The Price-Anderson Act and the Role of Congress in Compensating Victims After a Catastrophic Nuclear Disaster

History of Public Liability Insurance for Nuclear Power

The Atomic Energy Act of 1946, which served as an early framework for the use of atomic energy, established a government monopoly over the use of special nuclear material. ⁶ However, although the law prohibited private entities from owning or possessing the nuclear material and facilities necessary to generate nuclear power, it transferred control of the entire US atomic energy program from military control, under the Manhattan Project, to the civilian-controlled Atomic Energy Commission (AEC), where the US government first began research and development dedicated to the peaceful use of nuclear power. ⁷

In the years that followed, as Britain and the Soviet Union began developing peaceful uses of atomic energy, privately owned utilities in the US were eager for an opportunity to invest in the expansion of nuclear power, calling AEC control of atomic energy an “island of socialism” in the US free market. ⁷ Accordingly, aiming to “relieve the taxpayer of the enormous cost of the commercial aspects of the enterprise,” ⁸ President Eisenhower signed the Atomic Energy Act of 1954, which aimed to modernize the 1946 legislation by, among other things, inviting private enterprise to supplement government efforts to advance nuclear technology. ⁹

However, between 1954 and 1956, despite initially expressing enthusiasm for investing in nuclear energy, and despite economic incentives offered by the AEC to spur private investment, private industry failed to substantially invest in generating nuclear power. ⁷ A primary reason for slow investment was the problem of potential public liability: that liability claims resulting from a widespread radiological release at a power plant could seemingly result in incalculably costly damages claims. ⁷ At this point, Congressman Sterling Cole (R-NY), one of Congress's most knowledgeable experts on nuclear energy, who in 1957 became the first director general of the International Atomic Energy Agency (IAEA), called the production of electric power through atomic fission “no longer a scientific problem. Rather it is an economic and political one.” ¹⁰

For utility companies and insurance companies, the economic problem preventing the adoption of nuclear power was largely defined by the “Brookhaven Report” (aka Theoretical Possibilities and Consequences of Major Accidents in Large Nuclear Power Plants) prepared by the AEC. ¹¹ The report concluded that in the event of a serious accident, as many as 3,400 people might be killed, as many as 43,000 might be injured, and as much as $7 billion dollars in property damage might result. ¹¹ Against these estimates, no power company wanted to risk operating a nuclear power plant without adequate liability insurance coverage. Likewise, private insurance providers were unwilling to write policies sizable enough to meet the needs of the utility companies. ¹⁰ Interestingly, even at the Shippingport Atomic Power Station, the world's first nonmilitary nuclear power facility, the utility company merely purchased steam from the federal government, which owned the power plant, rather than operating the plant on its own. ¹²

Given that nuclear plants were all but uninsurable in the marketplace at the time, the nuclear industry began calling on Congress to implement a government program of unlimited indemnity to supplement an industry-created $60 million insurance pool for third-party liability for nuclear accidents. ⁷ Without government assistance, it was predicted that nuclear power companies and their suppliers would never build and operate nuclear power plants. ¹³ Congress, in turn, began considering a variety of bills meant to overcome the economic obstacles preventing private investment in nuclear energy.

Perhaps not surprisingly, debate over the proper balance between private and public investment in nuclear power constituted a contentious political issue, and indeed this debate accounted for one layer of the political problem. To be sure, the issue was viewed largely along partisan lines in a predictable way: Republican members of Congress and the Republican Eisenhower administration encouraged a private market solution; Democratic members, on the other hand, favored public intervention. ⁷ However, for those in favor of nuclear energy, the debate presented an even deeper political problem, one that fundamentally called into question the safety of nuclear power. Indeed, calling for Congress to pass legislation supplementing tens of millions of dollars of private insurance required conceding to Congress, and the public, that, relative to other sources of power, nuclear power presented an extraordinary risk. Ultimately, Congress voted in favor of government assistance and passed the Price-Anderson Nuclear Indemnity Act in 1957, thus facilitating the adoption of nuclear power in the US.

The Price-Anderson Act

The Price-Anderson Act is meant to accomplish 2 objectives: (1) encourage private investment in commercial nuclear power by placing a cap on the total amount of liability each holder of a nuclear power plant license faces in the event of an accident; and (2) ensure adequate funds are available to satisfy liability claims of members of the public for personal injury and property damage in the event of a nuclear accident involving a commercial nuclear power plant. ¹⁴

In the event of an extraordinary nuclear occurrence (ENO), as determined by the Nuclear Regulatory Commission, the Price-Anderson Act prevents a nuclear operator from exercising tort law defenses. ¹⁵ Thus, in the event of an ENO, the Price-Anderson Act effectively establishes strict liability for nuclear operators.^16,17 Although the law initially consisted of a 2-tier system, in which the nuclear operator covered only a small part of the total compensation and a much bigger part was provided by public funds, under the current iteration of the Price-Anderson Act, which was renewed for 20 years in 2005, the total compensation is financed through an individual liability of the operator and a second collective tier financed by all licensed American nuclear operators through retrospective premiums. ¹⁸ Thus, each nuclear site is required to purchase $375 million in liability insurance for each reactor unit, which makes up the first tier of coverage; for the second tier, each US reactor operator contributes up to $112 million per reactor that they own. ¹⁹ In total, the provision of liability coverage provided by the utilities amounts to $12.6 billion. ¹⁹

In addition to encouraging private investment in nuclear power production, the insurance provided by the Price-Anderson Act is designed to protect the public after an ENO by holding the nuclear power plant operator legally responsible for damages resulting from the plant regardless of culpability. Although the Price-Anderson Act was authorized in 1957, it was not until 1979 that its efficacy during a nuclear crisis was tested. That year, a series of operational oversights at the Three Mile Island nuclear power plant in Dauphin County, Pennsylvania, culminated in one of the largest nuclear disasters in US history: a partial nuclear meltdown attributed to equipment malfunction and human error. The aftermath of the incident, which entailed the release of radioactive gases into the environment and the subsequent evacuation of nearly 140,000 local residents, generated over $70 million in payouts to the victims of the disaster, covering living expenses and lost wage claims for affected families, including families that chose to evacuate even though evacuation was not ordered.^20,21 The Three Mile Island disaster was certainly a costly failure. However, because of the Price-Anderson Act, authorities managed to resolve the legal fallout with relative efficiency. ²¹

Nevertheless, in 1980, just after the accident at Three Mile Island, the US Government Accountability Office (GAO) reported that while the Act served its purpose—compensating victims of radiological accidents while encouraging commercial nuclear development—a catastrophic nuclear accident “would far exceed” the limit on liability contained in the Price-Anderson Act. ²² Indeed, the notion that the Price-Anderson Act may be inadequate to compensate victims after a catastrophic disaster has been a source of controversy since the law's inception. ²³

When Costs Exceed Available Funds

The Price-Anderson Act survived a constitutional challenge by a North Carolina environmental group in the Supreme Court in 1978—just before the Three Mile Island accident. ²⁴ The law was challenged on 2 grounds: (1) by not ensuring adequate compensation for potential victims of nuclear accidents, the law violated the due process clause of the Fifth Amendment; and (2) the law violated the equal protection clause of the Fourteenth Amendment by treating nuclear accidents differently than other accidents, thus placing an unfair burden on people living near nuclear power plants. The Court upheld the law in part because its pledge that, should the fund established by the Price-Anderson Act not insure full recovery, Congress would “take whatever action is deemed necessary and appropriate to protect the public from the consequences of” such an accident. ²⁴

The Price-Anderson Act limits operator liability such that, should an incident require payment exceeding the approximately $12.6 billion payment capacity created by the Price-Anderson Act, it falls to Congress to provide compensation for all public liability claims. However, although Congress's promise to ensure “full and prompt compensation to the public for all public liability claims resulting from a disaster” may have preserved the law's constitutionality in the eyes of the Supreme Court, it remains to be seen whether such a guarantee is good policy. After all, the Court ruled on whether the law is constitutional, not whether its liability limit was commensurate with the risk. Although the federal government could assuredly mobilize funds necessary to effectively fill any compensation shortfall after a catastrophic nuclear accident, it is conceivable that taxpayers will be asked to fund compensation costs beyond the first $12.6 billion in payments through increased taxes or by reallocations of public funds. ²¹ Even though no 2 nuclear accidents are the same, the 2010 nuclear accident at Fukushima illustrates that a modern nuclear accident may easily carry costs far greater than funds made available by the Price-Anderson Act.

Compensation Claims After Fukushima

The 9.0-magnitude earthquake originating off Japan's Pacific coast in March 2011 and the massive tsunami that followed devastated the eastern seaboard and northern region of the island and claimed nearly 27,000 lives. ²⁵ While the earthquake and tsunami were themselves ruinous events, they precipitated a third catastrophe: the nuclear meltdown of the Fukushima Daiichi nuclear power plant, which necessitated the evacuation of more than 300,000 people. ²⁶

In the aftershock of the disaster, thousands sought to recoup their losses. In May 2011, the Japanese government, acknowledging its obligation to expedite recovery, partnered with Tokyo Electric and Power Company (TEPCO), the owner of the Fukushima Daiichi nuclear power plant, to initiate compensation efforts. ²⁷ The National Diet, Japan's bicameral legislature, established the Facilitation Corporation, an entity responsible for managing financial contributions from nuclear operators in addition to government-sanctioned monetary support. ²⁸ The corporation represents the government's strategy to ensure a speedy remuneration process without draining TEPCO of the funds needed to continue providing power.

On November 15, 2011, TEPCO received 558.7 billion JPY ($7.2 billion USD) to initiate compensation. ²⁷ The government followed up 1 week later with a 120 billion JPY ($1.57 billion USD) contribution to TEPCO. ²⁷ As of June 2012, TEPCO had disbursed 9,627 billion JPY (over $120 billion USD) in provisional and permanent indemnification payouts to individuals, as well as to businesses affected by the nuclear meltdown. ²⁹ So far, these actions have compensated numerous Fukushima residents for lodging and travel expenses incurred because of the evacuation and have also reimbursed businesses for profits lost to evacuation, in addition to onsite radiation testing. ²⁹

While these amounts are indeed significant, many compensation recipients nevertheless report great dissatisfaction with the remunerations from TEPCO, pointing out that their losses far exceed the reimbursements they have collected. ³⁰ Few of these individuals, however, have filed lawsuits against TEPCO, citing reasons rooted both in practicality and cultural beliefs. ²⁸ The complexities of the Japanese litigation process, for instance, combined with the people's desire to reclaim normalcy rather than retaliate against TEPCO, have led many claimants to pursue alternative avenues of compensation, such as government-sponsored mediation, rather than direct lawsuits against TEPCO. ³⁰

Still, Bank of America Merrill Lynch postulates that the total compensation bill for the meltdown will eventually reach $143 billion, far greater than the liability limit established by the Price-Anderson Act and, for context, over 7 times greater than British Petroleum's $20 billion compensation fund for the Gulf of Mexico oil spill.^31,32

Congress Should Act Now

Given the immense costs associated with compensating victims at Fukushima, which are projected to exceed the liability insurance protection provided by the Price-Anderson Act by over $130 billion, and pessimistic predictions by the GAO after the accident at Three Mile Island, it is foreseeable that compensation costs after a nuclear disaster in the US will far exceed funds made available by the Price-Anderson Act. Recognizing the gross disparity between likely costs borne by the public after a catastrophic nuclear incident and the current mechanism for industry to reimburse these costs, Congress, together with industry and regulators, should act proactively to form a plan for paying compensation costs beyond the limit established by the Price-Anderson Act.

Although the current limit on liability for nuclear power utilities is considerably lower than anticipated compensation costs following a catastrophic disaster, it does not necessarily follow that the liability limit should therefore be raised to meet anticipated compensation costs. History indicates that doing so would likely prompt the discontinuation of nuclear power generation in the US. Given that nuclear power provides over 20% of energy consumed in the US, ³³ it should not be priced out of existence. Any plan for paying compensation costs beyond the current limit should maintain the economic conditions that have enabled the US to become the world's leading provider of nuclear power. ³⁴ And as evidenced by the Three Mile Island accident, the Price-Anderson Act is well-suited for paying compensation costs within its preestablished limit, which would likely cover most nuclear accidents. Furthermore, history also indicates that, after a catastrophe, effective victim compensation mechanisms are able to be created in short order. For example, the September 11th Victim Compensation Fund, which was established in only 11 days, processed more than 7,400 claims, which included 98% of eligible families. ³⁵

Still, if compensation costs after a catastrophic incident such as the one in Fukushima should exceed money made available by the Price-Anderson Act, Congress will need to find funds to pay compensation costs. Thus, rather than waiting until after a disaster, Congress, industry, and other stakeholders should form a plan, ex ante, for covering these costs. Deciding in advance the most preferable approach to paying compensation costs beyond the $12.6 billion liability limit established by the Price-Anderson Act would provide predictability about the role of industry and government in providing additional funds in the event of a catastrophic domestic nuclear disaster as well as assure potential victims that they will receive the compensation they deserve.

Additionally, investments in emergency preparedness play an important role in mitigating compensation costs. Commercial nuclear providers and local, state, and federal governments have a history of diligently preparing for emergencies, but more can be done to improve exercises to be more realistic and to address a broader range of scenarios. ³⁶ Also, because response and recovery policies directly affect compensation costs, enhanced preparedness increases the likelihood of not only improving health outcomes after a disaster but also appropriately mitigating compensation costs during and after an emergency. Compensation costs can be exacerbated by unnecessary protective actions taken during and after a nuclear disaster. To the greatest extent possible, protective guidance should be commensurate with risks stemming from an accident. For example, the large-scale evacuations in Fukushima were widely considered not only to be unnecessary but also economically costly and, in many cases, unsafe. ³⁷ Nonetheless, in the US, individuals and businesses that suffer losses due to misguided or uninformed protective actions would very likely be eligible for compensation under the Price-Anderson Act. Investments in preparedness are not only instrumental in saving lives after an emergency but would likely be effective in managing compensation costs.

Conclusion

Historically, public liability insurance has played a critical role in the advancement of nuclear power. Anticipated compensation costs stemming from a catastrophic nuclear accident on the scale of Fukushima will very likely far exceed the current liability limit of $12.6 billion established by the Price-Anderson Act, thus leaving potential victims uncompensated or spreading costs among taxpayers. Ahead of another disaster, Congress, industry, and other stakeholders should form a plan for paying anticipated compensation costs that both ensures that victims are fairly compensated and preserves the economic conditions necessary for the continued operation of nuclear power facilities in the US. The plan should anticipate significantly exceeding funds made available by the Price-Anderson Act. Furthermore, increased emergency preparedness and sound response and recovery policies, starting at the local level, play an important role in effectively mitigating compensation costs after a disaster.