A major creditor of the Washington Public Power Supply System yesterday proposed that federal funds be used to pay off $2.25 billion that the Pacific Northwest utility borrowed to build two canceled nuclear power plants.

Shearson-American Express Inc. suggested the Bonneville Power Administration -- a government agency that markets electricity from federal dams in the Northwest -- be given permission by Congress to lend $1.5 billion to WPPSS.

Without some kind of federal aid or massive increases in electric rates, WPPSS might have to default on its bonds, causing a major disruption in the municipal bond markets and jeopardizing the savings of thousands of individuals and the investments of institutions, warned Alber Bellas, senior executive vice president of Shearson-American Express.

"We want the federal government to recognize that they do have an emergency here," said Bellas.

The plan was approved yesterday by the representatives of WPPSS companies at a meeting in Vancouver, Wash. Shearson was directed to spend 30 days refining the proposal and then to move to implement it.

Shearson proposed that WPPSS produce a new financing vehicle which would be sold to the publicly financed Bonneville Power Administration. Proceeds from the sale would be invested and the income would be used to pay off the original debt, easing the burden on the municipal utilities involved in WPPSS.

Ultimately, according to the Shearson proposal, the 88 local utilities that participate in WPPSS would repay the principal and interest on the debt. In the meantime they would be spared the necessity of making annual payments on the $2.25 billion debt. To do so would require huge increases in the relatively low electric rates charged by many of the participants.

The federal bailout plan would require congressional approval. Sources said yesterday that is likely to be difficult.

"We want to go to Washington and meet with the congressmen and give them the full presentation we've presented here," said Bellas. "We think as they become more familiar with the situation they will see the urgency of it."

The problems confronting WPPSS (often pronounced "whoops" in acknowledgement of its troubles) started with huge cost overruns that forced abandonment of two of five nuclear plants the system had planned to build. When the plants were abandoned, $2.25 billion had already been spent on them.

The debt on those two units was not guaranteed by Bonneville, which has guaranteed bonds for the three other plants which are still under construction.

"We haven't seen the plan and no formal proposal has been made," Bonneville spokesman Ed Mosey said yesterday. The issue is not yet "ripe for consideration," he said.

Bellas denied that any other federal agency would be asked to acquire the debt from Bonneville. There were reports last week that the Federal Home Loan Bank would be asked to participate in the financing.

The new debt issue would be sold to Bonneville for $1.5 billion, $1 billion less than the total debt. The difference would be made up by the money earned by investing the $1.5 billion.

Shearson is a major holder of the WPPSS bonds; the holding amounts to less than 1 percent of Shearson's portfolio, Bellas said. "Every major institution bought these bonds. It was the largest municipal issue in the nation," he said. "But most of them were sold to individuals."