Going Down

WPPSS heads toward default

With its hard-luck history, the Washington Public Power Supply System (WPPSS) has richly earned the unhappy nickname of Whoops. Construction on three of the five units in the state system's massive nuclear-power project has either been postponed or canceled, and a fourth unit is endangered. Last week things got even worse. The Washington State Supreme Court unexpectedly ruled that nearly 30 public utilities did not have to pay their share of the $2.25 billion owed WPPSS for building costs. The decision pushed the system a step closer to the ultimate whoops!--the largest municipal default in history.

Donald Mazur, managing director of WPPSS, called the court decision "devastating." He said he still expected work on the last fully active power project, which is 97% completed, to be finished in September. But $149 million more is needed, and the money is nowhere in sight.

The local utilities had agreed to help finance construction of nuclear plants 4 and 5 under contracts that obligated them to pay for the reactors whether or not they produced electricity. When work stopped more than a year ago because of escalating costs and an inability to get more financing, the utilities refused to pay and declared the agreements invalid. The state supreme court went along. It ruled that the utilities did not have the authority to enter into the accords in the first place, because they were putting their ratepayers at risk for the construction costs.

WPPSS is now $8.3 billion in debt and has no visible source of income. A Washington State judge temporarily saved it from default on May 31, when it failed to make a $15.6 million monthly interest payment, by issuing a temporary injunction. But after last week's court ruling, Washington State Senator Al Williams conceded: "Default is now pretty much assured, and bankruptcy is more likely." Barely enough money is being held in a reserve account to pay interest charges of $93.7 million that come due July 1. After that, the cash will be gone.

A failure by WPPSS would severely rattle the $400 billion municipal-bond market by driving down prices and raising borrowing costs for state and local governments. It would be particularly rough on the Pacific Northwest. Says Tim Kerr, deputy treasurer of Washington State: "We will see some very high interest rates."

It would seem that only the Federal Government can save WPPSS now, but there has been little movement toward a Chrysler-style bailout. Congressman George V. Hansen of Idaho has introduced a bill to raise $5 billion to buy back the bonds and pay off bondholders. But the bill is not given a chance of consideration until WPPSS actually defaults. Since that could happen as early as this week, Hansen may not have long to wait. This file is automatically generated by a robot program, so viewer discretion is required.