Rev 02, 3/12/2007

NUCLEAR INSURANCE AND LIABILITY FOR

A TOSHIBA 4S NUCLEAR REACTOR BASED
POWER GENERATION FACILITY IN
GALENA, ALASKA.

Prepared for the City of Galena, Alaska

I. EXECUTIVE SUMMARY ...................................................................................................... 2
II. BACKGROUND ...................................................................................................................... 3
A. The City of Galena.............................................................................................................. 3
B. The Galena Power Supply .................................................................................................. 4
C. The Galena 4S Project ........................................................................................................ 4
D. Features of the 4S Reactor .................................................................................................. 5
E. White Paper Objectives....................................................................................................... 6
III. APPLICABLE LAWS AND REGULATIONS ....................................................................... 7
A. PRICE-ANDERSON ACT AND REGULATIONS .......................................................... 7
1. Coverage of Public Liability Claims under the Act...................................................... 7
2. Mechanisms for Providing Financial Protection........................................................... 9
3. Limitation of Liability................................................................................................. 11
4. Exclusions From Price-Anderson Coverage............................................................... 11
5. Resolution and Payment of Public Liability Claims Under the Act ........................... 12
B. PROPERTY INSURANCE FOR ON-SITE PROPERTY ............................................... 14
1. NRC Regulatory Requirements for On-Site Property Insurance................................ 14
2. Potential Exemptions to NRC Property Insurance Requirements .............................. 15
IV. APPLICABILITY OF NUCLEAR LIABILITY INSURANCE AND NUCLEAR
PROPERTY INSURANCE REQUIREMENTS TO GALENA............................................. 16
A. PRICE-ANDERSON COVERAGE ................................................................................. 16
B. PROPERTY INSURANCE .............................................................................................. 19
V. CONCLUSIONS..................................................................................................................... 23
VI. RECOMMENDATIONS........................................................................................................ 24

1
 NUCLEAR LIABILITY AND INSURANCE

I. EXECUTIVE SUMMARY

This white paper is part of a series underwritten by the State of Alaska to provide expert
legal and technical analysis and advice to the City of Galena on some of the more impor-
tant issues that will need to be addressed in licensing and locating a 10 MWe Toshiba 4S
Nuclear reactor based Power Facility (4S NPF) in Galena. This paper discusses the nu-
clear liability and insurance requirements that would be applicable to such a facility.

Nuclear liability and insurance requirements for nuclear power plants are primarily ad-
dressed by the Price-Anderson Act (the Act) and regulations issued by the U.S. Nuclear
Regulatory Commission (NRC) implementing the Act. Congress enacted the Act in 1957
to achieve dual objectives: (1) encourage private participation in the development of nu-
clear power by removing the deterrent of potentially astronomical liability claims, and (2)
assure, simultaneously, the availability of sufficient funds to compensate the public for
damages sustained in the event of a serious nuclear incident. The Act accomplishes its
dual objectives by establishing a mandatory system of financial protection for nuclear
power plants that covers persons potentially liable for a nuclear incident and provides
compensation to those injured by such an incident.

The Act is comprehensive both in terms of the liability claims that it covers and the com-
pensation that it provides for such claims. The Act provides coverage for public liability
claims arising from any nuclear incident involving a nuclear power plant within the
United States. Public liability is broadly defined by the Act to include any legal liability
arising from a "nuclear incident" with three specified exclusions. The Act's coverage for
public liability claims is implemented through a combination of private financial protec-
tion and government indemnification. The persons covered by this broad umbrella of
protection include the NRC licensee as well as any other person who may be liable for
public liability. Thus, all vendors, suppliers, contractors, as well as anyone else who
might be liable for a nuclear incident is covered under the Act.

The Act places a cap on the aggregate public liability equal to the level of coverage pro-
vided by the Act's indemnification and financial protection provisions, thereby ensuring
that liability is limited to the amount of financial protection coverage mandated by the
Act. The Act facilitates compensation of claims by, among other things, requiring waiver
of key legal defenses that might otherwise bar recovery for claims arising from serious
nuclear incidents involving substantial discharges of radioactive materials.

The Act’s three exclusions are for (i) workmen’s compensation claims for on-site work-
ers, (ii) claims arising out of an act of war, and (iii) claims for on-site property. The most
significant of these exclusions is the exclusion for damage to property at the nuclear
power plant site. Since the nuclear incident at Three Mile Island in 1979, the NRC has
required licensees to maintain separate insurance coverage for damage to on-site property
to ensure that the licensee has sufficient funds to stabilize the facility and clean up the site

2
in the event of a nuclear incident. The amount of on-site property insurance required by
the NRC is the lesser of $1.06 billion or whatever amount of insurance is generally avail-
able from private sources. The NRC may, however, grant exemptions from this require-
ment upon a showing that, among other factors, the exemption presents no undue risk to
public health and safety.

Under the Act, the NRC licensee for the 4S NPF to be located in Galena would be re-
quired to obtain nuclear liability insurance to cover public liability claims in the event of
a nuclear incident at the plant. The amount of liability insurance that would be required
under the NRC regulations for a 10 MWe 4S NPF located at Galena would be $5.55 mil-
lion. Such insurance would be available from American Nuclear Insurers (ANI), a pool
of insurance companies expressly formed for the purpose of insuring against nuclear risks.
In addition, the licensee would need to enter into an indemnification agreement with the
NRC to cover public liability claims in the event of a nuclear incident at the site. The
amount of this indemnification would be limited to $500 million, thus making $505.55
million in total available funds to satisfy liability claims for personal injury and property
damage arising from a nuclear incident at the Galena site.

Additionally, the licensee for the 4S NPF would be required by NRC regulation to obtain
property insurance to cover the costs of stabilizing the reactor and decontaminating the
site in the event of a nuclear incident. The minimum amount of property insurance pre-
scribed by NRC regulation (absent an exemption) is the lesser of $1.06 billion or what-
ever amount of insurance is generally available from private sources. Property insurance
is currently available in amounts up to $2.25 billion from Nuclear Electric Insurance
Limited (NEIL), a mutual insurance company that provides insurance for commercial nu-
clear power plants operating within the United States.1

For facilities licensed for limited power generation – such as the Galena 4S NPF – the
NRC has granted exemptions that significantly reduce the amount of required property
insurance to well below $1.06 billion. Based on past exemptions granted by the NRC,
the maximum amount of property insurance that should be required for a 10 MWe 4S
NPF would be on the order of $180 million. Galena should seek to confirm in discus-
sions with the NRC that it would be possible to obtain an exemption for the Galena 4S
NPF that would reduce the amount of property insurance coverage required for the facil-
ity to $180 million, or less, due to its small size.

II. BACKGROUND

A. The City of Galena

The City of Galena, Alaska (Galena) is a small community (pop. 700) located in west-
central Alaska, along the banks of the Yukon River. The closest communities to Galena
(within 100 air miles or less) are Koyukuk (pop. 100) approximately 30 miles to the west,
Nulato (pop. 330), approximately 40 miles to the west, Kaltag (pop. 230), approximately

1
All owners of commercial nuclear plants within the United States are members of NEIL and the licensee
of the Galena 4S reactor would also need to become a member of NEIL to obtain property insurance
from NEIL.

3
60 miles to the west, Ruby (pop. 190) approximately 50 miles to the east, and Huslia (pop.
300), approximately 70 miles to the northeast. The nearest major population center is
Fairbanks (pop. 30,500), 270 miles to the east.2

Galena has no roads linking it to the rest of the state. A former United States Air Force
base is located 1.5 miles west of the city, and is now operated as a public airport. The
airport, known as the Edward J. Pitka Sr. (PAGA) Airport, is state owned and operated,
with a subsidy from the United States Air force to keep the pavement serviceable should
the need arise. The main runway of the airport (runway 7-25) is 7,254 feet long, and is
capable of handling heavy transport type air traffic. The airport is the primary access
point into and out of the Galena area, and operates year-round. The Yukon River serves
as the major heavy transportation resource during the unfrozen summer months. With a
population of approximately 700 persons, Galena serves as an educational and cultural
center for the region. There are many public use and commercial buildings in the area of
the airport and the city itself including schools, workshops, and municipal buildings.
Homes are predominately located around the “New Town” area, 1.5 miles east of the air-
port.

B. The Galena Power Supply

Galena has no connection to an outside power grid. The city currently depends on diesel
generators for its electric power supply. Galena experiences long, severe winters (winter
low temperatures may reach –50°C (-60°F) or below and temperatures below -40°C (-
40°F) are common). The lack of low cost year-round heavy transport into Galena re-
quires the city to maintain large diesel fuel tanks in order to meet energy demand. The
escalating price of fuel and the associated costs of fuel transportation, storage, and fi-
nancing make the cost of electricity prohibitively high to Galena residents. These eco-
nomic issues, coupled with environmental pollution concerns, make it prudent for Galena
to explore alternative ways to meet its energy needs.3

C. The Galena 4S Project

In August 2003, Galena received presentations from Toshiba Corporation (Toshiba) on a

“Super-Safe, Small and Simple” (4S) reactor-based electrical facility. The 4S reactor was
developed jointly by Toshiba and the Central Research Institute of Electric Power Indus-
try (CRIEPI) of Japan.4 Following those presentations, the U.S. Department of Energy
(DOE) sponsored a study on ways to meet Galena’s power requirements.5 The study in-
cluded analyses of the thermal and electric load profiles for Galena, technologies avail-

2
U.S. Census Bureau, 2000 Census data, available online at
http://www.census.gov/popest/cities/tables/SUB-EST2004-04-02.csv.
3
Adams Atomic Engines, Inc., Atomic Insights, “Nuclear Power for Galena, Alaska” (March 2005),
available online at http://www.atomicinsights.com/AI_03-20-05print.html.
4
See, e.g., http://www.uaf.edu/aetdl/Presentations.htm.
5
Robert E. Chaney et al., “Galena Electric Power- A Situational Analysis” ( DE- AM26-99FT40575)
(December 2004). Science Applications International Corporation (SAIC) coordinated the study, in
which the University of Alaska and Idaho National Engineering and Environmental Laboratory partici-
pated.

4
able to meet those loads (the technologies evaluated in detail were enhanced diesel power,
coal, and a 4S reactor-based facility, which were determined to be the only viable alterna-
tives), the environmental and regulatory issues associated with each of these technologies,
and the overall economics of each energy option. The DOE study concluded that the 4S
reactor-based power facility is the best economic and environmental choice for Galena.

On December 14, 2004, the Galena City Council passed a resolution calling for the de-
ployment of a 4S reactor-based power generation facility in the community. The resolu-
tion stated, among other things, that: "It is in the public interest to pursue the siting of a
Toshiba 4S nuclear battery in Galena." The council further directed the City Manager to
"establish a process and timeline leading to evaluations, industrial partners, and financial
and contractual arrangements necessary to bring the economic and environmental bene-
fits of the 4S to Galena."

Since the passing of the resolution, Galena has been investigating the regulatory and eco-
nomic feasibility of locating a 10 MWe 4S reactor-based power generation facility in Ga-
lena. In parallel, Toshiba has been developing a preliminary design document (PSID) to
submit to the U.S. Nuclear Regulatory Commission (NRC) for its review.6

In order to move the siting evaluation process forward and open lines of communication
with various stakeholders and the NRC, Galena has commissioned a set of white papers
that discuss important aspects of the small nuclear power facility project including a
General Overview, Nuclear Liability and Insurance, Emergency Planning, Physical Secu-
rity, Decommissioning, Containment, and Seismic Isolation. This paper is part of the
white paper series.

D. Features of the 4S Reactor

The 4S design introduces a small liquid metal nuclear reactor to the commercial power
industry in the United States. Liquid metal reactors (LMRs) have been operated success-
fully worldwide and have been used in the United States at test facilities, with over 300
reactor years of operational experience. The small, advanced design of the 4S has several
important operational and safety advantages, particularly for remote location deployment,
when compared to the large light-water commercial nuclear power plants currently oper-
ating in the United States. The peak thermal output of the10 MWe 4S reactor is ap-
proximately 30MW thermal (MWt), which is a small fraction of the power output of a
standard sized commercial reactor. Important features of the design of the 4S include:

ƒ Modular construction, which will reduce costs and construction time

ƒ Nuclear systems that are embedded below grade, resulting in safety and secu-
rity benefits
ƒ Liquid sodium coolant, which does not react with core internals or piping
ƒ Sodium coolant that is not highly pressurized, which minimizes stresses on the
plant systems
ƒ Passive safety systems that do not depend on emergency power to function

6
“Galena Project Officials Gear Up for Pre-Application Activities,” Inside NRC, February 6, 2006.

5
 ƒ Negative reactivity temperature coefficients, including coolant void reactivity,
that cause the reaction rate in the core to slow down as temperatures rise
ƒ Air-cooled reactor vessel, steam generator and condenser, so that no coolant
water or intake structures are required
ƒ 30-year core life, which avoids the need to refuel, eliminates fuel storage, and
minimizes fuel handling concerns
ƒ Capability of load following without mechanical operation of reactor control
system
ƒ Ease of decommissioning by containment of all radioactive materials within
the reactor module throughout the life of the plant.

These unique features are among those that provide the 4S reactor system with significant
benefits in operational capability, physical security, and protection of public safety.
Many of the systems that increase cost, raise safety concerns, and pose potential security
hazards at current plants (such as use of numerous mechanical pumps and valves, the
need for a spent fuel pool, and the reliance upon high and low pressure water injection
systems) have been eliminated in the design of the 4S. While the 4S reactor system does
raise some new issues, such as the need to deal with highly reactive liquid sodium and
potential accident scenarios involving sodium-water interaction, these issues have been
addressed in the 4S system design and in past LMR facilities. On balance, the licensing
of a 4S reactor should be a relatively straightforward process, provided that good com-
munications are maintained between all parties involved and there is a timely flow of
complete and accurate technical information.

E. White Paper Objectives

The “white papers” in this series are part of an effort underwritten by the State of Alaska
to provide “expert legal and technical analysis for [a] proposed mini-nuclear plant” at Ga-
lena. The objectives of the papers are threefold: (1) to discuss some of the more impor-
tant issues that will need to be addressed by the NRC in its consideration of applications
for an early site permit (ESP) and a combined construction/operating license (COL) for a
4S reactor–based power generation facility located in Galena; (2) to identify approaches
for handling issues to ensure that the overall cost of operating a 4S reactor-based power
generation facility in Galena is competitive with alternative electric power generation
methods; and (3) to increase the awareness of government officials and the general pub-
lic regarding the process for obtaining authorization from the NRC to construct and oper-
ate a 4S reactor based power facility in Galena.

Ultimately, Galena must determine if proceeding with the licensing and construction of a
4S reactor is economically justified. These papers are intended to assist the City in mak-
ing that determination.

6
III. APPLICABLE LAWS AND REGULATIONS

A. PRICE-ANDERSON ACT AND REGULATIONS

The Price-Anderson Act was enacted in 1957 as Section 170 of the Atomic Energy Act.7
The objectives of the Act are to encourage private participation in the development of
nuclear power by removing the deterrent of potentially astronomical liability claims,
while simultaneously assuring that sufficient funds would be available to compensate the
public for damages sustained in the event of a serious nuclear incident. The Act accom-
plishes these dual objectives by establishing a mandatory system of financial protection
for nuclear power plants that covers persons potentially liable for a nuclear incident and
provides compensation to those injured by such an incident.

1. Coverage of Public Liability Claims under the Act

The Act requires nuclear power plant licensees to "have and maintain financial protection
of such type and such amounts as the Nuclear Regulatory Commission…shall re-
quire…to cover public liability claims."8 Additionally, the Commission may require nu-
clear power plant licensees “to execute and maintain an indemnification agreement” with
the Commission to cover public liability claims.9

The Act defines “public liability” broadly to include "any legal liability arising out of or
resulting from a nuclear incident or precautionary evacuation" with three specified exclu-
sions: (i) workmen's compensation claims for persons employed at the site in connection
with the activity, (ii) claims arising out of an act of war, and (iii) damage to property at
the site used in connection with the activity.10 (The scope of these exclusions is dis-
cussed in Section III.A.4 below.)

The Act defines a nuclear incident to include "any occurrence…within the United States
causing, within or outside the United States" injury to person or property "arising out of
or resulting from the radioactive, toxic, explosive, or other hazardous properties of source,
special nuclear, or by-product material".11 Nuclear incidents covered by the Act include

7
The substantive provisions of the Act are set out in Section 170 of the Atomic Energy Act, 42 U.S.C. §
2210. The statutory definitions applicable to the Act are set out in Section 11 of the Atomic Energy Act,
42 U.S.C. § 2014. The NRC regulations implementing the Act are set out at 10 C.F.R. Part 140.
8
42 U.S.C. § 2210(a). Although the NRC allows self insurance, licensees typically obtain the financial
protection required under the Act through American Nuclear Insurers (ANI), which is a pool of insur-
ance companies expressly formed for the purpose of insuring nuclear risks. The NRC’s regulations set
forth "exemplary" insurance contracts "acceptable" to the Commission by which a utility may satisfy its
financial protection requirements under the Act. 10 C.F.R. §§ 140.91-109. The insurance policies is-
sued by ANI, which set out the detailed terms and conditions of the insurance coverage, contain the fun-
damental terms and conditions in the exemplary insurance policies set forth in the NRC regulations.
9
Id.; see also 42 U.S.C. § 2210(c).
10
42 U.S.C. § 2014(w) (emphasis added).
11
42 U.S.C. § 2014(q). "Source," "special nuclear," and "by-product" materials (referred to herein as “nu-
clear materials”) are defined by the Atomic Energy Act. Special nuclear materials are materials such as
plutonium and enriched uranium that are used to fuel nuclear reactors (42 U.S.C. § 2014(a)); source ma-
terials are materials, such as natural uranium, used to prepare special nuclear materials (42 U.S.C. §

7
incidents involving nuclear materials at the nuclear power plant as well as nuclear inci-
dents involving shipments of nuclear materials to or from a nuclear power plant.12

The Act defines "precautionary evacuation" to be "an evacuation of the public within a
specified area near a nuclear facility, or the transportation route in case of an accident in-
volving transportation" of nuclear materials to or from a nuclear facility, if the evacuation
(1) is the result of any event not classified as a nuclear incident but which "poses immi-
nent danger of bodily injury or property damage from the radiological properties" of nu-
clear materials and (2) is "initiated by an official…authorized by State law to initiate such
an evacuation and who reasonably determined that such evacuation was necessary to pro-
tect the public health and safety."13 This provision was added to the Act in 1988 based
on the experience of the 1979 nuclear incident at Three Mile Island Unit 2 in order to
eliminate any uncertainty whether costs arising from a precautionary evacuation would
be covered.14

The Act compensates injury to both person and property caused by a nuclear incident or
precautionary evacuation. Damages covered by the Act are broadly defined to be "bodily
injury, sickness, disease, or death, or loss of or damage to property, or loss of use of
property…"15 Further, under the Act, the intent or state of mind of the party responsible
for the damages is irrelevant in determining whether the damages fall under the Act. The
Act's coverage extends to damages caused by willful misconduct as well as non-willful
conduct.16 Punitive damages may also be recoverable under the Act to the extent they are
paid solely from the financial protection provided by the licensee and not by government
indemnification.17 In addition to the payment of damages, the Act provides for the pay-

2014(z)); and by-product materials are materials yielded or made radioactive in either producing or util-
izing special nuclear materials (42 U.S.C. § 2014(e)).
12
See 10 C.F.R. § 140.91, App. A (Exemplary Form of Nuclear Energy Liability Policy for Facilities), Art.
III as amended, definition of "insured shipment."
13
42 U.S.C. § 2014(gg).
14
See H.R. Rep. No. 104, 100th Cong., 1st Sess. 16 (1987); "The Price-Anderson Act -- The Third Decade",
A Report to Congress by the U. S. Nuclear Regulatory Commission, NUREG-0957, pp. A-10, A-11 De-
cember, 1983.
15
42 U.S.C. § 2014(q); see also 10 C.F.R. § 140.91, App. A, Art. III (exemplary insurance policy provision
elaborating on property damages covered under the Act). While the Act covers personal liability claims
for destroyed or contaminated property, “coverage for environmental cleanup costs” arising from any
“governmental decree, order or directive” requiring a person to undertake or pay "for monitoring, testing
for, cleaning up, neutralizing or containing contamination of the environment" is limited to environ-
mental cleanup off-site resulting from "an extraordinary nuclear occurrence or a transportation incident."
Amendatory Endorsement (Facility Form), Art. III (Jan. 1, 1990). An extraordinary nuclear occurrence
(discussed further in Section III.A.5 below) is one that the NRC has determined to be substantial and se-
rious. A "transportation incident" is defined by the policies to be a collision, upset or accident occurring
in the course of transportation causing discharge or dispersal of nuclear material at a location away from
the nuclear facility or disposal site. Id. Government decreed environmental cleanup costs arising from
other nuclear incidents are not covered.
16
Congress explicitly rejected a proposal to exclude damages arising from willful misconduct because "the
damage to the public is the same, whether caused by any means – willful or non-willful." S. Rep. No.
296, 85th Cong., 1st Sess. (1957), reprinted in 1957 U.S.C.C.A.N. 1803, 1819.
17
See In Re TMI Litigation, 67 F.3d 1119 (3rd Cir. 1995), cert. denied, 517 U.S. 1163 (1996).

8
ment of reasonable “legal costs” incurred in investigating, litigating and settling public
liability claims.18

In sum, the Act provides comprehensive coverage for public liability claims resulting
from nuclear incidents and precautionary evacuations involving nuclear reactors licensed
by the NRC and the transit of nuclear materials to and from reactor facilities.

2. Mechanisms for Providing Financial Protection

The Act's coverage for public liability claims arising from nuclear incidents at nuclear
power plants is implemented through a combination of private financial protection pro-
vided by commercial insurance companies and government indemnification. The Act
and the NRC regulations provide various mechanisms for implementing this coverage
depending on the size and operating status of the nuclear reactor.

The Act distinguishes between nuclear power plants having a rated electrical capacity of
100 MWe or more and those having a lower rated electrical capacity. The Act requires
licensees of plants having a rated capacity of 100 MWe or more to maintain two types of
financial protection. The first – known as the “primary financial protection” – is “the
maximum amount of insurance available at reasonable cost and on reasonable terms from
private sources.”19 The second type of financial protection required for such plants –
known as “secondary financial protection” – is insurance maintained under an industry
“retrospective rating plan” providing for retroactive, deferred premium charges that be-
come due only if needed to pay for public liability claims arising under the Act.20

For nuclear power plants having rated capacities less than 100 MWe, such as the Galena
4S NPF, the Act authorizes the NRC to set the amount of primary financial protection to
be maintained by licensees for such plants based on factors such as the cost and terms of
available private insurance and the hazards associated with the plant.21 Further, such
plants are not required to maintain secondary financial protection.22 The NRC has pre-
scribed regulations that establish the amount of financial protection (ranging from $1 mil-

18
42 U.S.C. §§ 2210(e) and (o)(1)(D). The Act defines “legal costs” as “costs incurred by a plaintiff or
defendant in initiating, prosecuting, investigating, settling, or defending” public liability claims. 42
U.S.C. § 2014(jj). Where it is shown that public liability for a nuclear incident may exceed the aggre-
gate limit on liability, a court is authorized to pay legal costs only upon a showing that such costs “are
reasonable and equitable” and that the person has “litigated in good faith;…avoided unnecessary dupli-
cation of effort; … not made frivolous claims or defenses;…and not attempted to unreasonably delay the
prompt settlement of adjudication” of claims. 42 U.S.C. § 2210(o)(2).
19
42 U.S.C. § 2210(b). This amount is currently $300 million. See 10 C.F.R. § 140.11(a)(4)
20
42 U.S.C. § 2210(b)(1). The maximum amount of deferred premium (adjusted for inflation every five
years) to be charged each nuclear plant of 100 MWe or more per nuclear incident is currently
$95,800,000. Id.; 10 C.F.R. § 140.11(a)(4). 42 U.S.C. §§ 2210(b)(1), 2210(t). In addition, plants of 100
MWe or more may be assessed an additional 5 percent surcharge where claims exceed the maximum
amount of financial protection. 42 U.S.C. § 2210(o)(1)(E). Given 103 operating reactors within the
United States of 100 MWe or more, the secondary level of financial protection for such plants amounts
to approximately $10 billion.
21
42 U.S.C. § 2210(b)(1).
22
Id.

9
lion to $74 million) to be maintained by reactors of less than100 MWe.23 For reactors
with thermal power levels in excess of 10 megawatts, such as the Galena 4S NPF, the
regulations set forth a formula for calculating the amount of financial protection to be
maintained by the licensee based on the power level of the reactor and the size of the
nearby surrounding population.24

The NRC regulations allow a licensee to meet its financial protection requirements under
the Act either through private liability insurance or self insurance.25 As noted above, the
regulations set forth "exemplary" insurance contracts "acceptable" to the Commission by
which a licensee may satisfy its financial protection requirements under the Act.26 These
exemplary contracts require insurance policies provided to meet the financial protection
requirements of the Act to include in their coverage the "named insured" and "any other
person or organization" who may have legal responsibility for injury or damage caused
by a nuclear incident.27 Hence, in accordance with Congress's intent, insurance provided
under the Act covers not only the named insured but also "any other person who may be
liable" for a nuclear incident, including "[a]ll vendors, architect-engineers" and other con-
tractors and suppliers responsible for the design and construction of a nuclear facility.28

Where the amount of financial protection required to be maintained by a licensee is less

than $560 million, the Act requires the Commission to enter into an indemnification
agreement with the licensee.29 This agreement is to indemnify and hold harmless "the
licensee and other persons indemnified…from public liability arising from nuclear inci-
dents which is in excess of the level of financial protection required of the licensee."30
The Act defines "person indemnified" to mean the NRC licensee "with whom an indem-
nity agreement is executed…and any other person who may be liable for public liabil-
ity."31 Thus, the indemnification agreement, like the financial protection provided by the
licensee, would cover all vendors, contractors, suppliers and anyone else who may be li-
able for a nuclear incident.

The maximum amount of government indemnity provided under an agreement of indem-

nification under the Act is $500 million.32 This amount is to be reduced dollar for dollar by
33
the excess over $60 million in financial protection insurance maintained by the licensee.

23
10 C.F.R. §§ 140.11(a)(1)-(3) and 140.12.
24
As discussed in Section IV.A below, under this formula, the amount of financial protection required for
a 10 MWe (30MWt) 4S NPF located at Galena would be $5.55 million.
25
10 C.F.R. § 140.14; see also 10 C.F.R. § 140.15.
26
10 C.F.R. §§ 140.91-109.
27
10 C.F.R. § 140.91, App. A, Art. II (exemplary primary insurance policy); see also 10 C.F.R. § 140.109,
App. I, Declaration Items 1 and 2 (exemplary secondary insurance policy).
28
S. Rep. No. 296, supra, reprinted in 1957 U.S.C.C.A.N. at 1811-12, 1818; S. Rep. No. 454, supra, re-
printed in 1975 U.S.C.C.A.N. 2251, 2256.
29
42 U.S.C. § 2210(c).
30
Id.
31
42 U.S.C. § 2014(t)(1); see also, 10 C.F.R. § 140.92, App. B and § 140.93, App. C.
32
42 U.S.C. § 2210(c).

10
 3. Limitation of Liability

The Act establishes limitations on the aggregate public liability compensable for a single
nuclear incident.34 For nuclear reactors less than 100 MWe, such as the Galena 4S NPF,
the limit of liability is the sum of the financial protection maintained by the licensee and
the amount of government indemnification provided by the Act.35

Neither the licensee nor any other party is liable for claims beyond the aggregate liability
limits set by the Act. In the event the aggregate public liability for a nuclear incident ex-
ceeds the statutory cap, Congress is to review the situation and to take whatever action it
deems necessary to provide full and prompt compensation to the public.36

4. Exclusions From Price-Anderson Coverage

The three specified exclusions from Price-Anderson coverage for nuclear reactors li-
censed by the NRC are for: (i) "claims under State or Federal workmen's compensation
acts of employees…who are employed at the site of and in connection with the activity
where the nuclear incident occurs;" (ii) "claims arising out of an act of war," and (iii)
"claims for loss of, or damage to, or loss of use of property which is located at the site of
and used in connection with the licensed activity where the nuclear incident occurs."37

The exclusion of claims for property damage at the site is the most significant of the three.
This exclusion was added to the Act by amendment in 1961 specifically to exclude Price-
Anderson coverage for on-site property used in connection with activities licensed by the
NRC, particularly the licensed nuclear reactor itself.38 However, as discussed in Section
III.B below, since the TMI experience the NRC has required utilities to carry separate
insurance for stabilizing the reactor and decontaminating the site after a nuclear incident.

The other two exclusions to the Act's coverage are narrow. Workmen's compensation
claims for on-site personnel are excluded from Price-Anderson coverage because "insur-
ance carriers who pay workmen's compensation" for workers at nuclear facilities are as-
sumed to "know and understand the risks which they are taking and charge accord-
ingly."39 Workmen's compensation systems provide benefits to employees injured in the
course of their employment regardless of the fault of their employer who in turn is gener-
ally protected from tort liability for work-related accidents.40 This exclusion for "State or

33
Id.
34
42 U.S.C. § 2210(e).
35
42 U.S.C. § 2210(e)(1)(C). The statutory limit on liability for nuclear incidents at plants having a rated
capacity of 100 MWe or more is equal to the amount of financial protection required to be maintained by
such licensees (which, including both the primary and secondary financial protection required for such
plants, exceeds $10 billion). 42 U.S.C. § 2210(e)(1)(A).
36
42 U.S.C. §§ 2210(e) and 2210(i).
37
42 U.S.C. § 2014(w).
38
See H.R. Rep. No. 963, 87th Cong., 1st Sess. (1961), reprinted in 1961 U.S.C.C.A.N. 2591, 2600.
39
S. Rep. No. 296, supra, reprinted in 1957 U.S.C.C.A.N. at 1819.
40
See, e.g., Rolick v. Collins Pine Co., 925 F.2d 661, 663 (3rd Cir.1991) cert. denied, 113 S. Ct. 1417
(1993); Smith v. Gould, Inc., 918 F.2d 1361, 1363-64 (8th Cir. 1990).

11
Federal workmen's compensation acts" is to be construed to include "any law similar to
the compensation acts," such as occupational disease acts.41

Workmen's compensation systems, however, do not generally cover claims of tort liabil-
ity for injury brought by an employee against a third party.42 Accordingly, such claims
fall under the coverage of the Act. Thus, for example, a tort claim alleging radioactive
exposure brought by an employee of a subcontractor at a nuclear plant against the con-
tractor and the plant owner was adjudicated under Price-Anderson.43 Similarly, the Act
was also found to apply in two separate wrongful death actions brought by relatives of
employees against the owners of nuclear power plants.44

The exclusion for claims arising out of an act of war is not based on any intent to hold
licensees or others liable for such claims.45 Rather, it was enacted in recognition that
special governmental measures adapted to the exigencies of war would be required.
"Any single act of sabotage would be covered" under Price Anderson "if it could not be
proven to be an act of war."46 In this respect, both ANI and the NRC have confirmed to
Congress that acts of terrorism – such as those that occurred September 11, 2001 – would
be covered under Price-Anderson.47

5. Resolution and Payment of Public Liability Claims Under the Act

The resolution and payment of public liability claims arising under the Act follow the
same process as claims made under any insurance policy covering natural disasters. For
example, following the nuclear incident at TMI, ANI established a special nearby office
to pay living expenses claims for persons who had evacuated the five mile area around
the TMI-2 reactor at the suggestion of the Pennsylvania Governor.48 Further, the Act
provides a structured process for resolving disputed claims arising under the Act. It es-
tablishes a federal cause of action for public liability claims, 49 and provides that the

41
S. Rep. No. 296, supra, reprinted in 1957 U.S.C.C.A.N. at 1819. In addition to workers compensation,
the insurance policies exclude liability for "bodily injury to any employee of the insured" employed at
the site. See 10 C.F.R. § 140.91, App. A, Art. IV(b). According to ANI, this provision is intended to
exclude employers liability involving limited situations in certain states where an employee may bring
suit against his employer outside the workmen's compensation system.
42
See, e.g., Missouri Pub. Serv. Co. v. Henningsen Steel, 612 F.2d 363 (8th Cir. 1980).
43
O'Conner v. Commonwealth Edison Co., 13 F.3d 1090 (7th Cir.), cert. denied, 114 S. Ct. 2711 (1994).
44
McLandrich, et al. v. S. Cal. Edison Co., 942 F. Supp. 457 (S.D. Cal. 1996) and Corcoran v. N.Y. Power
Auth. 935 F. Supp. 376 (S.D. N.Y. 1996).
45
S. Rep. No. 296, supra, reprinted in 1957 U.S.C.C.A.N. at 1819.
46
Id.
47
See Testimony of John Quattrocchi, Senior Vice President, Underwriting, American Nuclear Insurers
Before the United State Senate Transportation, Infrastructure, and Nuclear Safety Subcommittee of the
Environment and Public Works Committee, January 23, 2002; Letter from Richard A. Meserve, Chair-
man, Nuclear Regulatory Commission, to Senator Ernest F. Hollings, Chairman, Committee on Com-
merce, Science and Technology, December 11, 2001.
48
See The Price Anderson Act – The Third Decade, NUREG-0957 (Dec. 1983) at I-6.
49
O'Conner v. Commonwealth Edison Co., supra, 13 F.3d at 1095-1101; In re TMI Cases Consol., 940
F.2d 832 (3d Cir. 1991), cert. denied, 503 U.S. 906 (1992).

12
United States district court for the district where the nuclear incident takes place shall
have jurisdiction to hear claims for compensation arising from the nuclear incident.50
Additionally, the Act provides the court with special powers to provide for the prompt,
efficient and fair handling of the myriad claims that could arise under the Act.51

While the Act establishes a federal cause action in federal court, it does not establish sub-
stantive legal standards for determining public liability for a nuclear incident. Rather, the
Act expressly provides that the "substantive rules for decision" for public liability claims
arising under Price-Anderson "shall be derived from the law of the State in which the nu-
clear incident involved occurs, unless such law is inconsistent" with the Act.52 The Act
does require, however, insurance policies and indemnity agreements to waive in the event
of an "extraordinary nuclear occurrence" key legal defenses that might otherwise be
available under the law of some states.53 These waivers make the application of the Act
equivalent to strict liability for an "extraordinary nuclear occurrence," which was the in-
tent of Congress in requiring such waivers.54

As reflected in the legislative history, Congress intended an "extraordinary nuclear occur-

rence" to which the waiver of defenses applies to be a "serious nuclear incident" as de-
termined by the NRC in accordance with the Act.55 The NRC has promulgated regula-
tions establishing criteria to govern its determination of whether a nuclear incident quali-
fies as an extraordinary nuclear occurrence.56 Applying these criteria, the NRC deter-
mined that the 1979 nuclear incident at the Three Mile Island Unit 2 plant was not an ex-
traordinary nuclear occurrence because estimated radiation doses and surface contamina-
tion levels off-site were about an order of magnitude lower than those specified by the
criteria set forth in its regulations.57

50
42 U.S.C. § 2210(n)(2). Suits filed in other federal district courts or state courts are to be transferred to
the district court where the nuclear incident occurred upon request of the defendant, or of the NRC or the
Secretary of Energy, as appropriate. Id.
51
42 U.S.C. § 2210(n)(3); see also 42 U.S.C. § 2210(o).
52
42 U.S.C. § 2014(hh).
53
42 U.S.C. § 2210(n)(1). The Act and regulations require, for example, the waiver of issues and defenses
related to the conduct of the claimant, such as contributory negligence or assumption of the risk, or to the
fault of the insured, such as negligence. Id. 10 C.F.R. § 140.81(b); 10 C.F.R. § 140.91, App. A, Waiver
of Defense Endorsement; 10 C.F.R. § 140.92, App. B, Art. II, Para. 4 The Act also requires the waiver
of "any issue or defense based on any statute of limitations if suit is instituted within three years from the
date on which the claimant first knew, or reasonably could have known, of his injury or damages and the
cause thereof." 42 U.S.C. § 2210(n)(1).
54
See S. Rep. No. 1605, 89th Cong., 2nd Sess. (1966), reprinted in 1966 U.S.C.C.A.N. 3201, 3209.
55
Id. In accordance with Congress’s intent, the Act defines an extraordinary nuclear occurrence as an off-
site discharge or dispersal of source, special nuclear, or byproduct material which the NRC (1) "deter-
mines to be substantial," and (2) "determines has resulted or will probably result in substantial damages
to persons off-site or property off-site." 42 U.S.C. § 2014(j).
56
See 10 C.F.R. §§ 140.83-85.
57
In re Metropolitan Edison Company (Three Mile Island, Unit 2), CLI-80-13, 11 NRC 519 (1980).

13
 B. PROPERTY INSURANCE FOR ON-SITE PROPERTY

1. NRC Regulatory Requirements for On-Site Property Insurance

Following the nuclear incident at TMI, the NRC became concerned that some nuclear
utilities may not be able to “finance the clean-up costs resulting from a nuclear-related
accident.”58 Because of the “substantial importance to the public health and safety of
adequately cleaning up nuclear accidents,” the Commission revised its regulations to re-
quire that licensees maintain on-site property damage insurance to ensure sufficient funds
to clean up and decontaminate the reactor and reactor site after a nuclear incident.59

The requirements for on-site property insurance coverage are set forth in 10 C.F.R. §
50.54(w). This section requires licensees of commercial nuclear power plants to “take
reasonable steps to obtain insurance available at reasonable costs and on reasonable terms
from private sources or to demonstrate to the NRC that it possesses an equivalent amount
of protection” to stabilize the reactor and decontaminate the reactor and the reactor site in
the event of a nuclear incident.60 Absent an exemption, the amount of property insurance
coverage required by the regulation is set at “either $1.06 billion or whatever amount of
insurance is generally available from private sources, whichever is less.”61 The $1.06
billion amount of insurance prescribed by the regulation was based on a study conducted
by Pacific Northwest Laboratory which analyzed the cleanup costs associated with a hy-
pothetical accident for a typical, large pressurized water reactor (PWR).62

In addition to specifying the amount of the coverage, the regulations specify that the in-
surance policy must “clearly state that . . . any proceeds must be payable first for stabili-
zation of the reactor and next for decontamination of the reactor and the reactor station
site.”63 The insurance “may, at the option of the licensee, be included within policies that

58
Financial Qualifications; Domestic Licensing of Production and Utilization Facilities; Proposed Rule, 46
Fed. Reg. 41,786, 41,788 (Aug. 18, 1981).
59
Id. See also Elimination of Review of Financial Qualifications of Electric utilities in Licensing Hearings
for Nuclear Power Plants. Final Rule, 47 Fed. Reg. 13,750 (Mar. 31 1982) Simultaneous with eliminat-
ing review of financial review of financial qualifications for electric utilities, the Commission promul-
gated requirements for licensees to maintain property insurance under 10 C.F.R. § 50.54(w). Id.
60
10 C.F.R. § 50.54(w).
61
10 C.F.R. § 50.54(w)(1). As discussed in Section IV.B below, based on previous exemptions granted by
the NRC, the licensee for the Galena 4S NPF should be able to obtain an exemption that would signifi-
cantly reduce the amount of on site property insurance required for the facility to an amount on the order
of $180 million.
62
See Changes in Property Insurance Requirements for NRC Licensed Nuclear Power Plants, Final Rule,
52 Fed. Reg. 28,963, 28,964 n. 1 (Aug. 5 1987), referencing Technology, Safety and Costs of Decommis-
sioning Reference Light Water Reactors Following Postulated Accidents, NUREG/CR-2601 (November
1982). Analyzing the “accident cleanup costs at a reference 1,000 MWe PWR following a scenario 3
accident,” ($404 million) and adding “additional costs that can appropriately be ascribed to such an acci-
dent” ($656 million), the study determined that the appropriate amount of property insurance for the cir-
cumstances studied was $1.06 billion. Id. at 28,964. The Commission adopted this amount, reasoning
that more than that amount was commercially available at the time the regulation was adopted and “no
other amount is as technically supportable.” Id.
63
Id.

14
also provide coverage for other risks, including, but not limited to, the risk of direct
physical damage.”64 Licensees must report annually to the NRC regarding the current
levels and sources of their property insurance or alternative financial security.65

The only entity that currently provides nuclear property insurance for commercial reac-
tors operating in the United States is Nuclear Electric Insurance Limited (NEIL).66 NEIL
is a mutual insurance company whose members are the owners of the U.S. commercial
reactors to whom it sells property insurance. NEIL provides two layers of property in-
surance. The amount of coverage provided by the first layer is $500 million and the cov-
erage provided by the second layer is $1.75 billion, for total coverage of $2.25 billion.67
With certain limitations, the policies cover damage and destruction of property generally
at the site due to a nuclear accident but, in accordance with NRC requirements, give pri-
ority to stabilization of the reactor and decontamination of the reactor and reactor site.
NEIL also offers an “accidental outage insurance policy” to cover the costs of lost power
generation due to a prolonged accidental outage of a nuclear plant.68

2. Potential Exemptions to NRC Property Insurance Requirements

10 C.F.R. § 50.54(w) does not expressly provide exceptions to the requirement that licen-
sees hold property insurance in the amount of “either $1.06 billion or whatever amount of
insurance is generally available from private sources, whichever is less.” The absence of
such an express provision in 10 C.F.R. § 50.54(w) does not, however, preclude exemp-
tions from its requirements being sought under 10 C.F.R. § 50.12 of the NRC’s regula-
tions, and such exemptions have been granted by the NRC.

Under 10 C.F.R. § 50.12 the NRC may grant an exemption from the requirements con-
tained in 10 C.F.R. Part 50 upon determining that (1) the requested exemption is “author-
ized by law, will not present an undue risk to public health and safety, and [is] consistent
with the common defense and security”69 and (2) “special circumstances are present”
which warrant the granting of the exemption.70 The regulation identifies the “special cir-
cumstances” or justifications for which an exemption may be granted.71 If a licensee be-
lieves that its situation warrants an exemption from any requirement under Part 50, it can
apply for an exemption under one of the specific justifications included in 10 C.F.R. §
50.12 for seeking an exemption.

One of the justifications included in § 50.12 for allowing exemptions from licensing re-
quirements is if “compliance would result in undue hardship or other costs that are sig-

64
Id.
65
10 C.F.R. § 50.54(w)(3).
66
While ANI had traditionally provided nuclear property insurance as well as nuclear liability insurance, it
ceased offering property insurance as of about 2000.
67
See “NEIL Insurance Policies – Summary” at http://www.nmlneil.com/policies.html.
68
Id.
69
10 C.F.R. § 50.12(a)(1).
70
10 C.F.R. § 50.12(a)(2).
71
10 C.F.R. § 50.12(a)(2)(i)-(vi).

15
nificantly in excess of those contemplated when the regulation was adopted, or that are
significantly in excess of those incurred by others similarly situated.”72 Since the provi-
sions of 10 C.F.R. § 50.54(w) were implemented, a number of licensees have used this
justification to argue successfully that complying with the requirement of providing $1.06
billion in property insurance for their plant would present an undue hardship and was un-
necessary in consideration of the limited threat to public health and safety posed by their
facilities. These exemptions from the requirement to maintain $1.06 billion in property
insurance coverage include facilities that were licensed to operate at much lower power
levels than that of a typical, large PWR upon which the $1.06 billion amount prescribed
in 10 C.F.R. § 50.54(w) was based.

As discussed in Section IV.B below, an exemption should similarly be obtainable for the
Galena 4S NPF that would significantly reduce the amount of property insurance required
to be maintained for the facility in accordance with the much reduced risk associated with
the small generating capability and small physical size of the Galena 4S NPF.

IV. APPLICABILITY OF NUCLEAR LIABILITY INSURANCE AND NU-

CLEAR PROPERTY INSURANCE REQUIREMENTS TO GALENA

A. PRICE-ANDERSON COVERAGE

As a nuclear power plant licensee under section 103 of the Atomic Energy Act, the holder
of the operating licensee for the Galena 4S NPF would be required to maintain Price-
Anderson financial protection to “cover public liability claims" should a nuclear incident
occur with respect to the facility.73 However, because the 4S has a rated capacity of less
than 100 MWe, the licensee for the Galena 4S NPF would only be required to maintain
the primary financial protection required under the Act. Significantly, the licensee would
not be subject to the secondary level of financial protection required for commercial reac-
tors with rated capacities of 100 MWe or more. Nor would the licensee be subject to the
large deferred premium – currently up to a maximum of approximately $100 million –
that would be due under the industry retrospective rating plan implementing the secon-
dary financial protection should a nuclear incident occur at any operating plant of 100
MWe or more. Rather, the financial protection required to be maintained for the Galena
4S NPF would be limited to that determined under 10 C.F.R. § 140.12, augmented by an
indemnification agreement with the NRC.

10 C.F.R. § 140.12 sets forth a formula for calculating the amount of primary financial
protection required for licensees of reactors having rated capacities of less than 100 MWe
but thermal power levels in excess of 10 megawatts. Under this formula the amount of
required financial protection is equal to the “base amount of financial protection,” B,
times a “population factor,” P. “The base amount of financial protections is equal to
$185 times the maximum power level, expressed in thermal kilowatts, as authorized by
the applicable license.74 As the 4S reactor to be located at Galena will have a maximum

72
10 C.F.R. § 50.12(2)(iii).
73
42 U.S.C. § 2210(a).
74
10 C.F.R. § 140.12 (b)(3).

16
thermal power level of 30,000 kilowatts, the base amount of financial protection required
under the regulation would be $5.55 million.

The population factor by which the base amount is to be multiplied is determined by first
identifying the population living “within a circle with the facility at its center and having
a radius equal to the square root of the maximum authorized power level in thermal
megawatts.”75 For a 30 MWt 4S reactor, this radius would be slightly less than 5.5 miles.
The regulation then prescribes a method for weighting the population by dividing the
population of each “minor civil division” located wholly or partly within the circle by
“the square of the estimated distance to the nearest mile from the reactor to the geo-
graphic center of the minor civil division,” provided that no such distance shall be
deemed to be less than one mile.76 If the population within the circle, as weighted, is
1,000 or less, the population factor is 1.0.77 The population factor increases in increments
up to a maximum of 2.0 for weighted populations of 9,000 or more.78

As Galena and its immediate surrounding areas have a total population of approximately
700, and no other minor civil divisions are located within 5.5 miles of the reactor, the
population factor for a 10 MWe 4S NPF located at Galena would be 1.0. Accordingly,
the financial protection required under the Act for the Galena 4S NPF would be $5.55
million.

The licensee for the Galena 4S NPF could obtain private nuclear liability insurance for
this amount through ANI or, alternatively, could self-insure by maintaining adequate re-
sources to provide this amount of financial protection.79 However, for a licensee choos-
ing to self insure, the NRC requires “a showing that the licensee clearly has adequate re-
sources” to provide the financial protection required by the Act.80 Thus, obtaining pri-
vate insurance through ANI, which should be readily available, would eliminate having
to make that showing and most likely would be the preferred route to follow.

The maximum amount of nuclear liability insurance currently available from ANI is $300
million,81 which is much greater than the $5.55 million of liability insurance that would
be required for a 4S NPF located at Galena. ANI offers a Facility Policy which provides
insurance for public liability claims except claims made by workers at the nuclear plant
(or involved in transporting nuclear materials to or from the plant) which do not arise
from an extraordinary nuclear occurrence. ANI offers a separate Master Worker Policy
for worker claims excluded from its Facility Policy; this separate policy establishes an
aggregate industry limit of $300 million for such claims.82 Based on ANI’s current rate

75
10 C.F.R. § 140.12 (b)(4).
76
Id.
77
Id.
78
Id.
79
10 C.F.R. § 140.14(a)(2).
80
10 C.F.R. § 140.15(b) (emphasis added).
81
See 10 C.F.R. § 140.11(a)(4).
82
Personal Communication with ANI Representative (March 3, 2006). ANI also offers a Supplier’s and
Transporter’s Policy which provides coverage for nuclear liability claims that would not be covered by

17
structure, the cost of 5.55 million of liability insurance for the Galena 4S NPF for both
the Facility Policy and the Master Worker Policy would be less than $50,000 per year.83

The licensee for the Galena 4S NPF would be required to have this $5.55 million of fi-
nancial protection in place prior to the effective date of the NRC license authorizing op-
eration of the plant.84 While the regulations do not address the insurance requirements
for a facility licensed under Part 52, presumably this insurance coverage would need to
be in place prior to the Commission’s authorization of plant operation following verifica-
tion that the required inspections, tests, analyses, and acceptance criteria (ITAAC) for the
facility have been completed and that the acceptance criteria have been met.85 In addition,
at some point prior to operation, nuclear fuel will need to be brought onto the Galena 4S
NPF site for which the NRC will issue a separate license under 10 C.F.R. Part 70 author-
izing possession of special nuclear material at the site. Prior to issuance of a license un-
der Part 70 authorizing receipt of the nuclear fuel on site, the licensee would need to ob-
tain financial protection in the amount of $1 million.86

In addition to maintaining primary financial protection of $5.55 million, the licensee of

the Galena 4S NPF would also be required to enter into an indemnification agreement
with the NRC to cover public liability claims in the event of a nuclear incident.87 This
agreement would need to be in place in order to become effective on the date that the li-
censee was authorized to receive and possess the 4S reactor fuel on site or the effective
date the licensee was authorized to operate the 4S NPF, whichever is earlier.88 The gen-
eral form of the indemnity agreement that the NRC would enter into with the licensee
(assuming the licensee satisfied its financial protection requirements by obtaining nuclear
liability insurance from ANI) is set forth in 10 C.F.R. § 140.92, appendix B.89 Because
the amount of financial protection required for the Galena 4S NPF licensee would be less
than $60 million, the maximum amount of indemnification provided by the NRC under
the indemnification agreement would be $500 million.90

As discussed above, the Act places a cap on liability. For nuclear reactors less than 100
MWe, this cap on liability is the sum of the amount of financial protection maintained by
the licensee and the amount of government indemnification provided by the Act. For the

Price-Anderson (e.g., claims that do not arise from nuclear incidents occurring at a nuclear power plant
site or during the course of transportation to and from a plant site). Personal Communication with Marsh
Representative (March 6, 2006).
83
Personal Communication with ANI Representative (March 3, 2006). Before issuing insurance for the
Galena 4S NPF, ANI would review, as is its customary practice, the facility’s design and proposed op-
eration. Id.
84
See 10 C.F.R. § 140.11 and 140.12; see also 10 C.F.R. § 140.16 (providing that Commission will review
proof of financial protection filed by any licensee or applicant for a license and Commission “approval
of the financial protection will be evidenced by incorporation of appropriate provision in the license”).
85
See 10 C.F.R. § 52.103(g).
86
10 C.F.R. § 140.13.
87
42 U.S.C. § 2210(c).
88
10 C.F.R. § 140.20(a).
89
10 C.F.R. § 140.20(f)(1)(i).
90
42 U.S.C. § 2210(c).

18
10 MWe 4S NPF located at Galena, this cap on liability would therefore be $505.55 mil-
lion. Given the small size of the 4S reactor, the numerous safety features that would
minimize the potential releases occurring from any nuclear incident, and the relative
sparse population of Galena, this amount should be more than sufficient to cover claims
for off-site personal injury or property damage in the unlikely event a nuclear incident
were to occur at the Galena 4S NPF.

The NRC regulations require that licensees with whom the Commission has an indemnity
agreement pay an annual indemnification fee based on the maximum level of indemnifi-
cation that would be provided under the agreement in the event of a nuclear incident.
“For indemnification from $500 million to $400 million inclusive,” the applicable fee is
“$30 per year per thousand kilowatts of thermal capacity authorized in the license.”91
Based on the 30 MWt capacity of the Galena 4S, the annual fee due for the Galena 4S
NPF would be $900 per year.

B. PROPERTY INSURANCE

As a licensee under 10 C.F.R. Part 52, the holder of the operating license for a 4S reactor
located in Galena would be required to demonstrate that it has secured an adequate
amount of property insurance to meet the requirements of 10 C.F.R.§ 50.54(w). As dis-
cussed above, the only entity that currently provides property insurance for the commer-
cial nuclear industry is NEIL (a mutual insurance company comprised of nuclear power
plant owners). Any entity with an insurable interest in a nuclear power plant is eligible to
become a member of NEIL,92 and NEIL’s current membership includes municipal elec-
tric companies and rural electric cooperatives that are co-owners of nuclear power plants,
as well as limited liability companies that own and operate such plants (e.g., FPL Energy
Seabrook, LLC). To become a member of NEIL, the licensee of the Galena 4S NPF
would need to establish the financial wherewithal to pay retroactive premiums that NEIL
may charge it members to cover losses incurred by NEIL during a policy year (discussed
below).93 Furthermore, before issuing an insurance policy for the Galena facility, NEIL
would review, as is its customary practice, the plant’s design and proposed operation.

Based on NEIL’s current rate structure, the cost of $1.06 billion of property insurance for
a 10 MWe 4S located at Galena would be in the range of $1 million per year, the cost of
$500 million of nuclear property insurance would be in the range $450,000 per year, the
cost of $250 million of nuclear property insurance would be in the range of $225,000 per
year, and the cost of $100 million of nuclear property insurance would be in the range of
$100,000 per year.94 (This rate structure reflects that NEIL currently assesses premiums
at approximately $1 per $1,000 of insurance.) Additionally, NEIL can call upon its in-

91
10 C.F.R. § 140.7(a)(1)(i).
92
Personal Communication with NEIL Representative (March 6, 2006). NEIL will offer property insur-
ance to non-members, but at a higher cost.
93
Id.
94
Id. These are rough estimates based on a $1 million deductible. Id. Further, the Galena 4S NPF could
be eligible for certain credits that would reduce this cost, and in several years time would receive divi-
dends from NEIL that would offset some of the cost. Id.

19
sured members to pay retroactively a retrospective premium adjustment to cover losses
incurred by NEIL during a policy year, up to a maximum amount of ten times the annual
premium.95 While a theoretical possibility, NEIL has never assessed its members a retro-
active premium and it is unlikely to do so in the future.96

As discussed in Section III.B above, absent an exemption granted under 10 C.F.R. §

50.12, a licensee would be required under 10 C.F.R. § 50.54(w) to obtain property insur-
ance coverage of $1.06 billion regardless of the size of the facility. The small size and
limited power output of the Galena 4S NPF, however, would justify an exemption to the
property insurance requirements of 10 C.F.R. § 50.54(w). Furthermore, based on exemp-
tions previously granted by the NRC authorizing significantly reduced amounts of prop-
erty insurance for plants with similarly limited licensed power output – in particular Long
Island Lighting Company’s Shoreham Nuclear Power Station (Shoreham) and Dairyland
Power Cooperative’s LaCrosse Boiling Water Reactor (LaCrosse) discussed below – the
likelihood of obtaining such an exemption for the Galena 4S NPF appears high.

Both the Shoreham and LaCrosse exemptions were granted under the special circum-
stances contained in10 C.F.R. § 50.12(a)(2)(iii), which authorize an exemption where no
undue risk to public health and safety is otherwise presented based upon a showing that
compliance with the regulation would result in undue hardship to the licensee, or costs
significantly in excess of those contemplated when the regulation was adopted, or costs
significantly in excess of those incurred by others similarly situated. With respect to
Shoreham, at the time the exemption request was filed in 1987, the plant was limited un-
der its operating license to operating at no more than 5 percent of its rated power output,
i.e., 121.8 MWt. In light of this restriction, Shoreham argued that full compliance with
10 C.F.R. § 50.54(w) would result in “undue hardships” and would require the payment
of “cost[s] in excess of those contemplated when the regulation was adopted.”97 In addi-
tion, Shoreham argued that complying with this requirement would force the payment of
costs “significantly in excess of those incurred by others similarly situated (each operat-
ing at 50 MW(e)).”98 Based upon these justifications offered for the exemption and the
general criteria for allowing exemptions to the requirements of 10 C.F.R. Part 50, the
Commission reduced the amount of property insurance required for the Shoreham facility
from $1.06 billion to $337 million.99

While the NRC’s notice of granting the Shoreham exemption did not specify which other
specific licensees were “similarly situated,” one of these was undoubtedly the LaCrosse

95
See “NEIL Primary – Primary Property and Decontamination Liability Insurance Policy,” “Premium and
Retrospective Premium Adjustment” at http://www.nmlneil.com/primary.html.
96
Personal Communication with NEIL Representative (March 6, 2006). The provision for retrospective
premiums was included in NEIL’s policies at its inception and NEIL has built up extensive reserves
since that time which greatly reduce the likelihood that it ever would need to assess its members retroac-
tive premiums in the future. Id.
97
Long Island Lighting Co. (Shoreham Nuclear Power Station), Exemption, 53 Fed. Reg. 21,955 (Jun. 10,
1988).
98
Id.
99
Id. at 21,956.

20
facility, a 50 MWe reactor that had been granted an exemption from the requirements of
10 C.F.R. § 50.54(w) two years earlier. At that time (prior to an 1987 amendment to §
50.54(w)), the regulation required licensees to maintain $500 million of “primary” prop-
erty insurance and $120 million of “excess” property insurance.100 LaCrosse had been
granted an exemption from the requirement to carry excess property insurance in 1983.101
In 1986, however, LaCrosse requested, and was granted, an exemption to maintain $180
million of primary property insurance instead of the $500 million otherwise required un-
der the regulation.102

As in the case of the Shoreham facility, LaCrosse argued that the requirement to carry the
full $500 million of property insurance constituted an “undue financial hardship and bur-
den.” 103 To demonstrate this, LaCrosse essentially duplicated the Pacific Northwest
Laboratory study of the estimated cost of cleaning up a facility following a TMI-type ac-
cident, inserting the parameters for the LaCrosse facility instead of the parameters of a
“reference PWR.”104 The NRC found the “bases and assumptions used to estimate acci-
dent recovery” to be “reasonable and consistent with those in” the PNL study, and thus
“sufficient to establish an adequate level of primary property damage insurance coverage
as required by 10 CFR 50.54(w).”105 Because “10 CFR 50.54(w) makes no provisions
for the amount of primary property damage insurance coverage required based on the size
of a plant and the postulated cleanup costs following an accident,” the NRC determined
that “compliance with 10 CFR 50.54(w) result[ed] in an undue financial burden for the
licensee.”106 Therefore, the NRC determined that the criteria in § 50.12(a)(2)(iii) were
satisfied, and reduced LaCrosse’s property insurance requirements to $180 million.107

As demonstrated by the successful exemption request for the LaCrosse facility, the key to
obtaining an exemption to the requirement to carry $1.06 billion of property insurance
under 10 C.F.R.§ 50.54(w) will be to show that a reduced amount of insurance coverage
would be sufficient to cover the costs of stabilizing the 4S reactor and decontaminating
the reactor and the Galena 4S NPF site in the event of a nuclear incident. One way to
make such a showing would be to duplicate, as was done for the LaCrosse facility, the
1982 decommissioning study completed by Pacific Northwest Laboratory for the 4S reac-
tor. This would involve undertaking a technical study to demonstrate that, given the
small size of the Galena 4S NPF, its underground location, and its other design features,
the cost of stabilizing the reactor and cleaning up following a nuclear incident would be
less than $1.06 billion.

100
See Changes in Property Insurance Requirements for NRC Licensed Nuclear Power Plants, Final Rule,
52 Fed. Reg. 28,963 (Aug. 5 1987).
101
Dairyland Power Cooperative (LaCrosse Boiling Water Reactor); Exemption, 51 Fed. Reg. 24,456,
24,457 (Jul. 3, 1986).
102
Id. at 24,458.
103
Id. at 24,457.
104
Id.
105
Id.
106
Id.
107
Id. at 24,458.

21
Based on such a study, the licensee of the Galena 4S NPF could seek an exemption to the
property insurance requirements of 10 C.F.R.§ 50.54(w). A study demonstrating the suf-
ficiency of reduced insurance coverage for the 4S NPF would establish no undue risk to
public health and safety by granting an exemption to the requirements of 10 C.F.R.§
50.54(w). Further, such a study would enable demonstration of each of the special cir-
cumstances under 10 C.F.R. § 50.12(a)(2) (iii) relied upon in the exemption requests for
the Shoreham and LaCrosse facilities.

First, the Galena 4S NPF licensee would be able to show, as was done for the Shoreham
and LaCrosse facilities, that complying with the requirement of 10 C.F.R.§ 50.54(w) to
obtain $1.06 billion of property insurance would result in undue hardship. A typical
commercial nuclear power facility generates and sells on the order of 1,000 MWe
whereas by design, the type of reactor envisioned for placement at Galena would generate
and sell on the order of 10 MWe. Therefore, provision of a similar amount of insurance
for the Galena 4S NPF would result in roughly one hundred times the financial impact on
the facility as provision of the same amount of property insurance at a typical reactor.
Thus, the Galena licensee would be burdened with a disproportionate financial burden,
particularly upon demonstrating that a reduced amount of insurance would be sufficient
to cover the costs of stabilizing the 4S reactor and decontaminating the reactor and the
reactor site in the event of a nuclear incident.

Further, the financial impact of providing $1.06 billion in property insurance at the Ga-
lena 10 MWe facility would result in costs significantly higher than those anticipated at
the time the regulation was adopted. As noted above, the $1.06 billion requirement in 10
C.F.R.§ 50.54(w) was based on a Pacific Northwest Laboratory (PNL) study of the
cleanup costs for a reference 1,000 MWe PWR facility. Not only are the components and
structures of a 10 MWe 4S reactor significantly different from those of a typical 1,000
MWe PWR, but additional costs in PNL study that more than doubled the estimated
cleanup costs would generally not apply to the 4S reactor. Therefore, imposition of the
$1.06 billion property insurance requirement on a reactor such as that proposed for Ga-
lena would introduce “costs significantly in excess of those contemplated when the regu-
lation was adopted.”

Finally, the licensee of the Galena 4S NPF could demonstrate that having to purchase the
full amount of property insurance would impose costs significantly in excess of those im-
posed on other who are similarly situated. As discussed above, other reactors with simi-
lar limited power output have in the past been granted exemptions from these require-
ments.

In addition, the licensee of the Galena 4S NPF could establish special circumstances un-
der 10 C.F.R.§ 50.12(a)(2)(ii). That provision authorizes an exemption where no undue
risk to public health and safety is otherwise presented upon showing that application of
the regulation “is not necessary to achieve the underlying purpose of the rule.” Here, a
study demonstrating the sufficiency of a reduced amount of property insurance to cover
the costs of stabilizing the 4S reactor and decontaminating the reactor and the reactor site
in the event of a nuclear incident would establish that application of 10 C.F.R.§ 50.54(w)
“is not necessary to achieve the underlying purpose of the rule.”

22
In short, strong legal and technical justifications can be advanced for seeking an exemp-
tion from the requirement of 10 C.F.R.§ 50.54(w) to maintain $1.06 billion of property
insurance for the Galena 4S NPF. As determined in a separate white paper addressing
decommissioning of the Galena 4S NPF, the upper range estimate of the cost of decom-
missioning a 10 MWe 4S NPF sited at Galena at the end of its life is $52 million. As-
suming that a detailed analysis of the amount of property damage that may result from an
accidental release of radioactivity from the 10 MWe 4S NPF would produce results simi-
lar to those determined for the 50 MWe LaCrosse reactor, the coverage needed to stabi-
lize and decontaminate the 10MWe Galena NPF can be conservatively estimated at $180
Million, slightly more than 3 times the upper range decommissioning cost estimate.
Based on NEIL’s current rate structure discussed above, the annual premium for $180
million of property insurance would be roughly in the range of $180,000. Given the
smaller size and advanced design features of the 4S NPF compared to the LaCrosse facil-
ity, the detailed analysis may result in justifying further reduction of the amount of insur-
ance required for the Galena 4S NPF with a commensurate reduction in annual premium
costs.

V. CONCLUSIONS

The Price-Anderson Act will provide financial protection to cover liability claims in the
unlikely event a nuclear incident was to occur with respect to the Galena 4S NPF. This
financial protection would consist of financial protection of 5.55 million provided by the
licensee and $500 million of government indemnification. This combined amount should
be sufficient to cover liability claims for personal injury and property damage given the
relatively small population of Galena and the absence of other communities in the vicin-
ity of the proposed reactor. Based on ANI’s current rate structure, the annual cost for this
amount of liability insurance for the Galena 4S NPF would be less than $50,000.

The licensee for the Galena 4S reactor will also be required to obtain property insurance
to stabilize the reactor and decontaminate the reactor and plant site in the event of nuclear
incident with respect to the Galena 4S reactor. Absent an exemption from the NRC’s
property insurance regulations contained in 10 C.F.R.§ 50.54(w), the licensee would be
required to maintain property insurance in an amount of $1.06 billion for the Galena reac-
tor. However, based on the small size of the Galena reactor and previous successful re-
quests for exemptions from the requirements of 10 C.F.R.§ 50.54(w), there is a good like-
lihood that the licensee could obtain an exemption allowing it to maintain a significantly
reduced amount of property insurance for the reactor.

The exact amount of property insurance that would be required if an exemption were
granted is currently unknown, but based on previous exemptions granted by the NRC,
property insurance coverage for the 4S NPF in the range of $180 million or less would be
a reasonable working estimate at this time. The annual premium for this amount of prop-
erty insurance would be roughly in the range of $180,000.

23
VI. RECOMMENDATIONS

Representatives of Galena should (1) engage in constructive discussions with the NRC
Staff in the near future to determine the basis and the extent to which the NRC would be
willing to allow a lesser amount of property insurance for the Galena 4S NPF based on its
limited power generation capability, and (2) ensure that the technical evaluations neces-
sary to justify a reduced amount of property insurance for the 4S NPF are undertaken as
part of the 4S design certification process and the licensing of the Galena 4S NPF.

24