Friday, May 14, 2010

Liabilities Both Oily and Atomic

Price One of the issues of the oil spill in the gulf has been the issue of liability – that is, how much on the hook should BP, in this case, be for the spill. Currently the figure is $75 million. Here’s what’s been proposed:

Bill S.3305, the "Big Oil Bailout Prevention Liability Act" would cap BP's liability at $10 billion, even if damages from the gulf oil spill surpass that figure.

Sen. Robert Menendez (D-NJ) introduced this in the Senate with 14 co-sponsors. The description above is a bit inaccurate: the legislation is not specific to BP but simply amends the Oil Pollution Act of 1990 to raise the amount as stated. In any event, it has now been blocked by Sen. Lisa Murkowski (R-Alaska). Why?

It would be impossible or perhaps close to impossible for any energy company that is smaller than the super majors, smaller than the national oil companies, to operate in the O.C.S. [outer continental shelf]

$10 billion in strict liability would preclude their ability to obtain financing, to obtain the bonds, or insurance for any exploration. And look at who is producing in the offshore: It's the independents.

Menendez begs to differ, of course, but you can read more at the link if you want to stake out a position.What interested us was that $10 billion figure. Where did that come from? Might it have been from the Price-Anderson Act?

The Price Anderson Act - the world's first comprehensive nuclear liability law - has since 1957 been central to addressing the question of liability for nuclear accident. It now provides $10 billion in cover without cost to the public or government and without fault needing to be proven. It covers power reactors, research reactors, and all other nuclear facilities.

It was renewed for 20 years in mid 2005, with strong bipartisan support, and requires individual operators to be responsible for two layers of insurance cover. The first layer is where each nuclear site is required to purchase US$ 300 million liability cover which is provided by two private insurance pools.  This is financial liability, not legal liability as in European liability conventions.

The second layer is jointly provided by all US reactor operators. It is funded through retrospective payments if required of up to $112 million per reactor per accident collected in annual installments of $17.5 million (and adjusted with inflation).

According to the report from the World Nuclear Organization:

More than $200 million has been paid by US insurance pools in claims and costs of litigation since the Price- Anderson Act came into effect, all of it by the insurance pools. Of this amount, some $71 million related to litigation following the 1979 accident at Three Mile Island.

That’s not peanuts, but consider that the BP spill is likely to outstrip it by a fair margin – at present, the estimate is about $450 million just for the clean up. If there are multiple claims against BP, the sky’s the limit.

A variation of Price-Anderson ought to appeal to both Sens. Menendez and Murkowski, as it removes the liability burden from the taxpayer and back to the vendors - but not in a way that damages the independents that worries Murkowski because the contributions to the insurance pool can be scaled to company size yet still cover them all.

In a way, this is even more appropriate for the oil business because oil drilled in coastal water essentially belongs to the people, not to the oil companies and it is the oil companies not the people who directly profit from it.

So there you go – the nuclear industry points a direction that might work equally well for the oil industry.

Rep. Charles Price (D-Ill.) (1905-1988) served on the Joint Committee on Atomic Energy, among others, during his 44-year (1944-1988) Congressional career. The Price Anderson Act is named for him and co-sponsor Rep. Clinton Anderson (D-N.M.) (1895—1975). Anderson served from 1949 to 1973.

1 comment:

Fred said...

May I refer you to BP's 1Q earnings?