Financial History 141 Spring 2022 - Page 22

Artist ’ s concept of the Washington Public Power Supply System ’ s 1,100 megawatt nuclear power plant , Hanford Number Two .
never produced electricity . Many utilities balked at doing so . Even without those commitments , in August 1974 the WPPSS sold $ 15 million worth of short-term notes and began doing the preliminary work on the projects .
Throughout the next two years , it seemed that neither BPA Administrator Donald Hodel nor WPPSS Managing Director J . J . Stein shared the public ’ s growing concerns about the need for , cost or environmental problems associated with nuclear power plants . In June 1976 , Hodel warned the region ’ s utilities that by mid-1983 the BPA might not be able to meet their individual requirements for power if they did not participate in WNP-4 and 5 . Some still refused to sign a Participant ’ s Agreement until they could more definitively ascertain their likely proportion of the power plants ’ output and , thus , their potential financial liability in the event of their failure to be completed or produce electricity . But within a month , 88 utilities and cooperatives from six states across the Pacific Northwest had signed on to the projects .
In February 1977 , WPPSS floated a
$ 150 million bond issue to accelerate construction of WNP-4 and 5 . During the next four years , it conducted 14 more bond sales , raising to that point the entire $ 2.25 billion expected cost of the projects . Most analyses of WPPSS ’ s failure to complete WNP-4 and 5 identify serious problems with the information presented to the investors buying those securities . The bonds ’ offering statements consistently published overstated estimates of the Pacific Northwest region ’ s demand for power and understated estimates of the projects ’ costs . Further , they did not reflect certain significant facts and situations that could have had a negative impact on the sale of the bonds .
The forecasts of demand were greatly overstated . As noted earlier , WPPSS committed to building WNP-4 and 5 in 1974 in order to help meet the expected demand for power described in the BPA ’ s Ten-Year Thermal Program . The PNUCC created those forecasts . In doing so , that trade group of the region ’ s utilities did not conduct any rigorous type of econometric modeling . Indeed , all it did was rather naively collect and report the individual forecasts of more than 115 customers of the BPA . In 1974 , PNUCC forecasted average power requirements for the region in 1981-1982 of 19,199 megawatts . In 1977 , it reduced that forecast to 17,789 megawatts . In 1981 , it released another updated forecast of 16,105 megawatts . Subsequent analysis showed that the actual usage for 1981-1982 was 15,105 megawatts . Thus , PNUCC ’ s initial estimate exceeded actual usage by more than 4,000 megawatts , suggesting that the construction of WNP-4 and 5 might not have been necessary had its forecasts of the region ’ s power needs been more rigorously determined .
The estimates of construction costs were greatly understated . In 1975 , WPPSS ’ s management published a budget showing the estimated costs of building WNP-4 and 5 at $ 2.25 billion . Before the system floated its first bond issue , however , management raised that estimate to $ 3.56 billion . As had been the case with WNP-1 through 3 , management ’ s inexperience in overseeing large , complex projects was behind many cost overruns and construction delays . They admitted to purposely keeping the cost estimates
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