Maybe the situation has changed, from what you imply here, but I don't think it is an area for another hearing.

Mr. VICTOR. Mr. Chairman, may we submit our reasons for stating that the nuclear merchant ship is here and being supported in other areas?

Representative HOSMER. You might submit it but we will reserve a decision whether to stick it in the record or not because it is a little extraneous to the Price-Anderson issue.

We will just assume that merchant ships are good and Price-Anderson coverage ought to be extended to them, but that there are numerous other problems that will have to be dealt with separately. [Material later submitted follows:]

A BRIEF STATUS REPORT OF THE U.S. NUCLEAR MERCHANT SHIP PROGRAM On April 26, 1974, the Maritime Subsidy Board of the Maritime Administration (MARAD) had published in the Federal Register a notice stating the intent of MARAD to consider the award of construction-differential subsidy for the purpose of building nuclear powered merchant vessels to be operated in the foreign commerce of the United States. The notice requested written expressions of interest from persons, firms or corporations having an interest in applying for such subsidy.

This notification of intent to subsidize nuclear merchant ships is another milestone in the MARAD nuclear ship program. In April 1974, MARAD submitted its second PSAR in a little over one year to the Directorate of Licensing (DOL) of the U.S.A.E.C. requesting a review of the MARAD standardized 120,000 shp nu. clear propulsion system for ultra large crude carriers (ULCC). DOL's review of this documentation is scheduled to be completed late this year with a statement of licensability by the ACRS in early 1975.

These recent and significant activities by MADAR are indicative of the continuing progress in the present MADAR nuclear ship program. This program started late in 1969 with an evaluation of future ship needs and the potential competitiveness of nuclear power for ship propulsion as horsepower needs continued to grow to move ever increasing tonnage at higher speeds. These early evaluations, coupled with escalating fuel oil prices, gave clear indications that nuclear power would be a very competitive propulsion system candidate in the decade of the seventies.

Economic evaluations completed prior to the November 1973 oil embargo, when ship fuel oil was approximately four dollars a barrel, gave clear economic incentives for nuclear ship propulsion in the 100,000-ton ship range. Today, ship fuel oil is at twelve dollars a barrel and even the most skeptical evaluators must concede an economic dominance for nuclear ship propulsion at these prices.

MARAD and the Babcock & Wilcox Company, under contract to MARAD as its reactor designer and manufacturer, have always noted that economic viability was a necessity for a successful program, but there were other major factors to be considered. Factors such as the continuing engineering and proof tests for this first-of-a-kind endeavor; participation by other qualified industrial organizations such as shipyards and machinery suppliers; and the resolution of the complex issues of licensing, indemnification, port entry, environmental requirements, financing, and others. These factors are being addressed by MARAD and B&W is working in the U.S.A. with some of our most qualified shipbuilders and machinery suppliers. Major oil companies and independent ship operators have given greatly of their time in economic evaluations, operational guidance, and ship design reviews.

The MARAD program status is such that with a favorable review of the PSAR by the AEC early next year, and with further consideration and action regarding ship indemnification, it is very possible that a three ship contract with appropriate subsidy could be signed by the end of the next fiscal year, i.e., June 30, 1975.

Representative HOSMER. Mr. Ramey?

Mr. RAMEY. I have a couple of questions.

35-903-75-pt. 2- -12

In your discussions on the desirability of mandatory coverage of plutonium facilities under Price-Anderson if such were to occur and if these licensees were included, as you suggest, would it be your view that they should be subject to a retrospective premium in the event of a nuclear incident involving a power reactor? In other words, that they would be pooled with the power reactors as a part of that whole system?

Mr. VICTOR. I will let Mr. Edgar answer that one.

Mr. EDGAR. I believe that will depend on the level of financial protection required for that particular fuel fabricating facility.

As I understand it, in the fuel reprocessing area, the AEC has made determinations as to the level of financial protection required. As we read the Act, it is contemplated that the AEC would set up the retrospective assessment program and define the ground rules for that program.

The fuel fabricating would be in the retrospective premium assessment plan if the maximum financial protection is required.

Mr. RAMEY. IS private liability insurance readily available to licensees of plutonium fabrication facilities?

Mr. VICTOR. We have been able to get it; yes.

Mr. RAMEY. That is all, Mr. Chairman.

Representative HOSMER. Gentleman, thank you very much.

Our next witness is Prof. Gerald R. Hartman, School of Business Administration, Temple University, Philadelphia.

STATEMENT OF GERALD R. HARTMAN, PH. D., F.C.A.S., C.P.C.U.. C.L.U., PROFESSOR OF INSURANCE AND RISK, AND DIRECTOR OF THE PROGRAM IN ACTUARIAL SCIENCE, TEMPLE UNIVERSITY, PHILADELPHIA, PA.

Dr. HARTMAN. Thank you.

Good morning.

Thank you for the opportunity to appear before you today.

I especially appreciate the opportunity because if the arguments of today's previous witnesses are carried to their logical conclusion, I feel they will support the proposal I am about to make to you.

My name is Gerald R. Hartman.

I am a professor of insurance and risk, and director of the program in actuarial science, at Temple University in Philadelphia, Pa.

I have been employed by the AEC, as an insurance consultant, for the purpose of assisting the AEC in its assessment of Price-Anderson and its alternatives, on an intermittent basis since July 1973.

Although it was this employment that gave me the opportunity to delve into the subject of these hearings, I must emphasize that I testify today strictly as a private citizen.

I sincerely believe that my remarks here today reflect an objective, reasonable, and knowledgeable assessment of Price-Anderson, and that any bias I may have regarding assessment of nuclear financial protection is a bias in favor of the best interests of the American public; this is entirely appropriate inasmuch as the primary purpose of PriceAnderson is "to protect the public."

I am not qualified to determine whether nuclear powerplants are safe enough to warrant their existence or whether it is sound public policy to encourage the development of nuclear energy to the present extent. The fact is we do have nuclear power, with its hazardous fuel cycle.

Were the probability of having a nuclear incident one in a million, or even less, there would be a need to provide advanced, adequate, and timely protection to the general public against the economic consequences of such an incident. Is it proper to divert from my prepared remarks?

Representative HOSMER. You may, as long as you don't divert too far. If you do, I will stop you.

Dr. HARTMAN. I would like to comment on some of the testimony made yesterday about the 1 death per year that is contemplated, according to the Westinghouse study, for the operation of 1,000 reactors.

If the chance of a loss were one in a million but that loss would actually kill a million people, you would end up having an average of one death per year. Such reasoning is why I think the type of analysis that Westinghouse did is entirely insufficient for the purposes of determining the risks involved with nuclear powerplants.

The Legislative Drafting Research Fund of Columbia University, under the sponsorship of the Atomic Industrial Forum (AIF), has conducted two significant studies of the issues related to providing all concerned parties with adequate and timely financial protection against potentially catastrophic nuclear incidents.

The first study, financial protection against atomic hazards, was published in 1957; the second, issues of financial protection in nuclear activities was published in 1974.

The first study (p. 52) recommended "unlimited indemnity" to protect the public. Unfortunately, the agreement between the AIF and Columbia, for the second study, did not allow Columbia to make specific recommendations.

However, according to the second study, the primary criterion for choosing among competing policies was "assuring full public com pensation" (pp. 4-5). Furthermore, Mrs. Laurie Rockett, the project director for the second study, testifying before you on May 10, 1974, as a private citizen, also recommended "unlimited indemnity." The Joint Committee on Atomic Energy apparently has been reluctant to embrace the concept of "unlimited indemnity" for a number of reasons. In fact, it has been said that merely increasing the present limit of liability would be an admission that nuclear power is not as safe as it was once thought to be.

To allow such fallacious reasoning to prevent the public from obtaining more adequate protection would be outrageous. Inflation alone is sufficient reason for raising the limit to at least $1 billion.

I would like to depart from my prepared testimony to refer you to pages 449-451 of the selected materials on atomic energy that was published this year by the Joint Committee, because I believe this supports my view.

This short paper indicates that at least $3 billion of protection would be appropriate and, based upon

Representative HOSMER. Whose paper is that?

Dr. HARTMAN. Warren H. Donnelly from the Library of Congress in what I call the aborted update of the first study that led to PriceAnderson, that one of the witnesses testified about yesterday, it was indicated that in 1965 the potential damages were some 40 times greater then than they were in 1957. This alone would increase your current limit to over $22 billion.

That study didn't take into consideration the effects of inflation. That increase was strictly due to the increased size of the powerplants. Representative HOSMER. Professor, you are an actuarial expert, you are not a nuclear reactor expert, and I think we will accept your testimony with regard to the quantification of possible losses in that

context.

Dr. HARTMAN. If I may say, I am quoting an AEC document as to the magnitude of the potential loss.

Representative HOSMER. You are quoting from a compendium of a lot of things. We are trying to arrive at some estimate of what the facts are here in this committee by accepting a lot of diverse views. To take one document out of many, and out of that the particular conclusion must not be taken out of context but taken in context with the entire knowledge that is presented.

Mr. RAMEY. I think you are on awfully shaky ground if you take the 1965 study which was still at the sort of laboratory level, which is an extremely preliminary thing and never even got up to the staff level, as a basis for predictions on risk of loss from accidents.

Dr. HARTMAN. Mr. Ramey, if I may, I would like to say that these studies indicate what could happen. I don't believe they indicate what will happen-only what could happen, and that is the reason for these hearings on Price-Anderson, to protect against the unlikely

occurrence.

The circumstances that led to my testifying as a private citizen today relate to this type of matter.

How many years have gone by without a comprehensive update being published by the AEC with the figures being presented to the public? It has not been done. The reason, in my opinion, is that the AEC is afraid that the public will be frightened by the figures.

Mr. RAMEY. I think again, if I may point out-and I am sure you must be aware-the Commission has had a study under way for the last year and a half. We will be having testimony on that study tomorrow morning. It is expected to be published for full review within a month or two.

Dr. HARTMAN. I am glad to hear that.

Mr. RAMEY. It is intended, you know, to be a very authoritative study.

Dr. HARTMAN. That type of study should provide substantial foundation for this committee.

Representative HOSMER. At least it will settle some of the dust.

Dr. HARTMAN. But it is on probabilities, as I understand it, not on severities. The purpose of the act is to protect against the unlikely severe accident.

But, if I may, I will go back to my prepared statement.

Another reason for not removing the limit is the undesirability of the Federal Government assuming a potentially unlimited liability. Presently, however, of the four principal groups affected by Price

Anderson-nuclear industry, private insurers, the public, and the Government, all have a limitation on their liability except the group most vulnerable to loss and least able to accept financial responsibility, that is, the segment of the general public that actually is damaged should a catastrophic nuclear incident occur.

The most recent Columbia study listed three other criteria by which acceptable solutions to the financial protection problem should be judged. These are maximum spread of risk, avoidance of externalization, and avoidance of undue costs.

A properly devised scheme for unlimited aggregate liability and indemnity would meet each of these criteria.

The maximum spread of risk and avoidance of undue costs would be achieved through Government participation via an excess layer of reasonably priced Government indemnity, which would be subject to modified tort law.

Specifically, I am proposing the following, and it seems you need catch phrases these days, so I will call this the multiple protection plan because I have several layers of protection involved with it. First, there be established a primary layer of no-fault-and I use that in the sense of the waiver of defenses that presently exist under Price-Anderson-a primary layer of no-fault limit of liability.

Second, there be no aggregate limit for the secondary layer which would be based upon modified tort law.

Third, the tort law applicable to nuclear incidents be modified so that an individual's losses above his prorated share of the primary layer of no-fault coverage would be subject to certain limitations such as percentages of both wage and actual cash value property loss and prohibition of punitive damages and damages for pain and suffering. Also, the collateral source rule should be inoperative.

The limitations on liability to individuals should make removal of the aggregate limit of liability palatable, because this should make it more financially feasible to guarantee in advance of a nuclear accident and this is what I think is a key issue-that all injured parties would be compensated for most of their economic losses.

Fourth, the primary no-fault layer of protection should be set, on a dynamic basis, at the greater of (1) an amount equal in current purchasing power to that provided by $560 million in 1957; and (2) an amount equal to the basic layer of private insurance protection plus the amount provided by the secondary layer of insurance protection, which would be based upon a reasonable and reasoned retrospective premium arrangement.

Fifth, the primary no-fault layer of protection would be provided by the primary and secondary layers of private insurance, or their equivalent as presently provided in Price-Anderson, and, if necessary, by primary Government indemnity when the first standard for determining the no-fault limit of liability is applicable.

In other words, if the AEC were to set their standard on the retrospective premium and that amount plus the basic amount of insurance. protection provided by the insurance industry were less than an amount equal to the current equivalent of $560 million in 1957, then the Government indemnity would drop down to pick this up.

Sixth, the unlimited aggregate excess modified tort liability would be provided by a secondary layer of Government indemnity. This