In what appears to be a self-serving decision for Washington state, its supreme court delivered an adverse ruling regarding the validity of the contractual agreements between the Washington Public Power Supply System and some of the 88 participating utilities.

The devastating ruling absolved the Washington municipalities and public utility districts from their "take or pay" contractual agreement to service the debt on $2.25 billion worth of bonds for the construction of WPPSS nuclear projects No. 4 and 5.

Eileen Austen, a savvy municipal analyst who has followed the situation for Drexel Burnham Lambert, feels that the decision will have several effects. First, she feels that default becomes a virtual certainty.

However, default may not come until January, as funds are available with the trustee to meet the July interest payments. Second, there will be increased pressure on WPPSS to file for Chapter 9 bankruptcy. If this occurs, all five projects will be forced into bankruptcy, which cannot be entered into by the individual projects.

Next, Austen feels that the prospect of WPPSS obtaining financing to complete project No. 3 has been rendered virtually nonexistent.

Fourth, other joint action agencies--two or more utilities combined to provide cost-effective electric power--are going to feel the impact of the court's decision in the marketplace.

Finally, and extremely important, Austen thinks that there is a possibility underlying all of this that the security behind the bonds of projects No. 1, 2, and 3, could also be affected. She refers here to the Springfield, Ore., lawsuit in which the validity of the "net billing" agreements was challenged.

The district court ruled that these agreements were valid and enforceable. However, in light of the state supreme court's ruling, the decision of the district court will probably be appealed, and the potential challenge to the validity of these "net billing" contracts is not yet removed.

In light of the above, Austen feels that besides holding one's breath, investors should sell bonds of projects No. 1, 2, and 3, and as far as 4 and 5 go, it's already too late. Investors could use the losses to offset profits in equities or other areas.

The Treasury market led the bond markets last week with a strong performance until Friday. This was a situation where technical forces, led by technicians and chartists, plus a boost from the likely reappointment of Federal Reserve Board Chairman Paul A. Volcker, overcame the strong fundamental forces of supply, a strong economy and rising monetary aggregates. In fact, strong buying resulted when the long bond traded down near the bottom of its trading range--94 1/2 or 11 percent. Buyers were hoping that prices would advance back to the top of its trading range--101 1/2 or 10.20 percent.

The Treasury will offer three issues this week in its end-of-quarter financing. A four-year note will be auctioned on Tuesday, a seven-year note on Wednesday, and a 20-year bond on Thursday. These issues will come in minimum denominations of $1,000 and should return 10.45 percent, 10.70 percent, and 11 percent, respectively. They may be subscribed to at no charge, at any of the Federal Reserve banks or at the U.S. Treasury in Washington, D.C.