Threatened by a colossal bond default that could kill development projects throughout the Pacific Northwest, government officials and utility executives are making a last-ditch search for a way to pay off $7 billion in debt on two defunct nuclear power plants.
The Washington Public Power Supply System, responsible for building five huge nuclear plants in Washington, had expected by now to be broke and technically in one of the largest bond defaults in U.S. history. But a self-imposed construction slowdown on one of the three remaining plants and a temporary $30 million windfall in a court case have put off the final reckoning for at least two more months.
Washington Gov. John Stellman, however, has pointed out that a bailout may require action by the state legislature, which is due to adjourn in two weeks. He has called together representatives of the banks, utilities, and federal and state agencies for one last effort to solve the complicated financial tangle surrounding the supply system, known here as WPPSS, or "Whoops."
Amid nationwide debate over nuclear power plant safety, the supply system's problems illustrate a more formidable hurdle for the nuclear industry--rising construction costs and growing consumer impatience with high electric bills at a time when conservation and the industrial recession have cut into demand. A major bond default here would give powerful ammunition to activists trying to kill nuclear power projects in other parts of the country.
And if default here is to be avoided, it will mean spreading the $7 billion debt around the region in the form of higher electric bills for consumers whose rates already have doubled and tripled.
Stellman's press secretary, Paul O'Connor, said the negotiators have not revealed which of several suggested solutions are still under discussion, but much of the talk has concerned a plan offered by the utilities to create a new, state-supported nonprofit corporation that would pay off the debt on the two defunct nuclear plants by investing in the three that remain alive.
The Bonneville Power Administration, which is the federal agency backing the bonds on the three remaining plants, also has suggested spreading the debt over the region by having larger utilities assume some of the debt imposed on hard-pressed smaller utilities. Mismanagement in WPPSS, gigantic nuclear plant construction cost overruns, a less-than-expected increase in demand for electricity and inflation have combined to push Northwest utilities and several small municipalities to the edge of financial disaster.
When two of the nuclear power plants were canceled with construction well under way, the $7 billion in principal and interest on the bonds suddenly became due. The 88 member utilities of WPPSS faced either paying for plants they never could use or undergoing a bond default that would make it very difficult to borrow money for other development projects.
WPPSS spokesman Gary Peterson said the Stellman discussions have produced "a number of positive signals." The Washington Association of Public Utility Districts, the utilities' lobby group, has won endorsements for its "debt reduction" plan from the Grange and the state labor council. But even if the state legislature supports it, the plan still needs the cooperation of utilities in Oregon, Idaho and Wyoming, utilities that have been told by one court that they need not help repay the debt.
The effort to avert default has floundered in a rising tide of lawsuits involving the WPPSS, the utilities, the BPA and a citizen's group, Don't Bankrupt Washington, which led a successful ballot-box revolt limiting further borrowing for nuclear construction. A court restraining order in one of the suits kept WPPSS from collecting any money from its utility members for several weeks. That order was rescinded last Thursday, and the supply system billed 65 utilities for a total of $30 million. The bills must be paid in 10 days, according to the supply system.
Investors note that only bonds for two of the plants, known as No. 4 and No. 5, are threatened by default. The bonds for plant No. 1, now delayed for at least five years, plant No. 2, scheduled to go into commercial operation next year, and plant No. 3, under a temporary construction slowdown, are backed by BPA, a federal agency that investors consider exempt from default.
One Wall Street expert, Eileen Titmuss, said, however, that efforts by creditors to attach the assets of plants No. 4 and No. 5 could affect funding for the other three plants and force a demand for extra federal outlays that Congress might not approve.
The utility lobbying group's plan to prevent default would create a $1 billion nonprofit corporation that would use existing Supply System capital, plus other money borrowed at low, government-guaranteed rates of between 5 and 10 percent, and use it to invest in the remaining three plants at interest rates of 13 1/2 percent. The profits created by the difference in rates would be used to pay off the debts on plants No. 4 and No. 5.
Marc Sullivan, state coordinator of the Don't Bankrupt Washington Committee, complained that the utilities' plan in effect would require electricity users to subsidize the supply system. He estimated that electricity users in the area would pay an extra $45 million a year and federal taxpayers an extra $12 million under one version of the public utilities "debt reduction" plan.