Financial History 141 Spring 2022 - Page 23

Collection of Museum of American Finance
Uncancelled WWPPS bond series 1980a for Nuclear Projects Nos . 4 and 5 .
“ tight but attainable .” Yet , they were reluctant to adjust the budgets to account for certain tangible events that guaranteed higher costs and / or construction delays , e . g ., the breakdown of a specific piece of equipment that required both the added cost and the time delay of replacing it .
It is apparent that outside events also affected the costs and progress of construction . The WPPSS staff told a United States Senate Committee examining the budget problems that changing regulatory requirements in a world dealing with the near disaster at Three Mile Island and problems at other nuclear power plants throughout the country accounted for 50 % of the projects ’ cost overruns in their first four years . The rising interest rate environment was yet another problem . In February 1977 , the WPPSS paid a rate of
5.93 % on its tax-exempt bonds . Because rates rose steadily during the next several years , it had to pay 11.77 % for the issue it floated in March 1981 .
Some troubling concerns were not addressed . The investors considering the municipal bonds WPPSS issued from February 1977 to March 1981 had access to only incomplete information about power needs , cost estimates and state-of-construction updates . Then-existing disclosure requirements for the bonds ’ offering documents did not obligate the underwriters or their counsel to validate the reasonableness of PNUCC ’ s estimates or the accuracy of the WPPSS ’ s cost calculations . Nor did they require them to insist on the inclusion of some outside consultants ’ concerns about certain factors that could negatively affect the projects . Two specific issues were not fully examined : 1 ) only 72 of the 88 utility participants had signed a Participant ’ s Agreement , and 2 ) no legal authority had opined on the legitimacy of that agreement .
In May 1981 , the problems described caught up with WPPSS . The relatively new Managing Director Robert Ferguson was forced to cancel a proposed $ 200 million bond sale . After he released a new estimate that it would cost almost $ 12 billion to complete WNP-4 and 5 , he found it necessary to urge the Board to impose a construction moratorium . In January 1982 , WPPSS terminated the projects ; WNP-4 was 24 % complete , WNP-5 was 16 % complete .
As noted earlier , many of the region ’ s utilities were implementing meaningful rate increases from the BPA to cover the higher-than-anticipated expenses of building WNP-1 , 2 and 3 . Now they were facing the much larger expenses of paying their share of the interest ($ 5 billion ) and principal ($ 2.25 billion ) on the bonds sold to finance WNP-4 and 5 . They tried unsuccessfully to convince the region ’ s non-participating utilities , the BPA ’ s industrial customers and the BPA itself to share that burden .
In May 1982 Chemical Bank , acting as trustee for the WNP-4 and 5 bondholders , sued the utilities that had signed the Participant ’ s Agreement to force them to begin fulfilling their interest and principal obligations on schedule , i . e ., one year after the January termination dates . Six months later , a trial court upheld those agreements and set July 1983 as the date of the utilities ’ first payment of interest to the bondholders . However , in June 1983 the Washington Supreme Court ruled that the public utility districts and electric cooperatives in that state did not have the statutory authority to enter those Participant ’ s Agreements . Further , it ruled that the Agreement did not obligate any signer to purchase electricity , but to commit to buying a power plant ’ s capability . It committed the signer to guaranteeing a revenue bond for a facility that the utility did not own . And it did not impose a duty to pay for a terminated project .
In August , the participating utilities refused to forward the funds for the semiannual interest payments on the WNP-4 and 5 bonds to WPPSS , causing the consortium to announce what at the time was the largest municipal bond default in the country ’ s history .
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