Commission notes that, even if a hearing were held, insurance proceeds would not necessarily be tied up. This is because the Commission's authority to impose the priority before holding a hearing would depend on the circumstances.
Tl e other suggested changes to the actual wording of the priority concern the definition of the degree to which public boalth and safety should be protected.
Some commenters would define what is meant by protecting public health and safety; others would reference radiation protection guidelines used in 10 CFR Part 20.
I
i 1 (
l
)
The NRC favors tying decontamination limits to 10 CFR Part.20
.i
~ tandards for radiation protection. and the ALARA principle (as s
N low as reasonably achievable). Notwithstanding reliance on such radiation protection standards,.the NRC believes it.is also necessary to work with a decontamination plan tailored both to the specific problems and characteristics of the particular site suffering the accident and to the general characteristics that differentiate decontamination after an accident from decommissioning. Such an approach would allow both the NRC and the 111censee greater discretion in initiating and completing a safe recovery and would be particularly desirable because accidents are expected to be rare and, to a large degree, unique. The NRC also believes that some commenters have confused the purpose of this rule -- to provide adequate funds for recovery after an accident --
with the process of accident recovery itself which is more thoroughly covered in other parts of the NRC's regulations, i
In sum, the Comission is implementing a decontamination priority l
further modified to reflect many commenters' concerns.
The section of the rule containing the priority, 10 CFR 50.54(w)(3), begins by establishing a priority for stabilizing the reactor after an accident so as to prevent any significant risk to the public health and safety, consistent with the Commission's Standards for Protection Against Radiation in'10 CFR Part 20 and the provisions of 40 CFR Part 190, " Environmental Radiation Protection Standards for Nuclear Power Operations." After the reactor is safe and stable, the licensee is required under section 10 CFR l
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V' 50.54(w)(3)(ii)'to submit a cleanup plan that identifies all I
J cleanup operations necessary to bring the reactor to the point of decommissioning'or restart.
Various cleanup operations are identified and reference to 10 CFR Part 20. occupational exposure standards is made so as to differentiate between decontamination E
after an accident and' decommissioning.
Section 10 CFR
' 50.54(w)(3)(iii)addressesthescopeofthedecontamination priority.
With respect to the Association's recommendation that all insurance
. proceeds'be,placed in trust so as not to be available to the bondholder's tru; tee, the NRC believes such a step should not be' necessary to protect public health and safety.
It is conceivable that an accident could occur and a utility's financial situation could result in some funds becoming deadlocked between the NRC and the bondholder's trustee. However, the NRC believes that it is more likely, although not assured, that the best interests of all parties would prevent a deadlock and would serve to facilitate an orderly cleanup.
There are several potential problems inherent in the Association's approach.
From a practical standpoint, while the NRC can require licensees to spend funds for decontamination before any other purpose, it has no authority to require insurers to pay insurance proceeds to an NRC-mandated trustee.
Insurers, perhaps fearing i
suit by existing bondholder's trustees, could choose not to offer l
insurance implementing policy language changes to pay an NRC-mandata( trustee.
In such a situation, utilities would be
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,u unable'to purchase: insurance.in the form reovired by NRC and would w
be in default of.NRC requirements.
.Having all proceeds paid to a trustee adds-another link in a
. procedural chain and could tie up decontamination funds.
If there 4
were. disagreement between the NRC and the NRC-mandated trustee over what constituted ' appropriate decontamination expenses, unnecessary delay in the decontamination process could occur.
Similarly, the 4' '
property insurance policy 5 written to cover all risks, both
. nuclear and non-nuclear, toLa power facility.
Payment of legitimate non-nuclear claims could be hampered if they occurred simultaneously to or in conjunction with a small nuclear accident.
As the Association admits (see p.16 of its comments) even the trusteeship arrangement it provides would not completely eliminate the possibility of lawsuit and the conflict between the NRC and bondholders interests.
Finally, there would be costs associated with the establishment of a trusteeship arrangement.
Each reactor operator would be required to set up such an arrangement and designate a trustee.
If invoked, the trustee would have to be paid and insured against the risks of performing his or her function. Although the NRC is not privy to such costs, we estimate that several thousand dollars per licensee could'be required and perhaps much more if a trustee's liability insurance were to follow the same recent premium pattern as directors' and officers' liability insurance.
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41
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.The NRC also believes that. an approach worth further. evaluation is to seek legislation in Congress that would give preference in any bankruptcy proceeding to expenditures that mitigate threats to p'ublic health and safety. The NRC is currently studying the l
feasibility of.this approach..
6.
Other-Issues Summary of Comments:-
l-Very few comments were received not related to the issues i
I discussed above. One commenter endorsed NRC's position stated in 1
the proposed rule of.not becoming involved in regulating insurance terms and ' conditions (comment 1). Another endorsed the NRC position of not requiring licensees to carry coverage from both primary insurers (i.e., NML and ANI/MAERP) (comment 19).
I Finally, one commenter suggested that the term " financial protection"notbeusedin10CFR50.54(w)(2).
" Financial protection" as defined in the Atomic Energy Act and 10 CFR Part 140 is used in a specific sense not meant in Part 50.
p l
NRC response:
l The NRC essentially agrees with these comments and is incorporating them in the rulemaking.
The NRC agrees that the term " financial protection" might be misleading to some in the i
context used in Part 50. Thus, the rule.,!11 be revised to use the less ambiguous term, " financial security."
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ENVIRONMENTAL ASSESSMENT AND FINDING 0F NO SIGNIFICANT ENVIRONMENTAL IMPACT These amendments to 10 CFR 50.54(w) will increase the amount of insurance that each commercial reactor licensee is required to maintain to clean up a licensed reactor site after an accident. The amount of required insurance will increase from a minimum of $585 million currently' required to $1.06 billion.
The rule also adds a requirement that proceeds from insurance shall be used first to stabilize and then decontaminate the licensed reactors before any.
other purpose when and to the extent that such decontamination is required to protect public health and safety, consistent with the Comission's 10 CFR Part 20 radiation protection standards. These actions are required to provide greater assurance that commercial reactor licensees will have sufficient funds. to clean up their reactors following an accident. Assurance of these funds is required so that
- public health and safety is not adversely affected during the cleanup process. Alternatives to this action consist of maintaining the existing rule or establishing some other limit of insurance.
Neither this action nor the alternatives to it have any significant impact on the environment.
No other agencies or persons were contacted for this action.
j 1
- Consequently the Commission has determined under the' National
' Environmental Policy Act of 1969, as amended, and the Commission's regulations in Subpart A of 10 CFR Part 51, that this rule, if adopted, would not be a major Federal action significantly affecting the quality of the human environment and therefore an environmental.
impact statement is not required. Although changes-in insurance requirements affect the financial arrangements of licensees and have.
economic and social consequences, they do not alter the environmental impact of the licensed activities. As determined in the above environmental assessment, the alternatives to the prnposed action likewise' do not have any significant impact on the environment.
No other documents related to this proposed action exist.
The foregoing constitutes the environmental assessment and finding of no significant impact for this final rule.
]
PAPERWORK REDUCTION ACT STATEMENT This final rule does not contain a new or amended information collection requirement subject to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).
Existing requirements were approved by the Office of Management and Budget approval number 3150-0011.
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l' REGULATORY ANALYSIS l
1 The Commission has prepared a regulatory analysis for this regulation.
l This analysis examines the costs and benefits of the alternatives l
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. considered by the Commission.
Interested persons may examine and copy j
l fo'r a fee the regulatory analysis at the NRC Public Document Room,1717 l
H St. NW, Washington, DC. Single copies of the analysis may be obtained from Robert S. Wood, Office of State Programs, U.S. Nuclear Regulatory f
Commission, Washington, DC 20555 Telephone (301) 492-9885.
i BACKFIT ANALYSIS This final rule requiring an increase in property damage insurance does not require "the modification of or addition to systems, structures,-
components, or design of a facility; or the design approval or manufacturing license for a facility; or the procedures or organization required to design, construct, or operate a facility." Accordingly, this action is not a backfit as defined in 50.109. However, the staff
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has prepared an analysis of the rule's impact in light of the factors listed in 50.109(c). This analysis may be examined or obtained in the l
1 same manner as the regulatory analysis mentioned above.
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. r REGULATORY FLEXIBILITY CERTIFICATION-As required by the Regulatory Flexibility Act of 1980, (5 U.S.C.
605(b)), the Conrnission certifies that this rule will not have a i
significant economic. impact on a substantial number of small entities.
- This rule affects only' the licensing and operation of nuclear power-
'l plants..The companies that own these plants'do not fall within the scope of the definition of "small entities" set forth in the' Regulatory Flexibility Act-or the Small Business Size Standards set out in regulations issued by the Small Business Administration at 13 CFR Part 121.
LIST OF-SUBJECTS IN 10 CFR PART 50 Antitrust, Classified information, Fire prevention, Incorporation _ by reference, Intergovernmental relations, Nuclear. power ple and reactors, Penalty, Radiation protection, Reactor siting criteria, Reporting and recordkeeping requirements.
For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended, the Energy Reorganization Act of 1974, as amended, and 5 U.S.C. 553, the NRC is adopting the following amendment to 10 CFR Part 50.
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PART 50 - DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION FACILITIES 1.
The authority citation for Part 50 continues to read as follows:
' AUTHORITY: -Secs. 103, 104,~161, 182, 183, 186, 189, 68' Stat. 936,
' 937, 948, 953, 954, 955, 956, as amended, sec. 234, 83 Stat. 1244, as-amended.(42 U.S.C. 2133, 2134, 2201, 2232, 2233, 2236, 2239, 2282):
. secs. 201, 202, 206, 88 Stat. 1242, 1244, 1246, asamended(U.S.C.
5841,}5842,5846), unless otherwise noted, t
Section 50.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 U.S.'C. 5851). ' Sections 50.57(d), 50.58, 50.91, and 50.92 also issued under Pub. L.97-415, 96 Stat. 2071, 2073 (42 U.S.C. 2133, 2239)..Section 50.78 also issued under sec. 122, 68 Stat. 939 (42 U.S.C. 2152).
Sections 50.00-50.81 also issued under sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234), Sections 50.100 - 50.102 also issued under s'ec. 186, 68 Stat. 955 (42 U.S.C. 2236).
For the purposes of sec. 223, 68 Stat. 958, as amended (42 U.S.C.
2273), 6650.10(a), (b), and (c), 50.44, 50.46, 50.48, 50.54, and 50.80(a) are issued under sec.161b, 68 Stat. 948, as amended (42 j
U.S.C. 2201(b); 6%50.10(b) and (c) and 50.54 are issued under sec. 1611, 68 Stat. 949, as amended (41 U.S.C. 2201(i); and 6650.55(e), 50.59(b),
50.70, 50.71, 50.72, 50.73, and 50.78 are issued under sec. 1610, 68 Stat. 950, as amended (42 U.S.C. 2201(o)).
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1 1 2..
Section 50.54 is amended as follows:
a.'
Paragraph (w)(1)'is revised.
b.
Paragraphs (w)(2) and (W)(3) are removed..
c.
Paragraph.(w)(4) is redesignated as (w)(2). and revised.
d..
.Newparagraph(w)(3)isadded.
.ts 650.54 Conditions of licenses.
a f
(w) Each electric utility licensee under this part for a production or utilization facility of the type described in.
650.21(b) or 9 50.22 shall, by June 29, 1982, take reasonable steps to obtain on-site property damage insurance available at reasonable-costs and on reasonable terms from private sources or to demonstrate to the satisfaction of the Commission that it possesses an equivalent amount of protection covering the facility, Provided that:
(1). This insurance must have a minimum coverage limit for the reactor station site of either $1.06 billion or whatever amount of insurance is available from private sources, whichever is less.
If a licensee's coverage falls below the required minimum, the licensee shall within 60 days take all reasonable steps to restore its coverage to the required minimum.
(2) The licensee shall report to the NRC on April 1 of each year the current levels of this insurance or financial security it maintains and the sources of this insurance or financial security.
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' 48-(3)(1) The' proceeds of this insurance shall be used first to ensure that the licensed reactor is in a safe and stable 1
condition and can be maintained.in that condition so as to i prevent:any significant risk to the public health and safety, consistent with the Commission's Standards for Protection Against Radiation in 10.CFR Part 20 and the provisions of 40 CFR Part 190, " Environmental Radiation Protection Standards for
- Nuclear Power Operations." The licensee shall inform the Director of the Office of-Nuclear Reactor Regulation in writing when that condition is attained.
(ii)' Within thiity (30) days.after the licensee informs the.
Director of the Office of Nuclear Reactor Regulation that the reactor is and can be maintained in a safe and stable condition, the licensee shall prepare and submit a cleanup plan for the Director's approval. The plan shall. identify all cleanup operations-that will be required to decontaminate the reactor sufficiently to permit the licensee either to resume operation or to commence decommissioning of the reactor, consistent with the Commission's occupational exposure limits in 10 CFR Part 20.
If applicable, such operations shall include:
(A) Processing any contaminated water generated by the accident and by decontamination operations to remove radioactive materials; (B) Decontamination of surfaces inside the auxiliary and fuel handling ~ buildings and the reactor building to levels consistent with the Commission's occupational exposure limits in 10 CFR Part 20, and decontamination or disposal of equipment; (C) Removal and disposal of internal parts and damaged fuel f rom the reactor vessel; and (D). Cleanup of the reactor coolant system.
(iii) Following review of the licensee's plan, the Director will order. that the licensee complete all operations that the Director finds are necessary to decontarninate the reactor sufficiently to permit the licensee either to resume operation or to commence decommissioning of the reactor, consistent with the Commission's occupational exposure limits in 10 CFR Part 20.
Any property insurance proceeds not already expended to place the reactor in a safe and stable condition shall be used first to complete those decontamination operations that are the subject of the Director's order.
Such order shall be effective for not more than one year, at which time it may be renewed.
Each subsequent renewal order, if imposed, shall be effective for not more than six months.
(4) The decontamination priority set forth in paragraph (w)(3) of this section shall:
(A) be incorporated in on-site property damage insurance policies for nuclear power plants not later than [one year from the effective date of this regulation]; and
' 49-(B) apply uniformly to all on-site property damage insurance policies for nuclear power plants required under paragraph (w)(1) of this section.
Dated at Washington, DC, this day of 1987.
For the Nuclear Regulatory Commission.
Samuel J. Chilk, Secretary of the Comission.
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. Enclosure 2 Regulatory Analysis.
Property Insurance Requirements for NRC Licensed Nuclear Power Plants 1.
Statement of the Problem An interim final rule on property insurance for commercial reactor licensees was promulgated.on March 31,1982(47.FR13750)and codified as 10 CFR 50.54(w).
This was treated'as an interim rule pending completion of two~ studies:
Nuclear Property Insurance:
i Status and Outlook (NUREG-0891), by Dr. John Long; and a report by
- Pacific Northwest ~ Laboratory. (PNL), Technology, Safety and Costs of Decommissioning Reference Light Water Reactors Following-Postulated Accidents.(NUREG/CR-2601).
On June 24, 1982, the Commission published in the Federal Register (47 FR 27371),.an Advance Notice-of Proposed Rulemaking (ANPRM), which sought comments on the issues raised in NUREG-0891.
In response to comments received on the ANPRM, a proposed rule was published in the Federal Register on November 8,1984(49FR44650).
The current interim rule requires substantial amounts of property damage insurance (currently a minimum of $585 million) to pay for the costs of cleanup following an accident at a commercial. nuclear power plant.
The NRC believes that such insurance should be I
required so that the financing and pace of cleanup following an accident does not present a threat to public health and safety.
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As indicated in the Final Environrr. ental Assessment for 1
. Decontamination of the Three Mile Island Unit 2 Reactor Building
' Atmosphere * "Alth'ough difficult to quantify, present conditions
. inside the reactor building pose risks to the-physical and psychological health of residents in the Harrisburg-Middletown j
area.
Public health risks,. including psychological stress, will continue to be a concern throughout the cleanup process.
In the NRC staff's opinion,. elimination of these risks requires a safe and expeditious completion of all cleanup activities at the site."
. Following the TMI-2 accident there was no thorough quantitative evaluation of the impact on the public health and safety of not cleaning up TMI-2 because the decision was made, basically a policy decision, that such an approach was not a viable alternative. The primary reasons were that the radioactive wastes were not in forms 1
which had been designed for long-term storage or disposal, the facility had not been designed for long-term storage or disposal, and the site had not been selected for long-term storage or disposal. Given another accident, it is likely that similar l
considerations would apply, i.e., that it would be considered unacceptable to leave the facility in a condition in which it might pose a threat to the public health and safety.
- Reprinted on p. C-12 of NUREG-0683, Vol. 2, Final Programmatic Environmental Impact Statement Related tn Decontamination and Disposal of Radioactive Wastes Resulting From March 28, 1979 Accident Three Mile Island Nuclear Station, Unit 2, March 1981
3 m
1 Although significant premium costs (i.e., $1 million-$3 million per e,
facility' per year).are paid by. utilities purchasing property
. insurance, most purchased whatever insurance was offered prior to NRC's insurance requirement.
Similarly, subsequent to the
! imposition of 10 CFR 50.54(w), most utilities have bought insurance-beyond that required by the NRC.'
Based-on. licensee reports submitted by April 1,1986, of 68 sites requiring coveraoe, 50
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carry at least $1.06 billion'of insurance and 6 more carry at least
$1.0 billion. Another four sites have been exempted by the NRC from the requirement to carry excess property insurance.
.The cost of NRC's existing property insurance rule is minor and falls' only on those few lica sees who would not otherwise carry the
' minimum $585 million required. The only additional cost associated
.with the existing rule is on annual reporting requirement of less than a page that indicates the amount carried and insurer.
The cost of preparing this report is estimated to be no more than 4 staff hours per licensee.
The new rule would affect those licensees not currently buying at least $1.06 billion in insurance and not exempt from NRC requirements. Approximately 13 licensees would be affected.
Some of these affected licensees do not buy both excess policies not because they do not want to but because they are prohibited by state law from buying insurance using retroactive assessments.
These licensees have asked the NRC to preempt state law so that they can buy the full amount of coverage available.
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For future licensees, only those that would not otherwise buy both l:
excess property insurance policies available would be affected by the proposed rule. Because larger plants tend to be insured for the maximum available, this action is not expected to have a regulatory impact on future licensees.
2.
Objectives The objective of this rule is the same as that stated above for the interim final rule--that is, the financing and pace of cleanup i
following an accident at a commercial reactor should not present a threat to public health and safety.
Additional property insurance is needed to reduce the risk of further exposure to workers and the public after an accident has occurred.
3.
Alternatives, 4. Consequences, and 5. Decision Rationale Several alternatives were raised in NUREG-0891, the ANPRM, comments in response to the ANPRM, and comments in response to the proposed rule.
The NRC believes that additional property insurante is required.
One alternative to this is to keep the existing interim rule. A second is not to require additional excess insurance directly but rather to publish the amounts of insurance carried by i
each licensee and induce additional coverage where necessary through the state and local political process.
This second
a l 'l l li 1
m alternative was posed by the staff in'1983 to the Commission who disapproved it in favor of a more direct requirement. A third alternative is to require both excess layers of insurance f
regardless of amount. One benefit to this alternative is that the
. required level would increase as the amount of excess insurance available increases.
Thus,~ increased costs resulting from
' inflation could be covered without revising the rule itself.
However, because, as coverage limits grow, requiring both excess layers might eventually entail the purchase of more insurance than necessary to protect public health and safety, this alternative was -
not chosen.
The alternative being proposed for the final rule is to establish a dollar limit of $1.06 billion that would cover expected costs arising from most potential accidents. The limit of $1.06 billion was chosen because it is the upper limit of cleanup costs found in the PNL study cited above (NUREG/CR-2601). No other limit is as justifiable technically. The Commission is not privy to the
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premiums charged for primary property insurance.
However, annual premiums on excess coverage have been reported to be $3,000.00 per million dollars of coverage for ANI/MAERP. Annual premiums for NEIL-2 excess coverage would likely be significantly less per million dollars of coverage but could entail additional assessments in the event that losses occurred.
The total cost per year, not including potential assessments, to each of those 13 licensees that would be required to buy additional excess insurance would likely range from $0.3 million to $1.5 million.
For this cost, the
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.new y-covered licensees, their stockholders and their customers l
would be protected from the 'potentially much larger costs that could result from an accident.
Likewise, the public.wo'uld be.
protected from any adverse health and safety effects occurring-becuse of delays in cleanup arising from funding shortfalls.
'Another possible conseopence is that the cost'of' capital could.be increased if a decontamination priority were imposed..Commenters on the_ proposed rule argued that by increasing bondholders' uncertainty that their assets would be' protected in the event of an accident, some undetermined risk premium would be attached to future financing required by utility licensees. The staff believes, however, that commenters overstate the potential effects of a decontamination priority for several reasons.
First, the Commission always has had the authority to order cleanup efter &n accident and it can be argued that such authority extends to obtaining funds to perform decontamination and cleanup activities.
Second, NEIL-II currently has a decontamination priority written into its policy.
Thus, only the $585 million coverage from ANI/MAERP is unprioritized.
When compared to the $2 to $8 billion i
cost of the newer nuclear power facilities, investors would not be J
J covered for a large percentage of their investment.
Third, by
)
modifying the priority so that it would be invoked only in certain circumstances, the staff believes that investors fears should be further assuaged.
For the above reasons, the staff believes that the effect of a decontamination priority on utility capital costs l
would be minimal.
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_- _. J Another burden, albeit minor. that the staff proposes to continue is the requirement that licensees continue to report each year on l
the amount of property insurance that they carry.
An alternative approach would be to require only those licensees who do not carry the amount of insurance required to report annually. All licensees carrying insurance equal to or in excess of the amount required would not have to submit annual reports. However, there are several benefits'to keeping'the existing requirement. First, the Conrnission will be better able to monitor compliance with the rule.
If a licensee, for whatever reason, neither carries the insurance required nor submits a report, there would be no easy way for the Commission to determine that any given licensee is in compliance.
Second, by having all licensees report on the amount of insurance carried, the Commission will be better able to determine the general level of coverage that licensees believe they must carry and will be better able to respond to Congressional and other requests pertaining to such coverage.
Because future coverage requirements may be increased, the annual reporting requirement provides a way for the NRC to monitor property insurance limits vis-a-vis identified future need. These reasons, coupled with a minimal burden on licensees for preparing the report, suggest that it is cost beneficial to continue requiring the report.
Some additional impact on the NRC could occur if any of the thirteen or so licensees required to buy additional insurance petitioned the NRC for exemption from this requirement.
If two staff-weeks of effort are required for each exemption, as much as
^ ~ 26Lstaff-weeks total additional effort ~by the NRC~could be required.
No additional impact 'on other NRC programs, other l
organizations or: individuals is anticipated. The' Commission
'therefore concludes that the benefits gained by incre~asing insurance requirements outweigh the incremental costs necessary for implementation.
. 6.
Implementation Because there is some impact on certain reactor licensees, a
'one-year implementation schedule is provided'for the decontamination priority.
The final rule will become effective 60 days after publication in the Federal Register.
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